# HMRC Tax Dispute Solicitors & Barristers > Specialist London law firm of dual-qualified tax solicitors and barristers defending high-value HMRC tax disputes, investigations, and tribunal appeals. Tax Disputes is an elite, City of London-based boutique law firm comprised of dual-qualified tax solicitors and barristers. Operating from Middle Temple, the firm specialises in navigating complex HMRC tax disputes, corporate tax investigations, VAT appeals, and tax litigation. Known for providing robust, strategically grounded legal defense, they confidently protect high-net-worth individuals and corporate entities before the First-tier Tribunal (Tax Chamber). - Brand: Tax Disputes, TaxDisputes, taxdisputes.co.uk, HMRC Dispute Solicitors --- # Expert Advice Source: https://taxdisputes.co.uk/expert-advice/ ## Your search for expert legal advice ends here. We have a team of established specialist tax solicitors and barristers with a proven track record of delivering solutions to resolve tax disputes with HMRC. Our team has decades of experience and successes against HMRC and unlike accountants (and other non-solicitors) we provide a legally *confidential* and privileged advice service. Our leading barrister who you will meet in your first conference was formerly tax counsel at HMRC and at 2 of the Big 4 accountancy firms where he was Head of Tax. Our senior partner is dual qualified as both a barrister and solicitor and has regularly appeared before the Tax Tribunals and understands how best to negotiate with HMRC. We can assist by providing you with a bespoke strategy and by guiding you through the minefield of ever-increasingly complex tax legislation, littered with compliance and due diligence traps. Our tax team has experience in negotiating with HMRC and managing appeals against their decisions at all levels. Members of the team include qualified Solicitors and Barristers who have vast experience of tax laws and first hand commercial, litigation and advocacy experience.  ## How we can help you: As a leading specialist tax law firm with a track record of success, you can be assured your tax matter is in safe hands. Our success rate is a result of the dedication of our tax team whom will diligently review your matter so it has the best possible chance of success from the outset when it matters the most. We can *confidentially *(unlike non-solicitors) help with: - Challenging HMRC Tax Assessments and Penalties - Calming aggressive debt recovery action by HMRC Solicitors Office and their Debt Management Unit and forcing HMRC to agree Time To Pay arrangements - Appealing HMRC decisions to the First-Tier and Upper-Tier Tax Tribunals - Confidentially preparing and submitting Voluntary Disclosure Opportunities such as offshore bank accounts and other undeclared gains / income - Early voluntary disclosure of fraud to HMRC (to reduce chance of prosecution and obtain discounted penalties) - VAT advice and more general HMRC tax advice - Regulation 80 PAYE challenges and appeals - Code of Practice 9 investigations - Defending criminal investigations such as Conspiracy to Cheat the Revenue - AWRS and WOWGR Applications - Resolving disputes via HMRC Complaints process and ADR service - High Court Judicial Reviews against HMRC Decisions - High Court Injunctive Relief against HMRC - Defending Notices of Requirement to give Security for VAT or PAYE/NIC (Security Notices) - Defending HMRC-led High Court claims brought by a liquidator against previous directors/shadow directors for fraudulent, wrongful trading and breach of duty ## What we can do for you: We have a strict procedure in place to ensure every Tax Dispute undergoes a thorough initial assessment. Typically we do the following: - Assess your tax matter; - Gather all relevant documents needed for your tax matter; - Complete all paperwork; - Review your entire matter before responding either to HMRC or the Tribunal and/or Court; - Manage the entire Litigation process; and - Communicate with HMRC, the Tribunal and/or Court until they have reached a decision Our team of tax expert lawyers have years of experience and can offer solutions to any tax problem or question that you may have. ## Reasons you should choose us: We recommend that you let experts handle your matter. Here’s why: - Reduce failure risk from attempting to manage and understand tax laws yourself; - Expert assistance and advice which can obtain a much better result; and - Dedicated UK tax specialists which results in a fast solution to your problem. **We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk).** --- # Client Feedback Reviews & Testimonials Source: https://taxdisputes.co.uk/success/ We have successfully represented a broad range of corporate and individual clients in Tax matters. Our specialist Tax Solicitors and Barristers have worked at HMRC as Tax Counsel and at Big 4 accountancy firms as Heads of Tax and can deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. We can *confidentially *(unlike non-solicitors) help with: - Challenging HMRC Tax Assessments and Penalties - Calming aggressive debt recovery action by HMRC Solicitors Office and their Debt Management Unit and forcing HMRC to agree Time To Pay arrangements - Appealing HMRC decisions to the First-Tier and Upper-Tier Tax Tribunals - Confidentially preparing and submitting Voluntary Disclosure Opportunities such as offshore bank accounts and other undeclared gains / income - Early voluntary disclosure of fraud to HMRC (to reduce chance of prosecution and obtain discounted penalties) - VAT advice and more general HMRC tax advice - Regulation 80 PAYE challenges and appeals - Code of Practice 9 investigations - Defending criminal investigations such as Conspiracy to Cheat the Revenue - AWRS and WOWGR Applications - Resolving disputes via HMRC Complaints process and ADR service - High Court Judicial Reviews against HMRC Decisions - High Court Injunctive Relief against HMRC - Defending Notices of Requirement to give Security for VAT or PAYE/NIC (Security Notices) - Defending HMRC-led High Court claims brought by a liquidator against previous directors/shadow directors for fraudulent, wrongful trading and breach of duty We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. We have successfully assisted many clients by: - Reviewing your entire tax dispute case; - Providing expert advice throughout the entire investigative or appeal process; - Representing you in correspondence, interviews and meetings with HMRC; - Collating and preparing all documentation required by HMRC, including Outline Disclosure, Full Disclosure and the Disclosure Report; and - Contesting disputed tax assessments and penalties ; - Managing the entire Litigation process; and - Representing you in HMRC’s internal review, Court or First Tier Tax Tribunal if necessary. ## Our Recent Successes ### Case Study: Undisclosed Personal Tax We were instructed by a client who had been submitting inaccurate [personal tax returns](https://www.gov.uk/self-assessment-tax-returns) for a period of almost 10 years. The client failed to ensure the proper recording of significant sums, including a large amount of cash payments in their [Self Assessment tax](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) returns. Undisclosed liabilities may amount to a criminal offence of [tax evasion](https://www.gov.uk/government/policies/tax-evasion-and-avoidance) and cheating the revenue, which can lead to serious consequences, such as large fines and prison. HMRC is targeting tax evasion and the applicable [penalties](https://taxdisputes.co.uk/hmrc-penalties/) may be as much as 100% of the unpaid liabilities or up to 200% for offshore related incomes. In some cases an HMRC investigation could be commenced which could lead to a criminal prosecution. Our experienced tax lawyers can often assist in dissuading HMRC from prosecuting and in reducing the penalty to a low rate, as happened in this case. Once instructed to advise and represent the client, we conducted a thorough review of all tax returns and accounts and took the following successful steps: - Provided our client with the [highest quality technical advice](https://taxdisputes.co.uk/expert-advice/) from our [specialist tax team](https://taxdisputes.co.uk/) from the outset. One of our senior tax lawyers, previously based in [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs), and therefore well experienced as to the internal workings of HMRC created a legal strategy to protect our client. - Instructed a specially selected experienced forensic accountant to prepare a report setting out the quantum of the tax owed arising from the non-declaration of income tax which ought properly to have been paid. (It is important to note that all client communications to accountants are **not** legally privileged and are easy for HMRC to obtain; however, communications to  lawyers are legally privileged and highly confidential - therefore our tax lawyers instructed the forensic accountant to report to us). - Corresponded with HMRC campaigns team, managed the [voluntary disclosure process](https://taxdisputes.co.uk/hmrc-voluntary-disclosure-campaigns-solicitors-london/) and made a formal offer to settle all unpaid taxes. - Successfully presented our client’s case to HMRC and submitted evidence that the lowest possible [penalty rate](https://taxdisputes.co.uk/hmrc-penalties/) for all the years covered by the voluntary disclosure would be appropriate, given our clients unprompted co-operation and carelessness (rather than dishonesty). Given that the penalty rate could have been 100% in this case, HMRC’s acceptance of our submission that the error was careless rather than intentional was a highly successful outcome for the client, resulting in a low penalty rate and the knowledge that all liabilities spanning a decade to HMRC had been settled fully and finally without any chance of criminal proceedings. It is important to note that if a voluntary or prompted disclosure is not made correctly then the risk of prosecution or penalty remains and it is therefore important to take legal advice if you are in this position. Further there may be significant savings in the penalties paid  to HMRC if appropriate legal advice is taken in managing the tax disclosure. The tax penalty saving in this case study was 90%. ### Case Study: HMRC VAT Assessment at the Tax Tribunal Our client, the Appellant, was a special purpose vehicle (“SPV”), which bought and sold a commercial property in Central London. The property was subject to occupational leases for tenants in occupation at the time of the purchase and to tenants entering possession post-purchase. The client later sold the property and was issued with a high output VAT assessment well in excess of £1 million by HMRC. HMRC claimed that VAT should have been due on the sale of the property as the SPV allegedly made a [supply of goods or services](https://www.gov.uk/guidance/vat-guide-notice-700) to the purchaser. Our experienced tax lawyers can often assist in contesting disputed VAT assessment and penalties with HMRC and regularly appear before the First Tier Tax Tribunal and achieve successful results, as was the case with this client. The SPV instructed us as tax specialist lawyers to [negotiate with HMRC](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/) and then prepare and represent them in a complex and high value appeal before the [First-tier Tribunal (Tax Chamber)](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/). We took the following successful steps: - Appealed against the assessment outside of the 30-day limit. Ordinarily, failure to appeal within 30 days is fatal to any appeal. We were