Albasas - Unresolved HMRC Tax Disputes


HMRC offer Alternative Dispute Resolution (ADR) to help resolve some tax disputes outside a costly formal Tribunal in the UK courts.

There is no doubt that applying a collaborative approach to high-risk groups has resulted in a number of long running and difficult
disputes being resolved and the tax therefore being collected. This success has persuaded HMRC that considering mediation in other tax disputes could be beneficial.

Mediation is a consensual process. The parties to a dispute retain control, and are not obliged to reach a settlement,
although in practice around 70% of commercial disputes which go to mediation do settle. The mediator acts as a facilitator, and controls the process without imposing his or her views. Finally, and crucially, the mediation process is confidential, and is conducted on a without-prejudice basis.

The mediation typically takes place in the course of a single (long) day, with every effort being made to reach a
conclusion on the day. There are five phases:

bargaining; and

In the preparation phase, the parties agree the outline scope of the mediation and practical details. They will exchange summary information with each other and the mediator, but this will be much briefer than the bundles which are exchanged in litigation: the aim is to summarise the key facts and arguments in order to enable focussed discussion to
take place. On the day, the mediator sets the scene and seeks to create an environment conducive to mediation. Setting the tone is crucial to ensuring that the parties gain trust in the mediator and the process, and focus on the issues in a constructive manner.

The exploration phase often takes place in separate private meetings between the mediator and each of the parties. By asking open questions, a skilled mediator enables each party to clarify his or her own case, and to recognise the strengths and weaknesses of their position. Those new to mediation often find this phase frustrating, as the urge to move into discussing solutions can be strong. However, starting to negotiate before the issues have been fully explored is usually counter-productive.

Gradually, the discussions will move into a bargaining phase, where potential solutions are debated based on the foundations developed in the exploration phase. The mediator engages actively with the parties, and at some point will seek to bring them together to negotiate directly with each other. However, the mediator does not impose his own solutions on the parties: it is crucial to the success of the process that the parties are responsible for any settlement

Finally, the concluding phase ensures that any settlement is fully documented and accepted by both parties. The number of cases at the Tribunal is growing inexorably, with about 10,000 cases being referred each year.

If all this still fails to find an agreement then it is on to a Tribunal.

Tribunal AKA FTT (Tax)

Set up in 2009 to replace the four separate tax tribunals (Special and General Commissioners, VAT and Duties and Section 706 Tribunals), the tax chamber deals with direct and indirect tax related decisions made by HMRC, including:

Income tax
Corporation tax
Capital gains tax (CGT)
National insurance
Stamp duty land tax (SDLT)

Appeals can be made by individuals, organisations, single tax payers or multinational companies. Interestingly, the use of the word ‘appeal’ has a different meaning in direct and indirect taxes. In direct taxes it means an appeal to HMRC and in indirect taxes it means an appeal to the Tribunal.

If you've never dealt with this relatively new tax tribunal before, what can you expect?

The Tax Tribunal follows the old VAT Tribunal pattern. Although it equates to the previous General Commissioners or Crown Court in status, the Tribunal tends to be a little less formal.
Guidance from the Tribunal Centre explains the process; with the Appellant taxpayer going first, presenting evidence and argument; followed by HMRC response, and the Appellant concluding. You should receive correspondence from the Tribunal Centre giving location, date, time allowed (half day, day, etc).

Check the Tribunal rules about costs.
If you want to refer to the legislation have a look at Rule 10 of The Tribunal Procedure (First tier Tribunal) (Tax Chamber) Rules 2009 [11].

In a nutshell you can be liable for the other side's costs (or, in Scotland, expenses) if 

(a) you behave unreasonably for example, pursuing a case to Tribunal when you obviously don't have a leg to stand on or fail to do something which you should for example, simply not turning up for the Tribunal hearing resulting in it having to be rescheduled; or;
(b) the case is a "complex" one AND you lose AND you have not previously 'opted out' of the costs regime. There are time limits for opting out of the costs regime.
Obviously if you have opted out of the costs regime in a complex case and you win, then you cannot recover your costs from the loser.
Unfortunately you have to decide on opting out BEFORE you get to the hearing!

From Tax Chamber Tribunal Procedure the hearing will consider facts in law and as established in the case to date. Hiding evidence from HMRC and relying on it at Tribunal won't do.

Evidence and submissions

—(1) Without restriction on the general powers in rule 5(1) and (2) (case management powers), the Tribunal may give directions as to—

(a) issues on which it requires evidence or submissions; 

(b) the nature of the evidence or submissions it requires;

(c) whether the parties are permitted or required to provide expert evidence, and if so whether the parties must jointly appoint a single expert to provide such evidence;

(d) any limit on the number of witnesses whose evidence a party may put forward, whether in relation to a particular issue or generally;

(e) the manner in which any evidence or submissions are to be provided, which may include a direction for them to be given—

(i) orally at a hearing; or

(ii) by written submissions or witness statement; and

(f) the time at which any evidence or submissions are to be provided.

(2) The Tribunal may—

(a) admit evidence whether or not the evidence would be admissible in a civil trial in the United Kingdom; or

(b) exclude evidence that would otherwise be admissible where—

(i) the evidence was not provided within the time allowed by a direction or a practice direction;

(ii) the evidence was otherwise provided in a manner that did not comply with a direction or a practice direction; or

(iii) it would otherwise be unfair to admit the evidence.

(3) The Tribunal may consent to a witness giving, or require any witness to give, evidence on oath, and may administer an oath for that purpose.

If all else fails you may get leave to appeal to the Upper Tier Tribunal= Tax.

As you can see there is a lot too this procedure and you should carefully consider everything before embarking upon this course,