Over 60% of businesses stuck in a tax dispute lasting more than a year

Three in five businesses (61%) say they are currently involved in a tax dispute with HMRC which has lasted more than one year, according to a new survey from accountancy and business advisory firm BDO.

The new figures, which come from a BDO survey of more than 500 mid-sized businesses, underline the difficulty that many businesses have in navigating the UK’s complex tax system. The delays also reflect widely reported concerns around HMRC’s resources and its ability to swiftly respond to and resolve taxpayer queries.

Those businesses embarking on formal legal disputes with HMRC also face a long wait for resolution. HMRC’s latest annual report shows there were 39,500 tax tribunal appeals ongoing on 31 March 2023, an 8% rise on the previous year. For large businesses subject to an HMRC enquiry, the average length of time taken to settle an enquiry - including those in litigation - is 36 months.

Although the vast majority (92%) of those surveyed by BDO who were in dispute with HMRC said they were aware of Alternative Dispute Resolution (ADR) routes to resolving tax issues, ADR rates remain relatively low. The latest information shows there were only 1,013 applications for ADR in 2022/23.

Talia Greenbaum, BDO partner and accredited ADR mediator said:

“The UK’s tax system can be very complex and difficult to navigate, so it’s no surprise that this can result in business tax disputes. Simplifying and modernising the system would certainly help to reduce these difficulties. There is also a strong argument for giving HMRC more resources which would enable it to offer a better service to small and medium-sized businesses, the vast majority of whom simply want to pay the right amount of tax.

“Cases in litigation can significantly increase the length of time an HMRC enquiry takes to resolve. Many businesses would, therefore, do well to explore the option of Alternative Dispute Resolution at an early stage. HMRC seeks to conclude the ADR process within 120 days which is a far shorter timescale than would otherwise be the case. 

“With 87% of ADR cases concluding in resolution this is an important and valuable tax dispute resolution tool. However, the later ADR is considered, the higher the risk of wasted time and high costs associated with an unnecessarily protracted dispute.”

Under the ADR process, trained HMRC mediators work with applicants and the HMRC officer dealing with their case in order to explore ways to resolve the dispute.

ADR can be used at any stage of a tax enquiry, including, but not only, after HMRC has issued a decision.

Each application for ADR is treated on a case-by-case basis. HMRC will let applicants know within 30 days of receiving an application whether the ADR route is an acceptable means of resolving a dispute.  

ENDS

Note to editors

Details on the number of appeals before the First-Tier Tax Tribunal can be found on p.130 of HMRC’s Annual Report 2022-23

For the latest ADR statistics, see table 14 on p.128 of HMRC’s Annual Report 2022-23

The average length of time it took to resolve a large business enquiry in 2022-23 is available here.

In 2022, the FTT cleared 6,430 cases, 1,150 of which were determined by a Tribunal. A significant proportion of cases are cleared when the FTT makes a determination on a lead case, or because of the outcome of other proceedings before the FTT, Upper Tribunal or higher court. Parties can also decide to settle their dispute before a hearing can be arranged. 

About BDO

Accountancy and business advisory firm BDO LLP provides integrated advice and solutions to help businesses navigate a changing world.

The organisations we work with are Britain’s economic engine –entrepreneurially-spirited, high-growth businesses that fuel the economy. 

We understand the ambitions and entrepreneurial mindset of those we work with and have the global reach, integrity and expertise to help people and businesses succeed. 

BDO LLP

BDO LLP operates in 17 offices across the UK, employing 7,500 people offering tax, audit and assurance, and a range of advisory services. BDO LLP is the UK member firm of the BDO international network.

BDO’s global network

The BDO global network provides business advisory services in 164 countries and territories, with 111,300 people working out of 1,803 offices worldwide. It has revenues of US$12.8bn. 

Contacts

Frank Shepherd
Frank.x.shepherd@bdo.co.uk
07812 463601