successful in presenting a good reason for our client’s default and as such the application to the Tribunal requesting more time to appeal was successful. - Delayed payment of the assessment pending appeal. Normally, once HMRC make an assessment on [VAT liability](https://taxdisputes.co.uk/vat-evasion/), this amount is due and [must be paid](https://www.legislation.gov.uk/ukpga/1994/23/contents) before the decision can be appealed. However, we were successful in presenting a [hardship application](https://www.gov.uk/hmrc-internal-manuals/appeals-reviews-and-tribunals-guidance/artg3330) and made persuasive arguments that our client would suffer hardship if required to pay before the conclusion of the appeal. - Ultimately, our specialist tax solicitors presented arguments employing current legislation and legal precedents that the assessment was misconceived because HMRC misunderstood the substance and reality of the sale of the property. In particular, our team submitted to the Tax Tribunal that no output VAT was due at all because the sale should have been classified as a [transfer of a going concern ("TOGC")](https://www.gov.uk/guidance/transfer-a-business-as-a-going-concern-and-vat-notice-7009). The property was an asset of a property rental business and that business (along with the occupational leases) was transferred as a going concern. Therefore no VAT at all was due on the sale. - Our representation and persuasive submissions caused HMRC to capitulate and withdraw their application to the Tax Tribunal days before the scheduled hearing. HMRC reduced the assessment amount to nil. - Furthermore, we made an application to the Tax Tribunal arguing that HMRC had acted unreasonably in pursuing our client to then drop the application days before the hearing. Our representations ensured a settlement with HMRC for them to pay our client's legal costs in the sum of around £50,000. Before instructing our [specialist tax lawyers](https://taxdisputes.co.uk/expert-advice/), the client was facing a VAT assessment bill of well in excess of £1 million from the tax authorities. Our expert tax lawyers not only ensured that that the VAT assessment amount was nil; on top of this, our tax lawyers' forceful advocacy even ensured costs of £50,000 were recovered from HMRC which ensured a highly successful outcome for the client. If you are facing a large tax bill, our expert team of established tax and duties specialist solicitors provide urgent advice and representation to clients and have a proven track record of success in [negotiating with HMRC](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/), [managing the HMRC internal review process](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/) and [representing you in the First Tier Tax Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/). ## Testimonials We are proud of the quality of service that we offer to each individual client we take on and encourage our clients to express their opinions about our service. We are keen to know what our clients think of the service we provide. > - ***"Truly an amazing service, extremely helpful staff made everything run smoothly. Very happy with the service that I have received and the knowledge and experience they have has made the process easy and straightforward for me, I would definitely recommend them."*** > - ***"Absolutely amazing service - extremely kind and helpful. Would definitely recommend. 5/5"*** > - ***"High calibre and professional solicitors with ability to grasp complex cases and articulate well reasoned legal arguments."*** > - ***"Extremely knowledgeable and professional with a great value-add service!"*** > - ***"We have found the team always endeavour to offer a very caring and professional service."*** > - ***"First class."*** ## Expert City of London Tax Lawyers If you need HMRC Tax Investigation advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. **We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results.** --- # Funding Source: https://taxdisputes.co.uk/funding/ We are a bespoke private client law firm and work on a fee paying basis; we do not provide any legally aided nor ‘no win no fee’ services in tax disputes cases. We charge for the time spent on your case. Our fees are fair and reasonable and we do not charge unexpected fees or hidden charges. We usually charge on an hourly basis depending on the lawyers working on your case. If requested, we may be able to provide a non-refundable fixed fee which means you know exactly how much our services will cost you and any time spent over and above the fixed fee is our burden. Our Tax Dispute experts can advise you on how best to proceed with your matter. You will be allocated a lawyer to handle your case from amongst our team of fully qualified and experienced experts. Please note that we do not undertake any legal aid work and normally only work on HMRC tax disputes that are of a substantial value as legal costs are rarely recoverable in Tax Tribunal cases. **Our Tax lawyers are available to give information and advice to you. To get in touch please [click here](https://taxdisputes.co.uk/legal-case-assessment) or call us on 02071830529.** --- # Contact Us Source: https://taxdisputes.co.uk/contact-us/ *LEXLAW is the only law firm that operates from a set of professional legal chambers situated within the Middle Temple (a Barristers’ Inn of Court) that is within the City of London.* We are based in the legal epicentre of London, just across the road from the Royal Courts of Justice in order to ensure we get the best results for our high net worth individual and corporate clients.  We are minutes away from HMRC's central London headquarters, the High Court at the Rolls Building and the Royal Courts of Justice and other central London courts. If you need professional legal advice please contact us for an initial telephone consultation on ☎ +44(0)2071830529.  You can also reach us via our [contact form](https://taxdisputes.co.uk/legal-case-assessment). Please note that we do not undertake any legal aid work and normally only work on HMRC tax disputes that are of a substantial value as legal costs are rarely recoverable in Tax Tribunal cases. ## Getting Here (Directions) You can visit us in Middle Temple by: - **Tube:** We are close to a number of London tube stations, the nearest ones being Temple, Chancery Lane, Holborn and Blackfriars. - **Walking:** Access to Middle Temple Lane is best via the black gated entrance next door to number 10 Fleet Street. - **Driving:** Passengers can alight at the junction of Fleet Street/Strand at the Middle Temple Lane entrance gates. Parking can be made available by arrangement with [Inner Temple](https://www.innertemple.org.uk/contact/) and may be accessed via the Tudor Gate on Tudor Street. ## Getting Here (Map) [View Larger Map](https://maps.google.com/maps?f=q&source=embed&hl=en&geocode=&q=4+Middle+Temple+Lane+City+of+London+EC4Y+9AA&aq=&sll=51.515627,-0.11209&sspn=0.012685,0.042272&ie=UTF8&hq=&hnear=4+Middle+Temple+Ln,+Temple,+London+EC4Y+9AA,+United+Kingdom&t=m&view=map&ll=51.520493,-0.109348&spn=0.018692,0.048752&z=14&iwloc=A) --- # MTIC Carousel Fraud Source: https://taxdisputes.co.uk/carousel-mtic-fraud-missing-trader-intra-community-fraud-kittel/ One of the most prevalent types of VAT fraud is the missing trader intra community (“MITC”) or carousel fraud, whereby fraudulent businesses interpose themselves in a supply chain trading in high value low bulk goods within the EU in order to obtain, and disappear with, large amounts of VAT on the transactions. The main trade products targetted are usually grey market mobile phones and computer chips, which are either old model stock, or excessive production sold into the grey market by the manufacturers. The types of goods involved has changed of late and HMRC are now targetting trade in other industry sectors including non-electronic (eg food and toiletry) wholesalers. ## The Fraud Explained: The goods are purchased from a supplier in the EU by a company registered for VAT in the UK, Company A, soon to become the missing trader in the fraud. The goods are correctly zero rated for VAT as an intra community transaction between two VAT registered businesses, and are then sold on inclusive of VAT by Company A to another UK trader, Company B. The latter may be an innocent party, or more likely will be part of the fraud fulfilling the role of a 'buffer' to conceal the identity of Company A from the VAT authorities. Company B sells the goods inclusive of VAT to another UK trader, Company C who again may be an innocent party or a second line buffer. Company C sells on to Company D who exports the goods from the UK to the original EU supplier, who in turn will sell back to Company A, and so the 'carousel' continues until it is identified by Customs. The transactions may be conducted on a 'back to back' basis between the various dealers, with the goods remaining in a third party warehouse after first entry into the UK. The goods will often be sold on four or five times within a matter of hours before finally being exported to the original EU supplier. The transactions are high value with correspondingly large sums of VAT being charged in the supply chain, and hence the attraction to fraudsters. Company A is the essential ingredient in MTIC frauds, the missing trader, and is set up solely to acquire goods VAT free and sell inclusive of UK VAT, without completing a VAT return and accounting for the VAT received. This VAT represents the financial benefit in such frauds. Company A requires a VAT registration number at the outset, which it may obtain by applying to register a business for VAT, disguising the activities of the business to avoid scrutiny by Customs, or simply by 'hi-jacking' another company's VAT registration number and creating false invoices bearing this number. On the sale of the goods by Company A to Company B, the fraud usually requires payment to be made by Company B, and in some cases by Company C, to both Company A and the EU supplier. Often the VAT element of the transaction is paid to Company A and the balance to the EU supplier, either to an overseas bank account in its own country or to a bank account in the UK. In due course, Company A, the missing trader, will disappear having achieved its aim of obtaining substantial amounts of VAT on the sale of the goods in the UK, and those behind Company A may re-surface in another form to initiate another carousel, possibly buying from the same EU supplier or a new supplier. Payments to the EU supplier by Company B are referred to as 'third party payments', although it has been known for fourth and fifth party payments to have taken place in some frauds where Companies C and D make the payments. In some cases, the VAT inclusive price is paid to the EU supplier, thereby immediately removing the VAT evaded from the jurisdiction of the UK authorities. ## HMRC's Prosecution and Civil strategies: On the basis of the current case law, indictments in carousel frauds are usually  drafted to include the common law offence of cheating the revenue offence, or conspiracy to cheat under S 1(1) of the Criminal Law Act 1977, where the 'VAT' evaded in the fraud is often referred to as 'monies purporting to be VAT'. Indictments may also include offences relating to converting or removing the proceeds of criminal conduct from the jurisdiction of the UK authorities, contrary to Proceeds of Crime Act 2002 ss 327-329. In the alternative HMRC have adopted a strategy of withholding monies to the UK Exporter (whom reclaims) thereby forcing that entity to lodge a civil appeal before the VAT and Duties Tribunal (now the First-Tier Tax Tribunal). These appeals are part of the Civil regime however HMRC use leading criminal prosecution barristers to argue their case before the Tribunal. ## How we can help: We have the experience and knowledge to assist and defend allegations against our clients in either the civil regime before the courts and the tax tribunals or before the criminal courts. We can also advise our clients on how best to avoid being affixed with constructive notice (the legal concept that a trader should have known) of fraud in the supply chain by having stringent due diligence procedures in place. **Has HMRC made you a part of an extended verification exercise or visited and served you with Notice 726? We have a wealth of experience and are able to provide clear advice to assist you in managing HMRC's investigation and in improving your Due Diligence process. Our Tax Disputes Solicitors and Barristers are here to help you. To contact one of our specialist VAT Lawyers please [click here](https://taxdisputes.co.uk/legal-case-assessment/) or call 02071830529.