HMRC paid out over £2.5m in legal costs to taxpayers in 2019/20, a year-on-year increase of 88%.
The tax body settled 43 cases in the period, paying out an average of £58,277 per dispute.
The figures, up from 34 disputes at an average payout of £39,014, indicated that not only has the volume of cases settled increased but HMRC is losing complex and long-lasting cases against taxpayers.
Steven Porter, partner at the law firm Pinsent Masons, told City AM: “The rise in the number of cases where taxpayers were awarded costs may suggest HMRC has been too bullish in some of the cases it has chosen to litigate.”
HMRC uses a litigation and settlement strategy (LSS), where cases are investigated if the body believes it has a greater than 50% chance of winning the case.
However, Porter claims that the strategy means those cases where “both HMRC and the taxpayer feel they have a high chance of winning can’t be settled”.
Responding to the allegations, a spokesperson at HMRC, told City AM: “HMRC litigates in accordance with its obligations as the tax authority, and the litigation and settlement Strategy supports the correct discharge of those obligations.”