When a tax investigation by HMRC has been concluded by the issue of a closure notice and the taxpayer does not agree with the conclusion reached in the closure notice, there is a 30 day period from the date of the issue of the closure notice in which the taxpayer can send an appeal to the HMRC investigator setting out the grounds of appeal and also requesting postponement of the payment of the tax in dispute.
This notice of appeal can be drafted and sent by the taxpayer but it is often sensible to get tax counsel to prepare it in order to succinctly set out the grounds and arguments why the tax is not due and ensure that no relevant arguments are omitted.
How HMRC Deals With Tax Disputes
Following receipt of the taxpayer’s appeal there will be an informal HMRC review so that HMRC can give their “current view of the matter”. This is likely to confirm the conclusion in the closure notice and following that the taxpayer is usually offered a formal “independent’ review of the matter by someone else within HMRC.
More often than not that review (which usually takes a couple of months) also endorses the conclusion in the closure notice (sometimes with minor adjustments to things like proposed penalties). Following receipt of the conclusion of the “independent” review the taxpayer has 30 days in which to notify the appeal to the tax tribunal if he still disagrees with HMRC. You can read my guide to submitting your tax appeal by e-mail here.
Closing Disputes With HMRC
If you notify your appeal to the tax tribunal the tribunal will acknowledge receipt of your appeal and then a few weeks later the tribunal will issue standard directions for the future conduct of the dispute. These directions will require HMRC prepare and issue a detailed written statement of case within 60 days which will set out in detail HMRC’s legal and factual arguments.
On receipt of the statement of case you are free to offer to settle the dispute with HMRC if you wish to without risk as to costs and sometimes the process of having to prepare a detailed statement of case may lead HMRC to appreciate any weaknesses in their case.
It is therefore worth keeping in mind the possibility of settling the dispute at this stage and if appropriate inviting HMRC to meet to discuss the prospects of a settlement.
Alternative Dispute Resolution (“ADR”)
Mediation can avoid a potentially long, expensive and publicly reported tax tribunal hearing. Often an HMRC mediator will be used but the parties can agree to use an independent third-party mediator. Mediation has the advantage that it is confidential and the outcome will not be reported.
It is best used before an appeal is lodged with the tax tribunal and indeed, HMRC state that if you have already lodged an appeal with the tax tribunal and HMRC’s statement of case has been served (or is due within 10 days of you applying for ADR) your application will only be accepted in exceptional circumstances.