Out-Law News | 13 Apr 2018 | 3:46 pm | 2 min. read
Outstanding cases in the first-tier tribunal (FTT) increased by 507 last year to reach 28,521, an increase of over 1,500 outstanding cases since 2012/13, according to figures obtained by Pinsent Masons, the law firm behind Out-Law.com. The number of high-value, complex cases waiting to be heard in the upper tribunal (UT) increased by 40% last year, reaching 404, according to the figures.
Tax expert Clara Boyd of Pinsent Masons said that the continued backlog was likely to be driven by a number of factors: HMRC's continued focus on high-value transfer pricing cases; businesses' willingness to see these higher value cases through to a court hearing; and the impact of HMRC's Litigation and Settlement Strategy (LSS) on its approach to resolving tax disputes.
"What some commentators see as HMRC's aggressive litigation strategy can mean rulings take longer to reach, growing the backlog of cases," she said. "As part of this strategy, HMRC will give no ground and frequently will want to win every point."
"A slow-moving system arguably plays in HMRC's favour, especially if the taxpayer has had to pay up the tax in question. A large backlog of cases is unhealthy and acts as a drag on those businesses with cases waiting to be heard by wasting management time and resources. Delays need to be cut down so taxpayers aren't left in limbo for what can be years," she said.
The LSS sets out the framework within which HMRC will resolve tax disputes. Its principles include that HMRC should not enter into 'package deals', in which a range of separate issues are settled for a single payment. It also provides that disputes that have an 'all-or-nothing' character, such as a case involving a single point of law or fact that would be decided one way or other by the courts with no middle ground, should be settled on 'all-or-nothing' terms.
The LSS was designed to ensure consistency in how tax disputes are resolved. However, Boyd said that this can make it difficult for individual teams at HMRC to settle disputes for less than the full amount of tax initially claimed. It also means that it is likely to be years before a ruling is reached on some cases, she said.
The cases waiting to be heard by the FTT will include those related to large businesses, SMEs and private individuals, Boyd said. Those waiting to be heard by the UT will include appeals from the FTT, but also first instance decisions in more complex cases, many of which involve international businesses across multiple jurisdictions. The UT is of equivalent status to the High Court.
The amount of tax that HMRC believes may have been underpaid by large businesses through transfer pricing arrangements increased by 51% last year to £5.8 billion, up from £3.8bn in 2015/16, according to figures obtained by Pinsent Masons. Figures released by HMRC in September 2017 showed that transfer pricing enquiries were taking longer to settle; with enquiries settling in 2016/17 taking an average of 28.8 months to settle, up from 27.6 months the previous year.
Last month, MPs on the Treasury sub-committee announced a new inquiry into whether HMRC deals with all tax disputes fairly and in an even-handed manner. The sub-committee is asking for written submissions by 31 May 2018 on issues including how HMRC's governance and settlement processed affect its ability to resolve tax disputes in a proportionate and fair way; and whether the LSS provides a rational and sound framework for resolving tax disputes.