New policy suggests HMRC favours negotiation

News Article - 21 July 2010
Category: Business

Recent reports suggest HMRC is likely to favour negotiated settlements in the future even when the taxman believes it has a strong legal case that could potentially result in a more lucrative outcome. Consultants from Abbey Tax Protection flagged up this new initiative within HMRC, which has been widely labelled as the 'Dash for Cash'.

The policy is a turnaround for HMRC, which has in recent months faced accusations of overly aggressive efforts to increase tax take in the post-recession climate. Many cases with a potential for out of court settlements ended in litigation.

But it seems now the taxman is favouring easily generated income over larger payments, in an effort to control the UK's significant budget deficit. Abbey Tax consultants have said tax inspectors are being told to use discretion and accrue money through negotiated settlements at a faster pace than is possible through litigation.

Industry opinion has been mixed, with some experts welcoming the move as a way to avoid lengthy and costly litigation that can effect the reputation of both parties. Others have said the drop in full enquiries may fuel a rise in 'aspect cases', meaning more focused probes into a taxation dispute. Tax take is definitely likely to increase; Abbey Tax consultants were told that HMRC's tax inspectors have been tasked to bring in 'as much money as possible, as quickly as possible'.

Whilst litigation may become less frequent, HMRC will still keep investigations activity as a top priority to close the tax gap, currently estimated to be around £40bn. The penalty regime will be used to predominantly tackle evasion, the hidden economy, resolving issues of legal interpretation and reducing taxpayer failings with regard to reasonable care cases. Together, these account for an estimated 55% of the behaviours which determine the value of the tax gap.

UK businesses should welcome the taxman's move to negotiate settlements but should not become complacent. Whilst this may make tax disputes less of a threat to reputation than in recent months, companies involved in tax disputes can still suffer significant hits to the bottom line as well as reduced resources. It is essential that all companies retain adequate records to ensure compliance with all taxation regulations.

Access business software can help; core ledgers store a firm's entire transactional history, and offer the ability to leave copious notes for each transaction. This helps ensure full financial disclosure at the audit stage, with a comprehensive trail available instantly in the case of any disputes.

For more information, please call Access on 0845 345 3300.

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