Judicial Reviews Involving HMRC Jump 36%

The number of judicial reviews faced by HMRC rose to 122 in 2017, an increase of more than 30% over the previous year, marking a significant increase in the last three years.

JUDICIAL REVIEWS HAVE increased significantly in recent years, since a low of 43 in 2014. In 2016, HMRC dealt with 90 cases, compared to 76 in 2015.

The RPC research into use of judicial reviews indicates a steady increase in the number of reviews of decisions made by HMRC, especially when it comes to the enforcement of outstanding tax or national insurance contributions (NICs), particularly the use of accelerated payment notices (APNs) to force taxpayers to pay disputed taxes upfront.

The nature of APNs means that the taxpayers who feel unfairly penalised cannot argue their case with HMRC and are therefore forced to pursue legal action.

APNs are issued to taxpayers involved in tax avoidance schemes disclosed under the Disclosure of Tax Avoidance Schemes (DOTAS) rules. Failure to pay APNs can result in additional fines and enforcement action.

Several recent cases highlight the behaviour of HMRC, including instances of sending information request notices to taxpayers outside its jurisdiction, making retroactive changes to Customs Duty, and ignoring its own guidelines regarding residence and the National Minimum Wage.

Previous significant judicial reviews involving HMRC include a challenge by RPC against hundreds of APNs issued in 2015 regarding Employee Benefit Trusts (EBTs) issued by Isle of Man-based Montpelier. RPC argued successfully that such arrangements were not ‘notifiable’ to HMRC under DOTAS rules.

Adam Craggs, partner and head of the tax disputes practice at RPC, believes that judicial reviews are becoming ‘far too common’ and result from a combination of ‘aggression and intransigence’ on the part of the tax authority.

“This substantial increase in judicial review challenges would suggest that taxpayers are not prepared to be treated unfairly by HMRC and are willing to challenge its decisions and seek redress from the High Court,” he said.

He also notes the large number of cases over the last year that resulted in HMRC withdrawing its decision once confronted with the possibility of a Judicial Review. He calls it ‘regrettable’ that taxpayers are forced to take action because HMRC refuses to acknowledge its mistakes.

HMRC has been under significant pressure since 2015 to take more proactive measures against tax avoidance and evasion. In that year the Public Accounts Committee criticised the department for failing to do enough to tackle tax evasion, pointing in particular to its failure to prosecute more from the so-called Falciani list of UK taxpayers using undeclared Swiss bank accounts to evade tax.

Concerns regarding HMRC’s operations were sufficient to lead to the creation, in May, of the Conduct of Tax Enquiries and the Resolution of Tax Disputes inquiry, led by a sub-committee of the Treasury select committee. The review seeks to investigate the way that tax compliance is enforced, including its approach to penalties and other sanctions.