Tax Litigation and Alternative Dispute Resolution

For most taxes, taxpayers are usually given 30 days to appeal a final (appealable) decision to the tax tribunal (or otherwise to have that decision reviewed internally by HMRC).

Procedures will vary depending on the circumstances.  For example, no right of appeal exists against a charge to diverted profits tax until the end of a 15-month statutory review period.  The position is also different for judicial review proceedings, where a claim must be made promptly and, in any event, no later than three months after the grounds for making the claim first arose.

Given the strict time limits for commencing any form of tax litigation, it is critical to seek specialist legal advice as soon as any potential dispute arises.  Where applicable, we can work alongside any existing tax advisers or accountants to ensure that suitable preparations are made for litigation while discussions with HMRC continue.

This will depend on the specific circumstances and taxes involved.  For example:

• For most direct taxes (e,g., income tax, CGT and corporation tax), HMRC will generally agree to postpone payment of the disputed tax until the appeal has run its course.  This does not apply in respect of diverted profits tax or where HMRC have issued an accelerated payment notice.
• For most indirect taxes (e.g., VAT, excise duty and customs duty), the disputed tax must be paid upfront unless the taxpayer can demonstrate financial hardship.  If the appeal is ultimately successful, HMRC will have to repay any tax previously paid.

Where cashflow is a concern, we can help clients explore certain insurance options that may be available to allow the cost of any paid tax to be recovered more quickly.

In the First-tier Tribunal (the court of first instance for tax appeals), the general rule is that each party bears its own costs.  Therefore, if you eventually win your appeal, you will not be able to recover any of your costs from HMRC.  Equally, if you lose the appeal, you usually do not have to worry about paying HMRC’s costs.  There are exceptions to that general rule, primarily where an appeal is treated as ‘complex’ and the taxpayer has not opted out of the complex costs regime.

The position on costs is different if an appeal extends beyond the First-tier Tribunal or for judicial review proceedings, where the normal position is that the losing party will be ordered to pay a portion of the costs of the successful party (subject to the court’s discretion).

If you are concerned about potential litigation costs, we would be happy to discuss ways in which the risk can be managed (including contingent fee arrangements, after-the-event insurance and third-party funding).

While it is possible for tax cases to be heard in private and for judgments to be anonymised, such cases are rare.  The general rule is that tax cases are in the public domain.

Discussion of tax cases is often limited to legal/accountancy circles.  However, we recognise that the potential for adverse publicity will be a key consideration for our clients.  One of the key advantages of pursuing ADR over litigation is that proceedings are entirely confidential.