Does the Ombudsman really hold HMRC accountable for its mistakes?

Earlier this month Juliet Roche Deputy Director RIS COIR at HM Revenue and Customs posted a personal opinion in the form of an open letter on LinkedIn that was a response to complaints made by agents about "how awful" HMRC are. In her letter Juliet stated that "the Adjudicator, the Ombudsman, your MP....are the ways HMRC are held to account" and that "these are your safeguards and rights".

But is that true?

In July of 2022 I made a very serious complaint to HMRC which, with the support of my MP Sarah Greene, was eventually examined by the Parliamentary and Health Service Ombudsman (The Ombudsman) in May of 2024. By the time of the Ombudsman's ruling in June of 2025 the process had taken three years. For those who are interested in the full background The New Statesman published an article The Taxman the Record Shop and the Missing Billions which details how I ended The Channel Islands VAT free mail order industry, a trade that relied on the abuse of an import VAT relief called Low Value Consignment Relief (LVCR). I am eternally grateful to Will Dunn for taking the time to write this article which has been immensely helpful in exposing this issue to a wider audience.

I had absolutely no expectation that the complaints process would yield a coherent result not least because no explanation has ever been offered as to why the Channel Islands were permitted to abuse LVCR for so long. I am not alone in this view. Tim Lyon QC, who is a respected VAT expert, wrote in The British Tax Review in 2012:

“Some traders may well ask if, as HMRC have said, it was never intended that the LVCR should be exploited in the way that it was, and the Government has had power to prevent the abuse, “why did the UK wait to act until 2012?”.

In the following response to Juliet Roche's open letter I examine both the background to the complaint and the outcome and leave the reader to decide whether HMRC was held to account.

Dear Juliet

I am not an “agent” but I felt compelled to respond to your “open letter” addressing complaints on social media about “how awful” HMRC is, and stating that HMRC can be held to account for failing to safeguard the rights of the individual taxpayer and the wider public. I will endeavour to respond constructively, in keeping with the spirit of your open letter. 

In 2005 I had been running a successful online music mail order business for over a decade. Two years earlier in 2003 I had been approached by a Jersey based logistics company with a scheme that offered my businesses the "opportunity" to avoid paying VAT. The logistics company explained to me that if I set up arrangements to fulfil my UK customers’ orders via Jersey, I could take advantage of an exemption from import VAT called Low Value Consignment Relief (LVCR).  Anything with a value of £18 or less (later £15) would then be exempt from VAT on importation into the UK. Since pretty much everything I sold fell within that threshold I wouldn’t have to account for VAT on sales to my UK customers.  The only caveat was that I had to set up a company in The Channel Islands and pretend to be running it from there. Furthermore, if a customer ordered multiple items and the total value was above the LVCR threshold the order would have to be split, and each item sent individually to claim the exemption.

When I looked at what I was being offered, I believed that the arrangement crossed from avoidance into evasion because it appeared to require numerous misrepresentations on my part such as lying about where I ran my business from. Splitting up orders not only generated large amounts of wasteful packaging, but it was obviously an abuse of the exemption. I wasn’t prepared to be dishonest and so I declined to avail myself of the “opportunity”. I also took the view that the arrangement would be shut down by HMRC given it was so clearly abusive. The last words of the Jersey logistics company to me were “you’ll regret it…you won’t be able to compete”.  

By 2005 the VAT dodge was continuing, and I could see it was impacting the sales of my business which had to account for VAT. I then decided to report the issue at the highest possible level within HMRC. Having managed a band on a major record label and run a music retail operation for over a decade, I had a very good knowledge of the music industry. I was able to place test purchases with retailers operating via The Channel Islands and could identify that all the items being sold were being sourced from UK record labels and distributors. Additionally, I ran a record label, and the Channel based companies were obtaining my own releases from my distributor and selling them back into the UK VAT free undercutting my customers and me. You literally couldn’t make it up!

In the spring of 2006 with the help of my then MP Cheryl Gillan, I personally handed to HMRC officials in Whitehall a dossier explaining how UK sourced CDs and DVDs were being sent from the UK to the islands and back again, which retailers were involved and how they were splitting orders to gain the exemption. Numerous test purchases were enclosed including releases from my own record label.

