CIOT is calling for HMRC to stick to its policies for handling and resolving disputes with taxpayers, after the institute’s analysis suggested HMRC is continuing to litigate when there is a less than 50% chance of success, contrary to its own framework, which is resulting in an increasing number of tribunal cases
HMRC’s litigation and settlement strategy (LSS) states that where HMRC believes that it is unlikely to succeed in litigation it will, in the majority of cases, concede the issue. However, in a recent submission to the Treasury sub committee, CIOT said its members complain that HMRC does not always seem to be adhering to this.
The LSS suggests that taking early specialist advice will bring important efficiency savings, but the institute says it is concerned that technical specialists, HMRC’s solicitors’ office, and tax counsel, are often engaged too late in the process, long after HMRC’s decision is taken and a dispute has arisen.
Where HMRC officers undertake the advocacy on cases, there is less evidence that they undertake an objective assessment of the merits of HMRC’s case. This reduces the scope for either settling the case or narrowing down the issues in dispute.
Ray McCann, CIOT president, said: ‘Contrary to the LSS, our members report that HMRC seem to be taking increasing numbers of cases where the prospects of success appear much lower than 50%.’
McCann pointed out that alternative dispute Resolution (ADR) mediation can work well and needs to be promoted more widely as a mechanism for resolving disputes.
‘ADR is effective when it is used genuinely to seek to resolve disputes. Unfortunately, our members have also experienced cases where the HMRC officers at the ADR meeting did not have the authority to reach a settlement, when the taxpayers had senior personnel attending who were able to take decisions that could have led to settlement.
This leads to increased costs, makes subsequent litigation more difficult, and makes ADR less attractive to pursue. HMRC should be prepared to engage with authority in this process,’ he said.
In the submission, CIOT said its members report increasing instances of HMRC adopting an interpretation of the law to bring in the greatest tax, which is contrary to HMRC own mantra of ‘right amount of tax on time’. This extends to running contradictory arguments in different cases, and/or ignoring their own published guidance, custom and practice, and relevant case-law. The CIOT is concerned at the reference in HMRC’s single departmental plan which says that it will ‘maximise revenue due’ rather than wording such as ‘maximise collection of revenues properly due’.
HMRC often appears to suggest an inappropriate category of behaviour when applying penalties. Examples of this would be categorising genuine errors as carelessness, or carelessness as dishonesty, leading to decisions which are overturned on appeal. Such litigation is normally a costly exercise for both the taxpayer and HMRC.
John Cullinane, CIOT tax policy director, said: ‘Many penalties for careless behaviour seem to be issued with no apparent consideration of suspension. We also told the committee that HMRC often seem unduly reluctant to suspend penalties for “one-off” errors and that penalty conditions seem often poorly thought through.
‘We are concerned at HMRC’s eagerness to litigate despite an already overwhelming number of cases in the tax tribunal system.’
The Treasury sub committee is examining whether HMRC’s approach to conducting tax enquiries, resolving tax disputes and determining the amount of tax to be paid meets those standards.
McCann will be giving evidence in its conduct of tax enquiries and the resolution of tax disputes inquiry on 9 July, alongside Christopher Smith, chairman, Roadchef (Employee Benefits Trustees) Ltd, Andrew Brown, partner, Capital Law, Jeremy Glover, Reed Smith, Jim Harra, tax assurance commissioner, HMRC, and Penny Ciniewicz, HMRC’s director general for customer compliance.
CIOT’s submission is here.
Report by Pat Sweet
