Most HMRC tax dispute settlements fail quality standards

The report identified 64% of cases that fell below the standards and described these results as “disappointing”, with no improvements evident in 2020 to 2021 from the previous year.

"HMRC failing against its own internal standards is worrying,” said Jake Landman, a tax disputes expert at Pinsent Masons. “Those standards exist to make sure both HMRC and taxpayers get a fair deal in the negotiations. If so many cases are missing HMRC quality standards, then HMRC may be falling short in this area.”

The cases were reviewed by HMRC as part of its tax settlement assurance programme, overseen by the tax assurance commissioner. The quality standards are meant to ensure that HMRC follows its own agreed processes in negotiating settlements. They include ensuring a clear risk assessment has taken place, there is appropriate documented evidence to support decisions and whether appropriate authorisation took place when it should.

The tax assurance commissioner role was introduced in 2012 to reassure parliament and the public that HMRC handles civil tax disputes in accordance with the law and its litigation and settlement strategy.

According to the commissioner’s latest report, contained in HMRC’s annual report and accounts (382-page / 27.7MB PDF), of the 401 tax dispute settlements reviewed by HMRC in 2021, 40 fell short of HMRC’s internal quality and governance standards whilst also having a financial impact on the taxpayer.

Disputes are not reopened by default in cases where failings are found, even if a taxpayer has been treated unfairly. However, the report confirmed that in the 11 cases which were identified where the taxpayer had paid too much tax, “corrective actions” had been taken.

Where there is a dispute over a tax bill, taxpayers can settle an appeal by agreement with HMRC. In this instance, HMRC typically requires taxpayers to enter into a settlement for the full amount of tax together with the accrued interest and often penalties. According to its litigation and settlement strategy, HMRC will not reduce the amount of tax payable merely to achieve settlement and will push for full value.

“Entering settlement negotiations with HMRC can be very tricky territory,” said Pinsent Masons’ Landman. “HMRC understandably wants to push for the very maximum amount of tax it thinks is owed. This may end up with a taxpayer getting a bad deal if they don’t have the right assistance.”

“HMRC’s broadly more lenient approach to timescales for progressing tax investigations and disputes during the pandemic appears to be ending and HMRC is expected to take a stronger approach in engaging with taxpayers in the future. Taxpayers looking to settle disputes with HMRC should always take professional advice to ensure that those settlements are fair and they get the right agreement,” he said.