CVC frequently encounters businesses and charities that are in conflict with HMRC. This may be regarding the VAT liability of supplies or the VAT recovery method applied. HMRC may issue VAT assessments, refuse VAT claims and/or issue penalties. CVC are often engaged once a dispute has arisen; however, conflict can often be avoided if professional advice is obtained in a timely manner. This means considering transactions and VAT recovery methods in advance; particularly where transactions are complex or there is uncertainty in VAT law or HMRC guidance.
Once a dispute has arisen with HMRC there are several routes to resolution:
- Ask HMRC to review the decision
- Ask the First Tier Tribunal to hear the appeal
- Consider Alternative Dispute Resolution (ADR)
- Ask HMRC to review the decision
HMRC may offer a review of the decision, or a review can be requested. We would usually recommend a review is requested as a first step. The review should be carried out by an officer not previously involved in the decision. A review request offers the taxpayer an opportunity to put forward their view and HMRC will not request payment of the VAT or penalty in dispute while the review is in process.
Even if the reviewing officer upholds HMRC’s original decision, greater insight may be gained as to HMRC’s view and interpretation of VAT law. This will allow a more informed decision as to whether to proceed to tribunal.
- Ask the First Tier Tribunal to hear the appeal
Alternative to the review process, or following review, it is possible to appeal HMRC’s decision to the tribunal. An appeal must usually be made within 30 days of the decision or review decision. It is of utmost importance that time limits are adhered to. There are a large number of cases in which tribunals have dismissed applications to appeal out of time. Out of time appeals will only be heard in exceptional circumstances.
The tribunal is independent of HMRC and will consider both sides of the argument before making a decision. HMRC are likely to only take those cases it believes, on balance, it has a chance of winning.
It should be noted that the tax in dispute must be paid in advance of the hearing; although, hardship can be applied for. Disputed penalties do not have to be paid before the hearing.
The tribunal process is often expensive and time consuming. In our experience cases may take months, even years, before they are resolved. This of course depends on the circumstances of the case.
If either party disagrees with the decision of the First Tier Tribunal they may appeal to the Upper Tribunal. The Upper Tribunal may uphold the First Tier Tribunal’s decision or overturn that decision. In some circumstances cases are referred back to the First Tier Tribunal. If a case is heard before the Upper Tribunal the process does not necessarily stop there. It may be possible for either party to appeal the decision of the Upper Tribunal to the Court of Appeal. Beyond this is the Supreme Court (the UK’s highest court) and referrals on points of law may also be made to the Court of Justice of the European Union (CJEU). Although once the UK leaves the EU referrals to the CJEU may no longer be available.
It should be noted that decisions of the lower tribunal are only binding on the party involved, whereas those of the higher courts set precedent on other taxpayers.
It may be necessary to engage a solicitor or barrister as well as a tax advisor or accountant to assist with the process.
- Consider Alternative Dispute Resolution (ADR)
Appealing a decision before the tribunal is often an expensive process. ADR is a different way of resolving a dispute with HMRC and may offer a quicker and less expensive resolution than an appeal before tribunal.
ADR provides the opportunity of having a third party mediator work with the taxpayer and HMRC officer to explore ways of resolving the dispute. In some cases the taxpayer and HMRC agree to jointly pay for a professional independent mediator.
CVC can assist in this process and one of our partners, Helen Carey, is a fully trained and accredited mediator.
CVC have a great deal experience in assisting businesses and charities in resolving disputes with HMRC. Please contact Sophie Cox or one of our consultants on 01206 321029 if you would like to discuss how CVC could help.
This blog is intended as a general guide to current VAT issues and is not intended to be a comprehensive statement of the law. No liability is accepted for the opinions it contains or for any errors or omissions. CVC cannot accept responsibility for loss incurred by any person, company or entity as a result of acting, or failing to act, on any material in this blog. Specialist VAT advice should always be sought in relation to your particular circumstance.