Stubborn attitude not just confined to IR35 disputes
Many were bewildered as to why it was necessary for Qdos client, Jensal Software Ltd, to seek its justice at the Tax Tribunal. Quite simply, it was because HMRC’s attitude was arrogant, stubborn and completely unreasonable, but it appears that this approach extends to tax disputes of any nature.
The Chartered Institute of Taxation (CIOT) has recently expressed its concerns to MPs of HMRC’s apparent eagerness to litigate rather than make concessions to reasonable viewpoints when advised that there is less than 50% chance of successful legal action. Responding to the Treasury Sub-Committee’s invitation to submit evidence of whether HMRC’s approach to conducting tax enquiries, resolving disputes, and determining the right amount of tax meets the standards in its code of governance, the Institute said its members complained that HMRC do no always seem to be adhering to their own Litigation and Settlement Strategy which states that where the department believe that it is unlikely to succeed in litigation it will, in the majority of cases, concede the issue.
Code of Governance for Resolving Tax Disputes
Many taxpayers may not be aware that such a code exists and, to this end, the CIOT have suggested that HMRC could be required to state in their decisions that the code has been complied with and who has overseen that decision. This would encourage HMRC staff to ensure that adequate thought had been given to the nature of the case and that it had received the appropriate level of review. It would also reassure taxpayers that HMRC had followed ‘due process’ and help them properly evaluate their next steps, helping them to save unnecessary time and costs. For example, if a person knew that a matter had already been considered by HMRC’s technical specialists, then they may consider it non-beneficial to request an internal review of a decision.
HMRC staff are frequently accused of not having a grasp of the commercial world, which they don’t by the way. Interaction between technical specialists/governance boards and taxpayers would provide some remedy and lead to better decisions being made by both the Revenue and taxpayers.
Litigation and Settlement Strategy (LSS)
The LSS is the framework within which HMRC resolves tax disputes through civil law processes and procedures in accordance with the law. It applies irrespective of whether the dispute is resolved by agreement with the taxpayer or through litigation and is designed to facilitate resolution of disputes in relation to all taxes
It is suggested by the LSS that taking early specialist advice can result in important efficiency savings. However, the CIOT are concerned that technical specialists, HMRC’s solicitors’ office, and tax counsel, are often engaged too late in the process, sometimes long after HMRC has made its decision and a dispute has arisen.
Where HMRC officers carry out the advocacy on cases, there is less evidence that they undertake an objective assessment of the merits of HMRC’s case. This reduces the scope for either settling the case or reducing and focusing on the issues in dispute which would otherwise occur had the case been dealt with by the solicitor’s office or tax counsel.
Contrary to the LSS, many CIOT members are reporting that HMRC seem to be taking increasing numbers of cases where the prospects of success appear much lower than 50%.
The LSS requires HMRC to apply the law fairly and consistently, but according to CIOT members HMRC are increasingly adopting an interpretation of the law which results in the greatest amount of tax, rather than the right tax at the right time. This stance extends to running contradictory arguments in different cases and/or ignoring their own published guidance, custom and practice, and relevant case law. Been there, done that, and bought the tee shirt! Of particular concern to the CIOT is a reference in HMRC’s single departmental plan which states that it will ‘maximise revenues due’ rather than ‘maximise collection of revenues properly due’.
‘Effective and efficient’ mean nothing to HMRC as many cases are being litigated by the Revenue where the costs involved are disproportionate to the benefits. This is particularly the case in penalty appeals which are heavily fact based and the amounts in dispute are relatively modest. Such an uncommercial approach puts taxpayers at a disadvantage as progressing an appeal to the Tax Tribunal can be time consuming and costly. Many taxpayers end up simply agreeing tax which, whilst they don’t agree with, nevertheless end up paying because it is more cost effective to do so. There is an increasing belief that HMRC exploit this to the taxpayer’s detriment.
Better governance during enquiries
Governance over HMRC’s enquiry process seems only to start near the end of an enquiry. The nature of enquiries is changing and has become less collaborative and more aggressive e.g. HMRC demanding information unrealistically quickly and asking for information which they are not entitled to receive.
