HMRC case review judged perfunctory

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A recent tax case has highlighted inadequacies in the HMRC internal review process

When a taxpayer disagrees with a tax-related decision made by HMRC, he can ask for the decision to be reviewed by a different HMRC officer. This is known as an internal review or statutory review. The purpose of this review is to allow the case to be settled without the need to go to the tax tribunal.

The internal review is supposed to be carried out by an HMRC officer who has not been involved in the tax case up to that point, and that person should be independent of the HMRC officer who is dealing with the case. However, many tax advisers feel that the internal review process frequently rubber-stamps the original HMRC decision.

This was illustrated in the case of Bloomsbury Verlag GmbH (BV) v HMRC (TC04778). 

BV was a German company which was acquired by a UK publisher on 14 March 2003, and at that point it became UK resident for tax purposes as it was controlled and centrally managed in the UK. A company that is UK resident is subject to UK corporation tax, and should submit corporation tax returns to HMRC.

Neither BV nor HMRC realised that BV was within the UK tax net until 31 March 2010, when BV’s advisers (Deloitte) wrote to HMRC informing them of the company’s tax status, and outlining the profits and losses made by BV since March 2003. HMRC issued notices to file CT returns for 2004 onwards, and BV submitted those returns including a return for the period to 31 December 2003, on 17 December 2010. 

HMRC refused to recognise the losses reported in the returns for 2003 and 2004, as it said all returns for periods before 2006 were submitted outside the four year time limit for claims in FA 1998, Sch 18, para 46. Thus the brought forward losses could not be set against profits made in 2006 and 2007. BV asked for this decision to be subject to an internal review by HMRC.

That review upheld the original decision to block the set-off of the earlier losses. However, the tax tribunal noted there was no requirement to claim for losses to be carried forward and the time limits in FA 1998, Sch 18, para 46, didn’t apply to the self-assessed CT returns. Judge Gammie found that the losses could be set against the later profits made by BV, allowed the appeals, and reduced the penalties to nil.

In his judgement Gammie was scathing about the quality of the HMRC internal review as commented: “..the question is whether HMRC has properly performed the statutory function that Parliament has placed upon it, namely to review and to take account of the taxpayer’s representations. It is important to taxpayers (and to this tribunal which has to deal with the unresolved issues) that HMRC should perform (and be seen to perform) their statutory function properly.”

What has your experience been of HMRC internal reviews? Does the independent reviewer ever find in favour of the taxpayer?

About Rebecca Cave

Consulting tax editor for I also co-author several annual tax books for Bloomsbury Professional and write newsletters for other publishers.


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02nd Mar 2016 10:13


I have a client who is likely to face an unwelcome IR35 status decision by HMRC soon. On the basis of reading this I don't think he will be going to their internal review before a tribunal.

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02nd Mar 2016 14:20

Internal review is worth a try

Although I was quite negaitve about the process in the above article, reflecting the circumstances of the case, internal review can be quite useful as it helps to organise the arguments, and the taxpayer does win occassionaly. If memyself-eye would like recommendations of experts to advise on an IR35 status decision I can supply names - PM me.

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02nd Mar 2016 18:03

special relief and excess determinations

we have had some positive results where the independent reviewer has taken a reasonable approach given the specific circumstances, eg an individual had not completed tax returns that were sent to him because he had become an employee and was taxed under PAYE.

Rebecca Busfield

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