Tax Tribunals

The Tax Tribunal hears appeals against HMRC decisions in relation to direct and indirect tax cases.

Some of the key features of the Tax Tribunal are:

• It is independent of HMRC
• Cases are heard by Judges and others suitably qualified, such as accountants
• A single set of procedural rules apply to all cases whether complex or straightforward

The Tax Tribunal deals with both direct and indirect tax cases including:

Direct tax

• Income tax
• Tax collected under the Construction Industry Scheme (CIS)
• Corporation tax
• Capital gains tax
• National Insurance contributions
• Inheritance tax
• Stamp duty land tax
• Land transaction tax (Wales)

Indirect tax

• VAT
• Customs duty
• Excise duties including alcoholic liquor duties, petrol/diesel/heating fuel duties, tobacco products duty, gaming duty, general betting duty
• Insurance premium tax
• Landfill tax
• Landfill disposals tax (Wales)

The decision letter from HMRC will make it clear if the taxpayer has a right of appeal. Not every decision of HMRC carries a statutory right of appeal.

Most tax cases commence in the First-tier Tax Tribunal although some may commence in the Upper Tribunal.

The taxpayer must be in possession of a final decision from HMRC before an appeal to the Tax Tribunal can be submitted.

Most decisions appealed by taxpayers arise from:

• A tax assessment
• A decision to impose a penalty or
• A dispute over applicable tax reliefs

Before the matter proceeds to a Tax Tribunal, the taxpayer has the right to pursue an internal review process with HMRC as follows:

Informal Review

The taxpayer must seek an informal review by HMRC usually within 30 days of the date of the decision.

The options available to HMRC are to confirm the original decision, amend the original decision in part or fully agree with the representations of the taxpayer.

If the taxpayer disagrees with the final decision, the options available to the taxpayer are a formal internal review or an appeal to the Tax Tribunal.

Formal Internal Review

A formal internal review is undertaken by a HMRC officer who has had no previous involvement with the case.

HMRC is only obliged to offer an internal review in the case of VAT, but if a taxpayer seeks an internal review in relation to other taxes, it is usually granted.

If the taxpayer disagrees with the final internal review decision, an appeal must be lodged with the Tax Tribunal usually within 30 days of the date of the HMRC decision.

When an appeal has been lodged with the First-tier Tax Tribunal, the case will be categorised into one of four categories dependent on the nature and complexity of the appeal.

The four categories are as follows:

1. Default Paper Cases

• Generally, such cases are decided on paper and without the need for a hearing
• The Tax Tribunal will consider the Notice of Appeal and any supporting documents as well as any material submitted by HMRC before making a final decision
• Either party or the Tax Tribunal can request a hearing in which case the appeal will proceed as a Basic Case
• An example of the nature of appeals heard in this category is late filing penalties

2. Basic Cases

• Basic Cases are heard by way of an informal hearing before a Judge
• Each party has the right to produce documents and call witnesses at the hearing
• Often a decision is handed down at the end of the hearing
• An example of a Basic Case is an appeal against VAT penalties

3. Standard Cases

• These are usually more involved than Basic Cases
• They are dealt with by way of a formal rather than an informal hearing
• Each party has the right to present its case, submit documents to the Tax Tribunal and call witnesses
• There is usually greater case management involving the imposition of a specific timetable for steps to be taken in the case
• Usually more document intensive cases hence the need for greater case management

4. Complex Cases

• This category is reserved for cases deemed the most complex by reason of the likely length of the hearing, complexity or length of evidence in the case or the large amount of tax in dispute
• Dealt with by way of a formal hearing and formal exchange of evidence
• Each party has the right to present its case, submit documents and call witnesses
• Detailed case management of the case due to the volume of papers and evidence bundles involved
• Common examples include appeals against high value VAT Assessments and VAT appeal cases based on the Kittel Principle

Common features of a First-tier Tax Tribunal include the following:

• The case will usually be heard by a Judge and another qualified member
• The hearing will take place at a venue close to the taxpayer if possible
• The hearing is usually held in public (there are exceptions)
• The parties are entitled to be present and are often represented by solicitors or barristers
• The taxpayer will outline the factual and legal basis of the appeal and adduce any supporting evidence
• Each party can call witnesses and cross-examine each other’s witnesses
• The Tax Tribunal can ask any questions it considers appropriate of the witnesses
• HMRC will outline its basis for opposing the appeal and adduce any supporting evidence
• The taxpayer has an opportunity to address any points raised by HMRC
• The Tax Tribunal will usually reserve its decision and notify both parties of the result at a later date

The Upper Tribunal is intended to have the same status as the High Court.

