The Chartered Institute of Taxation (CIOT) has told MPs of its concern at HMRC’s apparent eagerness to litigate rather than make concessions to reasonable viewpoints when advised that there is less than 50 per cent chance of successful legal action. The Alternative Dispute Resolution (ADR) should be promoted more widely as a means of curbing this unwelcome trend, which is resulting in an ever increasing number of Tribunal cases, says the Institute.
In a recent submission to the Treasury Sub Committee, the CIOT backed HMRC’s Litigation and Settlement Strategy (LSS) as a sensible framework for handling and resolving disputes with taxpayers. But the Institute said its members complain that HMRC do not always seem to be adhering to the LSS which states that where HMRC believe that it is unlikely to succeed in litigation it will, in the majority of cases, concede the issue.
The LSS suggests that taking early specialist advice will bring important efficiency savings - but the Institute is concerned that technical specialists, HMRC’s solicitors’ office, and tax counsel, are often engaged too late in the process, long after HMRC’s decision is taken and a dispute has arisen.
Where HMRC officers undertake the advocacy on cases, there is less evidence that they undertake an objective assessment of the merits of HMRC’s case. This reduces the scope for either settling the case, or narrowing down the issues in dispute.
Commenting on the submission, CIOT President Ray McCann said:
“Contrary to the LSS, our members report that HMRC seem to be taking increasing numbers of cases where the prospects of success appear much lower than 50 per cent.
“Alternative Dispute Resolution (ADR) mediation can work well and needs to be promoted more widely as a mechanism for resolving disputes. ADR is effective when it is used genuinely to seek to resolve disputes. Unfortunately, our members have also experienced cases where the HMRC officers at the ADR meeting did not have the authority to reach a settlement, when the taxpayers had senior personnel attending who were able to take decisions that could have led to settlement. This leads to increased costs, makes subsequent litigation more difficult, and makes ADR less attractive to pursue. HMRC should be prepared to engage with authority in this process.”
In the submission, the CIOT said its members report increasing instances of HMRC adopting an interpretation of the law to bring in the greatest tax, which is contrary to HMRC own mantra of ‘right amount of tax on time’. This extends to running contradictory arguments in different cases, and/or ignoring their own published guidance, custom and practice, and relevant case-law. The CIOT is concerned at the reference in HMRC’s single departmental plan which says that it will ‘maximise revenue due’ rather than wording such as ‘maximise collection of revenues properly due’.
HMRC often appear to suggest an inappropriate category of behaviour when applying penalties. Examples of this would be categorising genuine errors as carelessness, or carelessness as dishonesty, leading to decisions which are overturned on appeal. Such litigation is normally a costly exercise for both the taxpayer and HMRC.
Commenting on the submission, CIOT Tax Policy Director John Cullinane said:
“Many penalties for careless behaviour seem to be issued with no apparent consideration of suspension. We also told the committee that HMRC often seem unduly reluctant to suspend penalties for ‘one-off’ errors and that penalty conditions seem often poorly thought through.
“We are concerned at HMRC’s eagerness to litigate despite an already overwhelming number of cases in the tax tribunal system.”
The Treasury Committee is appointed by the House of Commons to examine the expenditure, administration and policy of the Treasury, HMRC, and associated public bodies. Its Treasury Sub-Committee is examining whether HMRC’s approach to conducting tax enquiries, resolving tax disputes and determining the amount of tax to be paid meets those standards. The Treasury Sub-Committee invited written submissions.
The Institute told the MPs in its submission that HMRC’s compliance regime could be improved by simplifying tax legislation, improving the quality of guidance and emphasising the principles in HMRC’s Charter. It also called for improved training of HMRC staff, improving practices, processes and record keeping by HMRC and reviewing applicable time limits to more closely align the rights of taxpayers and HMRC to make claims and corrections.
Ray McCann has been asked by the Treasury Sub Committee to give evidence on the Conduct of Tax Enquiries and the Resolution of Tax Disputes inquiry on 9 July 2018.
Notes for editors:
- CIOT's submission can be read here.