It’s time HMRC removed their hands from their ears and started listening to what taxpayers are saying about their experiences and adhere to their own code, rather than believing that they are always right regardless.
This may be an accurate assessment of HMR&C’s position, and the suggestions reasonable and sensible. But it fails to take account of the reality of the government’s economic outlook and the Revenue is an agency of government. That outlook can be summarised in one word: desperate. The government is staring down the barrel of Brexit. Returning its gaze from the breach is something that looks a bit like economic meltdown. The car manufacturing industry has signalled in the clearest possible terms that it will be off post Brexit. At the cost of probably hundreds of thousands of jobs along the supply chain. Those workers will be converted from tax contributors to benefit claimants. Much of financial services has already begun the process of relocating to Paris, Frankfurt and Dublin. That could amount to ten per cent of the economy floating away. The Chequers proposal for a two tier tariff determined by ultimate destination is an administrative farce and will result in the loss of revenue to carousel fraud on an unimaginable scale. In short, desperate problems invite desperate measures and to hell with the law and prissy guidelines.
Any evidence for these claims? Or is it just the usual claims from big business chiefs who don’t like losing the perks they enjoy at everyone else’s expense due to the EU? Because so far both Germany and France have utterly failed to entice any major shift of financial firms to them due to their own financial woes, including high levels of tax and regulation. The current shambles is very much due to the government itself and how it is handling the matter and not Brexit as such. As for desperation, the government will lose greatly from extension of the off payroll reforms to the private sector, so it had better wake up.
BMW, Honda, Nissan, Toyota, Jaguar Land Rover, Vauxhall have all publicly threatened to reduce investment or leave the UK over Brexit uncertainty. As has Airbus most recently. The Bank of England has warned that regulators and politicians in the UK and EU are not doing enough to prevent “material risks” hanging over the £26tn derivatives market after Brexit, even if a transition deal is agreed. Goldmans, HSBC, Barclays, Citigroup, Credit Suisse, Deutsche Bank, JP Morgan to name some have actually started the process of moving some operations out of London. I take your point that some of this will be drum beating and politicking. But some of it will be jobs and investment. That is why the government is infecting its departments and agencies with desperation to raise revenue by any means.
Of course that’s been threatened it has been because those few elitists at the top are worried they can no longer take advantage of the uk people. It’s also a campaign run by the remain goverment angajnnkore scare tatics. There is not one ounce of truth in us beingnworse off due to leaving intact the other way not only financial but socially.
I do not agree with your comments about Brexit. The car industry will not be off post Brexit – indeed the UK car manufacturers have invested heavily since the referendum and will not be throwing that away. As for the financial services they too will retain a very large presence in the UK and some are relocating here from Europe. Where do you get your information from?
What utter utter nonsense. The goverment are desperate because we have more and more people claiming benefit, and under no uncertain terms due to being part of the Eu! We give away billions to the Eu to prop up the dictatorship. They have decimated our manufacturing/engineering as well as produce and fishing industries with subsidised imports. The car manufacturers will stay here, the finances will stay here, leave the Eu will be hard as we have a Eu ran goverment in place and need to oust them. But once we can make our own trade deals and import from other countries without paying huge mark ups the better! Not to mention that most of us are sick of living in the insidious dictatorship, I would say benign but it’s showing it’s self to be more and more totalitarian and tyrannical by the day. I for one am hoping that no deal is made and we can go to wto, that the Eu breaks up and nations can pick them selves back up and trade freely again with each other.
“Quite simply, it was because HMRC’s attitude was
arrogant, stubborn and completely unreasonable, but it
appears that this approach extends to tax disputes of any
nature.”
Untrue.
Everyone knows “this approach extends to tax disputes”
where the jobsworth Nazis believe their target does NOT
HAVE THE FINANCIAL/LEGAL RESOURCES to retaliate and
put their heads through the wringer.
The end game for HM government is for everyone to be effectively employed via them. By this I mean they will control how much money you are entitled to recieve and will legislate to have all earnings pass through HMRC before distributing to the ‘workers’. This way they will have full control of all earnings and have the ultimate control of the countries finances that they so desire. At least for the ‘worker’ element of the gross national product. Welcome to 1984.