Tax
HMRC showing welcome readiness to resolve small business tax disputes |
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| Tax | |
| Written by Matheu Smith, Consultant Solicitor at Keystone Law | |
| Friday, 27 January 2012 | |
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A look at the Alternative Dispute Resolution and how SMEs are set to benefit.
It is believed that the UK has the longest tax code in the world. The many books that try to explain what all that means are even longer. The uncomfortable truth is that nobody (including HMRC) fully understands UK tax law which is why the Tax Tribunal is full of cases seeking clarification of what the law is and how it should be applied. This in itself is very bad news for business, but HMRC has all too often seemed intent on making matters worse. In fairness many of the problems seem to stem from massive cutbacks to HMRC’s resources. Following the 2005 merger between the old Inland Revenue and HM Customs & Excise it shed about 30% of its staff. The 2010 comprehensive spending review saw HMRC suffer more severe cutbacks that mean around a further 13,000 jobs have to go by 2015. This massive reduction in manpower has left HMRC increasingly reliant upon complex, temperamental computer systems and policy driven checklists and it can struggle to cope with the circumstances of individual businesses especially when something has gone wrong. One of the more unpleasant consequences has been HMRC’s increasing tendency to focus on imposing penalties to punish the sort of mistakes businesses can make when faced with the complexity of the UK tax system rather helping them to avoid making such mistakes. HMRC even stands accused of using its penalty systems to try to raise revenue. In a recent series of extraordinary cases late filing penalties were set aside or reduced by the Tax Tribunal after it held that it was conspicuously unfair for HMRC to wait 4 months before sending out a penalty notice when the penalty increased for each month the return was late. Whilst the Tax Tribunal accepted that HMRC was not obliged to remind a business to file returns the reality was that a penalty notice does in fact function as a reminder to file the return when the business has simply forgotten to file it. The Tax Tribunal also pointed out that HMRC seemed to have no problems promptly sending out penalty notices in other cases when the penalty does not increase over time. Despite the difficulties caused by the cutbacks and dysfunctional behaviour by HMRC there are signs it recognises that an unremittingly hostile approach to businesses is not always productive. Until relatively recently many advisors viewed the option of asking HMRC to review a decision that a business disagreed with as a waste of time. The review would often be conducted by a relatively close colleague of the officer that made the disputed decision and so it was rare to see a change of mind unless the business had new information to produce. That left the business with the difficult choice of whether to expend considerable time, effort and money on pursuing a formal appeal or just accept HMRC’s decision. This situation now seems to be changing after HMRC introduced a new internal review system in April 2009. It established a much more independent review process and the signs are that this has produced a significant improvement in the prospects of resolving a dispute with HMRC. It was also intended to make the new review system as consistent as possible across all the different taxes eliminating the confusing myriad of different systems that existed before. Sadly enough variation and complexity remains to make it impossible to summarise in this article how to ask for a review in every case, but if you do receive a decision from HMRC it should at the same time tell you how you can ask for a review or appeal it in that specific case. However, speed is always vital as generally you only have 30 days to request a review or to appeal. If that deadline is missed then the opportunity to challenge the decision is lost unless HMRC is generous enough to accept a late request for a review or appeal. HMRC is now taking this more constructive approach even further through a new system called Alternative Dispute Resolution (‘ADR’) aimed at small and medium sized enterprises. An HMRC ‘facilitator’ is appointed to work with the taxpayer and the HMRC caseworker that made the disputed decision to try to resolve the dispute by agreement. This is currently only operating as a pilot scheme in certain parts of the country though based on its success it looks set to be rolled out nationwide. This seems to be a way for HMRC to target some extra manpower at resolving disputes that would otherwise end up before the Tax Tribunal. It remains to be seen whether anything can be done about the dog’s breakfast that is UK tax law, but in the meantime HMRC’s greater willingness to try to resolve disputes is most welcome.
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