Tax Tribunal backlog reaches record high

The backlog of tax disputes waiting to be heard has reached a new record high with a particular surge in the number of high value cases lodged with the Upper Tribunal, according to Pinsent Masons, the law firm behind Out-Law.com.25 Nov 2014

Tax Disputes and Investigations Tax Private wealth tax

27,246 cases were waiting to be heard in the Tax tribunal in the year ended 31 March 2014. This is an increase on the 26,965 cases outstanding at 31 March 2013 and more than double the 13,456 outstanding at 31 March 2010. 267 new Upper Tribunal cases were lodged in the last year, an increase of 32% on the previous year, and almost four times as many as five years ago, when 70 new cases were lodged with the Upper Tribunal.

In an effort to ensure that tax cases are heard faster, the Judicial Appointments Commission is currently recruiting up to four salaried judges and up to 35 fee-paid judges and deputy judges for the First Tier Tax Tribunals.

James Bullock, a tax disputes expert at Pinsent Masons, said that HM Revenue and Customs’ (HMRC’s) “aggressive litigation strategy” means that despite these efforts to expand the system’s capacity it could still be some years before a ruling is reached on more complex cases.

Earlier this month the Public Accounts Committee published a report criticising HMRC for its slow pace in dealing with the backlog of tax avoidance cases.

Bullock said: “The tax tribunals have been getting through cases quicker but the backlog is still going up. The time taken for cases to 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.” he said

Bullock said that there has been a “sea change” in attitudes towards tax avoidance over the last five years, with individuals and corporates less likely to take part in tax avoidance schemes. He said that as a result a more pragmatic approach by HMRC to negotiating settlements is “highly unlikely to encourage more tax avoidance.”

Bullock said that many 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” he said.

James Bullock said that the increased number of cases at the Upper Tribunal will be a particular concern for taxpayers that HMRC has issued with an Accelerated Payment Notice, forcing them to pay the disputed tax up front.

Accelerated payment notices can be issued to those with an open enquiry or appeal who have taken part in tax avoidance schemes which were required to be notified to HMRC under the Disclosure of Tax Avoidance Scheme (DOTAS) rules. In July HMRC set out a list of DOTAS scheme reference numbers for schemes where it proposed to issue accelerated payment notices and has since been issuing the notices.

Bullock 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.” he said.