After I handed over the dossier, I fully expected someone from HMRC to contact me and ask further questions. However, that didn’t happen.  By the Autumn of 2006, as widely reported in the media at the time, virtually every UK music mail order operation of any note had set up fulfilment via The Channel Islands, including the UKs most important music retailer HMV. This was because of a huge market distortion caused by the ongoing trade. It was no coincidence that the standard maximum retail price for CDs and DVDs had become £17.99, one penny below the LVCR threshold. As an online retailer I found myself almost alone on the UK mainland paying VAT but unable to compete on the exact same products being sold by competitors utilising the arrangement. I was always 20% more expensive. Worse than that, because I had become well known as the retailer who had stood up to the trade I couldn’t possibly move my business to The Channel Islands, even if I wanted to.

Because I was well connected in the music industry I knew the distributors in the UK who were supplying goods to retailers utilising LVCR. They were only doing so because by the Autumn of 2006 their biggest UK customers were now operating fulfilment arrangements out of the Channel Islands. However, they were not happy with the situation as they could see their UK VAT paying mainland accounts going out of business at an alarming rate, due to the VAT free competition from the Channel Island retailers. Even though CD mail order sales were increasing, hundreds of UK music retail outlets were unable to compete with those not accounting for VAT. Furthermore, the VAT dodge was spreading and anything with a value below the LVCR threshold was being sold from the islands. The full story of the impact on UK music retail is contained in Graham Jones excellent book Last Shop Standing – Whatever Happened to Record Shops?    

I was able to convince one of the directors of a major UK music distributor to provide intelligence as to how the trade operated and specifically with regards to CDs and DVDs being sent out to the Channel Islands and sent straight back again – a practice known as “round tripping” that had been ruled abusive under EU law. I contacted the Head of HMRCs Anti-Avoidance Group and offered him a meeting with the managing director of the distributor, who would be able to give him and his team chapter and verse on the trade, from the inside. I received a reply which turned down the offer of a meeting and noted that he “did not believe there was anything that we could usefully discuss”. I was to say the least incredulous at this refusal.

Eventually, despite vociferous campaigning on my part and by other retailers, I was unable to end the trade before, in December of 2007, my business of sixteen years collapsed. By this point, having spent two years fighting for survival, I was completely exhausted. I simply could not compete within an online music mail order industry that was now entirely offshore and selling every CD and DVD available in the UK free of VAT. This trade was administered with a Nelsonian blindness by HMRC who appeared to not care that it relied on deception or that it resulted in millions of pounds of VAT being lost for no good reason. In a last-ditch attempt to save my business I made a complaint to the EU Commission, but it wasn’t until 2008 that this complaint was accepted almost a year after my business was forced to close. My complaint was that the UK had failed to prevent LVCR being abused for tax avoidance/evasion purposes, an obligation that is written into EU law. 

After recovering from the ordeal of seeing my business crushed by state sanctioned tax avoidance, I spent a year compiling evidence for the complaint which was completed in 2009. I managed to recruit support for my complaint from almost every trade body in the Music industry; PRS, MCPS, The Music Manager's Forum, The Entertainment Retail Association, and IMPALA. Then in 2010, I was contacted by the EU Commission who informed me of their intention to take the UK to the EU Court, based upon evidence of the abuse of LVCR that I and the UK distributor had provided to them. The Commission referred to an anti-abuse precedent called Halifax, which a momentous dose of irony given that HMRC had been instrumental in establishing Halifax at the EU Court in 2006. The principle that Halifax enshrined outlawed practices that were solely intended to obtain a tax advantage that was contrary to the purpose of legislation. Clearly LVCR was never intended to absolve music retailers of the responsibility to account for VAT on sales of UK CDs to their UK customers simply because they sent them via The Channel Islands – a pointless act of “round tripping” that served no commercial purpose other than to obtain the VAT exemption.   

The Commission sent to me copies of correspondence that they had received from the UK authorities, and in it I was surprised to see information that was factually incorrect. The UK claimed that the trade had been curtailed and that there were only two CD and DVD retailers operating on the Islands. The trade had in fact grown and there were at least four retailers involved. The UK also said that none of these retailers were “round tripping” CDs and DVDs when in truth they all were. I was willing to accept that maybe the department that had responded to the EU was unaware of the true facts, that is until I saw that the letter to the Commission was signed by the same official that I had briefed in 2006!  Again, I found this inexplicable. It was also not difficult to ascertain who was operating out of the Channel Islands since that was a matter of public record. Alternatively, a trip to Portsmouth docks would have confirmed everything.

