HM Revenue & Customs has come under fire from tax experts for increasingly going down legal channels in a bid to bring in the greatest tax rather than the "right amount of tax on time".
The Chartered Institute of Taxation (CIOT) has told MPs they are worried HMRC’s apparent eagerness to litigate rather than make concessions to reasonable viewpoints when advised that there is less than 50 per cent chance of successful legal action.
The institute argued this was because HMRC was chasing the greatest amount of tax revenue.
However a HMRC spokesperson said: "HMRC never settles disputes with taxpayers for any less than the amount of tax we believe reasonably is due under the law."
The institute also argued the Alternative Dispute Resolution (ADR) should be promoted more widely as a means of curbing this unwelcome trend, which is resulting in an ever increasing number of tribunal cases.
In a recent submission to the Treasury select committee, the CIOT backed HMRC’s Litigation and Settlement Strategy (LSS) as a sensible framework for handling and resolving disputes with taxpayers.
But the institute said their members complain that HMRC does not always seem to be adhering to the LSS, which states that where HMRC believe that it is unlikely to succeed in litigation it will, in the majority of cases, concede the issue.
Ray McCann, president of the Chartered Institute of Taxation, said: "Contrary to the LSS, our members report that HMRC seems to be taking increasing numbers of cases where the prospects of success appear much lower than 50 per cent.
“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.”
In the submission, the CIOT stated 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, or ignoring their own published guidance, custom and practice and relevant case-law.
The CIOT stated it is concerned at the reference in HMRC’s single departmental plan, which stated it will ‘maximise revenue due’ rather than wording such as ‘maximise collection of revenues properly due’.
The institute also added that HMRC often appear 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.”
Keith Churchouse, director and chartered financial planner, said: “We are aware that HMRC have been hungry to gather tax funds for some time now and it does not surprise me that they move to legal action promptly.
"Many have suggested that the current tax rates being charged to corporations and individuals alike is too low and that tax funds are in short supply.
"The HMRC’s LSS is a sensible strategy to adhere to for all parties and is good to see the CIOT are pressing this issue to MPs. The time taken for enforcement officers to start litigation may be as valuable as any final funds that they raise. Therefore early intervention by dispute resolution would seems sensible to create beneficial outcomes for all parties.”
aamina.zafar@ft.com
