Setting the scene
- This guide is intended to help you work through all the stages of resolving a tax dispute with HMRC, including making an appeal to the independent tax tribunal.
- Examples of when the guide might help you are if HMRC:
- are using the law incorrectly, or
- are asking for more information than they need, or;
- are taking too long with their enquiries or
- want to charge you a penalty or surcharge which you think is too high or unjustified.
- The information we provide in this part of the website is for people who have a right of appeal from an HMRC decision on a direct tax issue - we tell you what to do and when.
- By direct tax we mean things like income tax and national insurance contributions, but the definition also includes other things that you might not expect, like student loan repayments. If your problem is with indirect tax, for example VAT, the rules are also now very similar - HMRC's basic guide - HMRC decisions - what to do if you disagree gives an outline.
- It is important you know that there are some things we do not cover under this topic:
- Your problem with HMRC is that they are hassling you for information you know you ought to give them or because they have discovered something you hadn't told them. You will have to sort that out with them. Have a look here for more information on this.
- If your dispute is about Tax Credits - you need some different help. Have a look at Tax credits appeals and complaints.
- Also this guide can't help you if your problem with HMRC is because they are demanding money you owe them but can't pay. But help is at hand - the TaxAid website gives information on what to do if you can't pay your tax, for example you might be able to negotiate a payment arrangement with HMRC. For personal advice on debt, go to your local Citizens Advice Bureau.
There are two ways to proceed with the rest of this section on appeals. The various topic heads are listed and you can go straight to the topic which interests you or you can simply read the guide in full.
- Where HMRC:
- Are looking into your tax affairs and demanding excessive amounts of information or taking too long without bringing their enquiries to an end;
- Have altered your self-assessment after an enquiry because they think you got it wrong;
- Have made an assessment of tax on you or are disallowing a claim to a relief;
- Have refused you a sub-contractor's certificate;
- Have issued a Coding Notice which you think is wrong;
- Are demanding a penalty or surcharge unfairly;
You may have a right of appeal.
- If you are doubtful whether you have a right of appeal, ask your own tax office or a local tax office - it is usually best to ask in writing. In fact they will often tell you even if you don't ask.
- The first step in making an appeal is to send a notice of appeal to HMRC. You must do this within 30 days of HMRC's letter of decision (which might not necessarily be an ordinary letter – it might be an assessment or penalty notice, for example). If you leave it beyond 30 days, HMRC might still agree to a late appeal. If they do not, they have to refer the matter to the Tribunal who will decide whether your late appeal should be allowed.
- To make your appeal, you can either ask HMRC for a form, or you can write your own letter of appeal, which should show:
- your name, or the name of your business
- your reference number, which is shown on the letter HMRC will have written to you when they made their decision
- what decision or assessment you are appealing against
- why you disagree with HMRC's decision
- what you think the correct figures should be and how you have worked them out.
- If you are not sure why you disagree or cannot work out the correct figures that should not stop you putting in an appeal. Just explain that it is too complex for you to understand.
- HMRC will consider your point of view and let you know if they agree with you. Sometimes they will want to discuss your case with you – e.g. they might want you to provide more information to back up your appeal.
- If HMRC do not agree with your appeal, they will normally offer to review their decision. This review process is carried out by a team that is independent of the people within HMRC who made the decision.
- Alternatively, you can ask HMRC to review their decision, and you can do so at any time.
- Or you can appeal straight to the Tribunal.
- Below we try to guide you through this maze of reviews and appeals.
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- As we explain above, under the system from 1 April 2009, if HMRC do not agree with your appeal they will normally offer you a review of their decision. You can then decide whether you want to accept their offer, or whether you would prefer to take your appeal to the Tribunal.
- If HMRC do not offer a review, you can ask for one. This is a useful safeguard if the discussions with HMRC drag on without getting anywhere, or you hear nothing from HMRC.
- If you ask for a review, HMRC usually have 30 days from receipt of your request to say whether or not they agree with your view. They may only take longer to respond if it is reasonable for them to do so. If they do not agree with you, they must proceed with the review.
