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.
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.
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.
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.