In its assessment of HMRC’s review system, accountancy firm UHY Hacker Young said the body revealed that one in two of the penalties it issued against businesses for the late filing of VAT in 2013 were incorrect and subsequently overturned.
It added that the high failure rate can be pinned down to HMRC’s use of a computer system, which automatically imposes a fine if a VAT return is filed after the deadline regardless of circumstances, with taxpayers being left to fight the ruling themselves later on.
This comes after HMRC’s plan to demand upfront payments of tax in “follower cases” similar to those which have already been successfully tried for evasion, without individually trials, was heavily criticised earlier this year.
Stephen Coleclough, president of the Chartered Institute of Taxation said the measures were unsuitable, and expressed a ”deep concern about the lack of safeguards in the proposed measures and what they see as the erosion of the principles of a fair justice system”.
'Something is going wrong'
Echoing this, Simon Newark, partner at UHY Hacker Young, said of the new findings: “With HMRC ultimately admitting that half the fines levied are overturned on appeal, something is going wrong.
“Taxpayers should be allowed to explain their situation first before they are railroaded into a system of fines and penalties.”
He added that the high proportion of VAT review decisions that HMRC makes in its own favour point towards a decrease in faith towards the body.
“More and more businesses seem to be deciding it’s not worth the time and effort to fight HMRC, even if there are certain mistakes that have been made,” he said.
“There is a breakdown of trust in the system, as businesses see the review process as HMRC ‘nodding through’ its own poor decisions in the hope the business will back down. Unfortunately, many do.”
Director at Thomas Eggar LLP, Andrew Watters, says criticism of HMRC boils down to its desire to gain not one but two powers: "The State will now have the power to anticipate the judgement of the courts in establishing a liability, which the courts may subsequently overturn,” he said.
“The state will also have the power to dip its shovel into the bank account of citizens even if they do not believe the amount is due, even if one assumes they will get their money back if they manage to establish it has been incorrectly taken.
"So not only is one guilty until proven innocent, tax is collected even if you think they have got the wrong citizen."
HMRC’s upfront attitude to payments is not the only arm of its protocol to be criticised in recent months, with the commons treasury committee taking them to task earlier this month by expressing ‘considerable concern’ at proposals to take money directly from the bank accounts of those who have refused to pay back contentious tax.
The scrutinising body said that implementing the proposals without a consultation would be “wholly unacceptable”, before pointing out that HMRC’s past inaccuracies, such as its loss of two computer discs containing sensitive child benefit data in 2007, raised concerns over their competence in handling such powers.
“Incorrectly collecting money will result in serious detriment to taxpayers,” it said.
'Alarmed'
Meanwhile, Hacker Young has also said that in its “aggressive” action to chase overdue tax, HMRC has doubled its use of private sector bailiffs and debt collection agencies over the last two years.
Hacker Young said that HMRC spent £14.8m in 2013 on the use of private sector debt collectors, up 15% from £12.9m in 2012, and more than twice the £6m spent on bailiffs in 2011, raising concerns that agencies will become far more aggressive in pursuing overdue tax.
Mark Giddens, head of private client services at UHY Hacker Young, warned: “Bailiffs do not have the best of reputations and many taxpayers are going to be very alarmed when a debt collector is brought in.”
“Most taxpayers who are behind with their payments are in that situation because they simply can’t afford to pay their tax – not because they intend to string HMRC along.”
