Appeals process and First-tier Tribunals
Doug Sinclair, Head of BKL Tax investigations, provides a practical insight into the appeal process in Taxation magazine and outlines his experience of taking a case to the First-tier Tribunal.
- Reflect at every stage of the process to ascertain whether it is commercially viable to carry on fighting.
- Familiarity with each step of the appeal process.
- Record key dates on a calendar.
- In advance of the First-tier Tribunal hearing, prepare speaking notes and memorise opening address.
In a dispute with HMRC, it is always preferable if the adviser can reach a negotiated settlement with the department because this enables the substantive issue to be resolved a lot quicker and at reduced professional costs. Most enquiry cases opened by HMRC that give rise to an underpayment of taxes are resolved in a pragmatic way with agreement reached between HMRC and the client.
When this is not possible there are procedures that will help resolve the matter. These include an internal review of the case by HMRC, an application for alternative dispute resolution (ADR), and a hearing at the First-tier Tribunal.
The first stage in the lengthy litigation process is submitting an appeal to HMRC together with a postponement application if necessary.
To do this, the taxpayer must have received from HMRC a decision that can be appealed against. This can be a formal assessment or a tax decision on a particular subject, for instance, the refusal to suspend a careless penalty. An appeal has to be submitted to HMRC within 30 days of an appealable decision, otherwise it will be deemed late. If HMRC does not accept the late appeal, the reasons for lateness will need to be heard at the First-tier Tribunal. If it accepts them the substantive tax point can be taken forward.
To postpone the tax, it is necessary to write to the HMRC office that sent the decision, saying why the amount demanded is too much, what the correct amount is and when it will be paid. HMRC will write to advise if it agrees.
On indirect tax matters, after an appeal has been submitted to HMRC the tax will usually have to be paid before the tax tribunal will hear the appeal. It may therefore be necessary to ask for a review of the decision first because HMRC will not request payment of the tax until this is complete.
On postponing direct tax penalties, HMRC will not seek payment until the appeal has been settled. For an indirect tax penalty it will ask for payment after a request has been made for a review or an appeal has been submitted to the First-tier Tribunal.
If the appeal and representations are not successful, the second step is to consider the internal review process. HMRC’s Appeals Reviews and Tribunals Guidance Manual (ARTG) states at para 4230:
‘HMRC must offer the customer a review of any appealable decision or assessment.’
The deadline for accepting the offer of a review is 30 days from the date on the letter offering one.
In addition, para 4290 states:
‘If the decision maker has not offered a review, the customer may ask for a review at any time after making their appeal unless they have already notified the appeal to the tribunal.’
The review is conducted by an HMRC officer who has had no previous involvement in the case. They could be based anywhere in the UK. In essence the review should be to ‘weed out’ the cases that should not continue to the First-tier Tribunal. However, as some readers will be aware, this is not always the outcome.
The reviewing officer has 45 days to send the review conclusion to the taxpayer or agent. This deadline is based on one of the following:
- the date HMRC receives the taxpayer’s acceptance of the offer of a review;
- in direct tax, when the taxpayer has asked for a review, the date of the decision maker’s letter giving HMRC’s latest view of the matter in dispute; or
- in indirect tax, when a third party has requested a review, the date the request is received.
An often overlooked point is that the 45 days can be extended by mutual agreement. This may be vital when the reviewing officer has had too little time to submit their decision. In these circumstances, HMRC’s default position is to uphold the original decision maker’s view automatically.
It is therefore imperative that a good diary management system is set up to keep track of all the differing dates. This is even more important when matters progress to an appeal to the First-tier Tribunal.
The outcome of the review is final and cannot be appealed against. So, if the review has upheld the original decision, the options are:
- accept the decision and agree to settle;
- apply for ADR; or
- submit an appeal to the First-tier Tribunal.
It may be difficult to accept, but it may be better to settle the matter rather than pursue a path that takes significant time, with no guarantee of success.
Submission of appeal
Again, if there is to be an appeal to the First-tier Tribunal, there will be deadlines. The appeal has to be made within 30 days of the review decision and careful consideration is required as to whether it is best to submit one.
Aspects of the case to consider are:
- The amount of tax or penalty at stake.
- Complexity – will a tax barrister be needed as an advocate?
- Will an application for costs be made?
- The appetite to continue fighting the case.
