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UK Tax Litigation Case Backlog At Record High

by Robert Lee,, London

26 November 2014

HM Revenue and Customs's (HMRC's) high-profile clampdown on suspected tax avoidance has driven the backlog of unresolved tax disputes to a record high, according to research from law firm Pinsent Masons.

The firm said that there has been a surge in the number of high-value cases lodged with the Upper Tax Tribunal, with 267 new disputes joining the queue in 2013-14. This is a 32 percent increase on the previous year and an almost fourfold increase on 2009-10, when just 70 new cases were lodged with the Upper Tribunal.

Pinsent Masons warned that the aggressive litigation strategy pursued by HMRC means that it could be some years before rulings are reached on more complex cases. The Judicial Appointments Commission is currently recruiting up to four salaried judges and up to 35 fee-paid judges and deputy judges of the First-tier Tax Tribunal, but Pinsent Masons is concerned that these efforts to expand the system's capacity will not be sufficient.

James Bullock, Head of Litigation and Compliance at Pinsent Masons, said: "The tax tribunals have been getting through cases quicker but the backlog is still going up. The time taken for cases to completed needs to come down substantially so that taxpayers are not left in financial limbo for what can be years. To achieve a more reasonable timeframe for tax cases, HMRC needs to start negotiating deals – for example, with the 65,000 avoidance cases that HMRC has identified."

Bullock said that a majority of those people who have been sold tax avoidance schemes were not aware what they were getting involved with, and are therefore unlikely to engage in such activity again. He said that HMRC could reduce the time taken to complete all cases if it clears up the "overhang" of these disputes.

Pinsent Masons also warned that the introduction of Accelerated Payment Notices, which require those engaging in challenged tax avoidance schemes to pay disputed tax upfront, will be a cause of further concern for taxpayers. Bullock said: "A long wait for a tribunal case to be heard is not as much of an issue for HMRC as it is for a taxpayer that has already had to pay the tax that is in dispute."

"Although HMRC would have to pay interest if it lost the case, it is unlikely to be enough to compensate a taxpayer for the amount they could have earned if they had been able to invest the money instead – even in a relatively low-risk product with guaranteed yields. To that extent a slow-moving system plays in HMRC's favor, it adds to the risk for taxpayers."

TAGS: compliance | tax | tax compliance | tax avoidance | interest | law | United Kingdom | tax authority | HM Revenue and Customs (HMRC) | revenue statistics | HM Revenue and Customs (HMRC) | Compliance

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