Tax disputes with HMRC (Her Majesty’s Revenue and Customs) can be daunting, but understanding how to challenge a tax decision effectively is crucial. Whether you’ve received an unexpected tax bill, penalties, or an adverse ruling, knowing your legal rights and the proper procedures can significantly increase your chances of success. In this article, our expert HMRC Tax Dispute Lawyers walk you through the proven steps to challenge HMRC rulings, including Alternative Dispute Resolution (ADR), tax tribunal appeals, and judicial review.
For tailored advice on your tax dispute, contact our expert tax dispute lawyers at 0207 459 4037 for a Free Consultation or complete our booking form below.
HMRC’s Role in Tax Disputes and Your Right to Challenge Decisions
HMRC is responsible for administering and collecting taxes in the UK. This includes assessing tax returns, issuing penalties, and conducting investigations to ensure compliance. When HMRC issues a tax decision or penalty, they believe a mistake has occurred in your filing, payments, or tax compliance.
Can You Challenge an HMRC Decision?
Yes, you have the legal right to challenge HMRC decisions. Section 31 of the Taxes Management Act 1970 (TMA 1970) gives taxpayers the right to appeal against any HMRC assessment or decision:
“A person may appeal against an assessment to tax made upon him or against any determination or decision by HMRC in relation to that assessment, provided the appeal is made within the prescribed time limits.”
This ensures that if you believe HMRC has made an error, you can formally dispute their decision.
For a more comprehensive understanding of this process, see our related article on “Appealing HMRC Decisions: Your Rights and Procedures.“
Proven Steps to Challenge HMRC Tax Decisions
Tax disputes with HMRC can be complex. However, following the right process can improve your chances of success. Below are the key steps involved in effectively challenging a tax decision.
1. Request a Statutory Review by HMRC
When disputing a tax decision, your first option is to request a statutory review. This allows an independent HMRC officer, who wasn’t involved in the original decision, to reassess the case and provide a fresh perspective. A statutory review can be faster and less formal than taking the matter to a tribunal, potentially resolving the dispute early on.
Section 49A of the Taxes Management Act 1970 gives you the right to request this review within 30 days of being notified of the decision.
You can request a statutory review of a HMRC decision by:
- Submitting Your Request – Make sure to file your request for a statutory review within 30 days of receiving HMRC’s decision notice.
- Explaining Your Case – Clearly outline why you believe the decision is wrong, supported by any necessary documentation or evidence.
- Outcome of the Review – HMRC will review your submission within 45 days, and the reviewing officer may either uphold, amend, or cancel the original decision.
Example: Sarah, a small business owner, was issued a £10,000 penalty for what HMRC deemed to be an incorrect VAT filing. Sarah believed that the calculation was based on a misunderstanding of her VAT returns. She submitted a statutory review request within the 30-day period, explaining the error. After reviewing the case, HMRC reduced the penalty to £500, acknowledging that the original decision was based on a minor administrative error.
2. Alternative Dispute Resolution (ADR) for Tax Disputes
If the statutory review does not resolve your dispute, Alternative Dispute Resolution (ADR) is an option that allows both you and HMRC to explore a settlement without having to go through formal litigation. ADR is a more flexible process involving mediation, where a neutral third party helps resolve the dispute in a less adversarial setting.
Key steps for engaging in ADR include:
- Submit an ADR Application – To initiate the ADR process, you will need to explain your dispute and demonstrate why ADR would be a suitable way to resolve the issue.
- HMRC’s Evaluation – HMRC will assess whether your case qualifies for ADR, and if mediation is appropriate.
- Mediation – A trained mediator will guide discussions between both parties, aiming to reach a mutually acceptable agreement without the need for tribunal proceedings.
Example: Mr. Patel, a property developer, was facing a £20,000 penalty for underreporting income. After a statutory review upheld the penalty, Mr. Patel decided to apply for ADR. During mediation, he provided a more detailed breakdown of his accounts, and both sides reached a settlement, reducing the penalty to £7,000.
For more insights, you can refer to our detailed guide on “A Guide to Alternative Dispute Resolution in HMRC Disputes.”
3. How to Appeal to the Tax Tribunal for HMRC Disputes
If ADR does not lead to a resolution or isn’t suitable for your case, the next step is to appeal to the First-tier Tax Tribunal. The tribunal is an independent body that reviews disputes between taxpayers and HMRC. Appealing to the tribunal allows you to formally challenge HMRC’s decision.
To appeal to the tribunal, follow these steps:
- Submit Your Appeal – You must submit your appeal within 30 days of receiving HMRC’s final decision notice. This is required by Section 49D of the TMA 1970. Failing to meet this deadline may result in forfeiting your right to appeal.
