Pinsent Masons Report: HMRC disputes with taxpayers reach record level after 20% surge in one year

Pinsent Masons say that tax tribunal cases between HMRC and taxpayers have surged from 9,100 new cases in 2010 to 11,000 new cases in 2011. The number of new cases reached a quarterly high of 3,400 in Q4 2011.

Pinsent Masons also note that the growing number of disputes has led to a backlog of unheard cases. These have increased by a third, from 16,700 in Q4 2010 to 22,100 in Q4 2011 (Q4 2009: 12,600).

Pinsent Masons Partner Tax Ian Hyde says: “The increasing number of tribunal cases being heard is indicative of the pressure HMRC has been under to clamp down on tax avoidance and deliver extra revenue for the government during this period of tight public finances.”

“A more aggressive HMRC inevitably means more disagreements with businesses and individuals over their tax liability.”

Ian Hyde adds: “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.”

Ian Hyde is also concerned by the ever-rising backlog of cases in the past couple of years. He adds: “The backlog just goes to show that the system is getting clogged up. There are simply too many cases to handle and something is clearly wrong with HMRC’s approach. True, budget cuts might not have helped HMRC, but they need to adapt more effectively to the situation.”

“To their credit, HMRC have identified some potential changes: they’ve recently softened their Litigation and Settlement Strategy and have put significant energy into Alternative Dispute Resolution including extending a pilot scheme for small businesses. There are therefore more options for a negotiated settlement now. Centrally, HMRC seem to have genuine enthusiasm for change.”

“However, it takes more than just a policy change or an announcement to change things on the ground. 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.”

The tribunal system was reformed in 2009 to introduce first-tier and upper-tier tribunals. First-tier tribunals usually hear cases in the first instance, with appeals heard by the upper-tier tribunals.