Danny McCance 10 Jun 2019 10:12am

Tax disputes reach record length

The length of time taken to settle tax investigations into large businesses has increased by 10% to a record 43 months as of March 2019

This is a four-month increase in tax disputes from the 39 months recorded in March 2018 and seven from the year ended March 2017, according to law firm Pinsent Mason.

“HMRC’s inflexible approach to tax avoidance is driving delays as it frequently aims to win every point against the business,” said Jason Collins, partner at Pinsent Mason.

The firm said that HMRC’s litigation and settlement strategy, which was designed to resolve disputes in a consistent manner, makes it a challenge for HMRC investigators to settle for less than the full amount.

“This can make it difficult to settle even the simplest disputes,” Collins says, adding that it can lead to an inefficient deployment of HMRC’s resources.

According to the firm, many of these disputes are related to transfer pricing.

In 2017, reports found that HMRC had increased the number of challenges on large businesses due to suspicion that £5.8bn had been underpaid through transfer pricing.

Collins suggested the HMRC’s recent profit diversion compliance facility, which allows for businesses that make disclosures to avoid investigation and potentially receive lower penalties, could provide a solution.

“HMRC’s latest disclosure facility shows that HMRC is clamping down on what it views as businesses diverting profits from the UK through aggressive, out-of-date or erroneous transfer pricing,” said Collins.

He added that the facility allows businesses “to fix the past in line with HMRC's thinking without the need for an HMRC investigation,” and that many businesses may opt for it to avoid being “tied up for years in a dispute with HMRC”.

A spokesperson for HMRC said that the Revenue challenges large businesses to ensure that all tax due under UK law is being paid.

"Over 85% of our investigations conclude within 18 months but some cases are more complex and so will take longer to resolve and even require us to litigate," they added.