Almost a quarter of all tax investigations launched by HMRC’s local offices are still unresolved more than 12 months later, a City law firm has claimed.
RPC said that of all local compliance cases currently open with HMRC, more than 3,800 are still not completed over three years since they began.
The law firm’s research shows that, as at March 2 this year, HMRC’s Local Compliance unit had more than 115,000 tax investigations open against individual taxpayers and businesses.
HMRC usually gives no indication of how long it will take for the enquiry to complete and whether more tax will be demanded.
Adam Craggs, partner and head of RPC’s tax disputes team, said: “Prolonged enquiries by HMRC impose a substantial burden on individual taxpayers and businesses.
“Regardless of the outcome, those being investigated will have to bear the burden of the costs associated with dealing with HMRC, and this can entail substantial professional fees.”
There also remains the risk that the wrong individuals or SMEs might be chased.
RPC said HMRC’s Connect database collates information from multiple public and private sources, which can be “inaccurate” in its targeting of individuals for investigation.
For smaller businesses in particular, these investigations can have a considerable impact on day-to-day operations, because a large proportion of senior management time may have to be devoted to dealing with matters raised during the investigation.
RPC added that this burden on small businesses is unlikely to lessen as HMRC is under continued pressure from the government and is showing a renewed determination to maximise revenue.
As announced in the chancellor’s Summer Budget, HMRC is also set to receive an extra £750m from the Treasury to crank up its tax gathering capacity.
RPC said that because complex tax investigations can often take several years to reach resolution, the process could be accelerated by introducing a time limit or “cut-off” point, by which time the enquiry must be concluded.
Craggs added: “Introducing a more transparent timescale would ensure that HMRC completes its enquiries in a timely manner, thus keeping costs and disruption to a minimum.
“Currently, the only way to force HMRC to conclude a long-running enquiry is to apply to the tax tribunal for an appropriate direction.”
RPC added that HMRC previously had an incentive to close an enquiry in order to make a demand for tax.
However, with the introduction of Accelerated Payment Notices (APNs), once HMRC receives the disputed tax, there is little incentive for them to progress matters.
By Marcel LeGouais