It is extremely rare that a taxpayer would set out hoping that their dispute with HMRC will reach the Tax Tribunal, not least because of the public nature of the hearing. Before reaching that stage the taxpayer will have had the opportunity to make their case through a formal appeal process, have their case independently reviewed and, where appropriate, mediated through Alternative Dispute Resolution (ADR).
It is inevitable though that there will be instances where HMRC make poor decisions and refuse to back down, or the taxpayer refuses to engage in the formal appeal process and wants “their day in court”. There will also be many examples where the matter in dispute could reasonably be decided in favour of either party, and the only way to resolve the case is to ask the Tax Tribunal to intervene.
Bringing a case to the Tribunal
In almost all circumstances it will be the taxpayer or their advisor who notifies the appeal to the Tribunal. This can be done online and at the initial stage only very basic information is required, along with a copy of the HMRC decision being appealed against and the grounds for making the appeal.
Before the notification is made to the Tribunal in direct tax cases, an appeal needs to have been submitted to HMRC and failure to do so (i.e., by appealing directly to the Tribunal) would lead to the case being struck out by the Tribunal. For indirect tax cases if the taxpayer has chosen not to accept an independent review, then they would notify the Tribunal of the case directly.
On receipt of the appeal notification the Tribunal will allocate the case to one of four “tracks” –
- Default Paper cases
- Basic cases
- Standard cases
- Complex cases
The amounts in dispute and the subject matter largely dictate which track the case is allocated to. The choice of track will not normally make much difference to the taxpayer but the two most significant differences are:
- In Default Paper cases there will be no hearing, as the case will be decided “on the papers,” and;
- In Complex cases the parties can be exposed to a costs order, although the taxpayer can opt out of the costs regime if they wish to.
Pay now, decide later
In direct tax cases the taxpayer or their agent would most likely have requested that collection of the amount in dispute be postponed until a decision has become final. In indirect tax cases such as VAT, the appeals may usually only proceed if the amount in dispute has already been paid unless a hardship application has been submitted to and accepted by HMRC. For a hardship application to be successful it must be demonstrated that a payment upfront of the amount in dispute would cause the taxpayer to suffer financial hardship.
After the case is notified
There is a backlog of cases waiting to work their way through the Tribunal process, so the length of time from notifying the Tribunal of an appeal to the hearing itself is likely to be months but can be years. However, between those two stages there will be formal directions issued by the Tribunal that both parties must adhere to. The directions will be issued in Standard and Complex cases after HMRC has produced its Statement of Case in response to the taxpayer notifying their appeal to the Tribunal.
The Statement of Case will be HMRC’s opportunity to explain their view in relation to the case and include the legislative basis which they are relying on. In most cases the Statement of Case will need to be produced by HMRC within 60 days of the Tribunal providing them with a copy of the appeal.
The directions referenced above, which follow the Statement of Case, will dictate when certain actions such as the production of documents, will need to be completed. This could include when the following needs to be provided:
- A list of documents that both parties intend to rely on or produce in connection with the appeal.
- The witness statements whose evidence the parties intend to rely on.
- Confirmation of when the parties are available for a hearing.
- The preparation of a case bundle, which is normally the responsibility of the taxpayer to produce.
- Skeleton arguments which outlines the facts and legal arguments the parties wish to make.
The timing of when the above actions need to be completed will vary from case to case, but in all cases the general principle is that when each stage is completed, the other party and the Tribunal are notified, and documents shared. It is not acceptable for either party to produce documents at a hearing for example, which have not previously been disclosed to the other party.
In many cases the taxpayer will want to instruct a barrister to advocate on their behalf, and Menzies can assist with this process if appointed as the taxpayer’s representative in the proceedings. The role of the representative is to ensure the case directions are complied with in a timely manner, including the preparation of bundles for the hearing, advising the taxpayer on their options in terms of appointing a third-party advocate, and acting as the crucial link between the taxpayer and their appointed barrister. Once a representative is appointed correspondence from the Tribunal and other parties is sent to the representative rather than directly to the taxpayer.
The Tribunal rules allow for the taxpayer to be represented by either the same or different representative for the purpose of advocating the taxpayer’s case at a hearing. This ensures barristers (who are not generally permitted under the Bar Council rules to conduct day-to-day litigation of the case as a representative would do), are not prevented from being instructed to present the arguments (i.e. advocate) at the actual hearing.
The Hearing
The hearing itself is less formal than what most taxpayers might expect, but this is deliberate so the taxpayer feels more at ease. Some formalities such as the judge wearing a wig or gown are dispensed of. The order in which most cases follow will be the parties making their opening submissions, followed by the provision of evidence including calling witnesses (if required), followed lastly by the parties making their closing submissions. Again, in most cases the decision of the Tribunal will not be issued until some months after the hearing, first to the parties directly and then shortly afterwards the decision will be made public.
This article provides a high-level overview of the Tribunal Process and it is not possible to cover everything in one article. It is important for any taxpayer or their advisor to seek specialist advice if an appeal is proceeding to the Tribunal and it is not an area they are familiar with.
If you would like to discuss The Tribunal Process, Alternative Dispute Resolution or appealing HMRC decisions further, please contact Menzies’ Tax Disputes and Disclosures team on our free confidential helpline – 07813 003 194.