HM Revenue and Customs (HMRC) makes more mistakes than taxpayers believe and does not have a good record challenging simple tax avoidance cases, says a new survey.
Tax lawyers looked at official figures disclosing the results of reviews and tribunals where HMRC decisions were argued by taxpayers and found that inspector decisions were overturned in 57% of cases re-examined on appeal.
HMRC offers two routes for dealing with tax disputes – a peer review where a tax inspector independent of the tea making a decision assesses a claim and a formal tax tribunal.
The review is designed to be a quicker and cheaper process for taxpayers.
The survey, by lawyers Pinsent Mason, looked at how cases were decided in the 2015 tax year and found that reviews varied or cancelled decisions in 57% of cases.
More than 5,100 cases went to a tax tribunal. Close to 3,900 appeals ended in a formal hearing or taxpayers came to an agreement with HMRC before a hearing.
The tribunal ruled in favour of the taxpayer in 18% of cases heard.
Pinsent Mason tax expert Heather Self warned that HMRC is taking on more straightforward tax planning cases after winning several high profile cases.
“Many of HMRC’s recent successes relate to complex avoidance schemes implemented some years ago,” she said. “We are now seeing them challenge straightforward commercial planning, and expect taxpayers to win an increasing proportion of future cases.”
“The statistics suggest that if your professional adviser thinks it is sensible, challenging an unfair or disproportionate action by HMRC is worthwhile – by either review or, where necessary, full appeal. Where appropriate, decisions will be amended.”
Spin on data
HMRC is only keen to take cases to a tribunal where a favourable result is expected – which in legal terms means more than a 50% probability of success.
Such a policy allows HMRC to claim in the media that around 80% of cases that go to court are won but the underlying data uncovered by the survey shows the overall success rate is much lower.
In reviews, decisions were amended in almost a third of non-penalty cases, 65% of VAT penalty reviews and 52% of penalty cases.
The statistics cover personal and business tax cases.