Taxpayers have experienced a significant increase in the amount of time spent waiting for an HMRC tax enquiry to close, according to law firm RPC.
RPC said that taxpayers under enquiry by HMRC’s CSI (Charities, Savings and International) and Pensions units waited an average of 303 days for enquiries to close during tax year 2015-16, an increase of 24% compared to the previous year in which the average was 243 days.
The law firm said that there was “an increasing concern” that HMRC “may be using the tactic of dragging out enquiries in order to wear taxpayers down and force them to the negotiating table”.
At the end of 2015-16, a total of 4,011 enquiries by HMRC’s CSI and Pensions units were still open, compared to 494 that remained open at the end of 2014-15.
RPC said that keeping cases open for longer was “placing taxpayers under increased stress”, as investigations were time consuming and disruptive. The longer the investigation, the higher a taxpayer’s professional fees were likely to be, which often led to taxpayers settling with HMRC, the law firm said.
The Finance Bill 2017 includes proposals for partial closure notices, which would enable discrete issues to be resolved during an enquiry, even though others may remain open. Forcing HMRC to close an enquiry through application to the tax tribunal was likely to become more popular once the partial closure notices proposals become law, RPC said.
The law firm also said that advanced payment notices have “reduced the incentive for HMRC to bring an enquiry to a close”, as they can be issued by HMRC to taxpayers who have an ongoing tax enquiry, requiring them to pay the tax in dispute before the enquiry has closed. Once the taxpayer has paid, “there is little incentive for HMRC to progress the enquiry expeditiously as this would allow any subsequent appeal to be decided by the tax tribunal and, should HMRC lose, it would have to return to the taxpayer any money paid to it under the APN”.
Adam Craggs, partner at RPC, said: “HMRC has been accused of tactically wearing taxpayers down so as to avoid heading to the tax tribunal. The substantial increase in the number of open cases in the last year is arguably evidence of such a strategy, especially when considered together with HMRC’s increased use of ‘nudge’ letters which are intended to persuade taxpayers to concede their dispute.
“HMRC is under intense pressure to increase the tax yield and it is prepared to pressure taxpayers in order to maximise the tax take.”
“By keeping cases open for long periods of time HMRC is placing financial pressure on taxpayers and generating increased stress for those taxpayers who find themselves caught up in a lengthy HMRC enquiry,” Craggs added.
APNs are issued to individuals and businesses who are suspected of having engaged in tax avoidance, and require full payment of the disputed tax within 90 days
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