Here Comes the Judge…

One of the many reasons people use an accountant is simply to deal with HM Revenue & Customs (“HMRC”) on their behalf.  Whilst it is never a bad idea to get help from a professional, subject to the usual cost constraints, it is particularly important if HMRC open an enquiry into a taxpayer’s affairs.  HMRC officers are supposed to reach conclusions to enquiries that are both fair and reasonable, but their view of what is fair and reasonable is often at odds with everybody else’s.  This is where a good accountant can help protect his client’s interests.  But what happens if, despite the best intentions of both sides, agreement cannot be reached?  Well, the short answer is that we go to Court.

Now, this might sound like a rather drastic course of action to take and one which will involve a lot of expense and stress.  This can be the case, but the first thing to say is that going to Court, or more accurately to the First Tier Tribunal (“FTT”), as it is known, is not necessarily the last resort.  Court proceedings are expensive and time-consuming for HMRC as well and they have implemented an internal review procedure which is intended to be a last chance to reach agreement before an appeal to the FTT becomes inevitable.  An internal review is conducted by an HMRC officer unconnected with the case whose role is to consider whether or not the officer who actually handled the enquiry has dealt with matters as HMRC might wish.  It is easy to be cynical about the value of such a process, but I have almost invariably found it to be useful and I really cannot think of any reason for not requesting a review when an impasse is reached.

Assuming the review does not achieve an acceptable result, a taxpayer then has three options, namely:

  • To give in and reach as favourable a settlement with HMRC as possible.
  • To request a closure notice from the FTT.
  • To obtain a final decision from HMRC about the matter in dispute and then appeal the decision to the FTT.

What happens in the first scenario is obvious – you have to haggle!  In the second, the taxpayer can apply to the FTT to issue a notice that the enquiry into the taxpayer’s affairs should be closed.  To succeed it will be necessary to demonstrate that HMRC are acting unreasonably in their conduct of the enquiry, which is generally a reasonably difficult thing to do.  The third situation is what we a really concerned with in this blog.  Agreement cannot be reached and it is now time to approach the FTT to reach a conclusion.  At this point, if the sums involved warrant it, I would recommend that Counsel’s opinion be sought as to the realistic chances of success and, if good, whether or not to appoint Counsel to present the case.  A “do-it-yourself” approach will obviously keep costs down, but might not get your arguments across as well as a good advocate.  Using an accountant is a cheaper option, but if those fees are also a stretch too far all is not lost.  Filing the appeal is relatively straightforward and requires completion of a form and the submission of copy documentation to HM Courts & Tribunals Service in Birmingham.  A copy of the appeal must be sent to HMRC who will then have to make a statement of case (i.e. set out their side of the argument) and as long as you stick to the Tribunals Service timetable, there should be no particular problems.  In due course, the time and place of the hearing will be notified to both parties.

FTT hearings themselves are relatively informal and are held in front of two Tribunal members.  A Judge, who is the presiding member and has the casting vote if they do not agree, accompanied by another member who is usually a suitably qualified professional person.  Neither will be clad in wig and gown, which makes them far more approachable and appeals are held in open Court, which in London means a room at 45 Bedford Square.  Hearings are categorized into two types; basic cases, for routine matters such as appeals against penalties and standard cases, which are more involved and usually involve a technical dispute about tax law.  The most important thing about either type of case is that it must be supported as far as possible by evidence.  The Tribunal will accept verbal arguments and, in standard cases, will hear verbal evidence given under oath, but it is essential that as much tangible, documentary, evidence is provided as possible.

Simple decisions of fact will often be given verbally at the end of the hearing, but all decisions are given in writing a few weeks later.  The process is about as straightforward as a legal process can be and each side is responsible for their own costs.  The overriding message of this blog is that you should not be afraid of taking HMRC to the FTT if they are unable or unwilling to reach what you consider to be a fair and reasonable conclusion to an enquiry.  Stand up for your rights!

Carl Barwick – Tax Manager

Westbury Accountants and Business Advisors is an accountancy practice based in London. Westbury have been providing Accounting and Tax solutions to small and medium sized businesses since 1936. Talk to the team at Westbury on 0207 253 7272 or visit http://www.westbury.co.uk.