It was in June of 2010 that I decided to call the Director of Excise Customs Stamps and Money at HMRC. I informed him on the phone that I was the person who had made a complaint to the EU Commission and that the information I had tried to give to HMRC would now be given to the EU Commission instead. This evidence included print outs from the distributors stock system. Test orders for CDs had been placed with a Guernsey based retailer who promptly ordered the CDs from the UK distributor. These were sent to Guernsey and mailed back to the UK by the retailer the following day. This was irrefutable evidence of “round tripping”. I told the Director that based on this evidence I was confident that the UK would lose any infraction proceedings. I also expressed my frustration that I had to take things all the way to the EU because HMRC had refused to look at it. HMRC’s failure to prevent the use of LVCR by UK retailers to avoid VAT had caused serious harm to UK music retail, an industry that I cared about greatly.

The Director said that he would call his officials together and call me back. A week later he rang me to confirm that he had met his officials and that “there was a problem”. This led to a meeting at a secret location in London where the distributor and I briefed HMRC investigators as to exactly what was going on. I recall the meetings were also attended by an individual who claimed to be responsible for LVCR policy within HMRC. What sticks in my mind is that this individual stated that he could understand I was shocked at HMRCs seeming lack of action and he assured me that I did not need to write to anyone else because “everyone knows who you are”. What was obvious at that meeting was that HMRC was not aware of the way in which LVCR was being abused, where CDs and DVDs came from and how they were being sold. The distributor and I spent two full days going through the details with the HMRC officials. I also complained that I was having to do a great deal of work for free. I was given £25 for a rail ticket. 

HMRC has consistently claimed that the LVCR problem was the result of Treasury policy formulated with the Government of the day, and that they had merely implemented that policy. It was however clear from the interactions that I had with HMRC that they were was solely responsible for the operation of LVCR and that allowing "round tripping" was entirely on their watch, indeed the Commission had to point out to them that the tax authority had a responsibility to use administrative and judicial powers to prevent tax avoidance/evasion. I know having seen all the advice notes, that in matters of tax administration The Treasury relies upon HMRC for information. To what degree they colluded I do not know, but I can say with certainty that no political party ever had a policy to allow certain retailers using the Channel Islands to round trip CDs and DVDs in order to avoid/evade VAT. That benefit relied entirely upon what HMRC permitted.

On November 9^th 2011 George Osborne announced the removal of LVCR from Channel Island mail order goods. My phone rang constantly for two days, I was on BBC News and crates of wine and champagne turned up on my doorstep, sent by UK businesses who were simply overjoyed to finally be free of the abusive competition.

In March of 2012 a Channel Islands attempt to thwart the removal of the LVCR VAT exemption from mail order goods by way of Judicial Review, was defeated in the High Court in London. By this point I had created an unincorporated association of retailers impacted by the VAT avoidance/evasion called Retailers Against VAT Abuse Schemes (RAVAS) and at the request of HMRC, RAVAS submitted evidence of the abuse to the court, evidence I spent three months gathering from RAVAS members. This was referenced in the Judgment of Lord Justice Mitting as follows:

“There is evidence from members of RAVAS that this practice [round tripping] has not stopped. It is unnecessary for me to determine the extent to which it continues, if at all. It was, and if it continues is, clearly an abusive practice. I accept, as RAVAS members and HMRC witnesses assert, that it has had a significant adverse impact on the turnover and profitability of some UK retailers in the affected sectors”.

Christopher Vajda QC acted for RAVAS and made a submission that highlighted the failure of the UK to take action and the EUs threat of infraction proceedings. His submission won the case, and it was no surprise to me that, only months later, he became the UK’s judge at the European Court.

