11/12/09: The Pre-Budget Report and Tax Investigations

A number of measures have been announced within the Pre-Budget Report which will influence how HMRC handle certain tax enquiries, investigations and disputes.

In direct tax cases, it would appear that HMRC are likely to take a harder line in requiring a taxpayer to pay ‘upfront’ the tax allegedly due following the raising of an assessment where that assessment has been appealed by the taxpayer to the Tax Tribunal. Historically in such cases, HMRC have generally agreed to postpone payment of the disputed tax pending the final outcome of the case, even where HMRC have won the case in the Tribunal but the matter has been appealed to the Upper Tribunal or the higher Courts. In future, HMRC intend to collect the tax in dispute at an earlier stage in the process, possibly after an initial win at the Tribunal, and to refund the tax with payment of interest at a far from generous statutory rate should they ultimately lose the case on appeal. In this way, the approach in direct tax is to be brought more directly into line with that in indirect taxes such as VAT and excise duties, where HMRC normally require the disputed tax to be paid at the outset; unless, that is, the taxpayer can satisfy the rigorous HMRC test of ‘hardship’. 

It will be interesting to observe how two further Pre-Budget Report measures impact upon the current considerable backlog of cases within the newly-reformed Tribunal system. HMRC propose to undertake more investigations into cases where taxpayers are non-compliant in consequence of an alleged failure to take reasonable care, with the statutory penalty for such careless behaviour ranging from 30% of the tax loss down to zero where the taxpayer makes an unprompted, voluntary disclosure. At the same time, HMRC intend to discontinue ‘marginal or lower value cases’ in order to concentrate on areas of greater perceived risk. The net effect of these two measures upon the number of cases which will be or already have been appealed to the Tribunal may be neutral, but of course only time will tell.  

Please contact us if you consider that we can be of assistance to you in any issue arising with HMRC.