Taxman spins bold plan for litigation strategy

Dispute resolution creates something of a paradox for the taxman. HM Revenue & Customs finds itself in the unenviable position of needing to keep the UK’s tax coffers topped up, but it has a mountain of cases to get through which can be prohibitively expensive to push through the courts.

Sources close to the taxman have told Accountancy Age it is considering a bold plan to spin out a “dispute resolution unit” from its anti-avoidance division. The new unit would look to resolve tax cases more quickly and put vital cash into the public purse.

But this would fly in the face of the HMRC’s stated litigation settlement strategy (LSS), which takes a much tougher line on tax battles. Its general aim is to push for a full settlement or court action if it believes it has a better than 50/50 chance of winning.

“The aim of the LSS is to ensure that we conduct disputes in a way that is professional, effective and that supports HMRC’s objectives to close the tax gap and provide customers with a clear understanding of the law,” the HMRC website claims.

Advisers have backed the idea of the new unit, because they believe HMRC has painted itself into a corner by pushing for full settlements or court action in certain circumstances.

Paul Harrison, KPMG’s UK tax investigations chief, said: “There's undoubtedly a need for HMRC to take a fresh look at how they settle disputes.”

Harrison said HMRC staff needed the tools and the methodology to back up a centralised approach. “I support any initiative that helps with that.”

Gary Ashford, tax director of disputes and investigations at RSM Tenon, said: “Anything the Revenue feels they have a better than 50/50 chance of winning, they’ll litigate that dispute. At the moment it’s too rigid. It would be good if they applied a more common sense approach.”

The LSS aims to provide the framework for bringing tax disputes to a conclusion, whether by agreement with the taxpayer or by litigation, ie. an appeal to an independent body, including the first-tier tax tribunal or the High Court.

Ashford said HMRC’s hand had been forced into considering the change because the government needs to bring in much-needed funds and lengthy disputes hindered this effort. “It’s almost all or nothing for a whole tranche of disputes. Clearly the government needs money and the one of the barriers to settlements is the LSS.”

HMRC said in a statement. “As part of an ongoing review on handling disputes, HMRC are currently exploring the use of alternative dispute resolution techniques to help make the conduct and resolution of disputes with taxpayers more efficient. These techniques are seen as tools (many already in widespread operation) for use within the existing departmental dispute channels.”

Law next in line

Speculation is rising that HMRC’s olive branch to the medical profession in its tax amnesty is about to be extended to barristers.

The legal eagles could be next in line after doctors and dentists were urged to come clean about unpaid tax, in return for a softer penalty than the one they receive if HMRC finds out under its own steam. The Budget speech could be the perfect platform to announce such a move.

George Bull, national head of tax at Baker Tilly, said barristers, who are effectively self-employed, were likely candidates for an amnesty.

And legal accounting specialist Cassons claims that the taxman has set up a specialist unit to look at barristers’ tax affairs.

Their valuations of work in progress under accounting rule UITF40, and inaccurate or unsubstantiated claims for expenses, are seen as problem areas for barristers.

HMRC is staying tight-lipped on who is next for an ‘amnesty’, but advisers are pushing for a general disclosure opportunity because favouring specific groups disadvantages those who come clean of their own accord, they say.

The consensus at a recent CIOT panel event was that lawyers were the ones most likely to get the amnesty. However, those attending also said it seemed perverse that someone coming forward totally voluntarily and proactively to pay unpaid tax would face a higher penalty than someone whose profession is being targeted.

For now, HMRC is keeping its cards close to its chest and would not be drawn on which sector was next in line for the amnesty, other than saying that “other professional groups” would be offered similar opportunities in the future.

Further reading:

HMRC Litigation and Settlement Strategy