HMRC disputes that end in court surge by 43%

Contractors and other taxpayers not willing to simply roll over for a “more aggressive” taxman are behind an at least 40% rise in first-tier tribunal cases.

In fact, in 2017/18 there were 7,377 cases at the FTT -- which hears appeals against HMRC decisions on a range of taxes -- compared to 5,161 in 2015/16.

That means disputes between HMRC and taxpayers have surged by 43% in the last two years, said Price Bailey (or by just 12% from 2016/17 when they were 6,559 cases).

'Push back'

Explaining the increase, the accountancy firm said that HMRC had become “more aggressive and intransigent”, due to pressure to maximise its haul, prompting taxpayers to “push back”.

But the cases only came about due to HMRC decisions, and those were facilitated by more data flooding into the Revenue, followed by better analysis of it, believes the firm’s Richard Grimster.

“This has provided HMRC with ammunition to challenge many more taxpayers despite having fewer staff,” he said.

“The amount of data it is able to marshal allows it to paint a much more detailed picture of an individual’s or a business’s tax affairs. This means that HMRC can instigate a greater number of reviews at a significantly lower cost.”

'Limited functionality'

Chief in the tax authority’s arsenal is Connect, which no longer suffers from the “limited functionality” that it had immediately after its launch in 2010, thanks to automation and access to overseas accounts data.

“[It can] analyse vast amounts of personal and commercial information…to establish links between individual taxpayers and businesses, income, assets and transactions.” Grimster said.

“[And] automatically, [it can] check information reported in tax returns against bank accounts and make sure they tally.

"Previously, checks of this kind would have been laborious and time-consuming but HMRC’s software can spot any inconsistencies swiftly and flag those for further investigation.”

'Blasé'

The system also facilitates what the accountant indicated to be HMRC’s current enforcement focus -- reducing tax losses resulting from undeclared income or gains arising offshore.

“Historically, this was an area that some taxpayers were quite blasé about,” Price Bailey said.  “[But] with international efforts to share data on taxpayers gathering pace, HMRC is now far better equipped to challenge taxpayers with undeclared offshore income or gains.”

The firm believes it is “now more important than ever” for taxpayers to have their affairs in order, because HMRC is ‘much better equipped than it ever has been’ to launch challenges.