Only 2% of tax is disputed, but that’s still a lot of money

Looking at the figures published by HM Revenue & Customs (HMRC) tax receipts are around £470bn each year. All but about 2% of tax collected was voluntarily returned and paid without the need for compliance activity. Mind you, even though the percentage is small – we’re still talking about £9bn worth of tax receipts so it’s vital that HMRC settle them as quickly as possible.

The good news is that they’re making steady progress. Last week I had the pleasure of chairing the annual Tax Risk & Dispute Resolution Summit. It was a great day and one of the more vibrant conferences I’ve attended. A major recurring theme of the conference was reputational risk given the intense public focus on tax. In his keynote speech Edward Troup emphasised the importance of preserving the integrity of the tax system while noting the inevitability of disputes given the complexity of commercial arrangements and of tax law. He reinforced the value of transparency in building trust and the importance of (preferably early) collaborative working so that the difference between the taxpayer and HMRC could be focussed on.

It might seem like a minor point but something I believe is an important change is HMRC’s definition of a dispute. The dictionary definition is ‘a disagreement or argument’ which immediately feels emotional and antagonistic. HMRC define ‘dispute’ as a neutral term focussing on a difference of opinion rather than anything controversial which is a great help in dealing with issues in a professional manner without needless emotion.

HMRC is facing enormous challenges but it’s becoming increasingly sophisticated in its compliance activity and investigations. Notwithstanding a backlog of litigation cases HMRC was still settling about 500,000 disputes a year by agreement.

During the summit we noted the progress made by alternative dispute resolution (ADR) mediation and that this had now become business as usual within HMRC and was proving a very useful and effective tool at producing settlements in what seemed to be blocked disputes.

All in all, the need for businesses to prepare for and approach disputes constructively and with imagination is becoming increasingly important.

Simon Wilks is a partner in our Tax Dispute Resolution Team. He can be contacted by email at [email protected] or on +44 (0) 207 804 1938.