HMRC To 'Soften' Tax Avoidance Policy

by Amanda Banks, Tax-News.com, London

25 August 2010

HM Revenue and Customs is to revise its tax litigation strategy after Dave Harnett, Permanent Secretary for Tax, admitted that officials have taken too harsh a line on tax disputes in certain cases.

The new strategy will target businesses over individuals, with the emphasis on reaching agreement over going to court. A pilot project is also planned to assess the use of third-party mediators in some cases.

Members of the UK200Group of independent accountancy and law firms have commented on the the department’s decision to adopt this ‘softer’ approach on tax avoidance cases. David Whiscombe, partner, BKLTax, and member of UK200Group tax panel, observed:

“This is pretty much a complete reversal of the ‘Litigation and Settlement Strategy’ which HMRC introduced in 2007. What they then said was that they would approach settlements on an all-or-nothing basis: ‘there should be no compromise where our arguments are strong: equally, we will not hold out for low-value settlements if our arguments are not strong enough to support litigation, or if the issue is one that does not justify the use of litigation in the absence of agreement’. So it's hardly fair for Mr Hartnett now to criticize inspectors for being ‘too black and white about the law’ – it’s exactly what he told them to do!"

“In our view the 'all-or-nothing' approach of the official Litigation and Settlement strategy was never going to work in the real world and we welcome its abandonment. Tax issues are seldom black and white and the return of proper negotiation on areas of genuine difference of opinion is a good thing.”

Clare Munro, partner, Haslers, and member of UK200Group tax panel, noted:

“A more pragmatic approach to disputed tax treatment is welcome and must make sense in terms of optimising the Exchequer's net tax take. The Revenue's ‘Litigation and Settlement’ policy is designed to operate in an ‘all or nothing’ way so that they run what they perceive to be the best cases and drop the rest. Reality is often more complex than that."

“The policy also means that once a case is on the track towards tribunal, there is little opportunity to stop it until both sides have put considerable resources into fighting it. The pre-tribunal internal review is little more than a procedural check so the first opportunity for a cold look at the substantive case seems to be when it gets to the Solicitor’s Office.”

David Ingall, managing partner, JWPCreers said:

“Softening a stance can mean so many different things. It might mean seeking compromise to get to a settlement in an enquiry or alternatively HMRC being less aggressive in pursuing areas where there is commercial sense in doing a transaction in a particular way but HMRC digs out an archaic piece of legislation to try to extract tax. Those cases almost inevitably lead to long drawn out litigation and complete uncertainty for tax advisers and payers."

“I have seen a more practical approach in a couple of cases in the recent past where, having achieved the initial objective, HMRC has rapidly shut down an enquiry. This is to be applauded. I think HMRC may have finally discovered that opening a case and then reaching a practical settlement produces the cash far quicker than trying to go for the ‘last drop’. A deadly effect of this is that a subsequent enquiry that discovers further issues will involve higher penalties and possibly criminal prosecution.”

Andy McQuillan – Head of Taxation, Dains LLP commented:

“This is a welcome announcement which hopefully will result in HMRC focusing their attentions on tax evasion cases where the taxpayer has deliberately tried to evade paying tax as opposed to genuine tax disputes arising out of either an innocent error or misunderstanding of the complex legislation."

“In our experience the Revenue have, over the last few years, become tougher on the latter with very little room to negotiate a settlement, thus resulting in the taxpayer incurring substantial professional costs – sometimes outweighing the value of tax in dispute.”

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