If a business receives a VAT assessment or ruling and, following an internal review, HMRC maintains that it is correct; what is the next step? If a business disagrees it has the right to appeal to the Tax Chamber of the Tribunal Service. In the first instance the appeal is to the First-tier Tribunal, with the right of a further appeal to the Upper Tribunal.
An appeal to the Upper Tribunal has to be on a point of law, and with permission from the First-tier Tribunal. In complex cases it is possible to be heard by the Upper Tribunal in the first instance.
Historically, the tribunal has taken a fairly lenient view to the statutory time limits, but over the past couple of years they have tightened up considerably, and taxpayers will need to be aware of the time limits and make sure they stick to them.
Entering an appeal
Entering an appeal to the tribunal has to be done within the 30 day of the ‘disputed decision’. It may seem quite easy to appeal within the prescribed time limit, but it requires careful consideration before going down the path to a tribunal appeal.
Even if the taxpayer is successful, they are unlikely to have their costs paid, so the taxpayer will need to weigh the costs of taking an appeal to tribunal against the tax at stake. Even if the taxpayer has a good case, it may not be worth challenging it as the professional fees might outweigh the tax involved. Other factors to take into account are the time taken to obtain professional advice on the technical issues, and submitting the appeal form with the grounds for appeal.
The 30-day time limit is, therefore, actually quite tight. The 30 days runs from the date of HMRC’s decision, or if a review has been requested, the time limit is extended to 30 days after HMRC have completed their review.
Sometimes a late appeal will be allowed, but more often than not the tribunal will want to review the reasons for a late appeal before allowing the case to proceed. Best practice is to ensure that the 30-day time limit is met, or a request is made to extend it giving reasons for the delay.
Importance of keeping to the time limits
The tribunal is taking an increasingly harsh view to allowing appeals to be entered outside the 30-day time limits. They have recently ruled that a delay of two or three days is acceptable but that a delay of three weeks was unreasonable and would only be allowed in exceptional circumstances.
When deciding to extend the time limits the tribunal will consider a number of issues. As a general rule, the tribunal will consider the following points:
- what is the purpose of the time limit?;
- how long was the delay?;
- is there a good explanation for the delay?;
- what will be the consequences for the parties of an extension of time?; and
- what will be the consequences for the parties of a refusal to extend time?
What happens next?
The Tribunal Service will acknowledge an appeal and forward a copy to HMRC, who then have 30 days within which to submit a Statement of Case in response, which justifies the original assessment or decision. HMRC hardly ever meets this time limit because of the workload. Usually, they will submit several requests for an extension of time.
When HMRC submits the Statement of Case, the Tribunal Service will forward it to the ‘appellant’. A little later, they will ask for dates over the next few months when the parties are not available, which of various possible locations would be preferable for the hearing, how many days it will take, and how many witnesses will be called.
In theory, a list of documents must be provided to the other side within 30 days of the Tribunal Centre acknowledging the appeal. Both sides often ignore this time limit, the problem being to identify all the documentation in question, until much nearer the hearing. However, the taxpayer must make sure that they supply copies of documentary evidence, such as contracts, brochures, correspondence, witness statements, etc., to HMRC before the hearing, otherwise HMRC are entitled to ask for an adjournment, with the taxpayer being liable to pay the costs of the extra time.
Certain procedures have to be followed when making an appeal, and it is essential that the business prepares well before the hearing. In some circumstances a ‘skeleton argument’ (written summary of the case) will need to be prepared along with the list of documents, witness statements and an agreed ‘bundle’ of documents.
A case is often won on the basis of evidence carefully prepared. Good preparation requires careful assessment well in advance of:
- facts upon which the case depends;
- evidence of those facts;
- relevant documentation, such as copies of contracts; and
- possible witnesses.
Normally a tribunal appeal will take about 12 months to be heard. If the case is urgent, the HMRC’s Solicitor’s Office should be contacted a few weeks after receiving the acknowledgment from the tribunal; ask to speak to whoever is handling the appeal. This may be one of the administrative staff, rather than a solicitor. By explaining the need for urgency, the business may be able to get the matter looked at by a lawyer and dealt with as a priority. Even then, it is unlikely that a hearing can take place within six months.
What happens at the tribunal hearing?
A business can represent itself at tribunal; many do, and some win their cases. However, many more make a mess of presenting the case because they have no idea how to do it. Unfortunately, that is also true of many professional accountants and some solicitors when they take cases on behalf of clients. It is therefore important to engage a professional with experience of presenting VAT cases before the tribunal.
The tribunal will consist of a tribunal Judge – who will be legally qualified – and up to two members who will be businessmen/women or accountants with experience in the field of taxation.
A Tribunal hearing is relatively informal, but evidence is given on oath:
• normally the appellant must present its case against the assessment or decision, and call witnesses;
- HMRC then replies and calls their witnesses; and
- the appellant has a right of reply.
In dishonesty cases, HMRC starts first because they have to prove the dishonesty.
After the hearing
It is very unlikely that the decision will be announced on the day of the hearing. It normally takes about six weeks for the tribunal Judge to reach a decision and write it up. If the taxpayer loses at the First-tier Tribunal they can appeal to the Upper Tribunal, but the requests for a further appeal must be entered within 56 days.
Practical Tip:
If you a going to appeal a decison of HMRC’s to the tribunal make sure you are aware of the time limits, and stick to them. Make sure you get your appeal in within 30 days of the disputed decision.
