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