Taxpayers should have right to seek closure of a single tax enquiry issue, says expert

Out-Law News | 19 Dec 2014 | 12:07 pm | 2 min. read

Taxpayers should be able to apply to the tax tribunal independently of HM Revenue and Customs (HMRC) for determination of a single issue within a wider tax enquiry case, an expert has said.

Tax disputes specialist James Bullock of Pinsent Masons, the law firm behind Out-Law.com, said that taxpayers should be handed "symmetrical" powers to those that the UK government intends to give to HMRC.

On Thursday, plans were outlined (26-page / 420KB PDF) to give HMRC the right to apply to the tax tribunal for a closure notice on a single issue within a broader tax dispute with businesses.

Currently, tax enquiry rules prevent HMRC obtaining formal resolution of one issue without it meaning the closure of an entire tax enquiry, unless the taxpayer agrees to the referral of the single issue to the tax tribunal for determination.

"In some enquiries taxpayers refuse to co-operate fully with HMRC, which means that HMRC must rely entirely upon formal powers to take cases to tribunal to help them resolve certain issues," HMRC said in its consultation paper. "At present only a single closure notice may be issued, when all aspects under enquiry are in a position to be included."

"The amount of time a particular aspect takes to resolve can vary widely, for example, settlement of a simpler, more mainstream issue which affects only the taxpayer can usually proceed much more quickly than an enquiry involving features which are novel or have a wider impact. The current enquiry framework can therefore be inflexible and constrain HMRC’s ability to settle areas of dispute, particularly in complex cases or those involving high-risk or high-value issues. Such enquiries can take a long time to settle and increase uncertainty for the taxpayer whilst the enquiry is open," it said.

However, Bullock said that whilst he agreed the current joint referral process is "cumbersome" and that he can see why it makes sense to have a closure notice on a single issue, he said it would be unfair to businesses if they were not also given the right to refer single issues from tax enquiries to the tax tribunal for determination. This is because it is not always the taxpayer that is responsible for delays in the resolution of tax enquiries, he said.

"We can understand why HMRC wants to speed up resolution of complex issues, but we think the taxpayer should have equal rights to seek closure of a single issue," Bullock said. "Otherwise it’s a case of heads I win, tails you lose for HMRC."

"There is also a sting in the tail in that this measure will enable HMRC to collect tax earlier, assuming they win on the issue. At the moment, tax is not payable until all the issues for a year are settled: now, it will be payable as soon as this single issue has been decided," he said.

Tax disputes expert Ian Hyde of Pinsent Masons added that the proposals as drafted are "unacceptable".

"This change should really be about sorting the administration of tax," Hyde said. "Red tape shouldn’t get in the way of resolving outstanding tax issues and this proposal – which doesn’t allow the taxpayer to speed up the process – is unacceptable."

The consultation closes on 12 March 2015