HMRC could be forced to return up to £43bn in overpaid tax

HM Revenue and Customs (HMRC) is in dispute with a number of firms who state they have been asked to pay too much tax. In a worst case scenario, the tax authority could be forced to refund up to £43 billion if it loses existing legal battles with big businesses.

This staggering estimate was revealed in HMRC’s latest annual accounts. Dozens of corporations are currently locked in dispute with HMRC who believe they are owed refunds – in some cases dating back decades.

HMRC’s long-running disputes include one with mail order catalogue Littlewoods, who claim to have overpaid on commission sent to agents between 1973 and 2004.

Chas Roy-Chowdhury, of the Association of Chartered Certified Accountants, said: “This is the absolute worst-case scenario for payouts but, as HMRC takes an increasingly aggressive stance on tax collection, it could find itself facing growing numbers of legal challenges – and paying out more refunds.

“The amount it has to set aside in provisions will have to get bigger as they play hard ball with companies and taxpayers and then face more court battles. Sometimes they will get it wrong.”

According to HMRC accounts, £7.2bn of the £42.8bn potential tax refund bill is likely to be paid out than not.

The remaining £35.6bn in the estimates are labelled ‘contingent liabilities’ where a refund is possible rather than likely. This amount rose by a fifth in the last 12 months.

HMRC officials stated they win 80 per cent of cases that go to tribunal and that many never even reach that stage. Subsequently, any refunds handed out would only be small.

An HMRC spokesman said: “We are required for accounting purposes to include an estimated contingent liability figure of potential repayments of tax.

“There is no question of this amount or anything close to this amount ever being repaid as the figure is based on our losing every single case currently being litigated, which is not going to happen.”

Date published 18 Aug 2015 | Last updated 18 Aug 2015