HMRC’s Tax Assurance Commissioner, Edward Troup has made his first report outlining HMRC's performance in resolving disputes with taxpayers since Dave Hartnett stepped down as HMRC permanent secretary in July 2012.

Mr Troup says that there is "of course, plenty of room for improvement. For example, more needs to be done to ensure that the overall governance framework for tax decisions is well understood, particularly in the more specialist areas of the department; I want our review of settled cases to have a broader range this year and for lessons to continue to be effectively learned; and I want to make sure that, while the confidentiality of taxpayers’ affairs is maintained, there is a better public understanding of how we resolve tax disputes. This report is a first step in that wider process of enhancing transparency."

Annex 2 of the report contains some data which will interest advisers.

In 2011/12 there were 56,228 reviews of HMRC decisions, in over 25% of direct tax penalty and non-penalty cases HMRC's decision was either cancelled or varied. However in VAT 60% of HMRC's decisions was cancelled and 7% varied.

HMRC's dispute resolution stratagy has come under close scrutiny since Mr Hartnett was accused of making "sweetheart deals" with large companies and together with HMRC's solicitor was accused of lying to the House of Commons Public Accounts Committee. In June 2012 the National Audit Office recommended that HMRC should:

  • Update the Litigation and Settlement Strategy, or the guidance accompanying it, to make clear how cases involving controlled foreign companies are compatible with the Litigation and Settlement Strategy.
  • Ensure that lawyers are always consulted before finalising settlements on issues that are in litigation.
  • Explain more clearly to its specialist staff how settlements are reached, including, where appropriate, the rationale for the settlement terms on individual issues.
  • Ensure that it makes clear to taxpayers that settlements agreed in principle should not be considered final until they have been through all relevant approval processes.

In May 2013 the High Court held in UK Uncut Legal Action Ltd v Commissioners for HMRC that although Mr Hartnett and HMRC had made errors
in settling one dispute, there were significant and substantial reasons for HMRC’s decision in relation to it and that the decision was lawful.

Links: First Tax Assurance Commissioner's Report