A recent move by the taxman to soften his litigious approach has proved too little too late, in light of 2013 figures showing the backlog of outstanding tax tribunal cases to have doubled in the past four years to a record high.
Last year, and to cut the backlog, HM Revenue & Customs revised its Litigation & Settlements Strategy to “encourage HMRC staff to minimise the scope for disputes and seek non-confrontational solutions.”
For that tax year (2011-12), the pile of outstanding first-tier tax tribunal cases stood at 24, 273 – compared with just 17,556 in the previous tax year. That itself marked an increase from the 13,456 cases in 2009-10.
But despite revising its strategy, and even though it has introduced the Alternative Dispute Resolution service, HMRC is now sitting on 26, 965 unresolved cases – the highest number of outstanding first-tier tax tribunal cases on record.
“The fact that HMRC has recently opened up the door to ADR is a very positive move… [but the department] needs to be far more willing than it currently is to instigate constructive negotiations with taxpayers with a view to achieving sensible settlements,” said Pinsent Masons, which obtained the figures.
“Until recently, HMRC has taken a deliberately aggressive stance against those who it believes are not paying the right amount of tax…[and] it still has a long way to go to establish workable ways to recoup tax without entering into so much costly legal wrangling.”
The law firm’s head of tax, Jason Collins, believes that delays in settling VAT disputes can be “particularly costly”, because affected firms normally have to pay VAT upfront and then recover it afterwards, assuming they succeed in court.
As to those businesses and individuals who can postpone their tax payments until their case is heard, he warned that they could incur potentially hefty charges for delays, as HMRC charges up to 3.5% on underpayments, though pays just 0.5% interest on overpayments.
Of the 2009-13 figures, Mr Collins reflected: “There is a huge backlog of tax disputes still building up between HMRC and taxpayers, which is costing businesses and individuals dear – both in terms of time and money – while they remain unresolved. Delays also create huge uncertainty for those who are just trying to get on with the day-to-day running of their businesses.”