HMRC TO SOFTEN LITIGATION STRATEGY

In an interview with the Financial Times on Friday 20th August 2010, Dave Hartnett, permanent secretary for tax at HMRC, advised that his department will adopt a less combative approach to resolving tax disputes with businesses. He told the Financial Times "HMRC is packed full of very intelligent people but we are sometimes too black and white about the law".

The move could produce what Mr Hartnett called a "surge" in revenue over the next few years.

A greater willingness to settle cases is likely to be welcomed by businesses critical of HMRC's uncompromising approach to litigation, and also chime with the coalition's "open for business" message. It could also be welcome news for the government, who are keen to cut the mounting legal logjam and unlock billions of pounds tied up in court battles over avoidance.

A more conciliatory approach was recently demonstrated by a £1.25bn settlement of a long-standing tax dispute with Vodafone, the telecoms group.

Mr Hartnett said HMRC would not return to old practices of offering "package deals" to multiple tax avoiders, which was blamed for encouraging rampant tax avoidance in the early years of the 1990s. They intend to fight what are considered as strong cases "to the death".

He conceded that the litigation strategy, introduced in 2007, had sometimes been misunderstood by HMRC Inspectors, some of whom saw the strategy of "litigation to the death" as giving them the opportunity to apply a "great sword of justice".

Increasingly he expects Inspectors to reach agreement in cases where there is a range of plausible amounts for tax due, as a result of varying legal interpretations.

HMRC is also planning a pilot project to test the use of third-party mediation in a minority of cases.