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HMRC criticised over lengthy tax investigations for large firms

The average length of tax enquiries into large businesses was 34 months last year as HM Revenue and Customs has been criticised for refusing to back down on technicalities.

A city law firm attributes increase in timeframes to HMRC fighting disputed points even if it has a weak case.

According to Pinsent Masons, the average enquiry length for large businesses increased by three months months in 2015/16.

The law firm says HMRC is turning its attention to more routine transactions because it has fewer tax avoidance schemes to challenge.

Pinsent Masons highlights concerns over HMRC’s ‘litigation and settlement strategy’, which is the framework it follows when working on tax disputes, because it makes it hard for teams at HMRC to back down and settle disputes for less than the full amount of tax that was initially claimed.

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As part of that strategy, Pinsent Masons says HMRC will not settle outside of court for anything less than it thinks it is owed and will not “split the difference” on any tax bills.

Pinsent Masons partner Ian Hyde says: “Large corporates are no longer getting involved in avoidance schemes. Many more challenges from HMRC are of ‘routine’ technical tax issues, such as whether the accounting treatment is correct or capital allowance claims. Clients are more willing to defend strongly where the argument isn’t about a “windfall” from tax avoidance but is tax on the core operations of the business.”

Hyde adds: “Even if HMRC has a weaker case, the litigation and settlement strategy encourages them to give no quarter. Cases are therefore being fought to the end despite growing costs on both sides. Ultimately, businesses need to stand firm where they think HMRC challenges are unmerited and prepare their case to the highest standard – as they may have to litigate if HMRC doesn’t concede.”

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