If your tax dispute with HM Revenue & Customs cannot be resolved by agreement, then ultimately HMRC will issue a formal Assessment or Decision – against which you can appeal to the Tax Tribunal. In certain circumstances the Tribunal can award costs against the losing party, i.e. making the unsuccessful party pay for the costs of the winning side.
Where a taxpayer appeals against a Decision by HMRC the usual process is for discussions and negotiations to continue, until the two parties reach a mutually agreeable outcome. However, where such an agreement cannot be reached the appeal ends up being decided by the independent Tax Tribunal. The Tax Tribunal service is completely separate from and entirely independent of HMRC. Its impartial judges hear evidence from both sides (i.e. the taxpayer and the taxman) – usually in a formal courtroom style. The decisions are legally binding (although appeals can be made to the higher courts).
In taking an appeal to the Tax Tribunal both sides will incur costs. The taxpayer is likely to incur costs such as professional adviser fees, expenses, and disbursements.
The Tribunal categorises cases according to their complexity. The categories are: Default Paper; Basic; Standard; Complex. In the first instance, all appeals are heard by the First Tier Tribunal (FTT), although this is generally simply referred to as the Tax Tribunal. Appeals can be made against decisions of the FTT, although such appeals are not always accepted. Where they are, those appeals are usually heard in the first instance by the Upper Tribunal. Certain Complex cases are also heard by the Upper Tier Tribunal (UTT), without going through the FTT first.
There are different rules about recovering your costs or paying HMRC’s costs depending on whether the appeal is heard by First Tier Tribunal or the Upper Tribunal.
Costs: First Tier Tribunal
Where appeals are heard by the First-Tier Tribunal then each party generally bears their own costs. So, if you are unsuccessful you will not have to pay HMRC’s costs. And if you won then HMRC would not be liable for your costs.
However, in cases categorised as Complex the successful party can apply for an award of costs to be made against the losing side. This means that in a Complex case the taxpayer could end up being liable for not only for meeting their own costs, but also for paying HMRC’s. However, at the beginning of the process there is an option for the taxpayer to opt out of the award of costs process. The opt out has to be made within 28 days of receiving the Complex categorisation notice from HM Courts & Tribunal Service (HMCTS). If taxpayers do opt out, then they cannot recover any of their costs from HMRC, even if they are successful in their appeal.
Nevertheless, in all cases (including Complex cases where the taxpayer has opted out of costs) the First-tier Tribunal can make what is known as a “wasted costs” order against a party or their representatives as a result of any improper; unreasonable; or negligent act or omission in bringing; defending; or conducting the proceedings.
Upper Tribunal: Award of Costs is the Norm
In an Upper Tribunal case the side that loses or has its case dismissed or discontinued will normally be ordered to pay the other side’s costs.
The Upper Tribunal has full discretion as to what costs order to make. The UTT takes into account: if the costs are proportionate; the conduct of the parties before and during the proceedings; and whether it was reasonable to raise or contest particular issues; and whether the “losing” side has nevertheless succeeded in some parts.
The taxpayer has no guarantee that they will be awarded a recovery of their costs against HMRC (or vice versa), even though they have “won” the appeal. In most cases there will always be some costs which are not recoverable. And of course, any liability charged to the taxpayer for HM Revenue & Customs’ costs will be in addition to their own professional costs; and in addition to any tax liabilities stemming from the Tribunal’s decision.
How can Lynam Tax Dispute Specialists help me?
Lynam Tax Dispute Experts have prepared for many Tribunal hearings and the process has usually meant HMRC conceding before the formal meeting. We have also presented cases successfully at formal contentious hearings; and we are currently assisting a number of clients through the appeal processes. We will fight your corner tenaciously, but also with the subtlety and skill honed from 80 years’ real experience.
Call today for a free initial consultation:
Paul Lynam: 0845 643 9997
Andrew Nutbrown: 0771 877 8710