HMRC’s enquiries into big businesses’ tax affairs* have now been open for an average of 45 months, up from 43 months last year as the tax authority struggles to clear a backlog of complex tax disputes, says multinational law firm Pinsent Masons.
Pinsent Masons’ partner Steven Porter says that the increasing delays are largely caused by HMRC taking longer than ever to make a decision to settle or close an investigation.
Pinsent Masons says that these long-running investigations are a significant time and cost burden to UK businesses, with some having to set aside significant amounts of money for a period of years in case they lose their dispute with HMRC.
The firm explains that HMRC is battling to clear a large number of historic tax investigations into large businesses but maybe being hampered by its own inability to close these investigations quickly.
There is a concern that officers handling these large and complex cases are significantly slowed down by having to consult with a diverse range of HMRC departments (with differing responsibilities), making any decision to settle, litigate or close an investigation into a committee decision. This causes serious delays, even for the most straight forward enquiries. This can leave investigations open for several years.
Pinsent Masons says that HMRC closed 1,986 investigations into big businesses last year, down by 21% from the 2,528 cases is closed in 2018/19. The cases closed in the past year had been open for an average of just 17 months.
The firm says the vast majority of these cases are ‘low-hanging fruit’, in which either HMRC or the business concerned quickly accept that they have made an error in how they have assessed the tax owed. With many of these simpler cases now having been cleared, HMRC is being left with a ‘long tail’ of more difficult cases where it is difficult for HMRC to build a winnable case against a business.
Steven Porter comments: “The backlog of old tax investigations isn’t helpful to businesses or HMRC, but it’s slow decision-making means it can do very little to clear it. That’s burdening businesses with the cost of these disputes for years on end.”
“Officers at HMRC often seem reluctant to make a decision to litigate, settle or close a case and that results in those cases running on for nearly four years on average. There are plenty that last even longer than that.”
“It is understandable that HMRC doesn’t want to miss out on any of the tax it believes it is owed but the cost to businesses of a tax investigation lasting four of five years can be very substantial.”
* Cases handled by HMRC’s Large Business Directorate (year end March 31 2020). The Large Business Directorate oversees the tax affairs of the UK’s 2,100 largest businesses. Source: HMRC