- Prepare Your Documentation – Collect all relevant records, including tax returns, correspondence with HMRC, and any supporting documents that strengthen your case.
- Tribunal Hearing – Depending on the complexity of your case, the tribunal may hold a hearing.
Example: GreenTech Ltd, a renewable energy company, disputed an HMRC decision denying their R&D tax relief claim. GreenTech provided detailed documentation proving that their activities qualified under the Finance Act 2004. After reviewing the evidence, the tribunal ruled in GreenTech’s favour, allowing them to claim significant tax relief.
4. Judicial Review of HMRC Decisions
In certain cases where you believe HMRC has acted unlawfully or beyond their authority, and there is no right of appeal, you can pursue a judicial review. This is not about disputing the facts of the case but ensuring that HMRC has followed the correct legal process. Judicial review can be a powerful tool if you believe HMRC has overstepped its legal boundaries.
Judicial review is applicable when:
- HMRC has not followed proper legal procedures.
- HMRC’s decision is deemed irrational or unreasonable.
- HMRC has acted outside the scope of its powers.
To initiate a judicial review proceedings:
- Strict Time Limits – You must apply for judicial review promptly, generally within 3 months of the decision in question.
- Focus on Legal Process – The court will not re-examine the facts of your case but will assess whether HMRC acted lawfully and followed the correct legal procedures.
Example: Mr. Davies, a business owner, applied for a judicial review after HMRC denied his VAT refund request without giving him a proper opportunity to present his case. The court found that HMRC had not followed the correct procedure and ordered them to reconsider the decision.
Common Grounds for Challenging HMRC Tax Penalties
Challenging a tax penalty from HMRC often involves proving that the penalty was unfairly applied. Below are some of the most effective grounds for disputing tax penalties.
1. Reasonable Excuse
A reasonable excuse for a late filing or tax payment can exempt you from penalties if the delay was caused by unforeseen circumstances, such as a severe illness or a system failure. HMRC usually requires clear evidence to support your reasonable excuse claim.
2. Incorrect Calculations
If a penalty is based on incorrect calculations, you can challenge it by providing evidence that demonstrates the error in HMRC’s assessment. Accurate financial records and documentation will strengthen your case and can lead to the penalty being reduced or cancelled.
3. Disproportionality
HMRC penalties must be proportionate to the offence. If the penalty imposed seems excessively harsh for a minor mistake, you can argue that it is disproportionate to the error. In such cases, HMRC may agree to reduce the penalty.
Key Tax Dispute Case Law
Case law provides precedents that can be used to support your arguments when disputing tax decisions with HMRC. Below are examples of key cases that set important legal principles in tax disputes, with real-life applications that can help taxpayers understand how courts address such matters.
| Case | Key Takeaways | Details |
| BPP Holdings Ltd v HMRC [2017] UKSC 55 | HMRC’s procedural delays can affect penalty outcomes. | HMRC’s failure to provide key documentation in a timely manner led the court to reduce penalties on BPP Holdings. This case highlights the importance of procedural fairness when HMRC enforces penalties. |
| Tooth v HMRC [2021] UKSC 7 | HMRC cannot issue discovery assessments without proving deliberate errors. | The Supreme Court ruled that HMRC must provide clear evidence of a deliberate mistake by the taxpayer before issuing a discovery assessment. In this case, Mr. Tooth’s honest error did not meet HMRC’s threshold for a discovery assessment. |
| HMRC v Pendragon plc [2015] UKSC 37 | VAT avoidance schemes are subject to anti-avoidance measures. | HMRC challenged Pendragon plc’s VAT avoidance scheme, and the court upheld HMRC’s application of EU anti-avoidance rules. Pendragon’s complex VAT structure was found to be abusive, leading to significant tax liabilities. |
| HMRC v Gardiner [2014] UKUT 30 (TCC) | Reasonable excuse defence can cancel penalties. | Gardiner successfully argued that delays in his tax payments were due to financial difficulties beyond his control. The Upper Tribunal ruled in his favour, removing the penalties originally imposed by HMRC. |
Hardship Applications for Tax Disputes
In cases where paying the disputed tax would cause financial hardship, you can apply for a hardship application under Section 55 of the Taxes Management Act 1970. This allows you to defer payment until your appeal is resolved. Section 55 of the TMA 1970 provides that:
“Where an appeal is brought against any assessment to tax and the appellant claims that the immediate payment of the tax would cause him hardship, the appellant may apply to the Commissioners for postponement of the payment of the tax.”
