Credit: Chris Tolworthy/Flickr

HMRC could face hefty tax refund bill

HM Revenues and Customs increases the amount set aside to compensate businesses for charging them too much tax by £8.2bn.

by Adam Gale
Last Updated: 17 Aug 2015

As if resistance from squeezed departmental heads and placard-wielding anti-austerity campaigners weren’t enough, Chancellor George Osborne could face a new obstacle to his budget-balancing plans in the courts. HM Revenues and Customs (HMRC) has increased the sum of money put aside to pay for possible defeats in legal challenges by £8.2bn, according to its latest accounts.

The cases relate to firms that claim to have been overcharged, years or sometimes decades ago, and include challenges by retailer Littlewoods, owned by the Barclay brothers, and insurance giant Prudential.

HMRC upped the total provision for cases it thinks it is more likely than not to lose by £1.8bn (33%) to £7.2bn for the year to March 31, while increasing contingent liabilities (from cases where it thinks defeat is possible rather than likely) by £6.4bn or 21.9% to £35.6bn.

The reason for the increase is partly new cases and partly unfavourable judgments in some ongoing cases that have affected its chances in the others.

On the surface, that might appear to be an £8.2bn blow to the chancellor’s cause, but let’s not get carried away. For a start, the fact that HMRC has set the money aside doesn’t mean it will definitely pay it out. It probably means it will pay more than it thought it would before, but the cases are hardly foregone conclusions (which is of course why they’re contested).

Even if HMRC loses some of the dozens of cases in question, the sluggish pace of our legal system means it would likely be a considerable time before it actually has to pay anything out. The only certainty is that lawyers on both sides will be happy – the legal fees can only have gone in one direction.

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