"Dash for Cash" policy sees HMRC favour negotiation over litigation

Advisers and tax investigations insurers expect HM Revenue & Customs to relax its stance on litigation in a major policy change to bring money into the government's coffers through negotiated settlements rather than aggressive legal action.

Investigation consultants from Abbey Tax Protection, flagged up the new initiative within HMRC which has been dubbed the ‘Dash for Cash’.

Unlike previously, the taxman will not necessarily take court action even if it believes it has a strong legal case.

Abbey Tax Protection which provides insurance for customers dealing with HMRC probes said tax inspectors were being told to change tack and use their discretion to settle cases at an accellorated pace.

"We understand there will be pressure to settle long running full enquiry cases and inspectors will be encouraged to take up aspect cases which are likely to be settled more quickly to optimise the tax yield in the current fiscal year, " Abbey Tax Protection said.

Opinion has been split in the profession. Some advisers fear that the change will actually see more of their clients being targeted through "aspect cases", which are more focused probes, compared to the full-blown enquiry cases.

"This is a concern," said Cathy Corns of Mercer & Hole.

However, Mike Warburton, tax partner at Grant Thornton, welcomed the move in terms of avoiding lengthy and expensive litigation.

"Before the Revenue was very, very firm. If there was a strong case, they would litigate, but now they appear to be saying it's up to the discretion of the inspector."

Abbey said in recent weeks HMRC inspectors they had contacted said "they are being tasked to bring in as much money as possible, as quickly as possible, which is not really surprising given the current economic environment."

Abbey Tax Protection warned investigations activity will remain at the forefront of HMRC’s activities to close the tax gap, estimated to be £40bn.

"There is every intention to use its information powers and the penalty regime to tackle evasion, the hidden economy, reducing the failure of taxpayers to take reasonable care and even for resolving issues of legal interpretation, which together amount to an estimated 55% of the behaviours which determine the value of the tax gap," the company added.

A statement from HMRC said: "HMRC is committed to reducing the tax gap by £4bn by 2010/11. We aim to achieve this where possible through discussion and consensus but it would be wrong to compromise where we are clear that our analysis of the law as passed by Parliament is the right one.

“We are aiming to resolve issues as they arise, reducing the number of outstanding concerns.”

Further reading:

HMRC flexes its muscles with company probes