Thousands of tax investigations by HMRC are taking several years to resolve, creating a “substantial burden” on businesses and individuals, RPC said.
According to the firm, almost a quarter of all tax investigations launched by HMRC’s local offices remain unresolved more than 12 months later.
It said the Revenue has now lost its incentive to progress investigations because the introduction of the accelerated payment notice legislation has meant the body can demand disputed tax before an inquiry has closed.
Figures from RPC reveal that HMRC’s local compliance unit currently has 115,000 tax investigations open against businesses and individuals, with 3,800 of those inquiries still incomplete more than three years after they launched.
Uncertainty
These prolonged investigations generate a “great deal of uncertainty” for taxpayers because the Revenue gives no indication of how long it will take to complete the inquiry and whether it will demand any extra tax, the firm said.
“Prolonged enquiries by HMRC impose a substantial burden on individual taxpayers and businesses,” said Adam Craggs, partner and head of RPC’s tax disputes team.
“Regardless of the outcome, those being investigated will have to bear the burden of the costs associated with dealing with HMRC, and this can entail substantial professional fees.”
Likely to get worse
The UK firm also pointed out that HMRC investigations can occupy large amounts of resource for companies, particularly as senior management may have to spend time dealing with matters raised during the investigation.
It suggested this burden on small businesses is likely to worsen as the UK Government puts increased pressure on the tax office to maximise revenue.
Cut-off
However, RPC said the process could be sped up by introducing a time limit or ‘cut-off’ point for complex tax investigations.
“Introducing a more transparent timescale would ensure that HMRC completes its enquiries in a timely manner thus keeping costs and disruption to taxpayers and businesses to a minimum,” said Craggs.
In the Summer Budget, the Chancellor of the Exchequer said it would give the Revenue an additional £750m (€1bn , $1.2bn) to crank up its tax gathering capacity.