** --- # VAT Repayment Fraud Source: https://taxdisputes.co.uk/repayment-fraud/ *Value Added Tax (VAT) is a charge made  on a supply of goods or services made in the UK which are classed as taxable supply. VAT must be collected  by a taxable person in the course of business. A taxable person is a person required to be registered for VAT purposes. Input tax is a tax paid by a particular person on the supply of the  goods and services to that person. Output tax is a tax charged by a business when it is supplying goods and services.* ## What is VAT Repayment Fraud? False claims to VAT refunds are a form of VAT fraud, where a business submits VAT returns claiming a net repayment of VAT on the basis of, for example, zero rated exports supported by false export documents or certificates of shipment. The goods themselves remain in the UK and are sold at a VAT inclusive price, usually for cash and unrecorded in both the vendor and purchaser's business records. They may also be sold under cover of false sales invoices to dupe prospective buyers as to the authenticity of the transaction, but also to add further VAT to the profit. Repayment frauds can be single cell frauds i.e. where one individual or business is involved, or multi cells, where a systematic attack on the VAT system is undertaken by one or more individuals using several businesses, with VAT returns being submitted from businesses with addresses in different parts of the UK to prevent the VAT authorities from connecting those behind the frauds. HMRC has improved the exchange of information procedures within its organisation to identify this type of fraud as soon as possible, but failures to identify missing traders in the early stages of carousel frauds highlighted the vulnerability of the VAT system to organised criminals. ## Penalties for VAT Repayment Fraud Indictments usually include offences under VAT Act 1994 s 72, and/or the common law offence of cheating the public revenue. Please click here for more information on [HMRC Penalties](https://taxdisputes.co.uk/hmrc-penalties/). ## Expert London VAT Investigation Lawyers If you need HMRC VAT Investigation advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. **HAS HMRC MADE YOUR PART OF A VAT INQUIRY? ****We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk).** --- # Phoenix Company Fraud Source: https://taxdisputes.co.uk/phoenix-fraud/ Phoenix company fraud happens after company goes bankrupt and a second company (known as a phoenix company) is started up overnight with the same directors. Although this is perfectly legal, fraud is committed for example when the directors abuse the phoenix company arrangement and effect a pre-insolvency transfer of assets below market value or fail to account for VAT. HMRC operate a contrived insolvency team which seeks to identify and prosecute the individuals behind such frauds. The clothing industry (also known colloquially as the rag trade) is of particular interest to HMRC. In particular the cut, make and trim industry, where sub-contract outworking companies are set up to make up all or part of the garments, often with shadow directors controlling such companies. Rightly or wrongly, HMRC takes the view that many businesses in the rag trade are inherently insolvent from cradle to grave. HMRC allege that these companies are using the VAT received from customers to fund the business overheads, especially wages. HMRC believe that the companies will be unable to pay their VAT liability and will liquidate, with another company already in place ready to take over the work. Retention of Title arrangements have figured in a number of VAT frauds in the rag trade, whereby the goods pass from manufacturer to wholesale and finally to the retail outlet, all under Retention of Title agreements which allow the goods to be recovered by the supplier when any of the tax authorities attempts to recover lost revenue. Indictments usually include offences under VAT Act 1994 s 72, and/or a common law offence of cheating the public revenue. We have the experience and knowledge to assist and defend our clients before the civil and criminal courts. **HAS HMRC MADE YOU A PART OF A VAT INQUIRY? We are able to provide clear advice to assist you. Our Tax Disputes professionals are available to give information and advice for businesses. To contact one of our specialist VAT Lawyers please [click here](https://taxdisputes.co.uk/legal-case-assessment/) or call 02071830529.** --- # VAT Evasion Source: https://taxdisputes.co.uk/vat-evasion/ *Value Added Tax (VAT) is a charge made  on a supply of goods or services made in the UK which are classed as taxable supply. VAT must be collected  by a taxable person in the course of business. A taxable person is a person required to be registered for VAT purposes. Input tax is a tax paid by a particular person on the supply of the  goods and services to that person. Output tax is a tax charged by a business when it is supplying goods and services.* ## What is VAT fraud? VAT fraud is the simplest and most prevalent form of VAT fraud uncovered by HMRC. Here, VAT registered traders are accused by HMRC of failing to declare their actual or true liability on VAT returns by suppressing sales or inflating purchases, and sometimes both. Cash-based businesses such as restaurants, pubs, taxi firms, and launderettes are the main suspects targetted by HMRC. ## HMRC Penalties for VAT evasion HMRC usually deal with these cases under the civil evasion penalty regime. In relation to VAT and VAT credits, the prescribed penalty is 100% of the amount evaded and with respect to refunds and repayments it is the aggregate of the amount of input tax which was overstated and output tax  which was understated. Penalty mitigation may apply (in terms of a reduction up to 40%) if one is able to self-report and provide an early and honest explanation. Sometimes though, if the case meets one of the criteria for criminal prosecution, then HMRC will seek to commence proceedings in the criminal courts. Intentional evasion of VAT is an offence under section 72(1) of the Value Added Tax Act. The maximum penalty at the Crown Court is 7 years imprisonment and unlimited fine. ## VAT liability on transfers of assets If you plan on selling your business or any part of your business, Capital Gains Tax (“CGT”) will likely be at the forefront of your mind, but VAT should be right alongside it. Assets sold by a VAT registered business (your VAT taxable turnover is more than the £85,000 threshold in a 12-month period or you expect to go over the threshold in a single 30 day period) are normally subject to VAT. However, certain legislative provisions provide that where a VAT registered/registrable business (or part of business) is transferred as a going concern (TOGC) (a business is operating and making a profit), the business assets if sold as part of the business fall outside of the scope of VAT – in other words, no VAT is required to be paid. It is important to note that the transfer of a business which does not qualify to be treated as a TOGC may very well still render the purchaser liable for VAT registration. Further information on this can be found [here](https://www.gov.uk/government/publications/vat-notice-7001-should-i-be-registered-for-vat/vat-notice-7001-should-i-be-registered-for-vat). ### ### When does Transfer of a Going Concern (TOGC) apply? The law in this area can be complicated and it is advisable that [specialist tax advice](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) is sought, however generally speaking, the main conditions are: - The assets are sold as part of a business which is a going concern; - The assets are used by the buyer with the intention of carrying on the same *type* of business as the seller; - If the seller is VAT registered, the buyer too must be (or become) VAT registered; - In respect of land/buildings, the buyer must notify HMRC that they have opted to tax the land and notify the seller that their election to tax has not been disapplied (both notifications by the relevant date) (Unless the buyer is selling land/buildings in respect of which there has been no election to tax, in which case notification is not necessary); - If only part of the business is sold, that part must be capable of operating separately; - There must not be a series of immediate transfers of the business; and - While the business or part of the business may include assets, such as land or machinery, the buyer must be buying all or part of the business, not just the assets. ### ### LEXLAW Case study: TOGC Our client, the Appellant, was a special purpose vehicle (“SPV”) which bought and sold a commercial property. The property was let out to tenants already in occupation at the time of the purchase and also to tenants entering possession after the purchase. The SPV later sold the property and was issued with a VAT assessment of over £1 million.  HMRC argued that the sale was not a transfer of a going concern (they alleged that the use of the property following the sale differed from the use before). The SPV instructed us as tax specialist lawyers to negotiate with HMRC and then prepare and represent them in an appeal before the Tax Tribunal. We took the following successful steps: - Appealed against the assessment outside of the 30 day limit - Delayed payment of the assessment pending appeal; and ultimately - Had the assessment withdrawn reducing the assessment amount to nil. ## Expert London VAT Evasion Lawyers Our lawyers have the necessary expertise to effectively liaise with HMRC in respect of any inquiry, and if necessary assist our clients in either the civil regime before the civil courts/tax tribunals or to defend our clients before the criminal courts.Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. **HAS HMRC MADE YOU PART OF A VAT INQUIRY? We are able to provide clear advice to assist you. Our Tax Disputes professionals are available to give information and advice for businesses that wish to register for VAT and/or make an organised disclosure to HMRC. To contact one of our specialist VAT Lawyers please email contact@lexlaw.co.uk or call 02071830529.