On 20th May, our Cambridge office hosted our event titled "Resolving Issues with HMRC: Opportunities and Beartraps." The event brought together some of the UK's foremost tax experts to discuss navigating tax disputes with HMRC. Here are the key takeaways from the discussions led by our speakers: Michael Jones KC, Barrister at Gray's Inn Tax Chambers, Laurent Sykes KC, Barrister at Gray's Inn Tax Chambers along with our own team including: Charlie Fletcher, Partner at Mishcon de Reya and Robert Hartley, Partner at Mishcon de Reya.
Understanding the importance of early intervention
- Early specialist involvement: Engaging tax specialists early in the process can prevent disputes from escalating. As Michael Jones highlighted, seeking to resolve issues at the officer level before HMRC's legal department and counsel become involved can potentially lead to more favourable outcomes and save costs.
- Evidence gathering: Laurent Sykes emphasised the importance of gathering evidence and preparing witnesses early. This preparation is crucial as cases are often resolved based on the strength of evidence rather than just at the tribunal hearing stage. The burden of proof is generally on the taxpayer. Even what may seem an obvious point cannot exist in legal reality without (convincing) evidence.
Navigating HMRC's Litigation and Settlement Strategy (the LSS)
- Understanding the LSS: Generally speaking, the LSS provides that HMRC will not concede a point if they believe they have a better than 50% chance of success on the point. This can make negotiations challenging, as Robert Hartley noted, but understanding this strategy can help in formulating a settlement approach.
- Opportunities within the LSS: Despite its challenges, the LSS can present opportunities. Michael Jones pointed out that if HMRC believe they have less than a 50% chance of success, they may be more willing to settle, sometimes even for less than the taxpayer would be willing to offer in a commercial settlement.
The role of judicial review
- Grounds for judicial review: Judicial review can be a powerful tool when HMRC's actions are considered to be an abuse of power. Michael Jones explained that grounds for judicial review include improper purpose, irrationality, and breach of legitimate expectation.
- Timeliness: It is crucial to act promptly, as judicial review claims must be brought promptly and in any event not later than three months after the grounds to make the claim first arose. Missing this deadline can severely limit options for challenging HMRC's decisions.
Practical tips and beartraps
- Avoiding over-disclosure: A significant beartrap is disclosing too much information to HMRC. As Michael Jones advised, it pays to be co-operative with HMRC, but only provide information that is relevant to a properly formulated request and take care when dealing with privileged or confidential material.
- Considering penalties in settlements: Laurent Sykes flagged the importance of addressing penalties when settling disputes. Failing to do so can lead to unexpected liabilities later, as cases have shown.
- Considering time limits when an assessment or closure notice is issued: Laurent Sykes explained that certain time limits start to run from the issue of the assessment or closure notice – for instance one year for consequential claims, 30 days from issue of the closure notice for capital allowance claims (which might not otherwise be permitted as consequential claims) and, as noted previously, a maximum of three months for judicial review proceedings to be issued.
- The human element: Tax disputes are not just about calculations and arguing with the Revenue; they can involve a human element, understanding personal circumstances and cooperating, instead of combatting, when it serves to reach a long-term objective. As Laurent Sykes shared through a war story, the tone of correspondence and the conduct of the case can significantly influence outcomes. There is no room for anger in correspondence. Reasonableness of tone is key as the same point can be made and more effectively. Better to be seen by the Tribunal, which may eventually read the papers, as polite but firm rather than aggressive.
Final thoughts
The event underscored the complexity of dealing with HMRC and the importance of strategic planning and early intervention. By understanding HMRC's processes and potential beartraps, businesses can better navigate disputes and achieve more favourable outcomes. The panel's insights provided valuable guidance for finance professionals, legal counsel, and advisers in managing tax disputes effectively.
Charlie Fletcher remarked on the significance of the location, saying, "Holding the event in Cambridge was key as it allowed us to tap into the rich academic and professional resources of the area, fostering a deeper understanding of the issues at hand."
Robert Hartley shared his perspective on the topic, stating, "The importance of early intervention cannot be overstated. By engaging with HMRC proactively, businesses can often resolve issues more efficiently and avoid costly litigation."
We thank our speakers for their expertise and our guests for their participation. We hope the discussions have equipped you with actionable insights to handle HMRC disputes with confidence. If you would like any expert advice on the topics mentioned above, please get in touch with our team.