More tax disputes ending in court

HM Revenue & Customs is much more prepared to pursue taxpayers all the way through the Tribunals than it is to negotiate a "fair settlement" as it used to.

Issuing the warning, a tax advisor explained that, while it remains doubtful that litigation is the best way to solve problems, HMRC appears undeterred by its cost.

In fact, the number of cases at the VAT and Duties Tribunal and the Special Commissioners Tribunal leapt from 3,146 to 4,311 between 2006 and 2007.

Tougher tax collecting tactics, afforded by new powers, is behind the 14 per cent increase in appeals to tribunals, said UHY Hacker Young, which obtained the figures.

In particular, under the new 'Litigation and Settlement Strategy' HMRC pledges to fight a case through the courts rather than settle if it thinks its case is "strong enough".

Meanwhile, departments inside HMRC are better integrated, so the resources to claw back tax have been freed up, just at a time of great pressure from record public debt.

"The Treasury needs every penny it can get its hands on," argued Roy Maugham, tax partner at UHY Hacker Young.

"For example, the government has just doubled the maximum penalty for tax evasion in relation to offshore bank accounts from 100% to 200%."

Figures from HMRC show that the number of cases received by the VAT and Duties Tribunal and the Special Commissioners Tribunal jumped from 4,311 in 2007 to 4,897 during 2008 .

"HMRC seems to be less and less deterred by the cost of litigation," Maugham reflected.

"It is now much more prepared to go all the way through the Tribunals rather than negotiate a fair settlement with the taxpayer as it used to. It is doubtful whether this is the most effective and pragmatic way to solve problems."

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