£43billion threat to the taxman: HMRC may have to return billions to firms who paid too much tax

• HMRC is in dispute with many firms who say they’ve paid too much tax
• In worst-case scenario they could be forced to pay out up to £43billion
• Comes as HMRC faces growing pressure to clamp down on tax avoidance

The taxman could be forced to pay up to £43 billion in refunds if it loses its current legal battles against big businesses.

Her Majesty’s Revenue & Customs has revealed the worst-case-scenario figure if it loses its disputes with companies which believe they have paid too much tax.

The staggering estimate was announced in the latest annual accounts. HMRC is fighting multi-billion-pound court cases with dozens of corporations which believe they are owed refunds – in some cases dating back decades.

This includes a long-running dispute with mail order catalogue Littlewoods, which, it is claimed, overpaid on commission sent to agents between 1973 and 2004.

The taxman is also involved in wrangles with British American Tobacco, insurers the Prudential and a host of other multinationals, in complex and drawn-out hearings in London and Luxembourg. If it loses every case, it would have to pay out £42.8 billion.

It comes as HMRC is under growing pressure to clamp down on tax avoidance and challenge big corporations.

Chas Roy-Chowdhury, of the Association of Chartered Certified Accountants, said: ‘This is the absolute worst-case scenario for payouts but, as HMRC takes an increasingly aggressive stance on tax collection, it could find itself facing growing numbers of legal challenges – and paying out more refunds.

‘The amount it has to set aside in provisions will have to get bigger as they play hard ball with companies and taxpayers and then face more court battles. Sometimes they will get it wrong.’

Chris Morgan, of accountancy firm KPMG, said several on-going legal battles would conclude in the next couple of years, adding: ‘There could be tens of billions paid out by 2017-18.’

Most of the cases do not involve rows over tax avoidance but instead intricacies of European Union law and the way interest is calculated on tax bills.

Bill Dodwell, of Deloitte, said: ‘The biggest elements of this have been a long time coming. The Revenue has put up the strongest possible fight.’

According to HMRC accounts, £7.2billion of the £42.8billion potential bill is more likely to be paid out than not. Known as ‘provisions’, this bill rose by a third over the past year.

The remaining £35.6billion in the estimates are ‘contingent liabilities’ where a refund is possible rather than likely. This amount rose by a fifth over the past year.

HMRC officials said they won four out of five cases that went to tribunal and that many never even reached that stage.

This means, they added, that any refunds handed out would be small.

A spokesman said: ‘We are required for accounting purposes to include an estimated contingent liability figure of potential repayments of tax.

‘There is no question of this amount or anything close to this amount ever being repaid as the figure is based on our losing every single case currently being litigated, which is not going to happen.’