More than half of HM Revenue & Customs’ decisions in VAT penalty cases are cancelled upon appeal, data in the tax assurance commissioner’s latest report reveals.

Of 30,345 cases, the taxman’s decision was overturned in 18,317, 60%, in 2011/12. Of the remaining 12,028, some 9,785 HMRC penalties were upheld – equating to 32% – with the balance of decisions varied upon appeal.

HMRC has faced pressure to improve its performance on VAT after a National Audit Office report criticised the department for unpaid VAT contributing £9.6bn to the UK’s estimated tax gap of £32bn.

The data suggests the taxman has become more aggressive in its pursuit of VAT receipts, according to Pinsent Masons head of tax Jason Collins.

He said: “HMRC is operating under a lot of pressure to increase its revenues across the board, but 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.”

“The fact that HMRC loses 60% of the penalty cases that businesses appeal shows that it may have become over-aggressive in hunting for cases of VAT evasion, and is making errors in issuing penalties. 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.”
A spokesman for HMRC said: “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.”

If you need help with VAT or any other tax, call Davenports Accountancy today on 0845 351 0381 to see how we can help you.