Where are we now?
For many years, disputes with HMRC about direct tax (income tax, CGT, corporation tax, etc) have been resolved by appealing against their decision, or against an assessment to tax. The appeal is heard by either the “General Commissioners” or the “Special Commissioners”. Slightly different rules applied for VAT.
The General Commissioners are (were) an independent group of worthies, typically local businessmen, who sat advised by a Clerk who was supposed to have some legal training. They can be compared to the local magistrates’ court that deals with petty crime. Their work used mostly to be mind-numbingly boring in the days before Self Assessment, when they dealt with innumerable applications to “confirm” assessments in cases where the taxpayer had failed to submit his accounts or tax return.
As an inspector of taxes in those days, I would regularly present dozens of such cases every other week at my local Commissioners, and it always mystified me why these chaps (there were very few women GCs) were prepared to waste an afternoon listening to case after case of late submission of accounts, usually adjourning it to give the taxpayer one last chance to come up with his return.
Sometimes, at “contentious” hearings, things were more exciting. This was where there was a real dispute on a point of fact or of law, and both sides would present their case and the Generals would decide whether the taxpayer’s accounts could be believed, or the inspector’s estimated assessment of the real profit should be substituted for them. In a lot of cases, they would split the difference.
The Special Commissioners only dealt with “contentious” cases, typically the more complicated ones, and were much more formal. The Specials were typically tax barristers in their own right, and you needed a barrister to put your case to them if you were not to find yourself out of your depth and floundering among the complicated rules of procedure.
After the Commissioners, if either side was dissatisfied, they could ask the Commissioners to “state a case” for the opinion of the High Court, and then the long road that culminated in the House of Lords (or, these days, sometimes the ECJ) would begin its extremely expensive progress. Generally, if you expected to go “all the way” through the Courts, you would go to the Specials as they could at least be relied on to state a case in a competent manner, a skill I have found conspicuously lacking in some General Commissioners.
What Is There To Look Forward To?
From 1 April, all this is swept away, and in its place we are to have a new system. The change is long overdue, as the old system was creaking at the seams and taking ridiculously long to come up with decisions. We can only hope that the new regime will be a little speedier.
The most welcome change from my point of view is the new “Internal Review” process. The idea is that before going to the Tribunal, you can ask HMRC to conduct an internal review of the point in dispute.
You might have thought that this already happened, and it does for VAT cases, but for direct tax disputes there is no formal procedure for getting someone inside HMRC to take a second look. In order to get an inspector to think twice about the line he is taking, the usual tactic was to get the case listed for hearing by the Commissioners, in the hope that someone would have a look at it before agreeing to commit the time and resources needed to present the case.
This in turn led to that most wasteful of things, the “courthouse steps” settlement. On the eve of the hearing by the Commissioners, the inspector would suddenly offer a deal. It was often a good deal and accepted, but meanwhile you had done all the considerable work to prepare your case and it was now wasted (and often difficult to bill the client for).
Another even more reprehensible tactic was to exploit the cost of going to the Commissioners to get agreement from the taxpayer. I remember one particularly outrageous example of this. The inspector was arguing a highly technical point and I thought he was wrong, but I was also aware that it would be very hard to explain the point at issue to the General Commissioners (the Specials would have been far too expensive).
At a meeting with the client and me, the inspector said he was prepared to go to the Commissioners on the issue, but he was also prepared to settle the whole thing for a sum he named. I asked him how this had been calculated and he said “If you accept it, we can do the maths later – I suggest you have a private discussion with your client”.
I knew exactly what he was doing, and while he went next door and did whatever it is that inspectors of his type do when they are alone, I had to explain to my client that the sum named by the inspector was only slightly higher than my fee would be for arguing the case before the General Commissioners.
He therefore had to choose between paying HMRC and paying me only slightly less to argue his case, in the knowledge that I could not promise I would win, and even if I did, he would not be able to get my costs back from HMRC. Once he had come to terms with the brutal simplicity of the inspector’s logic, he reluctantly agreed to pay up.
If this meeting had taken place after April this year, I could have asked for an “internal review” of the inspector’s arguments.
How Will It Work?
The details of the new Tribunals are still being worked out and have yet to be announced, but in my view the real change is the internal review process. According to HMRC’s website:
“It will be an internal process. We will ensure that reviews are carried out by suitably trained and experienced staff outside (in the vast majority of cases) the immediate line management chain of the original decision-making officer, building on the experience of indirect tax processes. But the diversity of what we do means that the review will take different forms in different parts of HMRC.”
There will be a deadline of 45 days for HMRC to turn requests around, though this can be extended by agreement. If the dispute is still not resolved, it will proceed to the new Tribunal.
It may surprise some who know me, but I am optimistic that this new Internal Review process will help to resolve a lot of disputes. I wrote last month about how HMRC are good at dealing with complaints (largely because they have had a lot of practice, unfortunately!), and I expect a similar standard of competence from the Internal Review process.
As with the complaints procedures, in some ways this new review system is a replacement for the phone call to the District Inspector that used to be possible in the days when such people existed and were genuinely in charge of their Tax District. Since the DIs were all pensioned off to be replaced by “management structures” there has been no way to get a headstrong or vindictive inspector off your back – let us hope the Internal Review procedure will provide one.
James Bailey
