Out-Law Analysis 3 min. read

HMRC updates guidance on governance of UK tax disputes

HM Revenue & Customs (HMRC) has substantially rearranged its taxpayer-facing guidance on the internal governance that applies to the way in which it resolves UK tax disputes.

HMRC has published a “Litigation and Settlement Strategy” since 2007 and this has been supported by a code of governance during that time. Both are periodically refreshed to ensure they continue to reflect current practice. The recent updates to the guidance represent a fairly substantial reorganisation of the locations of the parts of the guidance, with substantive changes being fairly subtle, albeit with some interesting points to note.

The first is the introduction of four key principles for dispute resolution:

  • Separation – meaning a clear dividing line between the case officers involved in discussing settlement options with taxpayers and those who approve or sign off those settlements
  • Even-handedness – “establishing the right tax liability fairly and consistently”
  • Clarity and transparency – which is achieved through publishing information about internal HMRC governance processes and statistics and information on actual taxpayer disputes (in aggregated form)
  • Appropriate levels of tax expertise and scrutiny in tax disputes

While it might be expected that HMRC was conducting itself in this manner in any event, a clear elaboration of these safeguards for taxpayers is helpful - in particular the stated need for sign off to be separated from case officers. However, this protection is reserved for those disputes with large amounts of tax at risk. While what constitutes “large” is not specifically identified, we would assume that it relates to the levels at which disputes need to be referred to one of the dispute resolution boards.

There are new sections in the code dealing with the GAAR advisory panel; HMRC’s option to issue a published settlement opportunity for groups of taxpayers in similar circumstances; HMRC’s governance of issuing of inaccuracy and failure to notify penalties; and statutory reviews and appeals. Although these sections are new, the substance is not new and the same information was previously found elsewhere.

Two substantive sections have been removed from the code: the section dealing with specific arrangements for transfer pricing and diverted profits; and the section explaining the high-risk corporates programme (HRCP). The section on the HRCP was removed from the code on a previous review, then brought back in, only to be removed again. The programme itself remains in operation, but its second removal from the code may perhaps suggest a further review. It is not clear whether the removal of the transfer pricing and diverted profits content indicates a change of governance approach.

All of the information that was previously in the annexes to the code has now either been removed altogether or moved elsewhere. This has led to two new pieces of guidance: for the Tax Dispute Resolution Board (TDRB) remit and the Customer Compliance Group Dispute Resolution Board (CCGDRB) remit. Content on the contentious issues panel and anti-avoidance board has been moved into the main code of governance, but has not otherwise changed.

The remit for the TDRB is broadly the same in that, broadly, all risks over £100 million need to be referred to the TDRB. There are two new circumstances where reference to the TDRB is no longer required. The first is for disputes where the risk relates to VAT supply chain fraud, provided that the VAT serious non-compliance and fraud team agrees that either the ‘Kittel’ or ‘Mecsek’ principles - named for the relevant cases - applied. The Kittel principle prevents recovery of input VAT where the person knew or should have known that the transactions involved VAT fraud and the Mecsek principle is broadly similar in the context of output tax and zero-rating. The second instance of non-referral relates to tax risks that are part of a “project”. The first such risk has to be referred to the relevant board, but the remainder of the risks within the project do not, provided the HMRC deputy director with responsibility for the case agrees that that risk is on “all fours” with the case previously considered by the board and the Commissioners.

The new guidance on the CCGDRB remit is based very heavily on the TDRB guidance, but the thresholds for referring cases to the board are lower. The tax at stake must be £15m where the taxpayer falls under the HMRC large business directorate and £5m for all other taxpayers. The exclusions from referral for the TDRB also apply to the CCGDRB.

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