Pressure forcing taxman to be more aggressive in pursuing VAT fines

HM Revenue and Customs admits in a report out this week that it loses 60% of the VAT penalty cases appealed by businesses, says Pinsent Masons, the international law firm.

Pinsent Masons says that HMRC dealt with 30,345 appeals from businesses over VAT penalty notices issued during the 2011-12 tax year. HMRC’s penalties were cancelled in 18,317 of these cases.

Pinsent Masons says that HMRC has been under particular pressure to increase revenue from VAT. The National Audit Office recently criticised the organisation for unpaid VAT contributing £9.6 billion to the UK’s estimated tax gap of £32 billion.

Jason Collins, Head of Tax at Pinsent Masons, explains: “HMRC is operating under a lot of pressure to increase its revenues across the board, but this pressure is particularly acute in VAT. The NAO report highlighted the huge difference between the VAT HMRC believes it should be collecting, and the amount it actually does receive.”

The fact that HMRC loses 60% of the penalty cases that businesses appeal shows that it may have become over-aggressive in hunting for cases of VAT evasion, and is making errors in issuing penalties. HMRC is also too quick to say a taxpayer has been negligent when it gets things wrong."

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Unfortunately, it seems that thousands of UK businesses have been forced to challenge unfair fines as a result.”

Pinsent Masons adds that these figures back up HMRC’s reputation for being more aggressive in pursuing penalties in VAT cases than in other forms of tax. Only 24% of penalties for other taxes were cancelled on appeal.

Says Jasons Collins: “The tough tactics on VAT date back to the days of HM Customs and Excise, which was well-known for being a more aggressive organisation than the Inland Revenue was before the two were combined in 2005.”

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