HMRC has recently published their updated Litigation and Settlement Strategy (‘LSS’) which ‘refreshes’ the guidance published in 2007 as to how HMRC resolve differences with the customer where there is a difference in view over what is the ‘right tax at the right time’.
The LSS makes clear that HMRC’s role is to maximise overall revenue for the Exchequer and, to do that, it must:
- Apply the law fairly and even-handedly.
- Not take up a tax dispute unless the overall revenue flows involved justify doing so.
- Handle disputes in a collaborative and non-confrontational manner.
- Pursue effective dispute resolution, including court action, if collaboration is not received from the customer.
- Set out clearly the points in dispute, seek to establish the relevant facts as quickly as possible and work with the customer to share and test the strengths and weaknesses of the customer’s arguments.
What is clear is that HMRC will only agree to resolve disputes in accordance with the law. In effect, this means that HMRC will not agree to ‘do a deal’ where the amount paid does not accord with a figure which can technically be calculated as due.
LSS makes it clear that each dispute will be dealt with in isolation to any other disputes (HMRC will not enter in to packaged deals) and where the case is an all of nothing case, they will not agree to ‘split the difference’. The LSS also gives clear guidance that HMRC will use mediation and other alternative dispute resolution (ADR) options to resolve disputes. What is less clear is how the use of mediation and ADR fits with the notion that HMRC will not ‘do a deal’ unless it accords with their view of what is technically due. How HMRC approach the use of ADR is something that we will have to wait and see, particularly as HMRC will not settle for a sum that is less than the amount it would reasonably expect to obtain from litigation.
Perhaps the most concerning point to come out of the LSS permits officers to take claims to court even if it is unlikely that HMRC would succeed or the amount in dispute is too small if there is a fundamental point of principle or a ‘behaviour’ at issue. This suggests that a number of taxpayers are going to be faced with litigation notwithstanding HMRC accept that the claims are unlikely to succeed. This does not, on the face of it, appear to be a sensible use of HMRC or the court’s resources.
For further information about this article, please contact Andrew Crocombe on 01865 781000.