With the many measures adopted during the ongoing Covid-19 crisis, HM Revenue and Customs (HMRC) has been supportive of businesses in the current difficult climate. This more helpful approach differs from the normal face that the government department presents to taxpayers.
HMRC has been adopting an increasingly aggressive approach to VAT compliance and enforcement, with penalties being seen as a source of additional revenue.
Disputes between HMRC and taxpayers are becoming more frequent, more entrenched, and achieving resolution is costing taxpayers more – not only in cash terms, but also in management time and the continued cost of uncertainty.
In our experience at Anderson Anderson Brown, the approach to the initial dialogue at the early stages of HMRC’s enquiries can dictate the course of the inspection. In many cases, the disagreements that arise between HMRC and taxpayers are not black and white, requiring both parties to change the way in which they manage their relationship.
Tax dispute resolution specialists can play an important role in this relationship.
Proactively avoid disputes
VAT legislation can be complex and open to interpretation. This may lead to a difference in opinion between a taxpayer and the HMRC’s published guidance.
As Lord Justice Lewison advised in a 2015 Court of Appeal decision: “HMRC provides the public with their own interpretation of points of difficulty and information about the practice they adopt in various areas. These are variously contained in notices, Business Briefs and the VAT Manual. They are not law; they are no more than HMRC’s interpretation of the law.”
Effective tax dispute resolution will often be as much to do with preventing a dispute as it is with managing and resolving them when they occur.
It is important for taxpayers who find themselves at odds with HMRC’s interpretation of the law to be proactive in challenging the position through the HMRC’s clearance processes. This approach will allow the taxpayer to clearly set out all of the facts and obtain clarification of the correct tax treatment at the outset.
Taking professional advice early and being proactive in raising the issue with HMRC can often avoid disputes arising in the first place.
Co-operation brings results
It can be difficult when you are asked for the same information more than once, but we always recommend that you co-operate as fully as possible with HMRC.
Not only does this progress the enquiry more quickly, it also ensures that – in the event an assessment being raised – any penalty HMRC seeks to apply will be reduced as far as possible.
Again, is it normally advisable to have the support of professional advisors through more complex enquiries. Tax advisors can use their understanding of tax administration processes, including HMRC’s information powers, to better manage the interaction with HMRC. This includes obtaining a review by an independent officer.
In some disputes, having a fresh eye cast on an issue can often resolve matters where the officer has made up their mind.
This co-operative approach can often ensure that HMRC applies discretion and adopts a more pragmatic approach to minor issues, avoiding the need for assessment action.
Pick your battles
Where the disagreement between HMRC and the taxpayer is more fundamental, and it is not possible to resolve the matter satisfactorily, taxpayers have the option of litigation of a dispute at the government’s tax tribunals.
However, this can be a time-consuming and costly process, so we recommend that taxpayers seek to resolve disputes before getting to this stage.
On occasion, a formal appeal to the First-tier Tribunal and beyond may be the taxpayer’s only option. Although the tribunal service provides advice on how to navigate through the process, obtaining professional advice is recommended to ensure that the taxpayer’s case is presented as fully and clearly as possible.
Whatever stage a dispute is at, making full use of a tax dispute resolution specialist will bear fruit.
Alistair Duncan is head of indirect tax at Anderson Anderson & Brown