Managing director Chartergates
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Taxpayers should take up internal reviews

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19th May 2016
Managing director Chartergates
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Matt Boddington explains how taxpayers can use internal reviews to their advantage.

Internal reviews were introduced in 2009 to reduce the burden on the tribunal service by adding an additional way of resolving a dispute directly with HMRC.

When a taxpayer is issued with an assessment or a penalty notice he generally has 30 days from the date of the notice to lodge an appeal. If every tax appeal was listed to be heard at the tax tribunal, however, the system would grind to a halt. There is already a considerable delay between having a case listed for a tribunal hearing and the appeal hearing taking place – sometimes measured in years.  

The internal review is a statutory process (also known as a statutory review), conducted by a tax officer who has not been involved in the case up until that point. The review is supposed to be a completely fresh set of eyes on the matter, to check whether the decision was made in line with HMRC procedures, legal and technical guidance. The purpose of the review is not to decide if the decision itself was ‘fair’.

The law (TMA 1970, s 49A) provides three routes to resolving an appeal:

  • the taxpayer can request a review of the matter;
  • HMRC can offer a review; or
  • the taxpayer can notify the appeal directly to the tribunal.

If the taxpayer takes up the offer of a review and the matter is not resolved to his satisfaction he can still take the case to tax tribunal, and may still win. However, the review process is far less expensive than opting to go directly to the tax tribunal. In my experience clients can save 75% to 95% of the professional fees if the appeal can be resolved at internal review.  

The latest available official statistics (for 2013/14) show that 49% of reviews result in the HMRC decision (generally a penalty) being cancelled or varied. In the round, therefore, taxpayers have an almost evens chance of having an appeal accepted.

There are three further advantages that flow from the internal review:

  1. It forces both sides (HMRC and taxpayer) to summarise the arguments, which can focus HMRC’s approach, particularly for more complex enquiry cases.
  2. The taxpayer gains control of the timing of the case, and may achieve resolution of his appeal significantly quicker than by using the tribunal-only route. Sometimes this can reduce the length of a dispute by years.
  3. The tribunal has an overriding objective to encourage dispute resolution, and if the case ultimately proceeds to tribunal the judge will appreciate (or perhaps even expect) the taxpayer’s attempts at resolving matters without using up the scarce resources of the tribunal service.

One stumbling block for the taxpayer is knowing when HMRC is offering a review. This should be done by a letter in which HMRC’s view of the matter is clearly set out. However, the standard letter used by HMRC to ‘offer’ a review has been criticised by Judge Redston in Thames & Newcastle Ltd v HMRC as not offering a review at all.

Although that case was heard nearly two years ago the same standard letter template is still being used by HMRC. In that letter HMRC merely informs the taxpayer that they can ask for a review; it does not constitute a valid offer of a HMRC review. This is an important point as the consequences of missing an HMRC deadline will likely be that the appeal is automatically determined in HMRC’s favour.

If HMRC offers a review the taxpayer has 30 days in which to accept that offer or appeal directly to the tribunal, so the 30 day time limit for notifying the tribunal of the appeal starts at the date of HMRC’s letter. If the taxpayer asks for a review HMRC then have 30 days to state their view of the matter, and 45 days in which to undertake the review.

The 45-day limit can be extended by mutual agreement. The taxpayer has another 30 days from the date the review decision is released to notify the tribunal that the appeal is to be listed for hearing. If the taxpayer does not react quickly to HMRC’s offer of a review, or the review decision, he could find he is late in making an appeal to the tribunal and the tribunal may refuse to accept a late appeal.

The taxpayer can’t start the internal review process and the tribunal path at the same time – they are mutually exclusive solutions to the same problem.

Matt Boddington is a director of Chartergates Legal Services Ltd 

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Replies (2)

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Tornado
By Tornado
19th May 2016 14:17

Your summary of the review process is useful and fair but it does assume that the HMRC have followed the procedures correctly. In my (verifiable) recent experience, the process of trying to take a matter to appeal is considerably hampered by the chaotic and incompetent way that HMRC operate these days. The issue of multiple assessments with different reference numbers for the same thing is one example and the absence of the issue of a formal notice of closure is another example.

A recent review turned out to be just a summary of what the case Inspector had said without any research into the statements included by the reviewer in her review. A review should be as you describe but sadly, in practice HMRC are just trying to protect their own. The reviewer was asked to try again or face a formal complaint.

Whilst the current procedures are probably fit for purpose, their implementation is not.

In practice, despite all the options open to an appellant, the first opportunity that they get to have their appeal heard and considered by a truly independent party is at the First Tier Tribunal. Up to that point, all dealings are with people in the employ of HMRC whether they be the people who take notes at meeting right through to the reviewers, all clearly going to be biased in favour of their colleagues in HMRC.

Even the Alternative Dispute Resolution uses HMRC staff as arbitrators.

What hope for the appellant when his/her only chance of an impartial review of his/her appeal is months or perhaps years away at great expense with the First Tier Tribunal?

I would agree that accepting the offer of a review is a good idea but I would also add that the review should be carefully checked to ensure that the reviewer has really looked at all aspects of the case and not just repeated what the case officer has said. In addition, a fair review should also take into account and acknowledge the short-comings of the case officer where relevant and not just skim over or try to understate the importance of those short-comings in order to make HMRC look good.

I do not like to say this but these days, trust in HMRC is likely to be declining rapidly, so always take a sceptical approach to anything that HMRC tell you. It was not always this way but recent years have seen HMRC descend into a chaotic organisation, unable to comply with basic procedures properly and few officers willing to take responsibility for what they have done.

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Replying to Tornado:
Chris M
By mr. mischief
20th May 2016 08:11

My one experience of this is not at all encouraging. It was back in 2011 or so, maybe things are better now but my overall view of HMRC is that it has declined from a 2 out of 10 service then to 1.5 or so now.

I went through 4 separate levels of HMRC internal review, all said "cough up". Admittedly the final one reduced the PAYE penalty from 800 to 150.

This process took a year. I then filed at the Tribunal. TWO WEEKS later HMRC tossed their hand in.

So where I have a strong case, I see 2 options:

1. Prat around in different layers of HMRC taking months and months, all telling me to go forth and multiply, or.

2. File at the tribunal with at least a 50-50 shot HMRC just give up when they see I am not to be bullied.

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