HMRC has published a new internal manual covering the litigation and settlement strategy (LSS). Anyone hoping for a new era of flexibility from HMRC will, however, be disappointed. The LSS itself – the document and accompanying commentary setting out HMRC’s approach to settling disputes with taxpayers – remains unchanged. The new guidance does, however, attempt to shed some additional light on HMRC’s approach.
As most practitioners will be aware, HMRC does not do package deals and will not split the difference in order to settle a dispute. However, if HMRC is satisfied that there are alternative approaches that are reasonably likely outcomes in tribunal proceedings, it may choose to settle on the basis of one of the alternatives. The manual makes it clear that since concurrent issues in a dispute can themselves have a range of outcomes, and may give rise to consequential claims and reliefs, there can in fact be a broad range of LSS compliant settlement figures. This does not, though, alter the fundamental feature, which is that if HMRC believes it is right on an issue, it will not settle for less tax in relation to that particular issue.
What is often less clear is whether and when HMRC will challenge a particular issue in the first place.
On its face, the LSS has always been reasonably clear on this and the new manual maintains that position: where HMRC believes that it is unlikely to succeed in litigation it will, in the majority of cases, concede the issue.
HMRC may litigate, however, if:
there is a large amount of tax at stake (across all taxpayers); or
a fundamental point of principle or behaviour is stake.
The new manual gives an example scenario of ‘a sector of HMRC’s population [where] it emerges that it has become standard practice to apportion a fee on a 50/50 basis even if the work done by each of the parties receiving the fee does not reward the parties appropriately’, resulting in a lower tax take.
The manual goes on to state that, in the example, HMRC has received advice from Solicitor’s Office that any challenge by HMRC to the 50/50 split is unlikely to be successful. Nevertheless, in this example, ‘HMRC does not believe that a 50/50 split is correct so should not settle for this outcome in the interests of a quick settlement.’
Pausing there, it is perhaps somewhat alarming that despite advice from their own lawyers, HMRC would continue to believe it is correct. HMRC considers that litigating in this sort of case may be appropriate where it is necessary to ‘defend the integrity of the legislation’ or ‘protect the relevant tax regime’.
It is not easy to understand what these phrases are supposed to mean in this context. If HMRC considers it is unlikely to win, then surely it would a better use of resources, and fairer to taxpayers, to address any consequent issues with the legislation or relevant regime by pressing for appropriate amendments to the rules in question? HMRC cannot make the law but it is in a far better position to shape it than most.
Be that as it may, the manual rather suggests that any taxpayers unfortunate enough to find themselves with the better arguments, but on the wrong side of HMRC’s determined position, will have to fight it out with HMRC in the tribunal, with all the consequent time, stress and cost involved.
HMRC has published a new internal manual covering the litigation and settlement strategy (LSS). Anyone hoping for a new era of flexibility from HMRC will, however, be disappointed. The LSS itself – the document and accompanying commentary setting out HMRC’s approach to settling disputes with taxpayers – remains unchanged. The new guidance does, however, attempt to shed some additional light on HMRC’s approach.
As most practitioners will be aware, HMRC does not do package deals and will not split the difference in order to settle a dispute. However, if HMRC is satisfied that there are alternative approaches that are reasonably likely outcomes in tribunal proceedings, it may choose to settle on the basis of one of the alternatives. The manual makes it clear that since concurrent issues in a dispute can themselves have a range of outcomes, and may give rise to consequential claims and reliefs, there can in fact be a broad range of LSS compliant settlement figures. This does not, though, alter the fundamental feature, which is that if HMRC believes it is right on an issue, it will not settle for less tax in relation to that particular issue.
What is often less clear is whether and when HMRC will challenge a particular issue in the first place.
On its face, the LSS has always been reasonably clear on this and the new manual maintains that position: where HMRC believes that it is unlikely to succeed in litigation it will, in the majority of cases, concede the issue.
HMRC may litigate, however, if:
there is a large amount of tax at stake (across all taxpayers); or
a fundamental point of principle or behaviour is stake.
The new manual gives an example scenario of ‘a sector of HMRC’s population [where] it emerges that it has become standard practice to apportion a fee on a 50/50 basis even if the work done by each of the parties receiving the fee does not reward the parties appropriately’, resulting in a lower tax take.
The manual goes on to state that, in the example, HMRC has received advice from Solicitor’s Office that any challenge by HMRC to the 50/50 split is unlikely to be successful. Nevertheless, in this example, ‘HMRC does not believe that a 50/50 split is correct so should not settle for this outcome in the interests of a quick settlement.’
Pausing there, it is perhaps somewhat alarming that despite advice from their own lawyers, HMRC would continue to believe it is correct. HMRC considers that litigating in this sort of case may be appropriate where it is necessary to ‘defend the integrity of the legislation’ or ‘protect the relevant tax regime’.
It is not easy to understand what these phrases are supposed to mean in this context. If HMRC considers it is unlikely to win, then surely it would a better use of resources, and fairer to taxpayers, to address any consequent issues with the legislation or relevant regime by pressing for appropriate amendments to the rules in question? HMRC cannot make the law but it is in a far better position to shape it than most.
Be that as it may, the manual rather suggests that any taxpayers unfortunate enough to find themselves with the better arguments, but on the wrong side of HMRC’s determined position, will have to fight it out with HMRC in the tribunal, with all the consequent time, stress and cost involved.
