HM Revenues & Customs could be forced to pay out billions of pounds in tax refunds if they are defeated by some of their more challenging court battles its latest accounts show.
HMRC could potentially face a large bill of £42.8bn, this is more than double its worst case scenario estimate. This bill will be paid to companies that believe they wrongly paid too much tax years ago.
Bills this large would mean that George Osborne’s ambitions of wiping out government borrowing by the next election in 2020 will be extinguished.
HMRC are fighting their billion pound legal battles with companies such as Littlewoods, BAT, the tobacco group and Prudential the insurance group. The hearings are being held in London and Luxembourg.
The head of tax policy at the professional services firm, KPMG, Chris Morgan said some of the main cases are coming to a key stage where action is about to be taken. “There could be tens of billions paid out by 2017-18.”
The refunds to these large businesses are highly likely to cause controversy, as they have arrived at a time when there have been numerous public spending cuts and public anger on what is perceived to be corporate tax dodging. Chris Morgan has reassured that these cases do not involve tax avoidance.
Bill Dodwell of Deloitte, an accounting firm said: “The biggest elements of this have been a long time coming. The revenue has put up the strongest possible fight.”
HMRC thinks payments are more likely than not and since March have increased by a third to £7.2bn. The Office for Budget Responsibility has pencilled in payouts of between £500m and £2bn in a single year.
The largest portion of the HMRC payout estimate relates to “contingent liabilities”, cases where the payout is expected rather than likely.The contingent liabilities had increased by a fifth by March to £35.6bn, after the cost doubled in the previous year.
HMRC 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.”