Strategy for Effective Litigation and Settlement in HMRC Disputes
Over the last twenty-five years the team at KANGS have accumulated significant experience and substantial ‘know how’ resolving all types of disputes and settlements involving HMRC as amicably, successfully and cost effectively as possible.
While we have secured amicable settlements for both individual and corporate clients, there are instances where reaching a mutually satisfactory agreement becomes impossible. In every situation, successful outcomes are achieved through meticulously planned and strategic negotiations with HMRC.
HMRC has the responsibility to collect and manage all taxes, including National Insurance and tax credits. It must generally proceed strictly as required by statute.
However, HMRC enjoys limited discretionary powers and when seeking to recover outstanding tax, it initially aims to do so by agreement in a non-confrontational way. However, where this is not possible it will pursue litigation if it is believed that there is a strong likelihood of being successful at court.
HMRC sets out the framework, outlined in its 'HMRC Litigation and Settlement Strategy' (LSS), to guide both taxpayers and HMRC in resolving tax disputes. This strategy was first introduced in 2007 and was last updated in 2017.
The scope and purpose of this strategy are described as:
“…the framework within which HMRC resolves tax disputes through civil law processes and procedures in accordance with the law. It applies irrespective of whether the dispute is resolved by agreement with the customer or through litigation.”
LSS encourages cooperation and open communication between taxpayers and HMRC with a view to reaching a mutually acceptable outcome.
Hamraj Kang and Naz Maqsoom of KANGS comments upon various aspects of LSS.
Important Elements to HMRC Dispute Resolution
HMRC ‘s Guidance to Staff
When handling disputes, LSS encourages HMRC staff to, amongst other things;
- minimise the scope for disputes and seek non-confrontational solutions,
- resolve tax disputes consistently with HMRC’s considered view of the law,
- handle and resolve disputes cost effectively,
- ensure that the financial benefits make any dispute worthwhile,
- where it is believed there is a good chance of winning in litigation, only settle by agreement for the full amount HMRC believes the tribunals or courts would determine,
- where the chances of success in litigation appear weak generally concede the case rather than continue.
Scope and purpose of LSS
- LSS only applies to civil procedures and not criminal prosecution cases.
- LSS is designed to facilitate resolution of tax disputes in relation to all taxes, duties and associated payments.
- Whatever manner any dispute is resolved, LSS makes it clear that resolution must be in accordance with the law. This applies to the amount of tax agreed to be due as well as to the reasoning leading to such liability.
Disputes
A dispute covers situations where:
- HMRC needs more information before a considered opinion on the required action can be reached,
- HMRC has differing views to its customer upon the amount legally due and/or the proper time for payment,
- for instance, a return, an audit or a challenge by a customer relating to a legal interpretation by HMRC is disputed.
Two key elements of HMRC’s approach are:
- supporting its customers to get their tax right first time, thereby preventing a dispute.
- resolving tax disputes which do arise in compliance with the tax system efficiently and at the least cost to both parties.
Whether to engage in a dispute is based on a risk-assessment having consideration for the fact that disputes are costly for all parties.
Litigation
This encompasses:
- the resolution of a tax dispute through a statutory appeal to an independent body, such as a tribunal or a court,
- tax related common law claims to the courts,
- applications for Judicial Review.
Engaging in disputes
- it is the obligation of HMRC to obtain the best practicable return for the Exchequer,
- the law must be applied fairly and consistently,
- consideration must be given not only to the tax in dispute but potential taxes of the same or other customers where a precedent may be set.
Handling Disputes
- HMRC attempts to take a non-confrontational approach and work in collaboration with the taxpayer in the belief that such an approach is likely to help identify and establish relevant facts.
- A collaborative approach by all parties requires openness, transparency and focus.
- HMRC seeks to clearly articulate the points in dispute and timescales for resolution.
- Where necessary, HMRC will make use of its statutory information powers.
- If HMRC believes that tax evasion is involved, it will consider a criminal investigation.
Resolving disputes
- HMRC will generally only continue a tax dispute when, potentially, it will secure the most favourable return for the Exchequer and the case is likely to be successful in litigation.
- Should there be more than one dispute with the same customer, each must be resolved on its own merits and not part of an ‘overall package.’
- Where HMRC has confidence that it is likely to succeed in circumstances where litigation will be both effective and efficient it will not settle upon a compromise and will seek payment of the amount of tax, interest and penalties. For example, if HMRC believes that the law requires income tax of £125,000 to be due, as opposed to an amount of, say, £100,000, it cannot settle for such lesser amount but must recover the full amount due.
- HMRC will remain open to considering the impact of any new information or technical analysis which may be put forward by the customer.
How can we assist with HMRC Tax Dispute Resolution?
LSS, whilst providing a structured framework for the conduct of disputes, will not necessarily produce a favourable outcome and each case will depend upon its own merits and evidence produced.
Alternative methods of dispute resolution are available, such as mediation, and all procedural avenues must be considered according to the circumstances of each case.
If you find yourself facing a potential tax dispute with HMRC, it is crucial to seek legal assistance right away. Negotiations can be complex, and understanding HMRC's strategy may encourage an agreed settlement, reducing the risks that come with litigation.
We have successfully reached amicable settlements that our clients initially did not believe were possible. Our Team welcomes enquiries by telephone calls and emails and would be delighted to assist.
Tel: 0333 370 4333
Email: info@kangssolicitors.co.uk
We provide initial no obligation discussion at our three offices in London, Birmingham, and Manchester. Alternatively, discussions can be held through live conferencing or telephone.
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