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MPs to investigate whether HMRC resolves tax disputes fairly and proportionately

Out-Law News | 29 Mar 2018 | 10:55 am | 3 min. read

MPs are to investigate whether the UK's HM Revenue & Customs (HMRC) deals with all tax disputes fairly and in an even-handed manner, the Treasury sub-committee has announced.

The sub-committee is asking for written submissions by 31 May 2018 on a number of specific questions about whether HMRC's internal strategies, processes and powers enable it to resolve disputes appropriately.

The sub-committee asks for views on how HMRC's governance and settlement processes affect its ability to resolve tax disputes in a proportionate and fair way and whether HMRC’s litigation and settlement strategy (LSS) provides a rational and sound framework for resolving tax disputes.

John Mann MP, Chair of the Treasury sub-committee said: "The committee often receives representations from people who feel that HMRC’s enquiry process treats them unfairly. Some have accused HMRC of offering more advantageous terms of settlement to big business than small businesses or individual taxpayers receive".

He said that although the sub-committee cannot look at individual cases, it will "examine whether HMRC is meeting the standards of its internal governance processes that are intended to ensure that it deals with all tax disputes fairly."

"It's not really a question of HMRC favouring one group over another," said Steven Porter, a tax disputes expert at Pinsent Masons, the law firm behind Out-Law.com. "HMRC's current strategy is problematic for both large businesses and for individuals."

"Large businesses are finding that the LSS is being applied too rigidly and HMRC is so worried about being accused of entering into sweetheart deals that it does not take a realistic line on technical arguments so that disputes end up in the tribunal which could have been resolved much more quickly and cost effectively for HMRC as well as the taxpayer," he said.

"Groups are finding that although they are encouraged to raise issues in real time with their 'Customer Compliance Manager' (CCM), in practice they cannot get timely and sensible decisions out of HMRC. This can lead to groups taking issues to tribunal which really should have been settled," Steven Porter said.

The LSS sets out the framework within which HMRC will resolve tax disputes. It was first introduced in 2007 and refreshed in 2011 and is designed to ensure consistency in how tax disputes are resolved. Its principles includes that there should be no '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 the other by the courts with no middle ground, should be settled on 'all-or-nothing' terms.

"The system does not work well for individuals either," said Steven Porter. "HMRC seems determined to make an example out of individuals who have entered into a tax avoidance scheme, such as a film scheme – even though those schemes were perfectly legal and the taxpayers have not been dishonest. HMRC is not content with denying the tax relief claimed, and seems determined to bankrupt as many of these individuals as possible by taxing them on sums they have not received, which by far exceed their investment in the scheme."

In 2017, Andrew Tyrie, the then chairman of the Treasury select committee, wrote to chancellor of the exchequer Philip Hammond, expressing concern about the way HMRC was pursuing individuals who had invested in film schemes.  He said that if a scheme is found not to work   then investors must repay the tax that they have avoided, but "HMRC needs to treat people fairly, including investors in what are now considered to be tax avoidance schemes, and to be transparent and timely in their approach.”

"I have been told that a number of firms and individuals have made suggestions to HMRC for what they consider to be an equitable and pragmatic way of bringing the matter to a conclusion after several years, and that these suggestions have been rejected,” he said.

The Treasury sub-committee has also launched an enquiry to examine what progress has been made in reducing the amount of tax lost to avoidance and offshore evasion and whether HMRC has the resources, skills and powers needed to bring about a real change in the behaviour of "tax dodgers and those who profit by helping them".

At the same time the Treasury committee itself, which is chaired by Nicky Morgan MP, is looking into VAT and the tax gap, VAT and Brexit and VAT and business. In January Nicky Morgan said that the committee would investigate Brexit proposals which would mean UK retailers and manufacturers would have to pay VAT upfront on post Brexit imports of goods from EU member states.