24 January 2011
Titles that covered this story included the Financial Times, 24 January 2011.
- Over 16,000 VAT decisions overturned on review in 18 months
- Over 60% of late filing/payment penalties cancelled on review
Over half (56%) of all penalties and decisions issued by HM Revenue & Customs (HMRC) to taxpayers on technical matters or for late or inaccurate VAT returns which are appealed are subsequently found to be incorrect and are overturned, according to data obtained by UHY Hacker Young.
Data we obtained under the Freedom of Information Act shows that over the last 18 months HMRC completed 28,912 reviews of technical decisions and VAT penalties imposed on businesses, of which 16,270 were subsequently ruled incorrect.
The figures come from the new HMRC internal review process, which was introduced in April 2009. The purpose of the internal review process is to resolve tax disputes quickly and inexpensively, thereby reducing the number of disputes which go to Tax Tribunal. Reviews typically take 45 days, and taxpayers who disagree with the outcome can then take the dispute to a Tax Tribunal.
VAT Officers at HMRC are under pressure to issue as many fines as possible. Late or inaccurate VAT returns should suffer no penalty if the taxpayer normally takes reasonable care but since many taxpayers will not bother to query the penalty it is in HMRC’s interest to rule that the taxpayer was careless to collect additional revenue.
This is deeply disturbing because a significant number of taxpayers do not challenge penalties or decisions even though these figures show that huge numbers are wrong.
Simon Newark, VAT partner in our London office, comments: “We knew anecdotally that HMRC were arguing carelessness whenever they could to generate penalties, but these figures are shocking. HMRC officers are handing out fines like traffic wardens hand out parking tickets. It would be understandable if a small percentage of fines were wrong, but these figures are staggering.”
“The figures for technical decisions are equally as bad with 48% of those which are appealed being overturned on review. HMRC Officers are meant to be properly trained in understanding the law and be able to make correct decisions on VAT matters. It’s no exaggeration to say that incorrect decisions could and do destroy businesses. Most businesses do their best to understand a very complex tax. When even HMRC’s own Officers struggle to understand it why should businesses suffer?”
“HMRC’s review team is not truly independent and will support the original decision whenever they can and will only overturn decisions which are so blatantly wrong that they don’t have a leg to stand on. Many of the decisions which are upheld will only have the slightest justification or be marginal at best and HMRC is probably relying on taxpayers not having the time or money to pursue the matter further.”
Simon adds: “It can be very costly and time consuming for taxpayers even if a fine is overturned on review, let alone taking a case to the Tax Tribunal and it’s not as if HMRC reimburse the cost of contesting a decision which is wrong. It can cost thousands to take an appeal to the Tax Tribunal and HMRC know that many taxpayers will simply pay up despite the injustice.”
UHY Hacker Young says that HMRC should discipline officers who make decisions or consistently impose fines on taxpayers which subsequently turn out to be incorrect. HMRC should also provide more training for Officers to enable them to get a higher percentage of decisions or fines right first time.
He says: “Officers at HMRC get brownie points for hitting targets. As far as I’m aware they are not disciplined for decisions which are later overturned. This creates a culture where Officers are prepared to take a chance on a fine.”
“Staff at HMRC are coming under ever greater pressure to maximise revenue to shore up the public finances. My concern is that the temptation to issue even more incorrect decisions and hand out fines will be too difficult to resist.”
“The lesson here is if you get a fine or a decision you are not happy with, be prepared to challenge it. The chances are it might be worth your while.”
We produce a range of informative publications focusing on the latest accounting issues. Click to add yourself to our mailing list.
Up to £15 million will be clawed back from academy schools before the end of the current academic year due to government budgeting errors, according to our data.
A quarter of all taxpayers may be paying the wrong amount of tax due to incorrect PAYE codes according to our analysis.
The cost of listing on AIM has risen at its fastest rate in more than five years according to our findings.
A sudden surge in M&A activity on AIM is being driven by private equity backed deals to take companies private, our research reveals.
From 6 April 2012 HMRC will be able to ask employers to pay a financial security where it thinks there is serious risk that the business won’t pay over their PAYE tax deductions or National Insurance contributions (NICs) on time.
The value of loans to businesses in the UK has slumped by 13% since the collapse of Lehman Brothers, the second fastest fall among the G8, according to our findings.
Our international network, UHY, welcomes new member firm in Tunisia, CNBA.
Hot on the heels of an announcement from HMRC that the closure date for the Liechtenstein Disclosure Facility (LDF) has been extended to 5 April 2016 has come speculation that the local banks are pushing for much higher transfers of funds into Liechtenstein and a minimum period for which any account must be kept open.
Almost two thirds (65%) of all penalties and decisions issued by HM Revenue & Customs (HMRC) to taxpayers in relation to VAT matters are subsequently found to be incorrect and are overturned on internal review.
Andrew Andronikou and Peter Kubik were appointed as Joint Administrators to Convers Sport Initiative plc (CSI).
