Receiving a letter, penalty or decision notice from HMRC is rarely welcome.
For many taxpayers and business owners, the first reaction is frustration, particularly where the position appears unfair or HMRC has misunderstood the facts.
The important thing is not to rush your response. For this piece, we are only referring to direct tax, and there are several ways to challenge HMRC on this, but the right route will depend on the decision being disputed and what you want to achieve.
Understand what you are challenging
It is easy to feel that HMRC has been unreasonable, especially if correspondence has been slow, unclear or based on assumptions. However, a complaint about service and a challenge to a tax decision are not the same thing. A complaint may be appropriate where the issue is delay, poor communication or the way a matter has been handled. An appeal is usually needed where HMRC has made a formal decision, such as a penalty, assessment or refusal of a claim.
Do not miss the appeal deadline
Where HMRC has issued an appealable decision, the notice should explain what you can do next and how long you have to respond. In many cases, the deadline is 30 days. Missing that deadline does not always mean the matter is over, but it can make the process more difficult and may leave you having to ask for permission to make a late appeal.
In some cases, asking HMRC for a statutory review can be a useful next step. This allows a different officer, who has not been involved in the original decision, to look again at the case. It can help where there is a dispute over the facts, the evidence or how the rules have been applied, and it may give you a clearer view before deciding whether to take the matter further.
Could ADR help resolve the dispute?
Alternative dispute resolution, often known as ADR, can help taxpayers and HMRC work through a disagreement without moving straight to tribunal. Unlike during the earlier enquiry process which is more structured, ADR is a more open conversational process to attempt to resolve some or all of the issues of the enquiry. It is not suitable for every case, and it does not replace the need to protect appeal deadlines, but it can be helpful where discussions have stalled or where both sides need to focus on the key facts.
ADR may be particularly useful where assumptions have been made, records need to be explained or there is still scope to agree the facts. It is less likely to be appropriate where the issue is simply about paying tax that is due, or where the concern is only about delay or service standards.
Tribunal
There will be cases where taking a dispute to the First-tier Tribunal is the right course of action. It brings the matter before an independent body and can be appropriate where HMRC’s position cannot be resolved through discussion, review or ADR. However, tribunal proceedings require preparation, evidence and a clear argument. A tribunal judge will not be interested in maters of perceived reasonableness or fairness and will focus on the law in question. It is important to understand the strength of your position before taking that step, particularly as the financial cost at this level can be steep.
Before you respond to HMRC
- Check whether HMRC has made a formal decision and whether it includes a right of appeal.
- Make a note of the deadline and respond in good time.
- Separate any complaint about HMRC’s service from the tax issue itself.
- Gather the records, correspondence and evidence that support your position.
- Think carefully about whether a review, ADR or tribunal is the right route.
- Speak to your adviser early, particularly if the issue is complex or high value.
How Hillier Hopkins can help
If you have received correspondence from HMRC and are unsure how to respond, speak to us before taking action. There are, of course, different rules for VAT but we can help you understand what HMRC is asking for, identify the right route and prepare a clear response. Where appropriate, we can also deal with HMRC on your behalf, helping to reduce the stress and time involved in getting the matter resolved.
