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Penny Hamilton and Oliver Connolly highlight HMRC's internal review process in respect of tax appeals.

Introduction

As part of the reform of tax appeals HMRC have introduced a new internal review process which provides a means of settling disputes at an early stage without recourse to the Tribunal. It applies to all direct tax appeals, and to appeals against indirect tax decisions, except appeals against decisions about the restoration of seized goods under Customs and Excise Management Act 1979 (CEMA) s 152(b) (restoration decisions) which remain subject to the compulsory review provisions in FA 1994 s 14. Although the underlying principles are the same for direct and indirect tax, there are differences in the way the optional review process applies. These arise from the fundamentally different ways in which disputes have been dealt with in the past, when a direct tax appeal was made to HMRC and an indirect tax appeal was made to the VAT and duties Tribunal.

These differences have been perpetuated in the new appeals system.

Statutory Basis for the Optional Review Process

The legislation relating to all these taxes and duties has been amended by the Transfer of Tribunal Functions and Revenue and Customs Appeals Order 2009 SI 2009/56 (‘Transfer Order’) made under TCEA and FA 2008 to provide for the review procedure. The relevant direct tax provisions (with the amending provision shown in brackets) are:

• TMA 1970, ss 49A–49I (Transfer Order Sch 1 para 30);
• Oil Taxation Act 1975 Sch 2 paras 14A–14I (Transfer Order Sch 1 para 75);
• Inheritance Act 1984 ss 223A–223I (Transfer Order Sch 1, para 117);
• Stamp Duty Reserve Tax Regulations 1986 SI 1986/1711 (Transfer Order Sch 2, para 19);
• FA 2003 Sch 10 paras 36A–36I (SDLT) (Transfer Order Sch 1, para 388);

The relevant indirect tax provisions are:

• FA 1994 ss 13A 14A 15A–15F and s 16(1)–16(1G) (duties) (Transfer Order Sch 1 paras 198–202);
• FA 1994 ss 59A–59G (IPT) (Transfer Order Sch 1 para 206);
• VATA 1994 ss 83A–83G (Transfer Order Sch 1 para 220);
• FA 1996 ss 54A–54G (LFT) (Transfer Order Sch 1 para 235);
• FA 2000 Sch 6 paras 121A–121G (CCL) (Transfer Order Sch 1 para 289);
• FA 2001 ss 40A–40G (AGL) (Transfer Order Sch 1 para 304);
• FA 2003 ss 33A–33F (Import and Export Duty Penalties) (Transfer Order Sch 1 para 364);
• Export (Penalties) Regulations 2003 SI 2003/3102 regs 9A–9F (Transfer Order Sch 2 para 124);
• Control of Cash (Penalties) Regulations 2007 SI 2007/1509 regs 4A–4F (Transfer Order Sch 2 para 164);
• Money Laundering Regulations 2007 SI 2007/2157 regs 43A–43F (Transfer Order Sch 2 para 173);
• Transfer of Funds (Information on the Payer) Regulations 2007 SI 2007/3298 regs 12A–12F (Transfer Order Sch 2 para 179);
• Counter-Terrorism Act 2008 (Transfer Order Sch 7 paras 26–28) (Revenue and Customs Appeals Order 2009 SI 2009/777).

Use of Representatives

It is possible for a taxpayer to use a representative in the review process and in this article references to a taxpayer, an appellant and a third party all include a reference to a person who is acting as their representative.

Nevertheless, certain communications must be made directly to the taxpayer and copied to their representative. For example, the decision letter, the offer of a review, the letter giving HMRC’s latest view of the matter, the review conclusion letter and the letter giving the conclusion that HMRC is treated as having reached if they have not completed their review within the time limit, must all be sent directly to the taxpayer (HMRC Appeals Reviews and Tribunal Guidance (ARTG) ARTG 2150).

The Optional Review Process – Direct Taxes

A review cannot take place unless and until an appeal has been notified to HMRC (TMA 1970 s 49A(1)). Once there has been an appeal the appellant taxpayer may continue to negotiate with his caseworker with a view to settling the appeal by agreement. Most appeals are resolved in this way. If negotiations stall, or if the taxpayer does not wish to continue to negotiate with his caseworker, he has three mutually exclusive options:

• HMRC may offer him a review;
• he may require a review; or
• he may notify his appeal to the Tribunal without further delay and the Tribunal will then determine the appeal.

If a review is undertaken there will be a further opportunity to notify an appeal to the Tribunal at the end of the review period.

When a taxpayer appeals to HMRC the officer who made the decision (‘the decision maker’) normally contacts the appellant taxpayer to discuss the case further and gives the appellant a further opportunity to make representations. If these discussions do not resolve the matter, or if discussions are not appropriate or possible, the decision maker may write to the appellant explaining HMRC’s position and offering a review under TMA 1970 s 49C. HMRC can only offer a review if they have not already made such an offer and if the appellant has not notified his appeal to the Tribunal (TMA 1970 s 49C(7)). It is a matter for the decision-maker as to whether or when to offer a review and the appellant taxpayer has no control over this. HMRC’s internal training material states:

‘If the appeal cannot be settled by agreement and at a time that the decision maker considers is appropriate, the decision maker will write to the customer to give and explain HMRC’s view of the matter and offer a review.’ (Tribunals Reform Review Officer Guided Learning Unit dated 9/4/09 (‘GLU’) para 2.1.3, p 12).

