HMRC is adopting an aggressive stance on collecting VAT fines despite losing 60% of the VAT penalty cases appealed by businesses, according to research carried out by Pinsent Masons say small business accountants Harris & Co who are chartered accountants based in Northampton
The law firm says its analysis shows that HMRC dealt with 30,345 appeals from businesses over VAT penalty notices issued during the 2011-12 tax year. HMRC’s penalties were cancelled in 18,317 of these cases (60%). In comparison, only 24% of penalties for other taxes were cancelled on appeal.
The National Audit Office (NAO) recently criticised HMRC over failure to collect unpaid VAT which it said was responsible for a third (£9.6bn) of the UK’s estimated tax gap of £32bn.
Jason Collins, head of tax at Pinsent Masons, said:
‘The fact that HMRC loses 60% of the penalty cases that businesses appeal, shows that it may have become over-aggressive in hunting for cases of VAT evasion, and is making errors in issuing penalties. HMRC is also too quick to say a taxpayer has been negligent when it gets things wrong.’
In a statement, HMRC said only a ‘small proportion’ of decisions are challenged, with changes often down to new information provided by the taxpayer. Most of the penalty reviews involved late filing penalties, many of which are issued automatically, while the number of decisions cancelled on review was less than 4% of the total number of surcharges issued. HMRC said disputes are settled quickly ‘at minimal cost to the taxpayer.’