When HM Revenue & Customs conducts an investigation or tax enquiry and considers that there is additional tax owed the investigator will issue their decision letter, which sets out the tax liabilities, the years in question and how they reached their decision. In most cases, the Taxes Management Act requires HMRC to offer taxpayers the opportunity to have the decision reviewed by an officer not previously connected with the compliance check.
HMRC has just published some alarming data on the number of reviews completed in the 2020-21 financial year, and reveals the high percentage of occasions where the review officer determined the decision maker (HMRC) was wrong.
The decisions of HMRC investigators were reviewed on 10,000 occasions in 2020-21 at the request of the taxpayers concerned. Notably, in the last quarter of 2020-21, 76% of the decisions were overturned or cancelled. Only one in four reviews upheld the investigators’ conclusions and decision on whether there was tax owed.
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Normally, this means that the disputed liabilities are cancelled, and the investigation closed. The data highlights that even though HMRC may write to taxpayers setting out the conclusions of its investigation this does not mean that the tax stated to be owed is correct. Businesses and individuals affected by an HMRC decision would be wise to use the statutory review procedure to check whether the tax assessed is in fact due.
If this does not resolve the matter, there are two further steps that taxpayers can take: HMRC offers the opportunity to go to mediation (alternative dispute resolution) or ask the tax tribunal to determine whether the tax assessed is owed.
HMRC states that is has “worked to strike a careful balance between bringing in revenue and maintaining a fair and level playing field for all.” Unfortunately, the data suggests that investigators have taken a tough stance with taxpayers over the lockdown period.
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The coronavirus crisis has undoubtedly put immense pressure on HMRC and its people to administer. Investigators, in an effort to conclude ongoing enquiries and clear the decks, seem to have rushed into issuing decisions that have, in the light of day, turned out to be ill-founded or not supported by the facts.
HMRC may argue that this is unfortunate effect of its compliance activities and enquiries. HMRC appears to have overstepped the mark and the statutory review process has thankfully acted as a sort of failsafe to spot bad calls on HMRC’s part.
HMRC has been given increasingly stronger powers to enforce and recover tax. It is critical that it does not overstep the mark in their enthusiasm to bring an enquiry or investigation to an end. Unrepresented taxpayers may not realise that even though HMRC may write to set out its decision, there are still options open to them to ensure that they only pay the correct amount of tax.
The review and the data it revealed raises the question of whether the lockdown has led to HMRC making rash decisions in the hope of easy wins. The costs of appealing decisions and dealing with decisions can be high and disproportionate to the tax at risk, and which leaves the ordinary taxpayer at a disadvantage.
John Hood is a tax partner with Moore Kingston Smith
HMRC issued this response to the article above that said:
“Most rulings HMRC makes are right. These figures relate entirely to statutory reviews, most of which are against automated penalties and surcharges such as for self assessment late filing or VAT default surcharges.
“These types of automated decisions accompany high cancellation rates because once we’ve looked into the circumstances we are likely to accept a reasonable excuse.”
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