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UK tax disputes backlog continues to increase

The backlog of tax disputes waiting to be heard by the first-tier tribunal (FTT) reached 28,800 last year, the third year in a row that the number has increased and more than double the 2009-10 figure, according to Pinsent Masons, the law firm behind Out-Law.com.08 Mar 2019

The increase reflects an aggressive approach to curbing tax avoidance by HM Revenue and Customs (HMRC), including its inflexible settlement strategy and an increased number of challenges by taxpayers to the imposition of accelerated payment notices (APNs), according to Pinsent Masons.

Tax disputes expert Steven Porter of Pinsent Masons said that taxpayers could now be facing years of uncertainty over the outcome of a dispute, causing disruption to businesses and stress for individuals. The tribunal service announces a recruitment drive in 2018 for new judges, suggesting it is short of resources, he said.

"HMRC's inflexible approach to dealing with disputes is exacerbating the growing backlog at tax tribunals," he said. "It's generally recognised that this backlog needs to come down, but it has hardly shifted at all."

"Business can often wait for years between when an investigation is first launched and when a final judgment in the courts is handed down. This uncertainty can be hugely damaging and may result in a business falling behind its peers as decisions and spending get shelved until the outcome is clearer," he said.

There is also currently a backlog of 154 cases in the upper tribunal, which hears appeals from the FTT. The upper tribunal also deals with some higher value and more complex cases at first instance, including those involving international businesses operating across multiple jurisdictions.

Porter said that part of the problem was that HMRC was operating within the confines of its Litigation and Settlement Strategy, which sets out the approach that HMRC must take when resolving disputes. HMRC has recently updated the framework to make it easier to settle with taxpayers by setting the aim of reaching agreement as the 'default approach'. However, the framework requires individual teams to tackle disputes in the same way.

"The litigation framework HMRC has to keep to forces it to take an unrelenting approach - it will often give no ground and frequently will want to win every point," he said. "Recent updates to the framework may not have gone far enough in enabling HMRC to settle with taxpayers."

According to the figures, HMRC is facing an increasing number of challenges to its behaviour from businesses and individuals in the form of judicial reviews. The number of judicial reviews faced by HMRC increased by 36% last year to 122, up from 90 in 2016.

Many of these judicial reviews involve taxpayers appealing against the imposition of APNs, which require a taxpayer to pay the full amount of disputed tax up front before a court or tribunal rules on the dispute. The tribunal does not have jurisdiction to consider whether HMRC was correct to issue the APN but can consider the penalties issued for non-payment of an APN. HMRC has withdrawn over 6,000 APNs since the power was introduced in 2014, which may indicate that it has been overly aggressive in imposing these penalties, Porter said.