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Mark McLaughlin CAT (Fellow) ATT TEP highlights some practical issues arising from the introduction of HMRC's internal review system.

Background

The First-tier and Upper Tribunals have been with us for tax appeals since 1 April 2009. HMRC’s optional ‘internal reviews’ procedure was also introduced from that date. A ‘guided learning unit’ for HMRC staff was published on HMRC’s website in April ( Tribunals Reform Review Officer Guided Learning Unit ). The guide is intended for HMRC review officers in respect of most cases appropriate for the Tax Tribunals, and covers both direct and indirect tax cases. The following highlights some of the main direct tax procedures outlined. Further detailed guidance is available in HMRC’s Appeals Reviews and Tribunals Guidance Manual, particularly at ARTG 4000 onwards.
       
Internal reviews are available for appealable HMRC decisions. They do not, for example, cover issues such as applications for HMRC to issue a closure notice in a self-assessment enquiry. An appeal must have been made to HMRC, which has not been notified to the Tribunal.

Procedure

If an appeal has been submitted to HMRC and the issue cannot be settled, the taxpayer can notify the appeal to the Tribunal. Alternatively, the taxpayer may require HMRC to review the point at issue, or HMRC may offer the taxpayer a review (TMA 1970 s 49A). The taxpayer and HMRC will meet their own costs of an internal review.

If the taxpayer asks for a review, HMRC must respond by stating their view of the matter within 30 days, or possibly a longer period if this is reasonable (TMA 1970 s 49B). Alternatively, if HMRC notifies the taxpayer of their current view and offers a review, the taxpayer has 30 days in which to accept. Otherwise, HMRC’s original view generally stands (TMA 1970 s 49C).

If a review takes place, HMRC may uphold, vary or cancel their original view of the matter, and must notify the taxpayer of their conclusion within the following 45 days, or other agreed period (TMA 1970 s 49E). However, HMRC’s review team transitionally have 90 days to review appeals made to HMRC before 1 April 2009, provided the offer of review is made before 31 March 2010. If the review is not concluded and the taxpayer advised of the review conclusion within these time limits, then unless an extension has been agreed, HMRC’s view is treated as upheld and the taxpayer must be notified accordingly.

If HMRC’s review is unfavourable and the taxpayer does not wish to accept it, an appeal must be notified to the Tribunal within 30 days, or outside this period with the Tribunal’s permission. Otherwise, HMRC’s review conclusions are treated as having been agreed.

As was generally the case under the pre-Tribunal regime, taxpayers may request the postponement of tax pending settlement of the appeal, normally within 30 days of HMRC’s ‘decision’ (e.g., assessment). However, if HMRC refuses to accept the postponement application, the taxpayer may apply to the Tribunal within 30 days for a decision on the amount of tax to be postponed.     

Practical issues

• An important point to note is that if HMRC offers a review, the taxpayer (or agent) generally has 30 days in which to accept the offer of a review, or to notify the appeal to the Tribunal. Otherwise, the matter is treated as settled as if agreed under TMA 1970 s 54 (or equivalent provisions) (TMA 1970 s 49H). However, unlike actual s 54 agreements, the taxpayer does not have a 30 day period in which they may withdraw from the agreement (TMA 1970 s 49C(5)). Similarly, if HMRC conducts a review, its conclusions are treated as a s 54 agreement (TMA 1970 s 49F(3)).
• If the taxpayer does not agree with HMRC’s review conclusions, the appeal must be notified to the Tribunal within the 30 day time limit (ARTG 4030). An appeal outside that period requires the Tribunal’s permission.
• Practitioners (or taxpayers) have the statutory right to make representations to HMRC’s review officers during an internal review, such as by advancing new arguments. Those representations must be taken into account during HMRC’s review, provided that there is a reasonable opportunity for them to be considered (TMA 1970 s 49E(4)). Such representations should therefore be made as soon as is practical in the circumstances.
• HMRC’s internal review guidance emphasises that review officers must conduct themselves in accordance with HMRC’s 'Litigation and Settlement Strategy' (LSS). The review officer’s decision must be one which HMRC would want to defend before the Tribunal based on the LSS. As HMRC’s guidance puts it: “…it is essential that HMRC only pursues sensible cases with good prospects of success” (ARTG 4080). Practitioners familiar with the LSS should therefore have some insight into whether a review is likely to be worthwhile from the client’s perspective.
• If HMRC’s review officer does not conclude the review and notify the taxpayer within 45 days (or any agreed longer period), and the taxpayer does not agree to an extension of the review period, HMRC’s decision is treated as upheld. It would therefore rather seem to be a case of ‘Hobson’s choice’ for taxpayers seeking to resolve a dispute quickly.

This article was first published in 'Busy Practitioner' (May-June 2009), which is published by Bloomsbury Professional.