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Tribunal ruling could see drop in legal costs

9th Mar 2012
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The legal cost of challenging decisions by the taxman could fall significantly for businesses after a recent tax tribunal ruling.

In HMRC v Atlantic Electronics (2012 UK UT45TCC) the upper-tier tribunal was asked to rule on how legal costs in a tax dispute should be allocated.

Under 1986 rules on first-tier tribunal legal costs taxpayers paid HMRC’s legal costs if they lost the cost, and vice versa if the taxpayer won.

Since 1 April 2009, under rule 10 of the first-tier tax tribunal rules, the tribunal has the power to apply the new rules on cost and “disapply” the old rules that the losing party has to pay the other side’s costs. At any time in proceedings, the taxpayer can apply to the tribunal to ask that Rule 10 to be applied.

The case involving electronics distributor Atlantic Electronics Limited, which is trying to reclaim VAT payments, went back to before 2009 when the rules came into force. Jefrrey Green Russell, the law firm representing Atlantic, asked the first tier tribunal to decide legal costs in the case decided according to the 2009 rules, to which the judge agreed. HMRC appealed the February 2011 tribunal decision.

In the upper tribunal Justice Warren dismissed the HMRC appeal and held that Rule 10 could apply to Atlantic’s long-running case.

Jeffrey Green Russell said  the tribunal ruling, published on 6 February, highlighted the “basic principle” that each party should bear their own cost in certain tax disputes. It also said that the ruling should encourage businesses and individual taxpayers to appeal against HMRC decisions without being deterred by the possible legal costs.

Monty Jivraj, paralegal consultant at Jeffrey Green Russelltold AccountingWEB that the tribunal ruling also underscored the importance of taxpayers acting to apply to have legal costs allocated under 2009 rules at an early stage in legal proceedings, before either party had incurred significant costs. 

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