A brief summary of the dos and don’ts of tax tribunal, based on a talk by Valentina Sloane QC to the London Tax Society on Wednesday 4 September 2019. A version of this article was published in Taxation Magazine on 3 December and can be read here.
1) DO NOT go to tribunal if you can avoid it
Tax tribunal should very much be a last resort. Tribunal hearings are a burden on time and resources and there is high litigation risk. Often clients underestimate the amount of time and effort required to take a case to tribunal and they may be unaware of the associated risks – for example, potential reputational risks of open hearings. Both taxpayers and HMRC should explore alternative means of resolving the dispute.
2) DO exercise your right to a review of the case by an independent officer and DO consider Alternative Dispute Resolution as another option.
This is particularly useful where there is scope for negotiation (e.g. the case is fact-specific rather than a case with an important point of policy at stake). Moreover, the ADR process can be useful even if unsuccessful, by distilling the issues, giving an insight into the other side’s perspective on the case and narrowing the areas of dispute between the parties.
3) DO use the valuable window of opportunity before a decision is taken by an HMRC officer
There is a very useful window before HMRC take the decision on the case. Once that decision is taken, it is often remarkably difficult to convince HMRC to change their position. Therefore, consider what you can do to persuade the HMRC officer of the merits of your case before the decision is taken. For example, if you have strong supporting evidence, it may be worth volunteering documents which would form the basis of your disclosure and witness evidence if the issue went to trial.
4) DO NOT assume that the other side’s case is set in stone
When assessing the merits of your case and deciding whether to litigate, take account of the best points which can be made against you – even if the other side have not made them yet. HMRC’s original decision might be based on a weak analysis or mistaken view of the law. However, their case will usually evolve as it progresses from the original decision to the review decision, the Statement of Case, the skeleton argument and beyond. It has happened that on the day of the hearing, one side has sought permission to pursue a new argument and the judge has given permission for them to proceed, despite this argument having never been brought up before, on the basis that the new argument was put forward on a matter of law, not fact.
5) DO consider your weaknesses
When taking a case to tribunal it is essential to think about the best case against you and the weakest part of your own case. Even if the other side overlooks the weakness in your argument, judges often like scrutinising cases and asking their own questions; it may well be that the judge identifies and tests the weakest arguments in each case, and not the opposition.
6) DO identify the correct forum for the case you want to bring
Do not make the costly mistake of bringing your case in the wrong forum. Some cases can only be heard by the High Court in judicial review and some cases have to go to Tribunal. Not all letters from HMRC constitute appealable decisions.
7) DO comply with Tribunal requirements
Always always always stick to the time limits imposed by tribunal. The tribunal system used to be more informal and extensions to time limits were granted more regularly. Nowadays, the standard position as set out in cases such as Martland v HMRC is that compliance with tribunal procedures is expected and permission should not ordinarily be granted to allow late applications. Be aware that if time limits are missed because of an error on the part of an adviser, that is not a good reason for the taxpayer to be granted an extension; the taxpayer’s likely remedy in such a situation would be a negligence case against the adviser.
Preparation for tribunal
8) DO NOT feel the need to write a novel in the pleadings
When preparing the notice of appeal, it is important to set out the essentials of the case but leave the client with maximum room for manoeuvre. Not all the evidence needs to be explained and the document does not have to be an epic account of all factual and legal matters relevant to the case. A simple way to ensure that all identified arguments are included is to set out the brief grounds of appeal and then state that the taxpayer relies upon all the arguments set out in its correspondence to HMRC.
Both HMRC and the taxpayer can apply to amend the pleadings, particularly if a decision on another (similar) case is issued that affects the legal arguments. New, unpleaded points should not be sprung on the other side at the hearing. Judges have criticised attempts by one side to ambush the other.
Each party has to submit a list of documents that are being relied on. This should include the key documents but need not be exhaustive. Additional documents can be added later if necessary.
9) DO consider whether to ask for more information or seek disclosure
A Request for Further Information can always be made to better understand the points the other side are making. HMRC’s Statement of case should list each point HMRC are making against the appellant . New points should not be added at a later stage especially if it affects the relevance of the existing evidence. Judge Mosedale has in the past criticised HMRC for issuing new points to be addressed the day before the hearing. She called this an “ambush” and suggested that the behaviour was unacceptable. Similarly, consider whether there are relevant documents that you can ask the other side to disclose. Disclosure requests are a useful tactic which are becoming more commonly deployed. Bear in mind that the other side can ask for the same so it is essential you understand from your client in the first instance whether they hold documents relevant to the case – the good, the bad and the ugly.