** --- # Duty Fraud Source: https://taxdisputes.co.uk/hmrc-duty-evasion-fraud/ There are three main types of duty fraud : - dutiable goods manufactured in the UK; - dutiable goods acquired from the EU; and - dutiable goods imported from elsewhere. These regimes are subject to different regulations as to whether or not duty is chargeable and, if so, how much. The most widespread duty fraud is commonly known as diversion fraud, involving excise duty on alcohol and tobacco products and there are two types--outward excise diversion frauds and inward diversion frauds. Figures published by HMCE in their Annual Report for 2002-3 reveal the scale of the revenue losses arising from excise duty frauds. Alcohol frauds resulted in £650 million duty evaded in 2001-02, with a similar figure lost from oils fraud, whilst tobacco frauds produced a massive £3 billion in evaded duty. Customs has introduced several strategies to tackle and disrupt these frauds, but these products will continue to attract fraudsters whilst UK excise duty rates remain so high in comparison to those in other EU states. ## Expert London Duty Evasion Lawyers If you need HMRC Duty Evasion advice advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. **HAVE YOU BEEN CHARGED WITH DUTY EVASION FRAUD? ****We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk).** --- # Diversion Fraud Source: https://taxdisputes.co.uk/outward-excise-diversion-fraud/ ## Outward Excise Diversion Fraud Outward diversion frauds involve the illegal diversion onto the UK market of beers, wines and spirits moving under duty suspension ostensibly for export from a UK excise warehouse to a similarly approved warehouse in the EU. The goods move under cover of an Accompanying Administrative Document, or AAD and a guarantee for the duty involved provided by the warehouse, haulier or any other party. The frauds usually involve large numbers of individuals including the owners of the goods, the hauliers, wholesalers and those selling the product onto the UK market. The essential part of the fraud involves the false certification of the AADs and sometime CMRs ('Convention Marchandises Routiers'), an internationally recognised consignment note used by hauliers to show the goods have arrived at the foreign warehouse, when in fact the goods never left the UK, and normally enter the secondary wholesale market in bulk. In the mid 1990s, the first of a whole series of outward diversion frauds was uncovered involving a warehouse in East London, London City Bond, which HMCE had used as undisclosed informants. Two directors of the company, Alf and Ed Allington, had regularly provided information to their handler in HMCE concerning account holders using the bond, together with details of duty suspended loads of alcohol leaving London City Bond, ostensibly destined for foreign warehouses but in reality never leaving the UK. More than 25 separate fraud trials were brought before the courts in which Alf Allington or other witnesses from London City Bond gave evidence for the Prosecution, explaining the procedures for the receipt, storage and subsequent export of duty suspended goods from London City Bond. The AADs were formally produced for the movements in question involving the particular defendants, showing a stamped receipt of the goods at the receiving warehouse in Europe. Over £680 million in excise duty was evaded from these frauds which HMCE had allowed to continue in order to apprehend those involved. HMCE was severely censured for their handling of these frauds, and these failings became the subject of the report by Mr Justice Butterfield, published in 2003. ## Inward Excise Diversion Fraud A variation on outward diversion fraud is the situation where duty suspended goods are imported into the UK from a warehouse in the EU, ostensibly and according to the documentation, to a UK excise warehouse, but in reality to be illegally diverted on to the UK market, without payment of duty. Again, beers, wines and spirits are the preferred commodity. Inward diversion frauds often use goods originally exported from the UK to an EU warehouse; the AAD will show the destination to be a UK excise warehouse, although the goods will only be delivered there if the load and documentation is inspected on entry into the UK by Customs. Otherwise, once through the port, the goods will be diverted into the UK market, and a false UK warehouse stamp provided on the AAD to be sent back to the EU warehouse as evidence of arrival of the goods at the UK warehouse. Excise diversion frauds are usually prosecuted under Customs & Excise Management Act 1979 s 170 as the fraudulent evasion of duty, or cheating the revenue under common law. ## Expert London VAT Investigation Lawyers If you need HMRC VAT Investigation advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. **HAS HMRC MADE YOUR PART OF AN EXCISE DIVERSION INQUIRY? ****We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk).** --- # Smuggling Source: https://taxdisputes.co.uk/smuggling/ ## What is Smuggling? Smuggling is importing or exporting goods illegally, usually to avoid paying duty on them. The types of smuggling that are common relate to products such as drugs, illegal alcohol or tobacco sales. ## What kinds of goods are smuggled into the UK? Current commercial smuggling trends in the UK involve mainly alcohol, cigarettes and hand-rolling tobacco, usually involving criminal organisations. The contents of freight are mis-described, understated, or concealed by purporting to be some other type of legitimate or otherwise duty paid commodity. Detections by HMRC are usually by way of intelligence which can sometimes be covert. ## How do HMRC deal with smuggling? HMRC are currently taking an aggressive approach in relation to smuggling cases and have recently been targeting those they suspect are avoiding pay duty on goods. Recent cases have shown that the courts are also taking smuggling cases seriously and have the power to hand out prison sentences in excess of 6 years imprisonment. It is therefore vital that anyone is who suspected of avoiding to pay the correct duty on goods has legal representation from the outset. ## Expert London Smuggling Investigation Lawyers We have experience of all manner of smuggling cases. Members of our team have enjoyed major successes before the Court of Appeal and at the Central Criminal Court against HMRC in duties based alcohol smuggling fraud investigations and in avoiding the potentially catastrophic effect of confiscation of assets under the Proceeds of Crime Act. If you have been approached by HMRC in connection with importing or exporting goods then you should contact us immediately so that we can liaise with HMRC on your behalf and advise you in relation to any potential inquiry and/or action brought against you. **HAS HMRC MADE YOU A PART OF A SMUGGLING ENQUIRY? We are able to provide clear advice to assist you. Our Tax Disputes professionals are available to give information and advice. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk).** --- # Oils Fraud / Road Fuel Fraud Source: https://taxdisputes.co.uk/oils-fraud-road-fuel-fraud/ *Revenue fraud in road fuels in Great Britain is principally in the diesel sector. This involves rebated (reduced duty) off-road fuels like red diesel, kerosene and a range of oils known as 'tied' oils all of which carry little or no tax being intended for industrial uses. These fuels are sometimes illegally used as fuel for road vehicles.* ## What are the main types of oils fraud? The key fraud types are: - **Laundering**- treating red diesel and kerosene with chemicals to remove their markers and dyes and make identification of use as a road fuel harder - **Mixing- **combining kerosene or 'tied' oils with lubrication oils to make an illegal road fuel or to dilute road diesel - **Misuse**- illegally using red diesel in road vehicles when it is only intended to be used in off road vehicles. - **Smuggling**- importing quantities of oil without payment of UK excise duty. Smuggling of oil (both red diesel and laundered fuel) from the Republic of Ireland (RoI), where duty rates on road fuel are lower, across the border to Northern Ireland is a significant problem. There is also some smuggling from the RoI to the UK mainland by ferry. - **Decanting**- involves bringing fuel into the UK in the running tank of a commercial vehicle (which is legal) but then decanting it for use by other vehicles (which is not legal). - **Biofuel/vegetable oils**- used to mask laundered fuel and produced and sold commercially without payment of excise duty. Oils fraud, involving the misuse of duty privileged fuels supplied for non-road use, began in Northern Ireland. It quickly spread to mainland UK where criminal organisations were laundering rebated fuels with other fuels to sell to hauliers, evading both excise duty and VAT. Many of the fraudulent suppliers became in HMRC terminology 'missing traders' - disappearing without paying VAT. ## How is Oils Duty Fraud Prosecuted? As with other duty frauds, oils frauds are usually prosecuted as either the fraudulent evasion of duty under Customs & Excise Management Act 1979 section 170, or cheating the revenue under common law. ## Expert London Duty Fraud Investigation Lawyers If you need HMRC Duty Fraud Investigation advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. **Are you the subject of an inquiry by HMRC's Oils Central Co-ordination Team (OCCT) or Road Fuel Testing Units (RFTUs)****? Our Tax Disputes professionals are here to help and are able to provide clear advice and information to assist you**. **Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk).** --- # HMRC Penalties Source: https://taxdisputes.co.uk/hmrc-penalties/ It is in your interest to avoid penalties and understanding which HMRC penalties you may be at risk of is usually of great help. The HMRC penalties aren’t codified in a single document as each tax or duty has specific rules on penalties for late payment or filing. A penalty may also be accrued if you do not tell HMRC about a liability to tax at the right time. You may be charged a penalty if your return or other tax document was inaccurate and tax has been                                 - unpaid - understated - over-claimed - under-assessed Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability faced by you. The HMRC may (or may have!) penalize(d) you under the following categories: - Failure to file/pay on time - Failure to Notify - Inaccuracies - VAT & Excise wrongdoing ## Penalties for Failure to Pay/ File on time: You must file your tax return or any other document, on time. A person will be liable to a penalty when they do not file their returns or other documents on time.  