Cases are heard by two senior Judges, often High Court Judges.

The decisions of the Upper Tribunal are binding on the First-tier Tax Tribunal. The precedents set in the Upper Tribunal must be adhered to by the lower Tribunal.

Tax cases reach the Upper Tribunal as follows:

• It is a Tribunal of first instance for some Complex Cases (which are deemed not suitable for the First-tier Tax Tribunal)
• Upon appeal against a decision of the First-tier Tax Tribunal

An appeal from the First-tier Tax Tribunal to the Upper Tribunal is usually on the basis of an error in law. Appeals to the Upper Tribunal based on findings of fact by the First-tier Tax Tribunal are not usually permitted unless the grounds are that no reasonable Tax Tribunal would have come to such a conclusion as the First-tier Tax Tribunal in question.

As mentioned above, there is a costs liability for both parties in the Upper Tribunal. Where HMRC appeals a decision to the Upper Tribunal it may waive its right to costs under the ‘Rees Principle’. The taxpayer can also enquire of HMRC if it is willing to waive its costs in such circumstance but it is not obliged to do so. HMRC may consider waiving its right to recover its costs in cases of wider public importance.

Court Of Appeal

Appeals from the Upper Tribunal are heard by the Court of Appeal. Leave must be obtained from either the Upper Tribunal or the Court of Appeal before an appeal can be heard.

Appeals are based on points of law.

The time limit to lodge an appeal against a HMRC disputed decision is usually 30 days.

The time limit runs from the date of the original decision or from the date of any subsequent review process decision.

There is provision for lodging an appeal outside the time limit but such an application must be supported by written reasons.

The costs position in a First-tier Tax Tribunal can be summarised as follows:

• Usually, both parties pay their own costs with neither party liable for the opponent’s costs if they lose the case
• In rare circumstances, the Tax Tribunal can award costs (a wasted costs order) if it considers that a party has behaved unreasonably in their conduct of the case
• If the case is categorised as a Complex Case, a slightly different costs regime applies in that the winning party can ask that the losing party pays its costs. However, a taxpayer can ‘opt out’ of this costs rule so that each party pays its own costs
• Some Complex Cases may be heard directly in the Upper Tribunal where the costs regime is different in that the taxpayer is at risk of being liable for costs if the appeal is unsuccessful

If payment of the disputed tax will cause the taxpayer financial hardship, an application can be made to HMRC (together with any evidence in support of the application) to waive the requirement to pay the disputed tax.

Hardship is a concept that only applies to indirect tax such as VAT Assessment cases.

The Tax Tribunal cannot hear an appeal relating to disputed tax unless:

• The disputed sum has been paid, or
• The Tax Tribunal has waived the requirement to pay the disputed tax, or
• HMRC has waived the requirement to pay the disputed tax

If HMRC refuse such an application, the taxpayer is at liberty to apply to the Tax Tribunal for a ruling. HMRC are entitled to be represented at this hearing and oppose the application.

When an appeal has been lodged, the Tax Tribunal will usually request HMRC to provide a Statement of Case, other than in matters which fall into the Basic Cases category.

The Statement of Case will outline HMRC’s position and detail the reasoning for the original decision that is the subject of the appeal.

Default Paper Cases

• HMRC has 42 days to provide a Statement of Case to the Tax Tribunal and the taxpayer
• The taxpayer has 30 days to provide a written response to HMRC and the Tax Tribunal
• Unless an oral hearing has been requested, the Tax Tribunal will proceed to make a decision based on the written evidence before it

Basic Category Cases

• The Tax Tribunal will not normally require HMRC to provide a Statement of Case
• The case will proceed by way of an informal hearing with each party attending on the day with relevant documents and witnesses
• It is usual for a decision to be given on the day of the hearing

Standard and Complex Category Cases

• In both Standard and Complex Cases, HMRC usually has 60 days to provide a Statement of Case to the Tax Tribunal and to the taxpayer
• The taxpayer usually has 42 days from the receipt of the Statement of Case to provide both HMRC and the Tax Tribunal with details of its case including a list of documents to be relied upon at the final hearing
• The Tax Tribunal will usually provide other directions for both parties to adhere to in more complex cases as greater case management is usually required