- Important points about internal review:
Q. Who carries out the review?
A. HMRC's internal reviews are carried out by someone within HMRC who is independent of the original HMRC decision-maker. That means the reviewer is not within the management chain of the original decision maker, and is often located elsewhere.
For instance, appeals about self-assessment or PAYE – for example whether you have a reasonable excuse for filing your tax return late, or if you disagree with a PAYE coding – will go to a specialist office in Derry (Londonderry).
Compliance reviews – for example where you are challenging HMRC's wish to inspect documents or other things at your premises - are generally dealt with in the local compliance offices, but by someone removed from the original decision.
Q. If I don't want a review, can I appeal to the tribunal?
A. Internal review is optional – if you prefer, you can appeal straight to the tribunal, but normally in direct tax matters you must also notify HMRC before, or at the same time, as doing so. However, this alternative way of resolving your dispute is worth considering as it could save time and costs of appealing your case to the tribunal.
Q. If I opt for a review then change my mind, can I appeal to the tribunal?
A. If you have opted for a review, you cannot take your case to the tribunal until the review is concluded.
Q. What happens with a review?
A. The reviewer will have another look at the case and decide whether or not he or she agrees with the original decision and write and tell you the outcome, usually within 45 days.
The outcome might be one of three things: that the reviewer agrees with you and cancels HMRC's original decision; that they agree with you in part and vary HMRC's decision; or that they agree with HMRC's original decision and turn down your appeal.
If the reviewer hasn't made a decision within 45 days, they should tell you. They might ask for longer – you don't have to agree but it might be in your interests to do so if ultimately your case is resolved quicker. If you don't agree to allow the reviewer more time, they must give you a notice saying that the review is concluded without a decision being reached and you can then appeal to the tribunal if you wish.
Q . What if I don't like the reviewer's decision?
A. Once the review is concluded, if you do not agree with the outcome, you have a further 30 days to appeal to the tribunal.
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- If you take your appeal to the tribunal, unlike HMRC's internal review, it will be decided completely independently of HMRC.
- We say that HMRC are one party to an appeal and you are the other.
- Your appeal is made to a body called the First-tier Tribunal. That is a large umbrella organisation divided into four Chambers. Each Chamber hears appeals on a different area of law, and is staffed by judges and tribunal members most of whom specialise in that area.
- Your appeal will normally be dealt with by the Tax Chamber of the First-tier Tribunal. Exceptionally, tax appeals may be heard by the Upper Tribunal which is on the same level as the High Court, but that is only if the law involved is particularly complex.
- To make your appeal, you will need to fill in a form, available on the Tribunals website and also tell HMRC you are lodging an appeal. Guidance notes for filling in the form are also available.
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- The answer is: it depends on your case and how it is dealt with.
- There are a number of differences between the First-tier and Upper Tribunals, but the main one is the costs regime (known as expenses in Scotland).
- In the First-tier Tribunal, each party normally pays their own costs, and cannot be made to pay the costs of the other party, even if they lose. That means that you will have to fund your own appeal, but you will not normally risk having to pay HMRC's costs.
- But the First-tier Tribunal may award costs where one party to the case has acted unreasonably in bringing, defending, or conducting the proceedings. This means if the Tribunal thinks you acted unreasonably, they can order you to pay HMRC's costs in defending the case.
- Of course, if HMRC act unreasonably, the Tribunal can also make them pay your costs.
- The First-tier Tribunal can order a party to pay wasted costs incurred because their representative has acted improperly or unreasonably, or been negligent.
- If your case is to be treated as complex it may be heard in the Upper Tribunal rather than in the First-tier Tribunal (for information on how your case will be categorised, see Will I have to attend a hearing?).
- Also, if you or HMRC appeal against the First-tier Tribunal's decision, the appeal will be heard by the Upper Tribunal which has taken on the previous role of the High Court in hearing tax appeals.
- In the Upper Tribunal, there is a costs regime where the losing party generally pays the costs of the winning party as well as its own. However, you can if you wish opt out of the costs regime, in which case each party will pay its own costs, and neither party will have to pay the costs of the other whatever the result.