It is worth noting the behaviour of HMRC officials towards me during the unfolding of this saga. After the EU Commission told me that the UK was going to end the abuse, I became aware of the Senior Business Manager at HMRC. This was not because this person had contacted me but because over the summer of 2011 they had been giving information to a UK trade body, who then passed that information to me. They had told the trade body that HMRC had met with the EU Commission in April and would be presenting options to the Minister to end the trade later that year. They were “gobsmacked” that the Commission had said that the UK could remove LVCR from Channel Island mail order goods by simply applying existing EU law. I had already told HMRC that EU law permitted the UK to remove Channel Island mail order goods from LVCR, but they refused to do so. I do not know if officials are permitted to give internal information to business interests before it has been seen by a minister, but the information was certainly not being given to me, although I knew about it directly from the EU Commission.

After it was announced that LVCR would be removed from Channel Island Mail order goods I wrote to George Osbourne and complained that I had not been compensated or rewarded for anything I had done and requested a meeting with HMRC. Mr Osborne passed on my request. A week or so later I was sent a letter by HMRCs Senior Business Manager that stated, “we do not think that a meeting would serve any useful purpose”. I then complained to the Director of ECSM who replied“Whilst I understand the difficulties of your situation in these circumstances there is nothing further I can add”. I was also informed by my MP Cheryl Gillan that George Osborne had asked HMRC to meet with me, but officials had refused to do so, and Mr Osborne wanted me to know that.

At some point I was given correspondence by a third party that included comments made by a senior civil servant about me. These comments observed that my “style” did not “tend to endear” me to some of those in Government I came in contact with, and that I was concerned with a subject that very few others had “shown any great interest in pursuing”.  To be honest I was baffled by these comments because they seemed entirely disconnected from reality. Firstly, I was engaged in a struggle to save my family’s livelihood, so was in no mood to play at Yes Minister and secondly the suggestion that few people cared about the issue just showed how few people affected by it civil servants were in contact with.

When the Channel Island abusive trade was finally ended it not only saved Record Shops but according to HMRC, it saved £90m a year in VAT that was otherwise being lost. In my view these figures were downplayed. Based upon the turnover of the retailers involved, music industry trade figures put the loss at £165m for physical music media and that didn’t include all the other goods that were being sent from the Islands including health supplements, flowers, ink cartridges and many other low value items. The losses would have been far less had HMRC listened to me in 2006.

But unacceptable behaviour doesn’t end there. In 2015 I was approached by two retailers, Neven Juretic and Julius Oliveti whose businesses were being impacted by VAT evasion perpetrated by Chinese online retailers. The Chinese retailers were importing goods into UK warehouses (often mis-declaring the value) and then selling them online and not accounting for VAT. The Chinese had no tangible UK presence and any money for sales went straight to China via PayPal. It was textbook VAT evasion on an industrial scale that was losing the UK over £1 billion a year in VAT. I handed a dossier to The Chancellor George Osborne and to the Financial Secretary to the Treasury David Gauke and obtained significant press on the issue including the front page of the Financial Times, a Radio 4 Documentary and an episode of Panorama The Billion Pound VAT Scam. Within days a senior HMRC official approached me at my home address and asked me to attend meetings in Whitehall. I made it clear to him that I was not prepared to work for free again. Despite vague suggestions that I would be compensated for my time, eventually I was told that I wasn’t on “the approved list of consultants”. Then in March of 2017 the Head of Indirect Tax at HMRC wrote a letter that stated I was being considered for a reward along with my colleagues Neven and Julius. However, it transpired that Neven and Julius were each given a £15,000 reward and were told I would not be rewarded. Both handed it back in protest at my exclusion, but I persuaded them to accept it and they insisted on sharing it between the three of us.

£30k sounds like a generous sum of money, but three people worked on the issue for two years producing a website full of data that, as shown by google analytics, was used by HMRC every day for at least a year. £30k didn't even cover the minimum wage for the amount of work that was done, which directly led to over £1bn in VAT being recovered every year, the largest VAT fraud ever reported. Meg Hillier MP questioned Jim Harra about the rewards in a Public Accounts Committee hearing but he was evasive and refused to answer promising instead that he would reply outside of the meeting. He never did.

