A UK top twenty accountancy firm claims that almost two thirds (65%) of all HMRC VAT related penalties and decisions that are appealed and internally reviewed are found to be wrong and overturned.
According to UHY Hacker Young, HM Revenue & Customs reviewed 39,551 of these cases last year and 25,633 were ruled incorrect.
These cases relate to VAT decisions imposed on businesses regarding tax disputes as well as late filing and late payment of tax. The reviews are meant to be a way of settling disputes quickly and inexpensively; then if the taxpayer disagrees with the result they can take the matter on to Tax Tribunal.
The number of reviews undertaken has also more than doubled since they were introduced in April 2009. In the first year 16,640 cases were reviewed at taxpayers’ request.
UHY Hacker Young says that it is concerned about this rise in both the number of reviews and the number of cases found to be incorrect and says that it is ‘…likely that thousands more taxpayers will have paid fines which had been wrongly imposed’.
The company then goes on to say that it fosters the suspicion amongst taxpayers that HMRC is putting its officers under pressure to gather revenue by issuing fines.
Under the current rules though, says UHY Hacker Young ‘late payments should suffer no penalty if the taxpayer has a reasonable excuse whilst mistakes on VAT returns should suffer no penalty if the taxpayer takes reasonable care’.
VAT Partner at UHY Hacker Young, Simon Newark, said:
These numbers are worrying. Penalties shouldn’t be thrown around like confetti and it suggests that Officers are really not adhering to the findings of the Courts in penalty cases. While it is encouraging that HMRC is prepared to correct its own mistakes, it really shouldn’t be making this number of errors to begin with.
He went on to say that these figures could suggest that the ‘carelessness argument’ has been used far too frequently in order to generate penalties and therefore revenue. ‘It would be understandable if a small percentage of fines were wrong, but for this many to be overturned by their own Review team is quite astonishing’. He said.
Then there is the cost to the taxpayer of getting a fine overturned as HMRC does not pay the cost of contesting it so many just pay up. UHY Hacker Young blames the ‘current adversarial culture’ between taxpayer and tax collector for this and says it is getting worse.
But, despite this, Simon Newark ended by saying ‘The lesson here is if you get a fine or a decision you are not happy with, be prepared to challenge it. The chances are it might be worth your while.’