Tax disputes against HM Revenue and Customs (HMRC) hit 28,800 cases at the First-tier Tribunal in the last financial year, up from the 25,520 disputes in the backlog for 2016/17.
International law firm Pinsent Masons said HMRC’s aggressive approach in tackling tax avoidance is largely to blame though its tougher approach to ligation and settlement is also making the backlog more difficult to clear.
In fact, the taxman’s framework made it harder for its teams to reach out of court agreements, the law firm said. The strategy has been recently updated to make it easier to settle with taxpayers outside of court, but this has had a very limited impact on the backlog so far, it added.
Hilesh Chavda, private wealth associate at lawyers Royds Withy Kings told International Adviser: “The number of HMRC disputes is not surprising given the increased powers HMRC have been given, the information they now have access to on taxpayers and the budget deficit in the Treasury’s coffers.”
Adding strain and pressure
Similarly, Rachael Griffin, tax and financial planning expert at Quilter, told IA: “HMRC need to take a pragmatic response to the mounting backlog.
“While it is imperative that those who dodge tax are brought to justice, the scale of the backlog could mean that individuals and small businesses who might have made simple mistakes are suffering with long waits to try and rectify accidents rather than any large-scale attempts to evade tax.
“Some individuals who do make mistakes in regards to tax matters may be making such mistakes because they are vulnerable. Forcing them to wait inordinate amounts of time for the results to reach a conclusion could mean that HMRC is adding to their vulnerability,” Griffin said.
Backlog of tax disputes between 2009 and 2018. Source: Pinsent Masons
Accelerated Payment Notices
Pinsent Masons said that the tribunal’s backlog also mirrors the growing number of individuals and businesses challenging HMRC via judicial reviews.
Last year, the number of reviews increased by 36% to 122, up from 90 in 2016. In addition, the majority of judicial reviews challenge HMRC’s imposition of accelerated payment notices (APNs), requiring taxpayers to pay the full disputed amount before a tribunal has ruled on the matter.
This resulted in the taxman withdrawing over 6,000 APNs since 2014, a resort, argues Pinsent Masons, which indicates the Revenue’s overly aggressive imposition of penalties.
“HMRC’s inflexible approach to dealing with disputes is exacerbating the growing backlog at tax tribunals,” said Steven Porter, partner at Pinsent Masons.
“It’s generally recognised that this backlog needs to come down, but it has hardly shifted at all.
“Businesses can often wait for years between when an investigation is first launched and when a final judgement in the courts is handed down. This uncertainty can be hugely damaging and may result in a business falling behind its peers as decisions and spending get shelved until the outcome is clearer.
“The litigation framework HMRC has to keep to, forces it to take an unrelenting approach – it will often give no ground and frequently will want to win every point.
“Recent updates to the framework may not have gone far enough in enabling HMRC to settle with taxpayers.”
