The international law firm reports the average length of tax enquiries into large businesses has now reached 34 months in 2016/17, up from 31 months in 2015/16.

Pinsent Masons says the increase in time taken for each enquiry is putting strain on businesses, as these enquiries drain senior management time, increase costs and mean businesses are exposed to greater periods of financial and legal uncertainty.

The average length of time taken on an investigation has increased despite HMRC having fewer cases open, which the law firm suggests means it may not be the overall workload that results in cases taking longer. The number of cases open at the end of the year fell to 3,617 in 2016/17, down from 3,875 in 2015/16.

Ian Hyde, partner at Pinsent Masons, said: ‘HMRC’s and perhaps more importantly, individual officers’, priority seems at times to be to avoid being seen to be “doing deals” with large corporates. This means HMRC is digging its heels in and not backing down, even when there is a sensible settlement to be reached.

‘Large corporates are no longer getting involved in avoidance schemes. Many more challenges from HMRC are of “routine” technical tax issues, such as whether the accounting treatment is correct or capital allowance claims. Clients are more willing to defend strongly where the argument isn’t about a “windfall” from tax avoidance but is tax on the core operations of the business.’

Pinsent Masons says there are also concerns that HMRC’s litigation and settlement strategy’ (LSS), the framework it keeps to when dealing with tax disputes, makes it difficult for individual teams at HMRC to back down and to settle disputes for less than the full amount of tax initially claimed.

Hyde said: ‘Even if HMRC has a weaker case, the LSS encourages them to give no quarter. Cases are therefore being fought to the end despite growing costs on both sides.’

Report by Pat Sweet