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Taxman going for broke – and falling flat on its face!

Industry experts say that Her Majesty’s Revenue and Customs has been knuckling under from government pressure and taking a hardline approach to tax penalties.

The government has HMRC jumping at shadows when it comes to tax evasion and tax avoidance and has been pushing the taxman to take an incredibly aggressive stance towards prosecuting possible instances of wrongdoing. Unfortunately tax investigators seem to have more zeal than sense, as new information was revealed this week that a full 60 per cent of VAT appeal cases are actually lost by HMRC.

Let’s put this into real world figures, shall we? During the 2011-2012 tax year, there were some 30,000 VAT appeal cases brought. More than 18,000 of them were reversed, and not in HMRC’s favour – and out of the 12,000 or so that weren’t reversed outright, less than 10,000 – not even out of every three – were actually upheld.

Now, I’m not going to sit here and say that I’m enamoured of VAT. Nearly everyone thinks it’s a bit of a burden to pay, but let’s be honest: the government needs the money. The £32 billion tax gap is made up of around £9.6 billion in VAT alone, so it’s obvious there are cases of tax avoidance going on here, but I have to wonder how much it costs HMRC to spearhead all these investigations and then defend them at appeal; if three out of every five are reversed isn’t that just more wasted money that could have gone on to have been used somewhere else more important?

The taxman says that the lion’s share of these review cases aren’t really substantive and are in fact just late filing penalties. These are overturned quite easily if a taxpayer can prove he had a good reason for missing the paperwork deadline, and this contributes to the majority of reversed appeals; in fact, HMRC says that when you leave off these late filing cases, the number of penalties that were cancelled as a result of an appeal stood at only around 4 per cent.

On top of that, the taxman says that it’s not really all that costly, the appeals process, which means that these issues are getting resolved quite swiftly and without undue expense, especially since it’s a new review process that’s been streamlined and made more efficient. If this is all true, then good on HMRC I suppose – but it still feels like a waste of time and effort to me.

Indeed, the tax authority said that its new review system means appeals are being resolved quickly and at a much reduced cost to the taxpayer.

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