According to research from law firm Pinsent Masons, the Revenue cancelled 18,317 of the 30,345 appeals from businesses over VAT penalties during the 2011/12 tax year. This is a slight drop-off from 65% in the previous tax year.
The report says that HMRC is under “particular pressure” from the Treasury to increase VAT yield, citing a recent report from the National Audit Office which said unpaid VAT contributed £9.6bn to the UK’s estimated tax gap of £32bn.
Jason Collins, head of tax at the firm, said, “HMRC is operating under a lot of pressure to increase its revenue and this pressure is particularly acute in VAT. The NAO report highlighted the huge difference between the VAT HMRC believes it should be collecting, and the amount it actually does receive.”
Collins argued that losing 60% of its cases after reviewing the evidence shows HMRC’s approach has become “over-aggressive” and has resulted in errors.
“HMRC is also too quick to say a taxpayer has been negligent when it gets things wrong. Unfortunately, it seems that thousands of UK businesses have been forced to challenge unfair fines as a result,” he added.
A HMRC spokesman responded to the findings, saying, “Only a small proportion of the millions of decisions HMRC makes each year are challenged. The review and appeal system provides a quick and easy way to resolve disputes.
“Where we change a decision it is often because our customer has given us new information: for example, a reasonable excuse for their tax return being late, or fresh evidence to support a claim.”
Earlier this month a separate report revealed that UK businesses owe £2.5bn in overdue VAT despite the more aggressive approach. The amount overdue has dropped from £2.7bn last year; however, HMRC doubled its use of distraint and more than doubled its spend on external debt collectors to almost £13m.
In his Spending Review, George Osborne unveiled that HMRC will see a 5% reduction in its budget in 2015/16, despite announcing it would be exempt from cuts to help it focus on tackling tax avoidance and evasion in the Autumn Statement.
Its budget will be cut from £3.4bn in 2014/15 to £3.3bn in 2015/16, but it is targeted to raise £1bn more in tax.