After I obtained pro-bono legal representation, I tried to claim compensation for the loss of my business through the courts. I argued that I had a right to Francovich damages if I was harmed by tax avoidance/evasion that had been permitted by HMRC in breach of The VAT Directive. Initially HMRC had agreed to refer the issue to the EU Court but after the Brexit vote went through, they changed their mind and opposed a reference. It was clearly a public interest issue yet when the UK court ruled that the VAT Directive did not grant any right to compensation, any potential public interest didn’t stop HMRC trying to pursue me for £125k in costs for only a couple of days in court. The costs included HMRC renting a Human Rights QC between 2012 and 2014 who had tried and failed, to block an FOI that I made to the EU Commission to obtain the correspondence with the UK. It was only after the Sunday Times published an article about my predicament that HMRC reduced the costs from £125k to £10k. Even that was an insult given what I had done for them.

It is also worth noting that Sir Stephen Timms MP, who I hold in high regard, wrote to me in 2013 to confirm that, when he was the Labour Minister responsible for LVCR, he had not been given any option by HMRC to stop the tax avoidance/evasion.

“When I discussed this matter with HMRC Officials the problem was clear. I was advised however, that the problem was insuperable within EU law. I was therefore astonished that, thanks in no small measure to Mr Allen’s persistence, a very straightforward application of existing EU legislation was identified to solve the problem. Mr. Allen played a very important part in getting this solution brought forward. He also assisted HMRC at the Judicial Review in March 2012, when the Channel Islands tried to overturn the legislation. 

Mr Allen has provided an important public service. Thanks to his work, a glaring tax loophole has been closed down and it is possible once again to supply modestly priced goods for mail order from the UK mainland. A serious detriment to high street record shops has been removed. Many businesses will be benefiting for a long time, as will HM Treasury”

Yet senior HMRC officials including the CEO of HMRC continued to state that the Channel Island trade was the result of Labour Government policy. I do not know if this is a case of deliberate scapegoating or just ignorance within HMRC, but I do not doubt Sir Stephen’s account of events. That is because during the 2019 court hearing I obtained full disclosure of the advice given by HMRC to the minister. The disclosure confirmed that a combination of flawed legal advice and incorrect facts misled Sir Stephen as to the nature of the trade and the options available to end it. Unfortunately for legal reasons, I am unable to share these documents with anyone.     

And so, in 2022, more out of curiosity than any real expectation of a just, or even coherent, outcome I made a complaint to HMRC. The purpose of the complaint was not to accuse individuals of misconduct or exact revenge but to initiate an investigation into what went wrong and why, so that it would not happen again. I wouldn’t wish on anyone what my family and I went through.

On their website the PHSO describes the service they provide follows:

“We look into complaints where someone believes there has been injustice or hardship because an organisation has not acted properly or has given a poor service and not put things right”

My complaint was summarised by HMRC as follows:

1. HMRC officials permitted and were aware of VAT losses that were neither a consequence of European Union (EU) law nor policy implemented by the United Kingdom (UK) Government relating to Low Value Consignment Relief (LVCR).

2. HMRC officials presented false and misleading information to ministers.

3. HMRC acted to silence those exposing their misconduct.

4. HMRC’s contention that the abuse of LVCR in the Channel Islands was the result of Government policy is false.

5. HMRC denied a reward to Richard Allen for exposing VAT abuse of online sales that they had paid to others.

The complaint was immediately rejected by HMRC. The rejection stated that HMRC was not responsible for the issues that I complained about noting that "policy is generally determined by HM Treasury in line with the wishes of the government of the day. HMRC’s role is to implement that policy". As confirmed by Sir Stephen Timms and by the facts, in the case of LVCR that claim wasn't true. There was no policy. HMRC had simply allowed LVCR to be abused through "round tripping" to avoid/evade VAT. Furthermore, HMRC claimed that the matters I complained about were dealt with in the court case in 2019. That also wasn't true. The court case dealt only with an examination of Francovich rights. When the matter was referred to The Adjudicator he agreed but regarded the bulk of the complaint as outside his remit and so, in May of 2024, my complaint was referred to the Ombudsman with the assistance of my MP Sarah Greene. The ruling of the Ombudsman was eventually issued in June 2025 and can be summarised as follows: 

Points 1 – 4: Are outside the remit of the Ombudsman because they relate to legislation. The safety net for the behaviour described in the complaint, if true, is the individual members of Parliament and the legislative process.

Point 5 – HMRC has a confidential rewards guidance and the decision to not reward Mr Allen was arrived at by following this guidance, based upon information relating to Mr Allen.  

