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Where Taxpayers and Advisers Meet
HMRC Independent Reviews – Has the Truth Slipped Out?
03/03/2020, by Lee Sharpe, Tax Articles - HMRC Administration, Practice & Methods
Rating: 4.9/5 from 44 people

For years, tax advisers have been questioning the point of so-called “Internal Reviews” when there is a disagreement between the taxpayer and HMRC, since they so often merely retread the initial argument. And, after more than a decade, we may now know why.


Many readers who have been involved with disputes with HMRC will be familiar with the Internal Review procedure which HMRC is supposed to offer, to prevent vexatious cases being pursued to tribunal by ‘renegade’ tax officers. The Internal Review is supposed to require a ‘fresh’ HMRC Officer to deliberate the facts of the case, to see if it stands good.

The statutory basis for the Internal Review procedure is at TMA 1970 ss 49A – 49I. 

HMRC’s guidance on Internal Reviews is at the Appeals Reviews and Tribunals Guidance Manual ARTG4000 et seq.

Many advisers will also have had experience of that Internal Review’s appearing no more than to “rubber-stamp” HMRC’s original position, without any meaningful consideration of the technicalities of the case, and with the result that the Internal Review does nothing to prevent spurious cases being taken to tribunal. This is a key point raised in Tony Monger’s article The Disappointment of Winning, from last November.

So, we turn to another case which HMRC probably now regrets pursuing so doggedly.

Gambling with the Tribunal

SJ McMillan v HMRC [2020] UKFTT 82 (TC)* is yet another case wrongly brought by HMRC, that was in turn given short shrift by the First Tier Tribunal. It must be noted that, in light of what was recorded at Tribunal, HMRC’s concerns about a potential loss of tax were understandable, at least at the outset. The taxpayer claimed to have regularly won substantial sums in the course of gambling – by and large a non-taxable activity – while HMRC contended that he must have earned that income from trading.

The problem for HMRC is that it was spectacularly loose on what the taxpayer’s trading source actually was. In doing so, HMRC failed properly to assert how the taxpayer had generated taxable income, with the result that the taxpayer had nothing to dispute on appeal. Or, as the Tribunal put it:

“The initial burden of proof was on [HMRC], to the civil standard (balance of probabilities), to show a loss of tax.  In the simplest of terms, once [HMRC] had shown a prima facie case, the burden shifted to the [taxpayer] to provide a cogent explanation. Again, there was no serious dispute about that.”

HMRC’s having fallen at the first hurdle, the Tribunal dealt with the case expeditiously. So expeditiously, in fact, that there was almost nothing left to remark on, save for this:

“HMRC had inadvertently disclosed [an Internal Review letter] dated 11 April 2018 (not sent to the Appellant) in which the review officer had concluded that all of the assessment and penalty determinations should be cancelled because HMRC had failed to identify a taxable source.  The review letter which was in fact sent, dated 16 April 2018, from the same review officer, stated that the assessments and penalties should be upheld.  The Appellant further contended that that as he had no income tax liability, he could not be liable to pay any penalties.  The obligation on HMRC to provide a positive case as to the source of the Appellant’s income had not been discharged…

When the Appellant had requested a statutory [Internal Review] following the issue of the assessments and penalties, the reviewing officer’s initial decision had been that the Appellant’s appeal could not be resisted, however [the original HMRC Officer] had asked for that decision to be revisited and the review decision was reversed.” (emphasis added)

Internal Reviews – Was HMRC's Own Guidance Followed?

In short, it seems that the original HMRC Officer working the taxpayer’s case did not like the Reviewing Officers’ initial findings, so asked the Reviewing Officer to change the decision.

So, the Internal Review, instituted to prevent:

  • Abuse of power by, or inadequate training of, individual HMRC Officers
  • Wasting tribunal resources

 - was initially successful in its aims, but then frustrated by the very same HMRC Officer whose work and conclusions were supposed to be the subject of the Internal Review in the first place.

This appears contrary to both the spirit of Internal Reviews and the procedures as set out in HMRC’s Manuals. Although it would help to explain why taxpayers appear to have been so poorly served by Internal Reviews, over the years.

It may surprise no one to find that HMRC’s ARTG Manual makes no mention of the original HMRC caseworker having the power to veto an Internal Review decision that he or she does not like. What it does say, however, at ARTG4310, is:

“Review officers have experience of the subject matter of the appeal but are independent of the decision maker and the decision maker’s line management. This allows the review officer to remain as objective as possible.”

Of course it might be too much to ask that the original HMRC Officer working the case not communicate with the Reviewing Officer; ARTG4660 says:

“During the review the [original HMRC Officer working the case] should continue to maintain the customer’s [sic] case record, for example

  • handle any postponement application the customer makes (direct taxes)
  • deal with any other non-appeal issues related to the customer
  • answer questions from the review officer
  • provide any further information to the review officer as required”

-          but nowhere does it say that the original caseworker should attempt to influence the outcome of the Internal Review.

In fact, the original HMRC Officer responsible for working the case should not even get the chance to disagree with the Reviewing Officer’s findings, given that ARTG4820 says:

“Whatever the outcome of the review the review officer will write to the customer [sic] and give their conclusions, sending a copy to the [original HMRC Officer working the case]”

In other words, the original HMRC caseworker is supposed to get a copy of the letter which the Reviewing Officer has already sent to the taxpayer in dispute. If that guidance had been followed, it is difficult to see how the original caseworker might have had the opportunity to influence or veto the Reviewing Officer’s original findings.


ARTG4860 says that a taxpayer is only entitled to have their decision or assessment reviewed once. But it would be easy to infer from the notes in the above case that HMRC is quietly reserving the right to reconsider its Internal Review process until it gets the answer it really wants.

This leaves one to ask the question: what really is the point of an Internal Review?

And that, Dear Reader, is a question tax advisers have all too often been asking themselves for many years. Although it could be seen as another simple device to nudge taxpayers into accepting an adverse decision – I mean, if a supposedly independent tax expert has reviewed the case and agrees that tax is owed, what chance does the taxpayer have at Tribunal?

*Thanks to Keith Gordon for raising this case in a series of "Tweets" late last week.

About The Author

Lee is TaxationWeb's Articles & News Editor and writes for TaxationWeb. He is a Chartered Tax Adviser with experience of advising individuals and owner-managed businesses over a broad spectrum of tax matters.
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