Friction between HMRC and the taxpayer as the number of tribunal disputes continues to rise

Friction between HMRC and the taxpayer as the number of tribunal disputes continues to rise

Price Bailey has cited the adoption of software as enabling HMRC to more aggressively obtain results

Price Bailey, through requesting and analysing recent statistics, has revealed that the disputes between HMRC and the taxpayer that make it to a tribunal are “surging”. This comes after HMRC has been put under increasing pressure to achieve results, the accountancy firm has reported.

“The increase in first-tier tribunal cases shows that taxpayers are prepared to push back against demands made by HMRC [when] they feel they have been treated unfairly.”

An estimated £11bn is lost to tax evasion each year, and it is HMRC’s responsibility to bring these people to order and achieve results. HMRC can therefore be seen to be taking a far more aggressive stance with taxpayers.

“HMRC is under increasing pressure to maximise tax revenues and accelerate the collection tax,” said Richard Grimster, partner at Price Bailey.

“This has seen it adopt a more aggressive and intransigent approach in its dealings with taxpayers. The increase in first-tier tribunal cases shows that taxpayers are prepared to push back against demands made by HMRC [when] they feel they have been treated unfairly.”

“The amount of data [HMRC] is able to marshal allows it to paint a much more detailed picture of an individual’s or a business’s tax affairs. This means that HMRC can instigate a greater number of reviews at a significantly lower cost.”

The number of cases that have gone to a tax tribunal has jumped 43% in just two years.

  • 2017-18 tribunal cases: 7,377
  • 2016-17 tribunal cases: 6,559
  • 2015-16 tribunal cases = 5,161

“These figures make it clear that, despite declining staff numbers and resources, HMRC is much better equipped to challenge taxpayers than it has ever been,” said Grimster.

As well as this increase in pressure, the taxman is now making greater use of the data collected from the likes of banks and foreign tax authorities. Furthermore, the sheer amount of data on taxpayers at HMRC’s disposal has increased. As such, there has been a greater focus on the taxman’s ability to analyse the data at hand.

Price Bailey claimed: “This has provided HMRC with ammunition to challenge many more taxpayers, despite fewer staff.”

Grimster added: “The amount of data [HMRC] is able to marshal allows it to paint a much more detailed picture of an individual’s or a business’s tax affairs. This means that HMRC can instigate a greater number of reviews at a significantly lower cost.”

“HMRC is now able to spot discrepancies much more efficiently.”

Recently, HMRC has introduced the likes of Making Tax Digital (MTD) with an aim to make processing simpler and more immediate. However, internally, they have also developed a software system called ‘Connect’—initially launched with limited functionality in 2010.

Nonetheless, in a short amount of time, the software has been evaluated and improved with additional capabilities and access to data. For example, financial information from: financial institutions, government bodies, British Overseas Territories, and 60 OECD countries.

Connect is able to analyse vast amounts of personal and commercial information. With this tool at their disposal, HMRC is seeking to establish links between individual taxpayers and their businesses, assets, transactions, and income.

“HMRC is particularly focused on reducing tax losses resulting from undeclared income or gains arising offshore.”

“HMRC is now able to spot discrepancies much more efficiently,” said Grimster. “[The] software can automatically check information reported in tax returns against back accounts, and make sure they tally.

“Previously, checks of this kind would have been laborious and time-consuming, but HMRC’s software can spot any inconsistencies swiftly and flag those for further investigation.”

Nonetheless, it is important to note that this does not mean that the taxpayer does not still have the responsibility of notifying HMRC of any liabilities.

“With international efforts to share data on taxpayers gathering pace, HMRC is now far better equipped to challenge taxpayers with undeclared offshore income or gains.”

Under the Require to Correct (RTC) rules, “UK taxpayers must notify HMRC about any offshore tax liabilities relating to income, capital gains or inheritance tax, or face a minimum penalty of at least double the tax owed,” Price Bailey commented.

“It is now more important than ever that taxpayers ensure that their affairs are in order,” said Grimster. “HMRC is particularly focused on reducing tax losses resulting from undeclared income or gains arising offshore. Historically, this was an area that some taxpayers were quite blasé about.”

He concluded: “With international efforts to share data on taxpayers gathering pace, HMRC is now far better equipped to challenge taxpayers with undeclared offshore income or gains.”

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