The penalties for failing to file on time currently only apply to filing obligations under: - Income Tax and Capital Gains Tax (CGT), - Bank Payroll Tax (BPT), - the Registered Pensions Scheme (RPS), - PAYE reported under Real Time Information - from 6 October 2014 for employers with 50 or more employees and 6 March 2015 for employers who have fewer than 50 employees, - the Construction Industry Scheme (CIS), and - Machine Games Duty (MGD), - Annual Tax on Enveloped Dwellings (ATED) - Stamp Duty Reserve Tax (SDRT), and - Soft Drinks Industry Levy (SDIL). The law requires you to pay your tax, or tax which you are required to send to HMRC, on or before the due date. When a person fails to pay the full amount of tax by the due date, they may become liable to a penalty or penalties. The penalties for failing to pay on time applies to all of the above specified tax regimes as well. If you find yourself faced with HMRC Tax Penalties, look no further as we provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. ## Caution for Travellers and Traders! If you’re a traveler or a trader, you may find yourself faced with these penalties resulting from an HM Revenue & Customs investigation: - a potential smuggling offence by a traveler or a trader; or - fraudulent declarations and dishonest claims for repayment of duty or relief from duty under their civil evasion penalty procedure. These provisions apply to individual travellers, commercial importers and exporters or their agent or representative. The investigation is conducted with a view to the imposition of a civil evasion penalty for dishonest conduct, if HMRC suspicions are confirmed. It is not being conducted with a view to your prosecution for evasion of customs taxes or duties. The civil evasion penalty regime is an alternative procedure to criminal proceedings. However, the HMRC reserves complete discretion to conduct a criminal investigation in any case and to carry out these investigations across a range of offences and in all the areas for which the Commissioners of HMRC have responsibility. ## What is a penalty for ‘Failure to Notify’? If you don’t tell HMRC when changes happen that affect their liability to tax, VAT, or other duties, you may face a penalty. This is known as a ‘failure to notify’ penalty. This penalty may occur, for example if your client doesn’t tell HMRC, at the right time, that: - they are liable to tax because their new business has made a profit; - their company is liable for Corporation Tax; - their business turnover has reached the VAT registration threshold; - they sell an asset and make a capital gain on which tax should be paid; - they start a type of business that must register with HMRC- for example a business that will charge Excise Duty; or - their circumstances change in a way that affects their tax position. - This penalty is calculated in a similar way to the inaccuracy penalty- see the section above for more information. HMRC can also reduce it if your client tells them about the failure. ** ** ## Penalties for Inaccuracy These penalties can be charged if there are errors on returns or other documents which understate or misrepresent the tax due, or if the assessment by the HMRC is lower than the actual chargeable tax and you fail to notify the HMRC, this is called an ‘inaccuracy penalty’. From 1 April 2010, this inaccuracy penalty applies to the following taxes and duties: - Betting and Gaming duties; - Capital Gains Tax; - the Construction Industry Scheme; - Corporation Tax; - Environmental taxes; - Excise Duties; - Income Tax; - Inheritance Tax; - Insurance Premium Tax; - National Insurance contributions; - PAYE; - Petroleum Revenue Tax; - Stamp Duties; and You need to ensure that the documents sent to HMRC by you or on your behalf have been reviewed and vetted as you may be charged a penalty by the HMRC if your sent documents contain errors due to lack of ‘reasonable care’, are deliberate (eg. Intentionally submitting information known/believed to be wrong), and for concealment of any deliberate errors. The calculation of the level of the penalty is linked to the reason behind the error. The more serious the reason, the higher the maximum penalty can be. HMRC can reduce the penalty if you or your client help them to put things right. ## What Is Reasonable Care? An inaccuracy that is careless incurs a penalty. The law [HRMC Compliance Handbook](https://www.gov.uk/hmrc-internal-manuals/compliance-handbook) defines ‘careless’ as a failure to take reasonable care.  Every person must take reasonable care, but ‘reasonable care’ cannot be identified without consideration of the particular person’s abilities and circumstances. HMRC recognises the wide range of abilities and circumstances of those persons completing returns or claims as your individual circumstances may be starkly different than that of others. However, it must be noted that you have a responsibility to take reasonable care; to do what is necessary to discharge this responsibility has to be viewed in the light of that person’s abilities and circumstances, individually. ## How the inaccuracy penalty is calculated If a penalty arises because of a lack of reasonable care, the level of the penalty will depend on the amount of the extra tax due and the reasons for the error. - If the error is careless, the penalty will be between 0 and 30% of the extra tax due. - If the error is deliberate, the penalty will be between 20 and 70% of the extra tax due. - If the error is deliberate and concealed, the penalty will be between 30 and 70% of the extra tax due.   ## What is a VAT and Excise wrongdoing penalty From 1 April 2010 HMRC will charge a penalty known as a wrongdoing penalty if you: - make an unauthorised issue of an invoice showing or including VAT - misuse a product so that a higher rate of excise duty is payable, or - handle goods subject to unpaid excise duty. *This penalty applies to anyone registered for VAT or Excise, anyone who should be registered to pay VAT or Excise Duty and to other members of the general public.* The amount of the penalty is a percentage of the VAT shown on, or included in, the invoice or the extra excise duty due, or Landfill tax due. The percentage is determined by the behaviour that led to the wrongdoing - higher penalties are payable if the act was deliberate or deliberate and concealed. This penalty is calculated in a similar way to the inaccuracy penalty. HMRC can also reduce it if you tell them about the wrongdoing. ## How Can I Reduce my HMRC Penalties? Yes, you may very well be able to reduce your due penalties provided you have the right legal counsel to walk you through the process. At Lexlaw, after attaining years of experience in dealing with tax disputes with the HMRC, our specialist tax solicitors ensure the best results for our clients and the penalty can help reduce your penalties to the HMRC by assisting you in disclosure to the HMRC. The penalties may be reduced by: - Informing HMRC about the errors; - Assisting the HMRC calculate what extra tax is due; and/or - Providing access to the HMRC to check the figures. ## What is a Special Reduction? The Finance Act of 2007 and subsequent Finance Acts provide the HMRC with a discretion to reduce penalties if the HMRC takes the view that under the individual’s circumstances it is right because of special circumstances. This is called special reduction. Making a special reduction of a penalty includes: - staying a penalty, and - agreeing a compromise in relation to proceedings for a penalty. Staying a penalty means stopping or postponing enforcement of a penalty. Agreeing a compromise allows the HMRC to forego all or part of a penalty. If special reduction is not considered at any stage there is a risk that the tribunal finds HMRC’s decision to be flawed and substitutes their own decision in its place. ## Can I Appeal my HMRC Penalties? If you have incurred a penalty, the HMRC issues a penalty assessment. You can appeal and are entitled to a review. Where the HMRC is unable to resolve an appeal on internal review, or if the taxpayer chooses to bypass the review process, the tribunal will hear the appeal. The HMRC can also agree to a special reduction of the penalty where there are special circumstances. If you need HMRC Penalty Dispute advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability Have you been unfairly charged a penalty by HMRC? Our Tax Disputes professionals are here to help and are able to provide clear advice and information to assist you. We regularly negotiate and defend the application of penalties on behalf of our clients. Just call us on 0207 1830 529, or email contact@lexlaw.co.uk.   --- # News Source: https://taxdisputes.co.uk/news/ --- # HMRC International Tax Debt Recovery (MARD & OECD MAC) Source: https://taxdisputes.co.uk/mutual-assistance-recovery-debt-mard-oecd-hmrc-international-debt-collection-tax/ ## Can HMRC seek/recover international tax debts? Whilst it used to be a rule of English common law that the courts would not enforce the tax laws of other countries (*Government of India, Ministry of Finance *v* Taylor* AC 1955) it has become a rather qualified rule by virtue of: - The European Union's ([EU](https://european-union.europa.eu/index_en)) [*Mutual Assistance in the Recovery of Debt Regulations SI 2011 No.2931*](https://www.legislation.gov.uk/uksi/2011/2931/contents/made) (MARD); - The EU *[Mutual Assistance in the Recovery of Debt (Amended) (EU Exit) Regulations 2020 ](https://www.legislation.gov.uk/uksi/2020/996/made)*(MARD) as implemented by [*section 87* and *Schedule 25* of the *Finance Act 2011*](https://www.legislation.gov.uk/ukpga/2011/11/section/87); and - The Council of Europe (CoE) and Organization for Economic Cooperation and Development's ([OECD](https://www.oecd.org/en.html)) [*Multilateral Convention on Mutual Administrative Assistance in Tax Matters*](https://www.oecd-ilibrary.org/docserver/9789264115606-en.pdf?expires=1721815356&id=id&accname=guest&checksum=D2D000F5C725B7B3E7AB14ED8149071A) (MAC or MAAC); and - The International *[Mutual Administrative Assistance in Tax Matters Orders 2007 and 2011 (SI 2007/2126 and SI 2011/1079](https://www.legislation.gov.uk/uksi/2011/1079/made)* respectively) made under the powers in FA06/s173. It's important to note that these are reciprocal agreements. This means that a country can both request and provide assistance. Generally, these debt collection arrangements covers taxes, duties, and other public charges. However, there are specific limitations or exclusions depending on the scope of the international tax debt agreements between countries. Under the EU MARD regulation & OECD MAC convention, [HMRC](https://www.gov.uk/hmrc-internal-manuals/debt-management-and-banking/dmbm560015) can both seek taxes owed via overseas EU/OECD tax authorities and can also recover taxes in the UK where a request for enforcement has been made by an EU/OECD tax authority. **Contents of this page on HMRC International Debt Collection...** - Can HMRC seek/recover international tax debts?- What is MARD?- What is OECD/CoE MAC or MAAC?- Assistance Requests under MARD / MAAC- What is HMRC's International Debt Unit?- What actions can HMRC take?- How do you challenge HMRC's Debt Letter or Email?- BREXIT: Future of MARD since UK left the EU- HMRC MARD International Debt Lawyers in London ## What is MARD? [Mutual Assistance in the Recovery of Debt (MARD)](https://www.gov.uk/hmrc-internal-manuals/debt-management-and-banking/dmbm560015) is an EU-wide tax co-operation arrangement which allows a tax authority in another country to ask HMRC for assistance in obtaining information, serving legal documents or recovering a tax debt when the defaulting taxpayer is living in, or has assets in, the UK. If a taxpayer owes uncontested tax debts in one MARD country but resides or has assets in another, the tax authority of the first country can request assistance from the second country to recover the debt. The 31 countries which are a part of this reciprocal arrangement are: Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Republic of Ireland, Romania, Slovakia, Slovenia, Spain, Sweden, Switzerland and the United Kingdom. ## What is OECD/CoE MAC or MAAC? The [Multilateral Convention on Mutual Administrative Assistance in Tax Matters](https://www.oecd.org/en/topics/convention-on-mutual-administrative-assistance-in-tax-matters.html) (MAC or [MAAC](https://oe.cd/maac)) is a worldwide international tax co-operation agreement set up in 1988 by the [OECD](https://en.wikipedia.org/wiki/OECD) and the [Council of Europe](https://www.coe.int/en/web/portal). It involves over 150 countries working together to tackle tax evasion and avoidance. The 197 countries which are a part of this reciprocal arrangement (including ones who have ongoing ratifications and implementation) and these are: Albania, Andorra, Anguilla, Antigua and Barbuda, Argentina, Armenia, Aruba, Australia, Austria, Azerbaijan, Bahamas, Bahrain, Bangladesh, Barbados, Belarus, Belgium, Belize, Benin, Bermuda, Bhutan, Bolivia, Bosnia and Herzegovina, Botswana, Brazil, Brunei