Q&A: How would the proposed tax tribunal fees impact taxpayers?

What is the MoJ proposing?

Currently fees are not charged in either the Tax Chamber of the First-tier Tribunal or the Upper Tribunal (Tax and Chancery). The MoJ is consulting on introducing a split fee structure that would levy a charge on both the issue of an appeal and on hearings. Fee levels would increase according to case track allocation as set out at the end of this article. Costs would be paid upfront by the applicant, but ultimately be borne in costs by the unsuccessful party. The consultation period concludes on 15 September 2015.

What is the rationale behind the proposals?

This is an austerity driven costs reduction measure. The MoJ needs to raise income to meet government financial targets, so it is consulting on introducing fees that would allow it to recoup a targeted 25% of operating costs in the tribunals.
The Tax Chamber of the First-tier Tribunal and the Upper Tribunal (Tax and Chancery) apparently have combined annual running costs of some £8.7m (based on 2013/14 figures). One would expect to see the fees climb once introduced to drive further costs savings. This is part of the wider program of reform to fees charged across the courts and tribunal service.

Could taxpayers be unfairly disadvantaged by the fees?

There is clear potential for taxpayers to be unfairly disadvantaged, and for the new system to produce inequities.

The proposed rates are not dependant on the amount of tax, penalties or interest in dispute, and the consultation assumes small value disputes will fall into the paper or basic category. Statistics show that up to two thirds of tax tribunal users can be unrepresented. This population of users will clearly be sensitive to costs and potentially dissuaded from seeking access to justice. Equally, the tariffs do not distinguish between a half-day hearing and a ten-day hearing, which consume vastly disproportionate costs.

Of particular concern is the £2,000 hearing fee for an appeal to the Upper Tribunal. Consider, for example, the case of a small taxpayer with a low value ‘point of principle’ dispute who succeeds on their appeal at first instance, but unwittingly crosses a red line on an issue where HMRC refuses to accept the judgment. When HMRC pushes on to appeal, the taxpayer then faces a £2,000 jeopardy on court fees, which may mean that the only financially practical decision is for them to concede the case.

How can the MoJ ensure access to justice is preserved for taxpayers?

The proposals would be more just if the tariffs included a values-based threshold system so that low value disputes could be brought with a low fixed hearing fee of, say, £50. A form of qualified costs shifting, whereby HMRC could be ordered to pay appeal costs regardless of outcome, might also assist matters which have a policy significance for HMRC that outweighs the actual value of the dispute.

The proposals also fail to deal with the issue of disorganised or non-compliant litigants who drain resources through multiple directions hearings, vacated hearing dates and so on. A fee chargeable on each actual appearance might act as an incentive/disincentive.

The real issue here, though, is that the tax tribunals try to serve both small self-represented taxpayers and large sophisticated taxpayers with teams of professional advisers. The current tribunal system fails to serve adequately the needs of either group.

Overall, do you agree these fees should be introduced?

The lack of fees for use of the tax tribunals has been something of an anomaly, and it is inevitable that fees will and should be introduced. However, the form might be amended to avoid unwelcome restrictions on access to justice. Consider that for some tax disputes, a taxpayer will commence proceedings in a multi-million pound dispute in both the First-tier Tribunal (no fees) and the Administrative Court (fees of £10,000, possibly rising to £20,000) and it is clear that the system will have to change.

What is disappointing is that the measures are simply being used as a costs cutting measure, when a charging system might be utilised to increase the very modest funding of the tax tribunals and improve the administration of what can, at times, be a frustrating and chaotic system for many users. Once taxpayers become paying customers their frustrations with the shortcomings of the system can only increase.

What is the fee structure proposed by MoJ?

Interviewed by Hannah Giles for LexisNexis UK legal news analysis and LexisNexis®PSL Tax.