Data compiled by City law firm Reynolds Porter Chamberlain shows that appeals against HMRC decisions to the VAT & Duties Tribunal and the Special Commissioners Tribunal have increased from 2,014 in 2002 to 3,146 during 2006.

Experts said that the increase in appeals to tribunals is a direct result of HMRC’s revised litigation and settlements strategy, where the taxman will not settle for less than 100p in the pound in tax disputes.

‘Taxpayers do not use the tribunal system lightly. However, HMRC’s current approach means that the tribunals will often be the only realistic option once deadlock has been reached with HMRC,’ said Reynolds Porter Chamberlain tax litigation partner Mark Whitehouse.

Gray’s Inn Tax Chambers barrister Patrick Way said HMRC had become ‘much more litigious’ and that the days of settling out of court were over.

‘You can see that a number of law firms are now opening up tax litigation arms to respond to the increase in cases,’ Way said.

The taxman is consulting on plans to introduce an internal review process.

This will involve HMRC staff ruling on the disputed decisions of their colleagues. Taxpayers will have to go through this process before they can request an independent tribunal hearing.

The department is currently preparing for next week’s Budget, with advisers speculating that the annual speech by the chancellor could contain some crumbs of comfort on the income shifting proposals.

The new anti-avoidance rules, introduced after the taxman’s loss in the Arctic Systems case, will target family business and prevent couples from moving dividends from the company to a spouse who pays a lower rate of tax.

When the new rules were introduced, advisers said compliance would place a heavy red tape burden on small businesses.

It is rumoured that Alistair Darling may use the Budget to offer some concessions to small businesses and appease those upset by the changes.