- In short, you can either play safe by opting out, or you can take a chance that you will recover your costs if you win but at the same time risk a large bill for HMRC's costs if you lose. The choice will be yours.
- You will be notified if your case has been allocated to the complex track and must notify the Tribunal within 28 days of receiving the notice if you want to opt out of the costs regime.
- You also have the right to object to the case being heard in the Upper Tribunal.
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- The Tribunal is able to strike out your case (meaning that HMRC automatically win) if you repeatedly fail to follow its directions. If HMRC repeatedly fail to follow the Tribunal's directions, they can be barred from taking part in any further proceedings.
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- The Tribunals Service provides guidance on what happens after you make your appeal. We recommend that you read this in addition to our guidance below.
- At the First-tier, there are different ways in which your case can be handled depending on the facts, such as what it is you are appealing about and how complex the case is.
- Some cases are usually dealt with on paper – this means that the Tribunal will just review papers submitted by HMRC and by you and make their decision from those.
- If your case is to be dealt with in this way, it is important that your papers are neat and tidy so that the Tribunal can follow them. Read the notes below on how to prepare your case, which guide you through organising your papers. If you are told your case will be dealt with on paper but would prefer to have a hearing, you can request one.
- The Tribunals Service also provides some guidance on what happens at a hearing - again, have a look through this in addition to our guidance below.
- Don't forget to tell the Tribunal if you have any special needs which they might need to cater for at the hearing – for example if you have a disability.
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- Generally you have only 30 days after HMRC's decision letter in which to tell HMRC you wish to appeal.
- HMRC can agree to an extension, and will generally do so if you have a good reason for not meeting the deadline. If HMRC don't agree to an extension, you can ask the Tribunal for one. But the wise course is to act within the time limit. HMRC will usually agree to a withdrawal of an appeal if you change your mind later.
- Once you have lodged your appeal with HMRC within 30 days of the decision letter, you do not have to worry about taking your appeal to the Tribunal within any time limit. But if you have opted for internal review and wish to appeal against the decision of the review team, you only have 30 days from the date of that decision to appeal to the Tribunal.
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- Some people worry a lot about this, so before appealing you should know that if your appeal proceeds to a hearing, it will probably heard be in public.
- This will be true whether your case is allocated to the First-tier or Upper Tribunal.
- In both cases, human rights law requires public hearings as a general course.
- You can apply for privacy on the grounds that a private hearing is necessary because, for example, minors are involved, or for the protection of your private life, or because publicity might affect a fair and just hearing.
- It is debatable how much it really matters, since most legal proceedings are in public and it is very unlikely that you will find crowds of curious spectators (or reporters) queuing to get in.
- There is very little experience of people finding anyone at simple tax appeal hearings except for the parties to them, and even in more complex cases, the only outsider (if any) is likely to be a specialist tax reporter.
- If you really think that there is a special case for your hearing to be held in private, you should make a request to the Tribunals Service in plenty of time before the hearing date.
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- The fact you appeal does not mean that you can simply avoid paying the tax in dispute.
- Generally, you will have to pay it when it is due and rely on getting it back if you win your appeal. One approach is that whilst your appeal is being dealt with you should pay the correct amount of tax you consider is due.
- If this then proves to be less than the amount you will actually need to pay, you may be charged interest on the excess and similarly if you are due a repayment you may receive interest on the overpaid tax.
- Another way forward is that you can ask your tax office to agree to postponement of that tax. You should do so at the same time as giving notice of appeal.
- If HMRC refuse your postponement request, you can appeal against that to the Tribunal and ask for the case to be heard quickly enough to make a difference.
- But you may not be wise always to ask for a postponement, because if you lose, you will probably have to pay interest on the tax you will be paying late while, if you win, you may well get some extra interest as well as the repayment of the tax you have overpaid.
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- An appeal can be settled by agreement between the parties. But now that HMRC has its internal review process, it is unlikely that you would have proceeded to formal appeal if the dispute could already have been resolved.
