Taxpayers in dispute with HMRC will now have to pay a fee if they wish to take the Revenue to tribunal. This recent government decision has provoked criticism from lawyers and accountants concerned that the introduction of fees may prevent some from accessing justice over their tax bills.
The proposed fees range from £20 for appeals against fixed tax penalties of £100 or less, to £2,000 for an appeal hearing in the Upper Tribunal or Chancery Court. Although fees at the lower end of this scale are relatively small, fears have been raised that the existence of a fee at all may deter taxpayers from appealing against HMRC and may be increased in the future.
Indeed, when fees for employment tribunals were introduced in 2014, the number of claims fell by 80%.
Tax Tribunals are often the last resort for taxpayers who are in dispute with HMRC. The tax investigation may have already cost the individual or business a large sum. The additional cost of going to tribunal, all before establishing guilt, may seem too steep for many to pay.
Many have argued that the introduction of fees tips the balance of power in HMRC’s favour – not least because the Revenue is not required to pay them.
There are concerns that if the introduction of fees causes more taxpayers to settle with HMRC rather than going to tribunal, then the Revenue will have less incentive to be fair to taxpayers. HMRC may feel less accountable and may look to collect a higher amount from those taxpayers choosing to reach a settlement.
Another critical issue is the impact the sliding scale of fees may have on the more vulnerable, smaller taxpayers. A £2,000 fee to appeal in the Upper Tribunal may not seem expensive to a multinational corporation. However, to an individual running a small business it could have serious implications, especially when added to the cost of the investigation and the possibility of having to pay HMRC the unpaid tax if the case was lost.
It has also created confusion for taxpayers, who are paying one branch of government in order to receive a ruling against another branch of the government.
In the last year HMRC have widened their net, targeting not only increasing numbers of High Net Worths but taxpayers from all walks of life. This approach might have led to more innocent taxpayers, who have made a simple mistake on their return, being investigated by the Revenue.
There have also been concerns that HMRC’s use of its Connect database has meant that many innocent taxpayers are being targeted. The system takes information from a variety of private and public sources even from social media to determine individuals or businesses they suspect are underpaying on tax.
For those taxpayers investigated by HMRC, tribunals have previously been a way to receive an independent judgement on a dispute with the Revenue. This risk is now that many of these innocent individuals may be deterred by the new fees.
We recommend to all our clients that they consider taking out protection which will cover our fees for dealing with HMRC enquiries and investigations. Please contact us to find out more.