The offer of a review must be accompanied by ‘a notification of HMRC’s view of the matter in question’ (TMA 1970 s 49C(2)). Once a review has been offered, the appellant has 30 days to accept that offer. If the appellant accepts an offer of a review within that 30-day period, HMRC are then required to carry out the review (TMA 1970 s 49C(3)). If the appellant does not accept the offer and wishes to continue with the appeal he must notify the appeal to the Tribunal within 30 days of the receipt of the offer of a review (or later if the Tribunal gives permission) (TMA 1970 s 49H). If the appellant neither accepts the offer of a review nor notifies the appeal to the Tribunal within the 30-day period then, unless the appellant has requested and been granted an extension of time the decision is deemed to be upheld and is treated as a settled appeal (TMA 1970 s 49C(4)).

If HMRC have not already offered a review, a taxpayer who has already notified an appeal to HMRC can require a review by notifying HMRC accordingly (provided he has not already sent his appeal to the Tribunal) (TMA 1970 s 49B). Once a review has been required, HMRC have 30 days in which to notify the appellant of their ‘view of the matter in question’ (TMA 1970 s 49B(2)). According to HMRC’s internal training package: ‘… the request must first be considered by the decision maker who has 30 days to give HMRC’s view of the matter (which may be the same as when the appeal was initially made or may have changed). It should set out any changes since the initial appeal – for example, if some matters have been agreed – and summarise the outstanding points as we understand them.

The view should in the case of an appeal against an assessment, set out the amount HMRC considers to be due, if this has changed’ (GLU para 2.1.3 page 13).

When that has been done, HMRC must then conduct the review.

There are no specific statutory time limits for requesting a review or, if a review has neither been offered nor accepted, notifying an appeal to the Tribunal. This is because the review process forms part of the appeal process. Since it is necessary to have sent an appeal to HMRC before a review can be offered or required, the provisions and practice for late appeals to HMRC under TMA 1970 s 49 will apply in any case where a taxpayer disputes a decision and has not acted within 30 days of the date of the disputed decision. HMRC must allow an application under TMA 1970 s 49 if the taxpayer has a reasonable excuse, or, if he has ceased to have a reasonable excuse, the request is made without unreasonable delay after the excuse had ceased (TMA 1970 s 49(3)).

If a review has been offered and not accepted within the 30-day time limit, the appeal will be treated as if settled under TMA 1970 s 54(1). However it is open to the taxpayer in such cases to ask HMRC to accept a late appeal under TMA 1970 s 49. HMRC must allow an application under TMA 1970 s 49 if the taxpayer has a reasonable excuse, or, if he has ceased to have a reasonable excuse, the request is made without unreasonable delay after the excuse had ceased (TMA 1970 s 49(3)). Alternatively, the taxpayer can appeal to the Tribunal under TMA 1970 s 49D and ask the Tribunal to extend the time for appealing under FTR, r 29(4), in which case it is a matter for the Tribunal whether to allow such late notification.

The Optional Review Process – Indirect Taxes

When HMRC make a VAT decision which is an appealable decision they must, at the same time, offer a review of that decision (VATA 1994 s 83A). Any person other than the recipient of the decision who has a right to appeal against the decision (‘a third party’) can also require a review, provided this is done within 30 days of the date when that person became aware of the decision (VATA 1994 s 83B). This could arise if, for example, a ruling about the VAT liability of a supply had been given to the VAT-registered supplier but the recipient of the supply wanted to appeal. In either case, if the 30-day period has not expired, HMRC have the power to extend the period for a further 30 days from the date of the notice of the extension, or from any other date set out in that notice or any further notice they may issue (VATA 1994 s 83D).

If the offer of a review is accepted, or a review is required, HMRC must conduct a review, unless there has already been an appeal to the Tribunal against that decision (VATA 1994 s 83C). There is one exception to this rule. If a decision under FA 1994 s 14(1)(b) is linked to any restoration decision and HMRC are reviewing, or have reviewed, the restoration decision to which that decision is linked, the taxpayer may neither accept the offer of a review (FA 1994 s 15C(3)) nor require a review (FA 1994 s 15B(3)). If a decision is linked to a restoration decision which is being challenged, the taxpayer must follow the process for challenging restoration decisions (FA 1994 s 14(1) (b)), i.e., request a review, and if not satisfied with the conclusion, appeal to the Tribunal against the review conclusion (FA 1994 s 16(1)).

If the offer of a review has not been accepted, or a review has not been required, within the 30-day period the taxpayer can request a review out of time (VATA 1994 s 83E). HMRC are required to conduct the review if they are satisfied that the person requesting the review had a reasonable excuse for not accepting the offer of, or requiring, a review within the time allowed and that the request was made without unreasonable delay after the reasonable excuse had ceased to apply. In considering whether there is a reasonable excuse HMRC will take into account the taxpayer’s individual circumstances in the same way as they would for a late appeal in direct tax, for example the reasonable excuse must be personal to the taxpayer and the amount involved is not relevant. Sickness or absence may be a reasonable excuse. If HMRC do not accept that there is a reasonable excuse there is no right of appeal against that decision but the taxpayer can still apply to the Tribunal for permission to appeal out of time. HMRC are able to object to that application but it is a matter for the Tribunal whether or not to grant an extension of time.

The above is adapted from Hamilton on Tax Appeals, published by Bloomsbury Professional.