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HMRC's Large Business Tax Inquiries Now Taking Three Years

by Jason Gorringe,, London

09 November 2018

The average length of HMRC's tax inquiries into large businesses are now taking more than three years to settle, with each case taking around 39 months to resolve in 2017/18, up from 34 months in 2016/17, according to Pinsent Masons, the international law firm.

While the duration of investigations has increased, the number of cases open at the end of the year fell to 3,302 in 2017/18, down from 3,617 in 2016/17.

Pinsent Masons said businesses are facing huge disruptions as a result of these increasingly drawn-out tax disputes. As well as the financial costs of complying with HMRC's requests, investigations also use up vital management time, it said.

Pinsent Masons said HMRC has previously picked most of the "low-hanging fruit" when it comes to large business tax investigations, and is now focusing on tougher, more complex cases where underpaid tax is harder to find, if it exists at all. Many cases involve transfer pricing disputes, with international businesses that operate in multiple tax jurisdictions, the firm said.

"HMRC uses its 'Litigation and Settlement Strategy' (LSS) framework to resolve tax disputes," it explained. "Its principles include that HMRC should not enter into 'package deals', in which a range of separate issues are settled for a single payment. It also provides that disputes that have an 'all-or-nothing' character, such as a case involving a single point of law or fact that would be decided one way or other by the courts with no middle ground, should be settled on 'all-or-nothing' terms."

"The LSS was designed to ensure consistency in how tax disputes are resolved," it noted. "However, this can make it difficult for individual teams at HMRC to settle disputes for less than the full amount of tax initially claimed and, therefore, may be contributing to the increased length of time taken to conclude an investigation."

Pinsent Masons further noted that HMRC is increasingly looking at inquiries by sector, such as into businesses engaged in the retail or financial services sectors, meaning that its inquiries focus on multiple businesses at once, which can further draw out how long cases take to settle.

Steven Porter, Partner at Pinsent Masons, said: "Businesses face huge disruptions as HMRC continues to drag out even the most basic of tax disputes. Having investigations open for over three years leaves businesses in limbo. It is not just the disruption, this also creates a sense of uncertainty over what the business' liabilities might be and that uncertainty can negatively impact on decision making."

TAGS: court | tax | investment | business | law | financial services | United Kingdom | transfer pricing | penalties | retail | services

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