- So if you have got as far as appealing to the Tribunal, you now need to be getting on with the preparation of your case.
- It may take a while before the appeal is listed for hearing. You will usually have at least 14 days notice of the date, unless you agree otherwise or in urgent or exceptional circumstances. But it will take all the time you have to prepare properly, and you should start straightaway.
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- If you can afford professional help you will probably be getting it before you appeal. You certainly should be. But this guide is intended for those who can't afford that kind of help, and if necessary will have to do the appeal job themselves.
- In a few cases, you may have the right to help from public funds in fighting your case. Help is available where the appeal concerns penalties that the courts have declared to be criminal within the terms specified by the European Convention on Human Rights or where you want to argue that issue; and it is in the interests of justice that you should be legally represented.
- In practice funding is most likely to be available where you are disputing a penalty, which is substantial either in terms of its amount or its impact, and which has been imposed in addition to the tax you have to pay.
- You must also be financially eligible for funding. If you think you come close to this sort of case, you should download here or ask your tax office for a copy of the factsheet The Human Rights Act and Penalties at the end of which is the Community Legal Services guide to Public Funding for Legal Advice and Representation before the General and Special Commissioners of Income Tax.
Free advice and representation
- The following organisations specialise in giving free tax advice to people on low incomes who cannot afford to pay a professional adviser:
- Or you could ask for advice from a local Citizens Advice Bureau.
- Representation at a hearing is harder to come by, but the Bar Pro Bono Unit helps put potential clients in touch with barristers who are prepared to handle a case for no fee.
How to help the person giving you advice
- If you do seek help, make it easy for the person providing it. That will make it cheaper (if you are paying) and quicker and better (whether you are paying or not).
- So make sure that there is a summary, which explains the main points and asks the questions you want answered. Include copies of all relevant correspondence with HMRC, in date order and filed or stapled together so it is easy to handle.
- If accounts are important, make sure they are clear and preferably professionally prepared.
- Do not supply scraps of paper or unexplained bills or bank statements in the hope that the adviser will sort it all out and make sense of it.
- This preparatory work you do will help not only your adviser but will be valuable in preparing your case to be presented to the Tribunal.
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Bear in mind that you might need to submit papers and documents to the Tribunal before the hearing (or if your case is to be dealt with exclusively on paper). The Tribunal will tell you if you need to do so and will give you a time limit – make sure you take careful note of this and meet it.
Putting your file together
- The object is to have a single file (a ring-binder is handy), which contains all your witness statements and copies of the documents you need to refer to and your skeleton argument (see later in this section for more on this) of the issues of your case.
- Of course, if there are a large number of documents or papers - you may need more than one folder, but for most cases one should do.
- Your tax office may be preparing a similar file, and if you and they can agree on a single file (possibly a ring file) containing all the material needed by both sides, that will make life easier at the hearing.
- So keep in touch with your tax office (or whoever is handling your appeal from their side) because you both share a common interest in having the case settled.
- You may be able to agree with them a common statement of facts, which can then be used as the basis for the appeal without having to be proved by evidence.
- The pages in the file should be numbered so that when, during the hearing, you refer e.g. to page 38, everyone present who has one of your files (HMRC and you and each member of the Tribunal and any witness) is looking at the same thing.
- Dividers separating the file into sections can be very useful, but if you use them, make sure that every file has the same divisions.
- Since it is your appeal (and not HMRC's) the emphasis is generally on you at every point. This means that generally you must prove your case based on the facts and if you don't succeed in this you will probably lose.
Witnesses and witness statements
- Any fact on which you rely, and which HMRC has not agreed, will have to be established as correct by you. Sometimes documents will do it, and sometimes evidence from a witness, and sometimes both together.
- You are likely to be your own most important witness and you must think carefully about what you will say.
- Witness statements make life easier for everyone. They set out, in numbered paragraphs, the evidence the witness is giving. For example, they might say something like:
On April 1 200X I had a meeting with ABC and a copy of a note I made immediately afterwards is at page XXX in section A2 of the file.
