Appeals processes are an important part of the world of tax, but are complex and often poorly understood. This quarter we thought we’d shine a light on this area by inviting Gill Hunter to answer a few questions. Gill sits on the judgment panel for First Tier Tax Tribunals in the UK, which are the UK’s first point of legal appeal against official actions or demands.
What do you see as the key role of a tribunal?
The key role of the First-tier Tax Tribunal is to hear appeals against decisions by HM Revenue and Customs (HMRC), Border Force and the National Crime Agency (NCA). The tribunal is independent of government and will listen to both sides of the argument before making a decision. Hearings are governed by The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 and the overriding objective is to deal with cases fairly and justly and that is what we try to do so that both parties feel they have had a fair hearing at the end of the process.
Do you normally find in favour of taxpayers or the authorities?
I’m sure there are statistics on case outcomes somewhere but I don’t know the answer. I’m sure some people must think we’ve made up our minds one way or another before we hear the case but that just isn’t so. Sometimes Appellants arrive at the Tribunal for their hearing believing that we are part of HMRC so we explain at the very beginning who we are and that we are completely independent. The First-tier Tribunal is a court of first instance so our responsibility is to find the facts of the case. Our decision is then made on the basis of the law as applied to these facts. Every case is decided on its own merits.
Do you see any patterns or trends in the cases tribunals are hearing?
There are always a high number of appeals against VAT penalties and default surcharges (these are the UK penalties for late return filings and payments -Ed) and for the last few years Missing Trader Intra-Community (MTIC) Fraud cases, involving mobile phones have produced hard-fought battles between HMRC and Appellants with large amounts of VAT at stake. These have slowed to a trickle though variants of the scheme can still be seen from time to time involving goods other than mobile phones.
What is the most challenging case you have heard?
My background in VAT in the early days, over 30 years ago, was in VAT fraud investigation so I have been allocated a number of MTIC cases. These are challenging partly because they can take several weeks to hear, with many bundles of documents to refer to and witnesses to hear from, from both sides, HMRC and the appellant.
For HMRC to be successful in defending an appeal against their decision to disallow input tax in an MTIC case, they have to prove that the appellant ‘knew or should have known’ that the transactions on which input tax has been denied were connected to a fraudulent tax loss somewhere else in the chain of transactions. They have to prove this to the civil standard, ‘on a balance of probabilities’ ie that it was more likely than not. Quite rightly this is a challenge and usually involves HMRC’s counsel cross-examining the Appellant’s witness closely about the business and the transactions at issue.
This proved too much for the director of one Appellant company who was taken ill in the early stages of the hearing but requested that the appeal be adjourned until he was well enough to attend. As the case had been listed to continue for several weeks, we adjourned to give the witness time to recover, but after a few weeks, we concluded that the illness was caused in part by the stress of the case and that this would not be eased no matter how long an adjournment we granted. In the end, we decided it was in the interest of justice that we proceed with the case in the director’s absence. That was not an easy decision to make and the Appellant, perhaps not surprisingly, appealed our decision to the Upper Tribunal, where our decision was upheld.
Is the tribunal system adequately accessible to small taxpayers?
That’s a tough question for me to answer as I’m not involved in the administration of the appeal process; only preparing myself for the hearing, hearing the case and making the decision on the facts, so I can’t say with any certainty. What I can say though is that any of us could find ourselves disagreeing with a decision of HMRC on our tax affairs and, if we were unable to resolve the dispute with them directly, the First-tier Tax Tribunal might be our only recourse and if it were me, I would take it.
Keeping in mind the overriding objective, i.e. the requirement to deal with cases fairly and justly including avoiding unnecessary formality as well as ensuring, so far as practicable, that the parties are able to participate fully in the proceedings means that, in my experience, where there is an unrepresented appellant, the judge, and member and, where HMRC has a legal representative, they too provide as much assistance as possible to ensure the appellant receives a fair hearing.
What would be your advice for a taxpayer considering an appeal to a tribunal?
Ensure you have exhausted all other avenues to resolve the dispute but then don’t hesitate to proceed to Tribunal. If you are representing yourself, make sure you are prepared. Nobody knows your business like you do so be confident in your knowledge. Of course, it can be stressful appearing in any court setting, however informal we try to make it, but the Tribunal will try to help you. Remember, its job is to find the facts and then make a decision based on the relevant law. That is what it will be trying to do.