The idea that Members of Parliament or even Parliament itself is a protection against incorrect information provided by civil servants is clearly a nonsense, as Sir Stephen Timms illustrated in his letter. How would Parliament be aware of what was really going on in the Channel Islands? How would legally privileged and confidential advice given to ministers be seen by MPs? The safety net was, in truth, me. I was the one who exposed the failures and misinformation.  There is no safety net at all for the behaviour I have exposed.

In their final response which you can download from this link:

PHSO Primary Investigation Statement - C-2134885.pdf

Download PDF • 118KB

the Ombudsman re-worded the complaint using the term “loophole” in place of the term “abuse”. I found it suspicious that the Ombudsman replaced “abuse” with “loophole” which conveniently absolved any individual responsibility. It clearly wasn’t a loophole.  I do wonder what influence HMRC had on this decision.  

As to the mysterious information that HMRC held about me which was used to determine I was not eligible for a reward The Adjudicator stated that HMRC had informed him that all information about me had been destroyed under GDPR and it was therefore not possible to ascertain why I wasn’t rewarded. Even so The Adjudicator concluded that HMRC had, in all probability, arrived at a fair decision because they were in his view, unlikely to act improperly. However, the Adjudicator’s ruling was by his own admission, based on absolutely no evidence at all. It was pure conjecture, and thus inherently flawed. This wasn't lost on the Ombudsman who miraculously found someone senior at HMRC who remembered me and gave them the information that HMRC had previously stated didn't exist. I made a Subject Access Request asking to see this personal information, but the Ombudsman declined to release it, stating instead that it was confidential and that if I was allowed to see it, that would undermine trust in the Ombudsman. Information about myself is, apparently, a state secret.

Lastly there is no mention in the Ombudsman’s decision of the fact that I was told I was being considered for a reward in a letter written by the Director of Indirect Tax at HMRC. Instead, the response reads that I had asked for a reward and was refused one. This isn’t true. I did not ask for a reward or even expect one. Asking for a reward and then not being given one is inoffensive. Being offered a reward but subsequently not being given one feels like either a gross oversight or a deliberate snub, which is why I complained.

As you noted in your open letter, the Adjudicator and The Ombudsman are there to “safeguard my rights” and to “hold HMRC to account”. With regards to the issue that impacted me neither is true. Nobody has been held to account - even where there is clear evidence of failure - and my rights have been ignored.   Not only that but the decision was made by one person – with no external independent appeals process - and it carries weight in a court of law, so a trip to the Ombudsman could hinder any legal action I might wish to pursue (not that I could ever be bothered).

So, what is going on here? Given nobody is prepared to own the problem I do not know with certainty but the suggestion that HMRC don't make policy is demonstrably not true indeed I corresponded with HMRCs Policy Control unit! Furthermore HMRC officials from that unit provided guidance to the minister and attended meetings with EU officials. I have seen the advice they gave. The Treasury may have to rubber stamp everything but to suggest HMRC have no involvement other than "administration" is not true. In any event HMRC didn't even do that. Where blatant abuse was taking place no attempt was made to intervene indeed when HMRC was offered the opportunity to look at irrefutable evidence of abuse that opportunity was refused. None of this is addressed by the Ombudsman even though it was put to them in the complaint.

But there is an issue bigger than all of this. I decided to not participate in tax avoidance/evasion and instead decided to report it. Isn't that what HMRC wants taxpayers to do? To do the right thing? Yet I now ask myself whether reporting the tax scam was, from a purely selfish perspective, the sensible thing to do? What lesson has HMRC been trying to teach me and my family, who have grown up during this nightmare? Rather than do the right thing should I have instead done the sensible thing, cast my moral compass into the bin, turned a blind eye, and abused the VAT system like everyone else?

Ombudsman aside, I believe that requesting a level playing field is seen as a business interest by HMRC/HMT and one that must be weighed up against other "competing" interests. That approach is entirely consistent with the behaviour I experienced. If so, then everyone has completely lost sight of the fact that a level playing field, uncorrupted by tax abuse, is not a business interest but is a human right. Those who suffered harm because of the allowance of The Channel Island trade and those who suffer from similar abuses today, are not being protected. Instead, their rights are either being ignored or traded off against other questionable business interests and policy agendas.

Yours Sincerely

Richard Allen