Taxpayers in major cases could face costly wait
HMRC's high profile clamp-down on suspected tax avoidance has pushed the backlog of tax disputes waiting to be heard to a new record high of 27,246, with a particular surge in the number of high value cases lodged with the Upper Tax Tribunal, says Pinsent Masons, the international law firm (see data below).
The total includes a surge in the number of high value disputes joining the queue to be heard by the Upper Tax Tribunals; 267 new Upper Tribunal cases have been lodged in the last year, an increase of 32% on the previous year, and almost four as many as five years ago, when 70 new cases were lodged with the Upper Tribunal.
In an effort to ensure that tax cases are heard faster, the Judicial Appointments Commission is currently recruiting up to four salaried judges and up to 35 fee-paid judges and deputy judges for the First Tier Tax Tribunals.
However, Pinsent Masons warns that HMRC's aggressive litigation strategy means that despite these efforts to expand the system's capacity it could still be some years before a ruling is reached on more complex cases.
The Public Accounts Committee recently (November 17) published a report criticising HMRC for its slow pace in dealing with the backlog of tax avoidance cases.
Explains James Bullock, Head of Litigation & Compliance: "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 time frame for tax cases, HMRC needs to start negotiating deals – for example, with the 65,000 avoidance cases that HMRC has identified.
"Considering the sea change in attitudes towards tax avoidance over the last five years, a more pragmatic approach by HMRC to negotiate settlements is highly unlikely to encourage more tax avoidance.
"Most people who were sold avoidance schemes did not realise what they were getting involved with and are very unlikely to get involved with tax avoidance again. Clearing up the overhang of those cases could reduce the time taken to complete all cases by a substantial margin."
Long wait will be especially costly for taxpayers disputing Accelerated Payment Notices
Pinsent Masons points out that the increased number of cases at the Upper Tax Tribunal will be a particular concern for taxpayers that HMRC has issued with an Accelerated Payment Notice, forcing them to pay the disputed tax up front.
Says James Bullock: "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 favour – it adds to the risk for taxpayers."
Overall Tax Tribunal backlog reaches record high as number of new Upper Tier Tax Tribunal cases jumps