Three times a loser

A taxpayer who was bankrupted for his failure to pay an alleged £38,000 tax bill last week saw the final cost of his dispute with the Inland Revenue rise to £127,000 after the government and the accountants handling the case added their charges.

Patrick Cullinane says he was distraught when he learned that the costs of the bankruptcy had more than trebled, leaving him penniless. Mr Cullinane was made bankrupt in 1996 after a decade-long battle with the Inland Revenue. The City firm of accountants KPMG were appointed to oversee the liquidation of his only asset, a three-bedroom house in north London, in order to pay the claimed debt.

After several attempts to stop the repossession of his home he was thrown out in March 1999. The house was sold for £127,000 with a £22,000 mortgage with the Abbey National bank still outstanding. That rose by £4,000 over 15 years.

The mortgage was repaid out of the sale funds. Eighteen months later he discovered that a raft of other costs including the estate agency commission on the sale of his house, VAT, other taxes, bailiffs' bills and a near £40,000 invoice from KPMG had eaten away the rest of the money. Ironically, the Inland Revenue received just over £18,000, less than half what it wanted.

Mr Cullinane hoped to continue his fight against the Revenue with any funds remaining from his bankruptcy. When he was told the costs of settling the debts had soared and wiped out the remaining funds, he was devastated. "It is outrageous that they have taken away everything I have. I must now carry on living with my sister and I have no money to employ a lawyer to fight my case."

The Official Receiver, which oversees bankruptcies on behalf of the government, said in a letter to the two creditors that the case was simple and considered managing the bankruptcy itself. But it allowed KPMG to take on the task instead. With the agreement of the Revenue, KPMG was allowed to make its own charges rather than stick to the Official Receiver's scale of charges, which are considerably lower.

The Inland Revenue, the only active creditor, said in a statement it was standard practice to use KPMG, commonly called one of the Big Five accountancy firms: "KPMG and its insolvency practitioners are well respected and there is nothing unusual in their appointment as trustee in bankruptcy in this case."

The dispute began in 1983 when Mr Cullinane was a stage hand working in the film industry. He attempted to claim back income tax after taking a job where he was put on the emergency tax rate. But instead of receiving a tidy lump sum at the end of the tax year he became the subject of an investigation by a local tax inspector.

He employed an accountant to establish why the Inland Revenue had a problem, but he failed to make much headway. After three years Mr Cullinane could no longer afford to pay accountancy fees. Then, in 1990, the Special Commissioners, who act as a court for tax disputes, were presented with evidence by the Inland Revenue that he had failed to declare rental income from tenants staying in his house on his tax returns. It said an extra kitchen and bathroom had been built for the purpose of renting the property.

Mr Cullinane has denied the charges, saying that income he received was money owed by a previous employer and social security payments. He had only one kitchen and bathroom, he says. Despite his denials, the Revenue pressed ahead with a bankruptcy order to recover the tax. It has subsequently conceded that all the money going through Mr Cullinane's bank account was either taxed at source or not liable for tax, but maintains that he must have received rental income by other means.

Mr Cullinane has attempted on several occasions to force the Revenue to disclose what evidence there is to support this assertion, but it has so far refused.

The Taxpayers Charter has proved little help in his campaign to view his tax file. Mr Cullinane's supporters have even offered to pay the Revenue any administration costs it might incur collecting the information, but to no avail.

Where the money went

Receipts and payments account in the bankruptcy for the period from June 6,1997 to November 2000

Official Receiver's disbursements?527.35

Mortgage redemption?26,128.19

Cheque/payable order fees?7.80

Secretary of State fees?10,313.23

Petitioner's costs?2,188.66

Trustees fees?32,306.65

Trustee's expenses?2,800.21

Irrecoverable VAT?10,229.66

Agents/valuers fees?8,886.22

Agents fees?1,765.17

Legal fees ?13,749.25

Other property expenses?15.00

Insurance of assets?54.43

Inland Revenue preferential claim?393.87

Inland Revenue unsecured claim?17,634.31

Total: ?127,000.00

Receipts from property: ?127,000.00

Balance: Nil