UK tax court appeals leap by third

Upper-tribunal appeals of UK tax rulings have jumped by a third, with backlogged tax disputes reaching a record high, according to law firm Pinsent Masons

In the tax year 2013/14, 267 new upper-tribunal cases were lodged, an overall increase of 32% on the previous year, and almost four times as many as the year 2009/10 (70 cases).

Overall, 27,246 tax disputes are waiting to be heard and, in order to deal with the record number, the Judicial Appointments Commission is recruiting four salaried judges, as well as up to 35 fee-paid judges and deputy judges for first tier tax tribunals.

James Bullock, Pinsent Masons’ head of litigation and compliance, explained that despite the increased speed of dealing with tax tribunals the backlog of cases was still going up and called on HMRC to negotiate with avoidance schemes.

“The tax tribunals have been getting through cases quicker but the backlog is still going up,” Bullock said. “The time taken for cases to be completed needs to come down substantially so that taxpayers are not left in financial limbo for what can be years.

“To achieve a more reasonable time frame for tax cases, HMRC needs to start negotiating deals – for example, with the 65,000 avoidance cases that HMRC has identified.”

Bullock added that the tide of public distaste for tax avoidance schemes meant that negotiations would be “highly unlikely to encourage more avoidance schemes” and said most people who were sold avoidance schemes did not know what they had bought into.

“Most people who were sold avoidance schemes did not realise what they were getting involved with and are very unlikely to get involved with tax avoidance again.

“Clearing up the overhang of those cases could reduce the time taken to complete all cases by a substantial margin.”

The increased number of upper-tribunal appeals, Bullock said, would be of particular concern for those taxpayers who were issued with an accelerated payment notice.

Those served with such a notice would be forced to pay the disputed tax up front before having to wait for a lengthy appeal process in order to get it paid back.

He said, “A long wait for a tribunal case to be heard is not as much of an issue for HMRC as it is for a taxpayer that has already had to pay the tax that is in dispute.

“Although HMRC would have to pay interest if it lost the case, it is unlikely to be enough to compensate a taxpayer for the amount they could have earned if they had been able to invest the money instead – even in a relatively low risk product with guaranteed yields.

“To that extent a slow-moving system plays in HMRC’s favour – it adds to the risk for taxpayers.”

HMRC said it was preferable to resolve disputes outside of tribunals, adding that its alternative process has been so far very successful.

A spokesperson said, “HMRC would much prefer to settle disputes by agreement without the need to go to Tribunal, but we will settle only for the correct amount of tax due according to the law.

“We do offer a neutral and informal method for settling disputes under our very successful alternative dispute resolution process. HMRC works closely with HM Courts & Tribunals Service to plan for increases in the number of tax tribunal appeals following recent changes to tax avoidance schemes.”