In McMillan v HMRC [2020] UKFTT 82 (TC), the substantive issues related to an unsuccessful attempt by HMRC to raise a discovery assessment on the taxpayer under TMA 1970 s 29 coupled with an unsuccessful attempt to tax the individual’s winnings from gambling.
The case, however, throws up (almost as an aside) an alarming view of how HMRC seem to treat the review process which is available at the outset of any potential litigation.
In this case, two review letters were produced to the tribunal, and they had been written less than a week apart. The first said that the assessment and penalties should be cancelled, but the second (written by the same review officer) said the exact opposite: the assessment and penalties in question should be upheld.
Paragraph 4 of the decision reads as follows: ‘HMRC had inadvertently disclosed a review letter dated 11 April 2018 (not sent to the appellant) in which the review officer had concluded that all the assessment and penalty determinations should be cancelled because HMRC had failed to identify a taxable source. The review letter which was in fact sent, dated 16th April 2018 from the same review officer, stated that the assessments and penalties should be upheld.’
The legislation concerning reviews is found in TMA 1970 s 49B (appellant requires review by HMRC) and s 49C (HMRC offer review). One of the oddities, as an aside, is that if an appellant simply appeals back to HMRC (without notifying the tribunal), then the matter ‘sits there’ unless and until HMRC itself offers the review.
If, however, the opportunity to review is taken up then the law is found at TMA 1970 s 49E, which makes interesting reading:
the nature and extent of the review are to be such as appear appropriate to HMRC in the circumstances;
HMRC must in particular have regard to steps taken before the beginning of the review: by HMRC in deciding the matter in question, and by any person in seeking to resolve disagreements about the matter in question;
the review must take account of any representations made by the appellant at a stage which gives HMRC a reasonable opportunity to consider them;
the review may conclude that HMRC’s view of the matter in question is to be: upheld, varied or cancelled.
In my experience, clients assume that when the review process is instigated, a different officer other than one previously involved will look at the matter afresh and with an unbiased eye. More particularly, it is anticipated that if there is merit in the appellant’s view after all, then a ‘third party’ HMRC officer may well be inclined to confirm that contrary view rather than HMRC’s view.
In fact, the practice seems to be different. I have never known a review to differ from the original view of the relevant HMRC inspector: it has always confirmed it. Ex-HMRC personnel tell me, from time to time, that the process is unsatisfactory and that often the papers are simply passed from one person to a colleague who merely ‘rubber stamps’ the view of the first officer.
In fact, I now tell clients in relation to reviews that the system is not fit for purpose.
In my opinion, HMRC should comment on the McMillan case and explain how the same review officer changed their mind dramatically; and it should confirm that the review process is something which taxpayers can assume is being carried out with integrity by HMRC.
Patrick Way QC, Field Court Tax Chambers (pw@fieldtax.com)
Home >Articles > McMillan shines light on HMRC’s review process
McMillan shines light on HMRC’s review process
In McMillan v HMRC [2020] UKFTT 82 (TC), the substantive issues related to an unsuccessful attempt by HMRC to raise a discovery assessment on the taxpayer under TMA 1970 s 29 coupled with an unsuccessful attempt to tax the individual’s winnings from gambling.
The case, however, throws up (almost as an aside) an alarming view of how HMRC seem to treat the review process which is available at the outset of any potential litigation.
In this case, two review letters were produced to the tribunal, and they had been written less than a week apart. The first said that the assessment and penalties should be cancelled, but the second (written by the same review officer) said the exact opposite: the assessment and penalties in question should be upheld.
Paragraph 4 of the decision reads as follows: ‘HMRC had inadvertently disclosed a review letter dated 11 April 2018 (not sent to the appellant) in which the review officer had concluded that all the assessment and penalty determinations should be cancelled because HMRC had failed to identify a taxable source. The review letter which was in fact sent, dated 16th April 2018 from the same review officer, stated that the assessments and penalties should be upheld.’
The legislation concerning reviews is found in TMA 1970 s 49B (appellant requires review by HMRC) and s 49C (HMRC offer review). One of the oddities, as an aside, is that if an appellant simply appeals back to HMRC (without notifying the tribunal), then the matter ‘sits there’ unless and until HMRC itself offers the review.
If, however, the opportunity to review is taken up then the law is found at TMA 1970 s 49E, which makes interesting reading:
the nature and extent of the review are to be such as appear appropriate to HMRC in the circumstances;
HMRC must in particular have regard to steps taken before the beginning of the review: by HMRC in deciding the matter in question, and by any person in seeking to resolve disagreements about the matter in question;
the review must take account of any representations made by the appellant at a stage which gives HMRC a reasonable opportunity to consider them;
the review may conclude that HMRC’s view of the matter in question is to be: upheld, varied or cancelled.
In my experience, clients assume that when the review process is instigated, a different officer other than one previously involved will look at the matter afresh and with an unbiased eye. More particularly, it is anticipated that if there is merit in the appellant’s view after all, then a ‘third party’ HMRC officer may well be inclined to confirm that contrary view rather than HMRC’s view.
In fact, the practice seems to be different. I have never known a review to differ from the original view of the relevant HMRC inspector: it has always confirmed it. Ex-HMRC personnel tell me, from time to time, that the process is unsatisfactory and that often the papers are simply passed from one person to a colleague who merely ‘rubber stamps’ the view of the first officer.
In fact, I now tell clients in relation to reviews that the system is not fit for purpose.
In my opinion, HMRC should comment on the McMillan case and explain how the same review officer changed their mind dramatically; and it should confirm that the review process is something which taxpayers can assume is being carried out with integrity by HMRC.
Patrick Way QC, Field Court Tax Chambers (pw@fieldtax.com)