Should the request be overly onerous, not relevant to the case in question or may prejudice your client’s case at tribunal (because the time taken to put together the required documents may take significant time away from preparation for the hearing), it is possible to argue that the RFI is disproportionate. However, if the request is considered reasonable and relevant, it is more likely to be allowed. In Revenue and Customs Commissioners v Ingenious Games LLP and others (2014) UKUT 62 (TCC), Justice Sales overturned the FTT’s decision to reject HMRC’s application for disclosure on the basis of the need for “fairness and justice”, the cornerstone of which is the opportunity for each side to see the case being laid out against them. Therefore, even where a request for disclosure or information is rejected by the other side, don’t give up! Provided the documents requested are relevant, pursue an application to the Tribunal to compel the other side to give you the documents or information that they would rather not hand over.
10) DO ensure the client understands the costs regime
When cases are allocated to the “complex track”, there is an exposure to costs for both sides. The tribunal administration normally sends out a notification to both sides. Each side then has to confirm whether they wish to opt out of the costs regime. Whilst this means that their costs of representation are not recoverable if they win, it also means they are not on the hook for the other side’s costs if they lose. Once the decision has been made and the relevant form signed and submitted, there is very little/no chance of your client being able to change their mind. It is essential therefore that they are aware of the consequences of the decision and that the decision, once made, is final.
11) DON’T assume that the Tribunal Administration system is 100% efficient
It’s not. The Tribunal administration systems is as fallible as that of any other large company dealing with huge amounts of paperwork. When sending bundles to tribunal, always check they have been received by the judge. Even if they are sent by recorded delivery, the person that signs for the parcel may not be the one to whom the documents are addressed. Just in case, take an extra set of bundles and skeleton argument to the hearing.When you are expecting documents or have submitted a form to tribunal, think about chasing for confirmation.
12) DON’T assume the default directions are appropriate
Once the statement of case has been submitted, the tribunal will send out directions to help manage the timescales to trial. Review these carefully and consider whether they are appropriate to the case in question. The directions can be amended if you consider they do not meet the objectives of the case. If you wish to expedite the case, it is worth considering whether the case by streamlined by agreeing the key facts with the other side and/or having the most important issue heard as a preliminary issue. Although the usual practice is for the trial to be listed only after the witness statements are submitted, that is not set in stone.
13) DO allow plenty of time for witness statements
Clients will usually underestimate the amount of time a witness statement will take to prepare. Do ensure that you provide plenty of time in the directions to prepare them adequately. It is critical to present your facts as best you can at the First tier Tribunal; there is very little opportunity to overturn factual findings or introduce new evidence further up the appellate chain.
Judges can spot when witness statements have been drafted by lawyers and credibility is enhanced where the witness statement is in the witness’ own words. It is essential that every sentence in the witness statements is factually accurate. Any inaccuracy may be picked up in cross-examination and could undermine the credibility of the witness.
14) DO prepare the client
a) Confidentiality – the premise of hearings is access to open justice. Clients should be made aware that it is very unlikely that the hearing will be confidential. That said, if there are valid reasons for parts of the hearing to be private (e.g. on the grounds of trade secrets), it may be requested that discussions pertaining to these areas take place in a closed court. Evidence relating to confidential areas can be referred to without being discussed in detail in open court. It is advised that these areas are agreed with the other side in advance and the confidential documents are provided in a separate bundle.
b) Venue – show the client the venue ahead of time. Their expectations are likely to be those of a TV courtroom, with advocates and judges in wigs and gowns; they may expect to find the experience intimidating. Showing them a real tribunal hearing venue – more fancy boardroom than criminal courtroom – is likely to be more effective at managing their expectations, than verbal explanations.
c) Decision – ensure the client understands that there can be a huge difference between their/your perception of how the hearing went and how the decision will go. Apparently hostile questioning might be a way for a judge to ensure that you have addressed all potential weaknesses in your case so that they can confidently find in your favour. An apparently favourable judge might not have made up his or her mind. Sometimes a great deal of time passes between the hearing taking place and the decision being issued (the tribunal service aims to have a decision released within 3 months of the hearing but it can take far longer) and the perception by the judge of the case might change during that period.
15) DO double check the venue
The correspondence address for the FTT may be different from the venue where the hearing will take place – and they may not be next door to each other.
16) DO manage the timescales
When suggesting the amount of time required for a hearing, be realistic and consider adding an extra half day as a realistic buffer. If you finish early, then great. Adding an extra half a day will not ordinarily affect the listing date. It is far better to finish slightly early than to go part-heard.
17) DO know both sides’ cases inside and out
It goes without saying that at the hearing, you should know the arguments for both sides inside and out. Nonetheless, it is possible that the other side will advance new arguments. The better you know the existing cases, the better prepared you will be to identify “ambushes” and to object/react to them.
18) DO learn from every case
You can learn something useful from every case, whether that is how a judge reacts to a particular point or how the other side present their case and any tactics that they use. This is so even when you lose. Taking away just one thing from each hearing and applying it to future cases will ensure you progress and develop.
There you have a quick guide to the Dos and Don’ts of Tax Tribunal. Always keep in mind that the Tribunal is a last resort and there are no guarantees of the outcome, however good you think your case might be. If in doubt as to the merits of taking a case to tribunal, it is always worth obtaining a second opinion.