Darussalam, Bulgaria, Burkina Faso, Burundi, Cabo Verde, Cambodia, Cameroon, Canada, Cayman Islands, Central African Republic, Chad, Chile, China, Colombia, Comoros, Congo (Congo-Brazzaville), Costa Rica, Croatia, Cuba, Cyprus, Czechia (Czech Republic), Democratic Republic of the Congo, Denmark, Djibouti, Dominica, Dominican Republic, Ecuador, Egypt, El Salvador, Equatorial Guinea, Eritrea, Estonia, Eswatini (fmr. "Swaziland"), Ethiopia, Fiji, Finland, France, Gabon, Gambia, Georgia, Germany, Ghana, Greece, Grenada, Guatemala, Guinea, Guinea-Bissau, Guyana, Haiti, Holy See, Honduras, Hungary, Iceland, India, Indonesia, Iran, Iraq, Ireland, Israel, Italy, Ivory Coast, Jamaica, Japan, Jordan, Kazakhstan, Kenya, Kiribati, Kuwait, Kyrgyzstan, Laos, Latvia, Lebanon, Lesotho, Liberia, Libya, Liechtenstein, Lithuania, Luxembourg, Madagascar, Malawi, Malaysia, Maldives, Mali, Malta, Marshall Islands, Mauritania, Mauritius, Mexico, Micronesia, Moldova, Monaco, Mongolia, Montenegro, Morocco, Mozambique, Myanmar (formerly Burma), Namibia, Nauru, Nepal, Netherlands, New Zealand, Nicaragua, Niger, Nigeria, North Korea, North Macedonia (formerly Macedonia), Norway, Oman, Pakistan, Palau, Palestine State, Panama, Papua New Guinea, Paraguay, Peru, Philippines, Poland, Portugal, Qatar, Romania, Russia, Rwanda, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Samoa, San Marino, Sao Tome and Principe, Saudi Arabia, Senegal, Serbia, Seychelles, Sierra Leone, Singapore, Slovakia, Slovenia, Solomon Islands, Somalia, South Africa, South Korea, South Sudan, Spain, Sri Lanka, Sudan, Suriname, Sweden, Switzerland, Syria, Tajikistan, Tanzania, Thailand, Timor-Leste, Togo, Tonga, Trinidad and Tobago, Tunisia, Turkey, Turkmenistan, Tuvalu, Uganda, Ukraine, United Arab Emirates, United Kingdom, United States of America, Uruguay, Uzbekistan, Vanuatu, Venezuela, Vietnam, Yemen, Zambia, Zimbabwe. ## Assistance Requests under MARD / MAAC The types of assistance available under MARD / MAAC include: - **Information Gathering & Exchange: **This involves obtaining details about the taxpayer, such as their address, employment, assets, or financial status. It may also include assessing the cost-effectiveness of further actions. - **Document Service: **One country can request another to serve legal documents on the taxpayer. - **Debt Recovery: **The assisting country can employ its standard collection procedures to recover the debt on behalf of the requesting country. - **Protective Measures: **This includes steps like seizing assets or freezing bank accounts to safeguard the claim. - **Spontaneous / Automatic Exchange** of Tax information (under MAAC). - **Tax Examinations abroad** (under MAAC). - **Other forms of assistance:** Includes joint audits, tax examinations, and simultaneous tax examinations (under MAAC). ## What is HMRC's International Debt Unit? HMRC's International Debt Unit is responsible for recovering unpaid UK taxes from individuals or businesses based outside the UK. This includes cases where taxpayers have emigrated, have overseas assets generating taxable income, or are foreign entities with UK tax liabilities. The unit tackles the complexities of cross-border debt collection, working with both UK and international authorities to recover outstanding taxes. HMRC's International Debt Unit's strategies include: - **Support and Enforcement:** [Negotiating Time to Pay repayment plans](https://taxdisputes.co.uk/2023/10/obtaining-hmrc-time-to-pay-agreements-ttp/) for those facing financial difficulties while pursuing those who deliberately avoid paying. - **International Cooperation:** Working with other tax authorities to recover debts through international tax treaties. - **Prevention:** Identifying high-risk taxpayers and implementing measures to prevent debt arising. Collecting international tax debt is a significant and costly challenge for HMRC as we have discovered in many of our client cases. However, as globalization continues to shape the economy, from HMRC research consultation paper '[Preventing and collecting international tax debt](https://assets.publishing.service.gov.uk/media/6059f7848fa8f545d701e6ba/Preventing_and_collecting_international_tax_debt_-_discussion_document.pdf)' it seems the unit intends to adapt its strategies towards: Stronger international cooperation, advanced data analytics, and a deeper understanding of taxpayer behaviour. ## What actions can HMRC take? All foreign tax debts referred to HMRC under these arrangements are recovered through the same debt enforcement methods as UK income tax debts. HMRC can therefore take the same legal proceedings in relation to enforcement as they would have done if the tax debt arose in the UK and was payable to HMRC. However there are strict rules and guidance which HMRC must follow in order to collect the debt for the foreign tax authority. Taxpayers are advised to view their historical correspondence with HMRC to see if HMRC have notified them of their intention. Taxpayers should also be mindful as to the date when the tax debt became due. If the debt became due five years before the request to the foreign tax authority, then they are under no obligation to collect the debt on behalf of HMRC. HMRC will not be able to seek recovery of the debt if it is still being challenged by the taxpayer. If a taxpayer receives a notification from HMRC's International Debt Unit Recovery team and the taxes are still under appeal or review discussion then both HMRC and the foreign tax authority need to be notified right away so that the collection of the debt can be put on hold. [Time to pay arrangements can also be sought and our team are experts at managing this with HMRC](https://taxdisputes.co.uk/2023/10/obtaining-hmrc-time-to-pay-agreements-ttp/). Obtaining expert legal advice is a must. ## How do you challenge HMRC's Debt Letter or Email? The taxpayer may challenge the HMRC International Debt Unit's email or letter if they do not agree with it even if HMRC have followed the correct procedure and the debt is not being disputed. Our [Tax Solicitors and Barristers](https://taxdisputes.co.uk/) are regularly instructed to act for clients who are facing MARD distress and enforcement proceedings and demands from HMRC. We adopt a bespoke approach on these matters depending on our client's individual needs. Depending on the specifics of the case, we may be able to negotiate with HMRC and/or legally challenge the debt and/or the enforcement action taken under the Directive. If you are facing action from the [HMRC MARD / MAAC team](https://www.gov.uk/government/organisations/hm-revenue-customs/contact/international-tax-debt) do not hesitate to contact our [UK Tax Lawyers](https://lexlaw.co.uk/hmrc-debt-enforcement-defence-statutory-demand-winding-up-peititon-solicitor-london/) for legal advice. ## BREXIT: Future of MARD since UK left the EU The withdrawal agreement for BREXIT has imposed a time restriction on HMRC's usage of MARD directives. These directives will only remain in effect for a limited duration, specifically until five years have elapsed after the conclusion of the EU-UK transition period. Since the transition period ended on December 31, 2020, as things stand, HMRC can only apply the MARD directive until December 31, 2025. However, methods such as the OECD [Multilateral Convention on Mutual Administrative Assistance in Tax Matters](https://www.oecd.org/tax/exchange-of-tax-information/convention-on-mutual-administrative-assistance-in-tax-matters.htm) can be used as an alternative to MARD for the collection of foreign tax debts. This convention has been developed by the [Organisation for Economic Co-operation and Development (OECD)](https://www.oecd.org/tax/exchange-of-tax-information/convention-on-mutual-administrative-assistance-in-tax-matters.htm). The existence of a certain cross over between the countries that use MARD and the members of OECD will enable HMRC to continue collecting tax debts even after the end of the transition period. Moreover, certain [tax treaties](https://www.oecd.org/tax/treaties/) between some countries will also provide room for co-operation regarding the collection of tax debts. ## HMRC MARD International Debt Lawyers in London If you have been contacted by HMRC about taxes and and need International Debt Collection advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our [UK tax team](https://taxdisputes.co.uk/) specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist [Tax Solicitors and Barristers](https://taxdisputes.co.uk/) deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. Our [UK Tax Disputes Solicitors & Barristers](https://taxdisputes.co.uk/) are available to give information and advice to assist you in challenging the actions of HMRC on their own behalf or on behalf of another tax authority. Call us on London 02071830529 or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk). --- # Expert Tax Solicitors Source: https://taxdisputes.co.uk/tax-solicitors/ ## Your search for expert legal advice ends here. Our tax solicitors can assist by providing you with a bespoke tax solution. We can guide you through the minefield of ever-increasingly complex tax legislation, littered with compliance and due diligence traps. Our tax team has experience in negotiating with HMRC and managing appeals against their decisions at all levels. Members of the team include qualified Solicitors and Barristers whom have vast experience of tax laws and first hand commercial, litigation and advocacy experience. We have a team of established specialist tax solicitors with a proven track record of delivering creative solutions. ## How our Tax Solicitors can help you: As a leading specialist tax law firm with a track record of success, you can be assured your tax matter is in safe hands. Our success rate is a result of the dedication of our tax team whom will diligently review your matter so it has the best possible chance of success from the outset when it matters the most. ## What our Tax Solicitors can do for you: We have a strict procedure in place to ensure every Tax Dispute undergoes a thorough initial assessment. Typically we do the following: - Assess your tax matter - Gather all relevant documents needed for your tax matter - Complete all paperwork - Review your entire matter before responding either to HMRC or the Tribunal and/or Court - Manage the entire Litigation process - Communicate with HMRC, the Tribunal and/or Court until they have reached a decision Our team of tax expert lawyers have years of experience and can offer solutions to any tax problem or question that you may have. ## Reasons you should choose us: We recommend that you let experts handle your matter. Here’s why: - Reduce failure risk from attempting to manage and understand tax laws yourself - Expert assistance and advice which can obtain a much better result - Dedicated UK tax specialists which results in a fast solution to your problem **We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk).