HM Revenue & Customs 2010-11 Accounts: tax disputes - Public Accounts Committee Contents


1  HMRC's processes for settling tax disputes

1. Tax disputes between HM Revenue & Customs (the Department) and large companies are a consequence of the complex and international nature of modern business. Disputes can arise about the facts of a particular case, about the interpretation and application of tax law, and about the legitimacy of tax avoidance schemes. At 31 March 2011, the Department was seeking to resolve over 2,700 issues with the biggest companies, including disputes over outstanding tax, with potential tax at stake of £25.5 billion.[2]

2. HM Revenue & Customs is a non-ministerial department. It has this status to ensure that the administration of the tax system is fair and impartial and that Ministers have no involvement in individual taxpayers' affairs. The Department's Commissioners are appointed by the Queen to exercise certain functions on behalf of the Crown, as set out in the Commissioners for Revenue and Customs Act 2005. The Commissioners are all senior executives of the Department. They have ultimate responsibility for collecting and managing tax revenues, and for providing leadership to the Department, managing its resources and delivering the objectives set by the Chancellor of the Exchequer. The Department's Corporate Governance Report states that the Commissioners are directly accountable to HM Treasury Ministers and Parliament.[3]

3. When a dispute over the amount of tax due arises, the Commissioners can either settle the dispute by agreement or litigate. In 2007 the Department published its Litigation and Settlement Strategy, which sets out its framework for concluding tax disputes and guidance on acceptable settlement terms. The Strategy was introduced to bring greater consistency to the way the Department resolves disputes. It states that, in cases where there are a range of feasible outcomes, settlement must be for an amount not less than the Department would reasonably expect to get from litigation.[4]

4. The Department launched its High Risk Corporates Programme (the Programme) in 2006 to improve its relationships with large businesses and discourage aggressive tax avoidance behaviour on their part.[5] The Programme is overseen by a Programme Board chaired by the Director of the Department's Large Business Service and consisting of senior departmental staff below Commissioner level.[6] All cases in which the total tax under consideration exceeds £100 million or which are particularly sensitive have to be approved by the Programme Board before settlement is agreed with the company concerned. If the Programme Board cannot reach a consensus, or if the tax under consideration exceeds £250 million or the issues involved are exceptionally sensitive, the settlement must also be signed off by two Commissioners.[7]


2   C&AG's Report, paras 2.1-2.2 Back

3   HM Revenue & Customs, Annual Report and Accounts 2010-11, HC 981, Session 2010-12, p 59 Back

4   C&AG's Report, paras 2.10-2.11 Back

5   C&AG's Report, para 2.13 Back

6   C&AG's Report, para 2.15 and Figure 7 Back

7   Ev 68; C&AG's Report, paras 2.17-2.19 Back


 
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Prepared 20 December 2011