A hardship application can help delay payment of large tax liabilities while your dispute is pending.
Successful Hardship Application: Restaurant VAT Assessment
We recently represented a restaurant owner facing a £300,000 VAT assessment. Given the financial impact on the business, we worked with the owner and their accountant to submit a hardship application under Section 55 of the TMA 1970. HMRC granted the application, allowing the client to defer payment while we successfully challenged the VAT assessment on their behalf.
Limitation Periods for Tax Disputes
It is crucial to understand the time limits associated with tax disputes, both for challenging HMRC decisions and for how far back HMRC can assess your tax returns.
- 30 Days to Challenge HMRC Decisions: Under Section 49A of the TMA 1970, taxpayers have 30 days from the date of the HMRC decision to file an appeal or request a statutory review. Acting promptly ensures that you retain your right to challenge the decision.
- HMRC’s Time Limits to Assess Your Tax Returns:
a. 4 Years for Standard Assessments
b. 6 Years for Careless Behaviour
c. 20 Years for Fraud or Deliberate Errors
Our Winning Approach to Tax Disputes
Successfully challenging a tax decision requires a well-planned strategy, expert legal advice, and timely action. At Go Legal, we specialise in resolving complex tax disputes, from VAT issues to HMRC investigations and penalty appeals. Our approach is tailored to protect your interests, whether through negotiation, Alternative Dispute Resolution (ADR), or litigation. Below is a breakdown of how we help our clients achieve the best outcomes in tax disputes:
- Free Initial Consultation: We offer a free consultation where one of our qualified tax lawyers will assess your case and provide personalised advice on the best course of action.
- Bespoke Tax Dispute Resolution Strategy: Every tax dispute is different, so we develop a tailored strategy to resolve your case efficiently, whether through negotiation, ADR, or tribunal appeals.
- Expert Legal Analysis: Our team conducts a thorough review of your tax dispute, including legal and financial analysis, to provide you with a clear breakdown of your options.
- Confidential Document Handling: We handle all sensitive financial documents securely through our confidential portal, Go Transfer, ensuring peace of mind throughout the process.
- 24/7 Support and Communication: We offer continuous support with a dedicated WhatsApp group for real-time updates and access to our 24/7 chat feature.
- Flexible Payment Options: We understand the financial pressures of tax disputes, so we offer flexible payment plans, including fixed fees and, in some cases, “no win, no fee” arrangements.
For expert legal help in resolving your tax dispute, contact our dedicated team today at 0207 459 4037 or book a Free Consultation through our online form below.
Common Questions on Challenging Tax Decisions
Q: How long do I have to challenge an HMRC decision?
A: You must request a statutory review or file an appeal within 30 days of receiving HMRC’s decision notice. If you miss this deadline, you may lose your right to challenge the decision.
Q: Can I delay paying the tax while my appeal is being processed?
A: Yes, you can apply for a hardship application under Section 55 of the TMA 1970, which allows you to postpone payment of the tax until your appeal is resolved.
Q: Is ADR available for all types of tax disputes?
A: ADR is suitable for most tax disputes, particularly those involving compliance checks, VAT, or disputes over complex tax calculations. However, it may not be appropriate for cases involving fraud or deliberate tax evasion.
Q: Do I need a lawyer to represent me at a tax tribunal?
A: While you can represent yourself, having a tax lawyer can increase your chances of success, particularly in complex or high-stakes disputes.
Q: What happens if I lose my appeal at the tribunal?
A: If you lose, you may be required to pay the disputed amount, including any interest and penalties. However, you can appeal the tribunal’s decision to the Upper Tribunal, but only on points of law.
Q: How far back can HMRC go when assessing my tax returns?
A: HMRC can investigate up to four years for standard assessments, six years for careless behaviour, and up to 20 years for fraud or deliberate errors.
Resolve Your Tax Dispute with Confidence
Disputing a tax decision does not have to be overwhelming. With the right guidance and a clear understanding of the available options—whether it’s a statutory review, Alternative Dispute Resolution (ADR), or an appeal to the tax tribunal—you can confidently challenge HMRC’s ruling. Each step in the process, when handled correctly, can significantly improve your chances of success.
At Go Legal, our experienced tax dispute lawyers are committed to helping you achieve the best possible outcome. We provide tailored legal strategies that fit your unique situation, whether you need to negotiate with HMRC, resolve your dispute through ADR, or pursue your case at the tribunal. Let us help you protect your interests and move forward with clarity.
Contact us at 0207 459 4037 or use our online booking form for a Free Consultation with one of our tax dispute specialists.
