If you are involved in a dispute in the UK tax tribunals with HM Revenue & Customs (HMRC) you will probably incur costs such as legal fees and disbursements/expenses. The rules as to when you can recover your costs and when you may have to pay the costs of HMRC differ in the tax tribunals (the First-tier Tribunal and the Upper Tribunal) from the rules which apply generally to other types of court or arbitration proceedings.

First-tier Tribunal

In the First-tier Tribunal each party will generally bear their own costs so that you will not be liable to pay the costs of HMRC if you are unsuccessful and HMRC will not be liable to pay your costs if you succeed.

Tax disputes are allocated to a 'track' in the First-tier Tribunal. More complicated cases, which will require lengthy or complex evidence or a lengthy hearing, involve a complex or important principle or issue, or involve a large financial sum, may be allocated to the Complex track.

If your case is allocated to the Complex track either you or HMRC may seek an award of costs, which will typically follow the general rules set out below, unless you opt for the proceedings to be excluded from potential liability for HMRC’s costs. The opt out must be made within 28 days of receiving notice that the case has been allocated to the Complex category.

If you opt out of costs recovery, you cannot recover costs from HMRC if you are successful.

Even if your case is not allocated to the Complex track, the First-tier Tribunal has discretion to make a ‘wasted costs’ orders against a party or their representatives if they have acted unreasonably in bringing, defending or conducting the proceedings.

Upper Tribunal - recovery of costs if you win

In the Upper Tribunal, a party that loses an application, whose appeal is dismissed or discontinued or where HMRC’s appeal is allowed will normally be ordered to pay costs.

However, as mentioned above, there is no recovery of costs for earlier First-tier Tribunal proceedings if the case was not allocated to the Complex track or if it was a Complex case and you opted out of costs.

The Upper Tribunal has full discretion as to what costs order to make in respect of both entitlement and amount. Factors which may be taken into account in determining a party’s entitlement to and/or the amount of costs to be awarded include: 

  • whether the proceedings have been conducted at proportionate cost
  • all the circumstances of the case including matters such as:
    •  the conduct of the parties prior to and during the course of the proceedings; including whether it was reasonable for a party to raise, pursue or contest a particular issue, the manner in which a party has pursued or defended a claim, and whether or not a party exaggerated its claim
    • whether a party has succeeded on part or all of its case
    • a party’s refusal to mediate or to attempt to settle the case, and
    • whether the amount of costs claimed is proportionate and considered by the tribunal to have been reasonably incurred and reasonable in amount having regard to all the circumstances of the matter, including the issues involved, and the value of the claim, the complexity of the case, the time spent and other factors relevant to the work undertaken.

Whilst a successful party will normally be entitled to an award of costs, in the light of the tribunal’s full discretion to award and assess costs, and the matters which will be taken into account, there is no guarantee that you can expect an award of any specified or minimum proportion of your costs relating to a particular application or issue, or the proceedings as a whole. In most instances there will be an element of irrecoverable costs from an opponent.

The Upper Tribunal has power to order that a losing party pays interest on costs payable to a successful party, and possibly a payment on account of costs subject to the final amount of costs payable being assessed.

Upper Tribunal - Payment of costs where you are unsuccessful (in whole or part)

If you are unsuccessful on the hearing of any application, your appeal is dismissed, HMRC’s appeal is allowed, you have part or all of your case struck out, or if you discontinue part or all of your case, then you are likely to be ordered to pay a proportion of HMRC’s costs. Such costs will be assessed by the tribunal (or court) in the absence of agreement, and may include (but not exclusively) solicitors’ fees and disbursements (including counsel and expert fees), expenses and VAT.

Any liability for costs to HMRC will be in addition to your own legal costs and any tax liability arising from the decision.

Time of assessment

The costs awarded will usually be assessed either at the conclusion of a particular application or at the conclusion of the proceedings.

Any tribunal order for the payment of assessed costs between parties will generally be payable within 14 days from the making of the order, or the issue of an appropriate costs certificate, provided in either case that the amount payable has been assessed and is specified.