** --- # Expert Tax Barristers Source: https://taxdisputes.co.uk/tax-barristers/ ## Your search for expert legal advice ends here. Our tax barristers can assist by providing you with a bespoke tax solution. We can guide you through the minefield of ever-increasingly complex tax legislation, littered with compliance and due diligence traps. Our tax team has experience in negotiating with HMRC and managing appeals against their decisions at all levels. Members of the team include qualified Solicitors and Barristers whom have vast experience of tax laws and first hand commercial, litigation and advocacy experience. We have a team of established specialist tax barristers with a proven track record of delivering creative solutions. ## How our Tax Barristers can help you: As a leading specialist tax law firm with a track record of success, you can be assured your tax matter is in safe hands. Our success rate is a result of the dedication of our tax team whom will diligently review your matter so it has the best possible chance of success from the outset when it matters the most. ## What our Tax Barristers can do for you: We have a strict procedure in place to ensure every Tax Dispute undergoes a thorough initial assessment. Typically we do the following: - Assess your tax matter - Gather all relevant documents needed for your tax matter - Complete all paperwork - Review your entire matter before responding either to HMRC or the Tribunal and/or Court - Manage the entire Litigation process - Communicate with HMRC, the Tribunal and/or Court until they have reached a decision Our team of tax expert lawyers have years of experience and can offer solutions to any tax problem or question that you may have. ## Reasons you should choose us: We recommend that you let experts handle your matter. Here’s why: - Reduce failure risk from attempting to manage and understand tax laws yourself - Expert assistance and advice which can obtain a much better result - Dedicated UK tax specialists which results in a fast solution to your problem **We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk).** --- # HMRC Interviews Source: https://taxdisputes.co.uk/hmrc-interviews/ As part of a tax enquiry HMRC may well ask that you attend a tax enquiry HMRC interview. **Many clients consider they are legally bound to attend such interviews however that may well not be the case.** Attending an interview with HMRC is not necessarily compulsory nor is it necessarily wise to do so, particularly unrepresented. There are two tax enquiries where you may have to attend: -  [Code of Practice 9](https://taxdisputes.co.uk/tax-evasion-hmrc-code-practice-9-investigations/) (suspicion of serious Tax Fraud); - [Section 144 Enquiry](https://taxdisputes.co.uk/hmrc-interviews/); or - Interviews under [PACE (Police and Criminal Evidence Act 1984)](https://www.legislation.gov.uk/ukpga/1984/60/contents). If you have been asked to attend an HMRC interview you should not go alone and should ensure you have legal representation in place. We have a team of Tax Consultants whom can attend nationwide. ## Expert London Tax Investigation Lawyers If you need HMRC Tax Investigation advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. **We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk).** --- # Offshore Tax Evasion Source: https://taxdisputes.co.uk/offshore-tax-evasion-tax-avoidance-solicitors-london/ *Offshore tax evasion and disclosure have been priorities for HMRC in recent years. [HM Revenue & Customs](https://www.gov.uk/government/organisations/hm-revenue-customs) (HMRC) have offered a number of one-off, time-limited campaigns, such as the [Worldwide Disclosure Facility](https://taxdisputes.co.uk/hmrc-voluntary-disclosure-campaigns-solicitors-london/) to encourage taxpayers to disclose offshore tax evasion in return for lower penalties. A new HMRC proposal called the [Requirement to Correct](https://www.gov.uk/guidance/requirement-to-correct-tax-due-on-offshore-assets), will take effect from 1 October 2018 and will increase the time limit of investigations and dramatically increase penalties. * *The purpose of the RTC legislation is to require taxpayers with undeclared tax liabilities to voluntary disclose them before 30 September 2018 as after this date, they become liable to the new [Failure to Correct penalties](https://www.gov.uk/government/publications/tackling-offshore-tax-evasion-requirement-to-correct/tackling-offshore-tax-evasion-requirement-to-correct) (FTC). Moreover, on this date, HMRC’s ability to find undeclared assets significantly increases as the [Common Reporting Standard](https://www.gov.uk/guidance/automatic-exchange-of-information-introduction) (CRS) will be effective. This is an international initiative involving over 100 countries committing to exchange information on a multilateral basis to significantly increase international tax transparency and toughen the approach to offshore non-compliance.* **If HMRC have accused you of offshore tax avoidance or tax evasion, or you are worried that HMRC may do so in the future, contact our expert Offshore Tax Evasion Lawyers. We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results.** ** It is essential to contact our expert tax team as soon as possible, as you only have until 30 September 2018 before the new tougher FTC penalties come into law. Just call us on 0207 1830 529, or email contact@lexlaw.co.uk.  ** ## What is “offshore income”? HMRC considers offshore income as any asset which comes from a territory outside the UK. This includes: - interest from overseas bank or building society accounts; - dividends and interest from overseas companies; - rent from overseas properties; and/or - wages, benefits or royalties earned outside the UK. ## What is the Requirement to Correct? The Requirement to Correct is part of HMRC’s crackdown on taxpayers failing to disclose offshore income. The Requirement to Correct will increase the penalties for those who have not declared offshore tax liabilities or have declared the wrong amount of tax. A penalty could be double the tax that is owed. The RTC rule is included at Section 67 and [Schedule 18](http://www.legislation.gov.uk/ukpga/2017/32/schedule/18/enacted) of the [Finance (No. 2) Act 2017](http://www.legislation.gov.uk/ukpga/2017/32/contents/enacted): > *“Schedule 18 makes provision for and in connection with requiring persons to correct any offshore tax non-compliance subsisting on 6 April 2017.”* > [Section 67 Finance (No. 2) Act 2017](http://www.legislation.gov.uk/ukpga/2017/32/section/67/enacted) The two provisions create an obligation on any taxpayer with undeclared UK tax liabilities involving offshore matters to disclose this information to HMRC **before 30 September 2018.**  A failure to disclose before 30 September 2018 will result in a person becoming liable to a failure to correct penalty (FTC). ## The scope of the RTC rule - The Requirement to correct applies to liabilities to: - [**Income tax**](https://www.gov.uk/topic/personal-tax/income-tax); - [**Capital Gains tax**](https://www.gov.uk/topic/personal-tax/capital-gains-tax); and - [**Inheritance tax**](https://www.gov.uk/topic/personal-tax/inheritance-tax). - Only non-compliance committed before 6 April 2017 falls within the RTC. - HMRC must have been able to make an assessment to recover the income tax or capital gains tax in question on 6 April 2017 or make a determination to recover the Inheritance Tax in question on the day after Royal Assent is received for the new provisions. These rules are subject to a[ small number of exceptions](https://www.gov.uk/guidance/requirement-to-correct-tax-due-on-offshore-assets). ## What is offshore non-compliance? This occurs where HMRC are owed tax because of tax non-compliance and this non-compliance involves an offshore matter. Offshore issues include unpaid or omitted tax on: - income arising from a source in a territory outside the UK; - assets situated or held in a territory outside the UK; - activities carried on wholly or mainly in a territory outside the UK; and - anything having effect as if it were income, assets or activities of a kind described above According to HMRC, the tax non-compliance involves an offshore transfer if it is not an offshore matter, but the income (or sale proceeds in the case of a capital gain), or any part of the income, was either received abroad or was transferred abroad before 6 April 2017. Moreover, HMRC advice that for inheritance tax, the tax non-compliance involves an offshore transfer if it is not an offshore matter, but the disposition that gives rise to the transfer of value involves a transfer of assets, and after that disposition, but on or before 5 April 2017, the assets, or any part of the assets, are transferred to a territory outside the UK. In all cases, references to the income, proceeds or assets transferred includes any assets derived from or representing the income, proceeds or assets. If non-compliance meets the above definitions, then the RTC rule applies and a failure to correct by 30 September 2018 will result in tougher FTC penalties on 1 October 2018. ## Examples of off-shore non-compliance ### Off-shore non-compliance for Income tax According to HMRC, an example could include a taxpayer receiving cash payments in the UK. They have failed to declare these cash payments and instead opened and paid these into an overseas account. They have received interest on this overseas account but not declared this to HMRC and has submitted inaccurate tax returns. Both the failure to declare cash receipts (as an offshore transfer) and the overseas bank interest (as an offshore matter) should be corrected under the RTC rule. ### Off-shore non-compliance for Income tax and capital gains tax Pursuant to HMRC’s requirements, an example could include  taxpayer owning and renting a holiday home abroad with the rental income not being declared to HMRC. The property could be sold and the profit from the sale was not declared to HMRC either. Both the failure to declare rental income (as an offshore income tax matter) and the gain from the sale (as an offshore capital gains tax matter) should be corrected under the RTC rule. ### Off-shore non-compliance for Inheritance tax There are situations where a taxpayer is domiciled in the UK at the time of their death and their heir inherits the estate which includes monies in an overseas bank account. An heir may take control of the overseas account but fail to disclose this to HMRC. The failure of an executor to disclose the overseas assets of an estate (as an oversea matter) should be corrected under the RTC, according to HMRC. ## What are the FTC penalties? If a taxpayer fails to correct on or before 30 September 2018, you will be liable to the new and tougher FTC penalties.[ Penalties](https://taxdisputes.co.uk/hmrc-penalties/) start at 200% of the tax liability. In serious cases over £25,000, an additional penalty of up to 10% of the asset may apply as well as being [“named and shamed” on the Government’s website.](https://www.gov.uk/government/publications/publishing-details-of-deliberate-tax-defaulters-pddd/current-list-of-deliberate-tax-defaulters) ### Standard penalty According to HMRC, whenever a penalty applies, there will be a standard penalty equivalent to 200% of the tax liability which should have been disclosed to HMRC under the RTC but was not. This penalty can be reduced to reflect any combination of the following factors: - your level of co-operation with HMRC; - the quality of your disclosure to HMRC (including telling HMRC of anyone who helped enable your non-compliance); - the seriousness of your failure to correct. The reduction will take account of whether you came forward voluntarily to tell HMRC of your failure but the reduction cannot reduce the penalty to less than 100% of the tax involved. It is essential to seek advice from our expert Tax lawyers to deal with HMRC. We deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability.  