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HMRC needs freedom to settle tax claims to address case backlog, says expert

Out-Law News | 18 Nov 2014 | 4:04 pm | 1 min. read

HM Revenue & Customs (HMRC) should be allowed to offer settlements to resolve existing disputes over alleged tax avoidance, an expert has said.

Tax disputes expert James Bullock of Pinsent Masons, the law firm behind Out-Law.com, said the measure would help HMRC to reduce the backlog of tax avoidance dispute cases it faces and devote more resources to tackling tax evasion. 

Bullock commented after a committee of MPs criticised the actions HMRC takes to prevent tax avoidance. 

In a new report, the Public Accounts Committee (PAC) said HMRC's actions are "unacceptably slow" and put UK "tax revenues at risk". It said HMRC should be required to "demonstrate to parliament that it is using its existing powers with sufficient urgency". 

However, Bullock said that powers, under the Finance Act, that allow HMRC to require taxpayers to make an accelerated payment of tax before a dispute is resolved cannot help it to address its existing case backlog. HMRC now has open tax avoidance cases with 90,000 individuals. 

"Clearly it is not feasible for HMRC to clear those cases quickly using its current approach," Bullock said. "It is dangerous to assume that Accelerated Payment Notices are the cure-all solution for HMRC. They certainly up the ante – but I would anticipate that many of those taxpayers will be even more determined to fight on despite receiving demands for accelerated payment. If they have to pay up anyway, what is the disincentive in continuing to challenge HMRC in the courts? The worst they will come out is neutral – and if they win they get their money back." 

“HMRC must be given political backing to offer settlements in existing cases that provide a meaningful incentive to the taxpayer to settle and drop the case. The alternative is that HMRC is forced to devote massive resources to litigation in tax avoidance cases rather than in the pursuit of tax evaders. With the tribunal system already creaking at the seams there is a growing risk of tax avoidance cases that could have been settled collapsing simply because deadlines have been missed," James Bullock said. 

"Only by getting the large numbers of tax avoidance schemes cleared up will HMRC be able to free up the resources necessary to allow it to tackle tax evasion properly. Unfortunately at the moment we have an approach that scores highly on rhetoric, but does not deliver results for the public purse," Bullock said. 

In its report, PAC also criticised HMRC's efforts to "tackle companies which exploit international tax structures to minimise UK tax liabilities". It said the Treasury and HMRC should have to "set out the actual costs and benefits of recent changes to the UK's tax regime" to show the impact it has had on practices such as profit-shifting.