HMRC culture change needed if tax tribunal backlog is to be reduced, says expert

Ian Hyde of Pinsent Masons, the law firm behind Out-Law.com, said that the tax tribunal system introduced in 2009 is "clogged up". The number of cases awaiting a tribunal hearing increased by a third between 2010 and 2011, from 16,700 in 2010 to 22,100 at the end of last year.

"There are simply too many cases to handle and something is clearly wrong with HMRC's approach," he said. "True, budget cuts might not have helped HMRC, but they need to adapt more effectively to the situation. Every new tribunal case is a new business or individual having to spend time, effort and money to reach an agreement with HMRC. This has a big knock-on effect for the business or individual involved – it sucks up precious time and resources for those in dispute with HMRC and for HMRC too."

Figures obtained by Pinsent Masons showed that the number of cases heard by the First-tier tax tribunals reached a record high of 3,400 in the last three months of 2011. Overall, the number of new cases heard in 2011 was 20% higher than in 2010, at 11,000. In addition, the number of unheard cases rose from 16,700 at the end of 2010 to 22,100 at the end of 2011.

HMRC has recently extended its alternative dispute resolution (ADR) pilot for small businesses, which is intended to help parties resolve their disputes without resorting to the tax tribunal, following a successful limited trial. The service, which uses independent HMRC facilitators to help customers resolve their disputes with HMRC at an early stage, was initially offered from January to small businesses in the North West, South West, Wales and London. A second ADR pilot for large and complex disputes is already available to businesses throughout the UK, albeit on a smaller scale.

These schemes showed that HMRC had "genuine enthusiasm for change", at least centrally, said Hyde.

"However, it takes more than just a policy change or an announcement to change things on the ground," he said. "The experience for many taxpayers in dispute with HMRC is still one of confrontation rather than consensus. There needs to be a real sea-change in culture at HMRC if a more consensual approach is to be adopted, but turning around the HMRC oil tanker is going to take a lot of time and effort."

HMRC has come under increasing pressure in recent months to minimise the 'tax gap' between the amount due for collection and the amount of tax actually collected. The increase in the number of cases being heard was, Hyde said, indicative of its desire to "clamp down" on tax avoidance as well as deliver extra revenue for the Government during a period of tight public finances.

"A more aggressive HMRC inevitably means more disagreements with businesses and individuals over their tax liability," he said.