“Independence” – Truth or Myth

In the first of our “Truth or Myth” series, Alan Nolan looks at the Independent Review process for tax disputes - is it truly “Independent”, a waste of time or should a taxpayer “cut to the chase” and notify the dispute direct to the tax tribunal.

We believe the facts speak for themselves and it is up to you to decide.   

Case Study “A”

During the latter part of 2017, Aspire was instructed to act on behalf of a large number of small independent labour suppliers who had all been removed from the VAT register and, at the same time, denied entitlement to make a deduction under section 4 of the National Insurance Contributions Act 2014, being the “Employment Allowance”.   

Both decisions were subsequently overturned on review by an Officer unconnected with the case.  The Independent Reviewing Officer (“IRO”) for the Employment Allowance decision found:           

“I have reviewed all correspondence between HMRC, yourselves and your client’s former representatives and also considered all relevant legislation and technical guidance.

I have concluded that there is insufficient evidence to support the decision made and consequently I am unable to uphold the decisions, which are hereby cancelled”.

The IRO for the VAT decision found in favour of the taxpayer citing different grounds but nonetheless they are of equal importance.  

“The decisions were based on the assertion that your clients had been involved in fraudulent activity intended to achieve an unwarranted tax advantage.

I have concluded that the decisions that have been issued have not been substantiated in the decision letters, because your clients have not been given an explanation as to why the registrations are to be cancelled or what fraud is alleged to have been committed, and you have not been presented with any evidence. Consequently, I am unable to uphold the decisions, which are hereby cancelled”. 

Case Study “B”

We were instructed in a case involving an employment business where HMRC had cancelled its Construction Industry Scheme Gross Payment Status.  Following examination of the grounds upon which the decision was made, the IRO found in favour of the taxpayer in the following terms.

“I have now concluded my review. My conclusion is that the decision to withdraw gross payment status for the construction industry scheme is cancelled. I will give my reasoning for this below.

I have seen insufficient evidence to enable me to support Officer X’s position; the notice to withdraw gross payment status is therefore cancelled.

Your appeal against the withdrawal of gross payment status from the construction industry scheme is treated as though it has been settled by agreement under section 54(1) TMA 1970 by virtue of section 49F(2) TMA 1970”.

Clearly, in these cases, the Independent Review approach certainly reaped rewards but is that always the case? Sadly, no but it is always best practice to continue to provide relevant evidence and insight to HMRC – even after notifying the appeal to the tax tribunal.

Case Study “C”

In a case involving a contracting intermediary (“umbrella company”), despite the fact that the IRO had previously found in favour of HMRC, it was HMRC’s litigator who overturned the decision by writing an unprompted letter to the tax tribunal in the following terms.

“This letter, which is copied to the Appellant’s representatives is to confirm that HMRC does not intend to defend the above appeal. We would accordingly invite the Tribunal to close its file”.

Notwithstanding that this was an excellent result for our client, we felt it necessary to make enquiries as to why this decision was made on the day HMRC’s Statement of Case was due to be served.

The litigator confirmed the following;

“Upon HMRC’s duty of continued review of litigation cases to ensure that we only continue litigation with a reasonable prospect of success and taking advice from Policy colleagues, a decision was taken that we would not defend this appeal”.

Further insight revealed that the assessments where unlikely to meet the burden of proof.  Perhaps something that should have been called into question at the review stage. 

On the substantive point there was a clear lack of investigation and evidence gathering which meant the assertions made by the company were not adequately tested.

Background to the Internal Review Process

The Internal Review concept was introduced in 2009 and is a statutory process conducted by a different tax officer from the decision maker.  Broadly speaking, it is designed to provide a fresh pair of eyes on the decision makers interpretation of the facts and relevant law.

HMRC must provide you with its response to concluding a “local review” within 30 days of receiving the review request.  Following this, the IRO has 45 days from the date it notifies its response to present the conclusions of the independent review. However, in light of the Coronavirus pandemic, this is usually extended by an additional three months by mutual agreement.

The independent reviewer will not comment on whether the decision was “fair” but will instead concentrate on determining whether the decision was made in line with HMRC guidelines.  Whilst some may question whether the IRO will be truly independent, as can be seen from the above examples, our experience has been that the Independent Review process can often reap significant rewards, saving considerable time, financial cost and, quite possibly securing the health of the business.

Furthermore, the tax tribunal has the overriding objective of encouraging dispute resolution wherever possible and if the claim does eventually end up before a Tribunal judge, they will be mindful of the taxpayer’s attempt to seek alternative resolution.

It is strongly recommended that taxpayers should seek experienced representation when appealing a tax dispute through HMRC’s internal review process.

Aspire Business Partnership has a team of Tax Dispute Resolution specialists to successfully present a taxpayer’s case to HMRC and navigate the review procedure.

Should you wish to discuss a tax dispute with one of our team please contact us at enquire@aspirepartnership.co.uk

Start the debate – what is your experience with the Independent Review process?

Next in the Truth or Myth Series – Is outsourcing your labour supply requirements unlawful, tax abuse, an orchestrated scheme to defraud HMRC, fraudulent abuse, fraudulent activity or perfectly legal?