- Start drafting your own witness statement as early as possible, and make sure it covers everything you said or did or were told and which matters for the purpose of your case. The statement should deal with each fact in date order.
- It is quite possible that you are the only witness but if you are calling other witnesses, help them to make similar statements of their evidence, but make sure they are in their own words and not yours.
- Bear in mind that you and your other witnesses are liable to be cross-examined by the person handling the case for the tax office.
- Ask the tax office whether they will be calling any witnesses; if they are it is sensible to exchange copies of witness statements ahead of the hearing, and even if they are not, you may as well let them have copies of yours.
- Make sure that references to the witness statements are properly indexed.
- It is unlikely that you will want to call a witness who is unwilling to give evidence. But if you do, you can apply to the Tribunal for a witness summons saying why you require that particular witness to attend.
- If your application is granted, the Tribunal can state that you must be responsible for the witness's necessary expenses of attending the hearing.
- Skeleton arguments summarise the relevant legal and technical issues and apply them to the facts you hope to prove. They are not easy to prepare, but help enormously at the appeal hearing. We have set out below a dummy argument - it has no actual tax basis but is just intended to give an example of how to set out your skeleton case:
The law says that a person is chargeable to income etc. tax if he receives more than...... income from... in any tax year (refer to the relevant law here - see file page xxx). However, I did not receive income from Y in any of the years 2008/09 to 2011/12 (see my witness statement para Yy file page yyy) and I received only £x income..... from X (see my witness statements para. Xx file page xxx).
Under HMRC Concession Z9 (see file page xx - copy of the Concession) - I am not chargeable to tax on the income. I am entitled to rely on that concession - see (e.g. quote the name of a similar tax case if you can find one).
- Bear in mind that collecting together and then explaining your points is particularly hard where the appeal hearing is contested. It is much better to do so in advance and to write them down.
- As you will see, it is helpful to include copies of any legislation you use in the file for the hearing and this applies also to relevant extracts from any other similar cases to which you wish to refer.
- Do not be intimidated by unfamiliar language. The point is to show how the law can be applied to the facts of your case. You can certainly refer to pages of textbooks to support your case rather than using the formal legislation. HMRC's website can be very helpful in providing information.
Other ways to get ready for a Tribunal hearing
- You might want to ask the Tribunals Service whether there are any earlier cases you can attend just so as to listen and watch. Their office will tell you if you telephone them. The First-tier Tribunal Tax Chamber's website gives full contact details.
- The experience of being an audience at somebody else's case can be enormously helpful in preparing the presentation of your own.
- Do take any opportunity you may have to rehearse your case in front of family or friends or, better still, any professional who will give you the time. It is surprising how many weak points will come to light that can be cleared up before the hearing.
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As noted above, the Tribunals Service provides some guidance on what will happen at the hearing, which we recommend you read in addition to our notes below. One important point to remember is that you can take someone along with you, even if they are only there for moral support.
Depending on how your case is being dealt with, proceedings of the Tribunal may vary in formality, but the following gives an outline of how the hearing might flow.
Opening the meeting
- The first and obvious point is to turn up in good time for the meeting! Aim to arrive at least half an hour or three-quarters of an hour beforehand.
- You should have made sure you know in advance exactly where you have to go and how to get there. Make sure any witnesses you want to call come too.
- Bring with you your files with sufficient copies for the Tribunal (check how many they require) and for your HMRC opponent, and preferably one for witnesses to refer to.
- It is unlikely that you will wish you had brought fewer copies, so err on the side of caution. Remember each set should be in a file containing exactly the same material as the others.
- The Chair of the Tribunal will probably introduce all the members of it and will explain how the proceedings are to be conducted.
- Make sure that each Tribunal member and your opponent has your file.
Setting out your case
- Then you will probably be invited to open your appeal by explaining what it is about.
- When you do that, take everyone through your file so that they can see how it is arranged and what it contains.
- When you have explained briefly what your appeal is about, you will call your witnesses, starting with yourself.
