UHY Hacker Young have concluded that 65% of all VAT penalties and decisions issued by HMRC incorrect, and have to be subsequently overturned on internal review.
According to the firm, in 2011 HMRC completed 39,551 reviews of VAT decisions imposed on businesses in relation to tax disputes and late filing/payment of tax. Of these, 25,633 were subsequently ruled incorrect.
The number of internal reviews of VAT decisions has more than doubled since the reviews were introduced in April 2009. In the first year of the new review process, 16,460 VAT decisions were reviewed at the request of taxpayers, of which 53% were overturned.
The suspicion amongst taxpayers is that HMRC is putting VAT Officers under huge pressure to maximise revenues by issuing as many fines as possible.
Simon Newark, VAT partner in the firm's London office, said:
"These numbers are worrying. Penalties shouldn’t be thrown around like confetti and it suggests that Officers are really not adhering to the findings of the Courts in penalty cases.
While it is encouraging that HMRC is prepared to correct its own mistakes, it really shouldn’t be making this number of errors to begin with.
The figures suggest that HMRC has been using the carelessness argument far too liberally to generate penalties. It would be understandable if a small percentage of fines were wrong, but for this many to be overturned by their own Review team is quite astonishing.
Not only has the volume of penalties and decisions sent for Review doubled but the proportion incorrectly applied has risen from half to almost two-thirds in just 18 months.
HMRC clearly needs to exercise greater care itself and issue far fewer penalties.
How many taxpayers have been wrongly fined but trusted HMRC’s judgement and not pushed for a review?
HMRC Officers should understand the law and apply it correctly in the vast majority of cases. Incorrect decisions can potentially destroy perfectly viable businesses. VAT is a very complex area of tax law, which most businesses do their best to comply with.
When HMRC’s own Officers can’t get it right, why should businesses suffer?
HMRC’s review team is not truly independent and the suspicion is that they will support the original decision if they can and will only overturn decisions which are so blatantly wrong that they don’t have a leg to stand on.
Many of the decisions which are upheld will only have the slightest justification or be marginal at best and HMRC is probably relying on taxpayers not having the time or money to pursue the matter further.
It can be very costly and time consuming for taxpayers even if a fine is overturned on review. HMRC does not reimburse the cost of contesting a decision which is wrong. It can cost thousands to take an appeal to the Tax Tribunal and HMRC know that many taxpayers will simply pay up despite the injustice.
The current adversarial culture between taxpayers and HMRC is getting worse despite many exercises and consultations over the years.
The lesson here is if you get a fine or a decision you are not happy with, be prepared to challenge it. The chances are it might be worth your while.”
"Greater care" may well be fair advice, on the face of it.
However, first what needs to be done is to identify why there are so many errors; is it really down to increased pressure maximise revenues?
Tax does have to be taxing.
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I was a support officer in a VAT Appeals team.
ReplyDeleteJust before the merger there was a large intake of Officer grades. After the merger, experienced Assurance officers left in their droves and these new recruits with minimal training were sent out to visit Businesses.
Obviously mistakes were made everywhere and thats one of the reasons why taxpayers have requested reviews in their tens of thousands and won.
But this was my experience in 2006/2007.
So, not only has this issue not been resolved, but
according to UHY, Its got worse.
In 2011, HMRC still cannot issue correct Tax Assessments.
Based upon my experience, also that of other accountants in our informal group, we have never seen a correct VAT assessment for years. VAT Officers with an incorrect idea of the law, not just poor understanding of law, are the main problem. Ineviatbly their boss is someone from the old IR who lacks the understanding of VAT, or perhaps just cares more about income tax.
ReplyDeleteThis link is worth a look
ReplyDeletehttps://secure.38degrees.org.uk/page/s/complain-to-hmrc#petition
Indeed - there are so few of us old ex C and E VAT officers around now that it is not surprising that this is happening. When the merger happened the ex IR managers disregarded the need to keep experienced VAT staff and also to provide effective training to ex IR staff moving into VAT they tended to think that VAT was "easy" - which it is definitely not ! In fact I am appalled at the way new VAT staff are being trained - all done on line with mimimal practical experience or face to face training - but then that is to save money. I am just glad to say that although I have issued quite a few penalty assessments as my manager is ex C and E none of them have been challenged
ReplyDeleteSo, I will suggest - don’t pay a penalty just because it has been charged. Seek advice as to whether or not you have grounds to overturn it.
ReplyDelete