Businesses are losing out as HMRC's internal VAT decision review process appears to be making decisions which increasingly favour the department, according to analysis by UHY Hacker Young.
Its research - a result of a Freedom of Information request - shows that under half (48%) of businesses' appeals against HMRC VAT decisions were upheld by HMRC's internal review teams last year. This compares with the 60% of appeals upheld the year before, and the firm says this increase in the level of rejections raises concerns that HMRC has toughened its approach to the appeals process.
Simon Newark, UHY Hacker Young VAT partner, said: 'When the system was first set up in 2009 HMRC dealt with reviews on a case-by-case basis and looked carefully at businesses' claims. However, recent anecdotal evidence in the tax and accountancy industry suggests that this approach has begun to change. The drop in successful reviews appears to support this.'
Newark argued that the fall in upheld appeals is unlikely to be because more of HMRC's VAT decisions are correct in the first place, pointing out that many VAT cases which go on to the tribunal stage see success for businesses, with judges often criticising HMRC's decision-making process and procedures.'
Newark added: 'Some worry that the combination of the pressure from the government on HMRC to increase revenues, and the cuts to HMRC's budget, could be key factors at play here.'
UHY Hacker Young says that any decline in the standards of the internal review process is likely to hurt businesses that may not be able to afford the cost or the delay involved in challenging HMRC VAT decisions at a tribunal.
'This was one of the key reasons behind setting up the internal review process in the first place. A cost-effective, quick appeals process is crucial. Even if businesses can afford to take HMRC to a tribunal over a VAT decision, the tribunals have a huge backlog of cases to get through. Cases might not be heard for a while, leaving businesses in limbo as they await a decision,' said Newark.