- You must be clear when you are giving evidence as a witness and when you are addressing the Tribunal as the person making the case, but the Chair will help you.
- When you give evidence, it will probably be enough to refer to your written statement and say that it is true. You probably won't be asked to read it out, but if you are, of course you must do so.
- When you have finished, you will be cross-examined by your opponent. His purpose in the cross-examination will probably be to check the truth of what you have said and to put HMRC's case to you, so far as it conflicts with the facts as you give them.
- Remain calm and answer the questions honestly and simply.
- You may want to make a note sometimes of the questions asked and of your answers.
- The Chair or other members of the Tribunal may ask you questions as well.
- When the cross-examination is finished, you may want to raise a few extra points that have arisen from it.
- Try to keep any additional comments very short and make sure the Tribunal can make a note of the points you are making.
- After that, if you have any other witnesses, you can call them and refer them to their statements and ask them to add to any point you think worth stressing.
- Then they too may be cross-examined by your opponent and you should listen carefully to the questions and answers and note down the important ones.
- When your opponent has finished, you can ask the witness additional questions to help explain anything which seems to call for further explanation as a result of the cross-examination.
- As long as you will have the right to address them again when your opponent has finished, you should tell the Tribunal that your case is complete once you have called all your witnesses.
- If you are told that you will not have that right, then you should say that you want to make your closing points.
HMRC's or another opponent's case
- It will then be the turn of your opponent (that is whoever is presenting the HMRC case) to explain the HMRC case and call his witnesses, if he has any.
- If he does call any witnesses, you will have the right to cross-examine each of them when they have been taken through their statements.
- You should have received their statements in advance, and prepared in advance the questions you want to ask them. Your cross-examination should always be calm and polite and should probe their account of events where that differs from yours or that of your witnesses.
- Try to note down your questions and the answers you are given.
- After HMRC witnesses have finished, your opponent will probably sum up his case. He will go through the relevant evidence and say what he thinks the facts of the case are and he will explain how he considers the law relates to those facts.
- If he has a skeleton argument, you will probably have seen it in advance and he is likely to base his comments upon it.
The last word
- Normally you will be given the last word, and this is when you will be glad you have taken the trouble to prepare a skeleton argument.
- The idea is to say the evidence has proved how the law applies to the facts of your case and why you consider that you should win your appeal. Members of the Tribunal may ask you questions, and you should listen to them carefully and answer them to the best of your ability.
Breaks for lunch or overnight
- It is quite likely that there will be a break at lunchtime.
- If any of your witnesses is in the middle of giving evidence at that time, you should not talk to them during the lunch break. It is usually best to take a sandwich and find a quiet corner to review your papers and consider how the case is going and whether you need to modify your plans.
- If your case lasts more than one day, there will be an adjournment at the end of the first day. The same principles apply, but the important thing is to get a good night's rest and preferably not stay up too late planning for the next day.
When the case is finished
- When the case is finished, the Tribunal may give their decision straight away, or may say that they will send it in writing.
- Even if the decision is given straight away, you will still receive a written decision notice stating the decision and notifying you of any further right of appeal. The First-tier Tribunal must give you this notice within 28 days of making their decision and provide either a summary or full statement of agreed facts and reasons for the decision. The Upper Tribunal must also send a decision notice within a reasonable time of concluding the case and give their reasons unless the parties agreed to the decision or agreed not to be given reasons.
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- If you lose, you should think very carefully before you decide to make any further appeal.
- The appeal so far has involved little risk of you having to pay substantial costs. But if it goes further and you lose in the Upper Tribunal, or above, you might have to pay HMRC's legal costs as well as your own, and the amounts could be considerable.
- If your case is heard by the First-tier Tribunal, and they tell you at the hearing that you have lost, you should there and then express your disagreement. All you need say is 'I wish to record my dissatisfaction with your decision.'
- You will then be free to embark on the process of a further appeal if you so decide but this is time consuming and is quite a longwinded process. The way you would do so, or for appealing from a decision of the Upper Tribunal, is outside the scope of this guide, but the Tribunals Service provides guidance.
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