According to media reports, HM Revenue & Customs (HMRC) is to take a more conciliatory approach towards resolving tax avoidance disputes with businesses.
Dave Hartnett, the Permanent Secretary for Tax at HMRC, has admitted that tax inspectors were sometimes too "tough", and that a change of approach is now required. HMRC is now expected to tell its inspectors to try to settle cases out of court, where possible; it is also planning to launch a pilot scheme involving third-party mediators, to see whether they can be used to help resolve some disputes.
So why is HMRC changing its stance now? This is a pertinent question to ask when you consider that it was only three years ago, in July 2007, that HMRC adopted its 'Litigation and Settlement Strategy', which stated that HMRC would pursue all tax disputes through the courts whenever it considered it had a better than 50 per cent of success – a clear statement at the time that HMRC would not enter into negotiated settlements when it felt it had a good chance of winning the dispute through litigation. It is true that HMRC faced some criticism for this uncompromising attitude, but this is certainly not the only (nor the main) reason for its change in stance. Rather, and more importantly at a time of big government spending cuts, HMRC also hopes that the move will make the department more financially efficient and free up billions of pounds that have been tied up in the aforementioned tax avoidance court battles.
However, nobody should misunderstand HMRC's change in approach as any sort of weakening in its resolve to clamp down on tax avoidance. Mr Hartnett made it perfectly (and graphically) clear in an interview with the Financial Times newspaper this week that "If it is a strong case, we will fight to the death."
Finally, it cannot go unmentioned that the timing of HMRC's conciliatory approach is particularly ironic. In the week that Mr Hartnett held out a metaphorical olive branch, the deputy Prime Minister, Nick Clegg, also announced that the Government is looking at the case for a general anti-avoidance rule "to ensure that wealthy individuals pay their fair share of tax." A case of give with one hand and take with the other?
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