In terms of the complexity, it may be relevant to instruct a tax barrister as the advocate. However, a word of warning: if a barrister is instructed by the appellant, it is highly likely that HMRC would also seek to instruct one.
Currently, only appeals that have been allocated to the ‘complex’ category of appeals can make an application for costs.
Alternative dispute resolution is a form of mediation to resolve the issue. However, an application has to be made (and can be made even if an appeal has been submitted to the First-tier Tribunal) but not all disputes are suitable. For instance HMRC’s interpretations of the law or time-to-pay arrangements are outside the ADR process. It should be noted that there is no right of appeal against not being accepted for ADR.
An ADR facilitator may seek to resolve matters over the telephone or at a meeting. If the latter, the facilitator will request each party to set out the points in dispute in a written format to enable the facilitator to understand the issues.
At the meeting, the original decision maker will attend to assist the facilitator in trying to reach mutual points of agreement. If agreement is not reached and the matter remains outstanding, the last option is the First-tier Tribunal.
It is not a requirement to go through ADR, but it is increasingly used as a process to resolve disputes with HMRC, so it is included in these steps for completeness.
Path to the First-tier Tribunal
There is another step in the process that has the potential for securing victory before going in front of the judge at the First-tier Tribunal. This is to try to enter a dialogue or, better still, meet the litigating officer (the officer who will appear in front of the judge for HMRC) to persuade them that the review was not accurate or complete, or the case for the appellant is so compelling the judge would throw out the case immediately. I have been successful several times, with the litigating officer closing down cases before the matter was heard in court.
In ‘Scary stuff’ (Taxation, 4 August 2016, page 16), Ashvin Degnarain sets out the elements that should be followed before the day of the hearing. These include the case directions that set out the dates when particular tasks need to be complied with. To reiterate, it is vital to ensure these dates are accurately recorded on a diary so they are not forgotten.
A few days before the hearing, it is recommended that speaking notes are put together and the opening lines memorised. It is also a good idea to have a few lines written out for the closing submissions.
I will add some colour by recalling my experience of being an advocate at a recent First-tier Tribunal hearing.
The client and I met outside the Royal Courts of Justice on a sunny morning in July. We were both in good spirits having seen a recent decision from the First-tier Tribunal that played in our favour.
It must have been a slow news day because, although there were several photographers outside the building, there was no one famous in the courts; or so I thought. At this moment, one of the photographers asked if they could take the client’s photograph.
We entered the courts, went through the metal detectors and found out which court we would be in. Before entering the downstairs court room, we met the litigating officer, who said she had flown from Belfast the day before.
We all stood up when the judge entered the room. If any readers who have not attended a hearing before thought that they would be involved in a scene similar to the one in A Few Good Men they will be sadly disappointed.
We went first and, as advocate, I started with my opening speech. The judge reassured both parties that he was very familiar with the issue in hand (a refusal by HMRC to suspend a careless penalty) and that he had read the bundle of documents. As the advocate for the appellant I had to articulate the key points from other tribunal cases and how they compared to our case.
The appellant had previously completed a witness statement which the judge did not require to be read out on the day, but he did ask questions and HMRC had to clarify some points.
It was then HMRC’s turn to set out its case. After that it was back to me for the right of reply. I recall mentioning that the legislation did not cover what HMRC said it did and referring to previous tribunal cases to support my argument when summing up.
Our hearts were in our mouths – the penalty was in excess of £20,000 – and I thought the judge was going to rule there and then. However, he said he would have to deliberate and a ruling would be submitted in due course. The 75 minutes between standing up when the judge entered the court to standing up when he left seemed to go in a heartbeat.
Afterwards, sitting in the sun outside the Royal Courts of Justice, we thought the hearing had gone well, but it was just a case of waiting.
Fortunately we did not have to wait too long. The decision was out in about a week. I opened the email in trepidation willing it to be the result we wanted. I had to read it three times to make sure I had not misread it. Thankfully, the judge had ruled in our favour but we had to wait until HMRC confirmed that it was not going to appeal. This confirmation came a week later and it was time to celebrate.
The litigation process is not something to be scared of. A steady, methodical approach is required to ensure compliance with a range of deadlines as well as research and preparation for the technicalities.
It should also be borne in mind the age-old debate of cost versus having your day in court.