Jump in judicial reviews against HMRC shows businesses more willing to challenge "unlawful" tax decisions, says expert

Out-Law News | 24 Jan 2014 | 10:37 am | 2 min. read

Businesses have become more willing to challenge tax decisions against them that appear to be unlawful, an expert has said, after a 31% increase in the number of judicial review applications made against HM Revenue and Customs (HMRC).

Figures obtained by Pinsent Masons, the law firm behind Out-Law.com, showed that there were 51 applications made in 2012, the most recent year from which figures are available. The number has remained relatively static since 2008, with 39 applications made in 2011, according to the figures.

"Judicial review is a remedy of last resort, so this significant jump in the number of applications shows just how contentious some of HMRC's decisions have become," said tax expert Jason Collins of Pinsent Masons, the law firm behind Out-Law.com.

"Although not all of these disputes will progress all the way to a full judicial review hearing, this surge in challenges reflects taxpayers' reaction to the increasingly aggressive stance taken by HMRC to increase its tax take and clamp down on tax avoidance and evasion. The problem is that what HMRC sees as tax avoidance many businesses legitimately see as sensible business planning - and with so much money now at stake as the Revenue tries to plug the tax gap and help reduce the deficit in the public finances, there's far more incentive for taxpayers who feel they have not been treated fairly not to give up without a fight," he said.

Judicial review is a process thought which individuals, businesses and other affected parties can challenge the lawfulness of decisions or actions of public bodies and those exercising public functions. Only those with 'sufficient interest' in a decision can challenge it, and they must first obtain permission from the court before their case can be heard fully.

In the tax field, judicial review is typically used to challenge behaviour seen as 'unreasonable', such as a failure by HMRC to follow its own guidelines or where it is seen to have gone back on a ruling it has made. For example, there have been instances where HMRC has appeared to change its view of the law and its approach after publishing guidance stating that it will interpret and apply the law in a certain way in given circumstances. It has also been used as a means of challenging HMRC's internal processes.

"The Revenue needs to make very sure that it is absolutely clear and consistent in its guidance and its actions if it is to help taxpayers pay the right amount of tax on time," Collins said. "HMRC may be getting tougher, but these figures suggest that taxpayers aren't willing to be steamrollered."

However, Collins noted that proposed changes to the judicial review system could potentially reduce the scope for taxpayers to begin this type of legal challenge going forward. A consultation aimed at reducing the number of time-consuming and expensive judicial reviews closed in November, and set out proposed modifications including reducing judicial review opportunities for those who do not have a direct interest in a particular case.

"The proposals might limit the ability for representative bodies to bring judicial review proceedings which affect individual taxpayers who do not have the means to bring their own proceedings," he said. "They may also hamper the ability of 'protest groups' to intervene where they think a large corporate is getting a 'sweetheart' deal, such as the action brought by UK Uncut last year."

"Any proposals which limit scrutiny over how HMRC goes about its business could ultimately have a negative affect on the quality of the tax authority's work," he said.