Our lawyers specialises in submitting disclosure reports and negotiating potential penalties with HMRC ### Asset based penalty In more serious cases, involving non-disclosure of tax exceeding £25,000 annually and a taxpayer knew they had relevant offshore non-compliance and didn’t correct it, [a penalty of up to 10% of the value of assets](https://www.gov.uk/hmrc-internal-manuals/compliance-handbook/ch122000) connected to the failure will be charged. This is in addition to the standard penalty. ### Offshore Asset Moves penalty A new penalty has been introduced for cases where assets have been moved to avoid details being reported to HMRC under international agreements on the exchange of information under Schedule 21 to Finance Act 2015. The penalty is equivalent to 50% of the amount of the standard penalty and is charged in addition to the standard penalty. In more serious cases involving sums over £25,000 and you knew about the offshore non-compliance, then HMRC are entitled to publish your details. ## "Reasonable excuses" for not meeting the RTC rule If you fail to correct under the RTC rule, FTC penalties will ordinarily apply. However, if you have a [reasonable excuse](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/) for not correcting the non-compliance, then FTC penalties will not apply (but tax will still be owed plus interest). It is essential to consult our expert Offshore Tax Lawyers for advice because HMRC will follow existing models and established principles from case law to establish whether a reasonable excuse exists. We have experience in preparing correspondence with HMRC that can demonstrate a reasonable excuse if the facts apply. The RTC legislation states circumstances where a reasonable excuse cannot apply: - an insufficiency of funds is not a reasonable excuse, unless attributable to events outside your control; - where you relied on any other person to do anything, that cannot be a reasonable excuse unless you took reasonable care to avoid the failure; - where you had a reasonable excuse but the excuse has ceased, you are only to be treated as continuing to have the excuse if the failure is remedied without unreasonable delay after the excuse ceased; and - relying on advice in certain circumstances. ## What extra information will HMRC have to find undeclared offshore tax after 30 September 2018? Under the Common Reporting Standard, the UK has made Automatic Exchange of Information Agreements with over 100 countries. These agreements allow the exchange of information between HMRC and the tax authorities of different countries about financial accounts and investments. A list of the countries that have agreed to exchange information can be found [here.](http://www.oecd.org/tax/transparency/AEOI-commitments.pdf) The extra information HMRC will have is extensive and is drawn from the following sources: - [Crown Dependencies and Overseas Territories](https://www.gov.uk/government/publications/automatic-exchange-of-information-agreements-other-uk-agreements/automatic-exchange-of-information-agreements-other-uk-agreements) agreement ensures reporting on tax residents in one territory and holding an account in another will be done between the UK and its overseas territory. - [Common Reporting Standard](https://www.gov.uk/government/publications/foreign-account-tax-compliance-act-registration-guidance-fatca/automatic-exchange-of-information-reporting-guidance) information sharing which has been in use since 2017, but can be utilised by HMRC in October 2018. - Data leaks eg [Panama Papers](https://www.icij.org/investigations/panama-papers/) in 2016 and [Paradise Papers](https://www.theguardian.com/news/series/paradise-papers) in 2017 - Long term non-doms in the UK will have their offshore assets visible to HMRC for the first time from 2017/18. ## How can you avoid higher penalties for undeclared tax liabilities? HMRC advise that you can avoid being charged the higher penalties by making a disclosure of all undeclared tax liabilities and correcting the non-compliance. We will provide expert advice tailored to your situation on whether you need to make a disclosure, and if so, the scope required for each type of disclosure. A disclosure can be made in the following ways: - using HMRC’s [digital disclosure service](https://www.gov.uk/government/publications/hm-revenue-and-customs-disclosure-service)as part of the [Worldwide Disclosure Facility](https://www.gov.uk/guidance/worldwide-disclosure-facility-make-a-disclosure) or any other service provided by HMRC as a means of correcting tax non-compliance; - telling an officer of HMRC in the course of an enquiry into your affairs or - any other method agreed with HMRC. Before you make any kind of disclosure to HMRC, it would be wise to consult our expert Offshore Tax solicitors and barristers. More information on HMRC voluntary disclosures can be found [here.](https://taxdisputes.co.uk/hmrc-voluntary-disclosure-campaigns-solicitors-london/) ## Expert City of London Offshore Tax Disclosure Lawyers If you need advice on undeclared income, voluntary disclosure, the Worldwide Disclosure Facility or HMRC campaigns advice, we are available to aid you at every stage of the HMRC disclosure and negotiation process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC. Our team specialises in submitting disclosure reports and negotiating potential penalties with HMRC. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. **Our Tax Disputes professionals are available to give information and advice in negotiating penalties with HMRC. To contact one of our specialist Tax Lawyers please [click here](https://taxdisputes.co.uk/2011/08/2011/08/2011/07/legal-case-assessment/) or call 02071830529.** --- # The Court of Appeal decision in Mobilx and Kittel Source: https://taxdisputes.co.uk/the-court-of-appeal-decision-in-mobilx-and-others/ The appeal to the Court of Appeal drew together two questions which had been raised following the decision of the ECJ in Kittel, namely: (a)     what did the Court mean when it said that input tax could be denied where the taxable person “should have known” that, by his purchase, he was participating in a transaction connected with the fraudulent evasion of VAT? and (b)     is it sufficient that the taxpayer knew or should have known that it was more likely than not that his purchase was connected to fraud or must it be established that he knew or should have known that the transactions in which he was involved were connected to fraud? In relation to (a), the Court considered that Kittel was a development of the “means of knowledge” principle in Optigen*:* > *“If a taxpayer has the means at his disposal of knowing that by his purchase he is participating in a transaction connected with fraudulent evasion of VAT he loses his right to deduct, not as a penalty for negligence, but because the objective criteria for the scope of that right are not met. It profits nothing to contend that, in domestic law, complicity in fraud denotes a more culpable state of mind than carelessness, in the light of the principle in Kittel. A trader who fails to deploy means of knowledge available to him does not satisfy the objective criteria which must be met before his right to deduct arises…A trader who decides to participate in a transaction connected to fraudulent evasion, despite knowledge of that connection, is making an informed choice; he knows where he stands and knows before he enters into the transaction that if found out, he will not be entitled to deduct input tax. The extension of that principle to a taxable person who has the means of knowledge but chooses not to deploy it, similarly, does not infringe that principle [of legal certainty]. If he has the means of knowledge available and chooses not to deploy it he knows that, if found out, he will not be entitled to deduct. If he chooses to ignore obvious inferences from the facts and circumstances in which he has been trading, he will not be entitled to deduct.”* In relation to (b), the Court held that it was insufficient for HMRC to demonstrate that there was a risk of a fraudulent connection: > *“If HMRC was right and it was sufficient to show that the trader should have known that he was running a risk that his purchase was connected with fraud, the principle of legal certainty would, in my view, be infringed. A trader who knows or could have known no more than that there was a risk of fraud will find it difficult to gauge the extent of the risk; nor will he be able to foresee whether the circumstances are such that it will be asserted against him that the risk of fraud was so great that he should not have entered into the transaction. In short, he will not be in a position to know before he enters into the transaction that, if he does so, he will not be entitled to deduct input VAT. The principle of legal certainty will be infringed…It must be remembered that the approach of the court in Kittel was to enlarge the category of participants. A trader who should have known that he was running the risk that by his purchase he might be taking part in a transaction connected with fraudulent evasion of VAT, cannot be regarded as a participant in that fraud. The highest it could be put is that he was running the risk that he might be a participant. That is not the approach of the Court in Kittel, nor is it the language it used. In those circumstances, I am of the view that it must be established that the trader knew or should have known that by his purchase he was taking part in such a transaction”.* However, it would appear that a point arises where the risk of involvement in a fraudulent transaction becomes so high as to be a virtual certainty: > *“The true principle to be derived from Kittel does not extend to circumstances in which a taxable person should have known that by his purchase it was more likely than not that his transaction was connected with fraudulent evasion. But a trader may be regarded as a participant where he should have known that the only reasonable explanation for the circumstances in which his purchase took place was that it was a transaction connected with such fraudulent evasion.”* --- # Late Appeals to the Tax Tribunal Source: https://taxdisputes.co.uk/late-hmrc-tax-appeals/ *[HM Revenue and Customs (HMRC) ](https://www.gov.uk/government/organisations/hm-revenue-customs)have actively sought to clamp down on tax evasion or avoidance and increasingly more individuals and businesses are subject to HMRC tax penalties. It is vital that any taxpayer (individuals and businesses) deal with tax issues as soon as they occur to prevent their appeal from being time-barred and to minimise the accrual of penalty fees. * [Our London Tax Solicitors and Barristers](https://taxdisputes.co.uk/expert-advice/) have vast experience of tax laws and first hand commercial, litigation and advocacy experience . We have a proven track record of successfully contesting disputed tax assessments and penalties with HMRC. The tax authorities have lost many cases that are appealed through negotiation, internal review or through the Tax Tribunal. Our team of expert Tax Solicitors and Barristers provide our clients with advice in relation to: - appealing against a tax assessment;- appealing against a tax penalty;- submitting a tax appeal even after the 30-day time limit;- negotiating with HMRC;- navigating the HMRC internal review process; and- advising on statutory tax appeals within the Tax Tribunal. ## Applications for Permission to Appeal out of time The First Tier Tribunal have the judicial discretion to permit tax appeals made out of time to proceed. The time limit to bring a VAT appeal to the FTT in 30 days and a late appeal will only be permitted in exceptional circumstances. ## When does the 30-day period to submit a tax appeal start to run? The time limit for bringing a VAT appeal to the FTT commences from the date of the document notifying the appellant of the decision, or where someone else is the appellant, the date on which that person becomes aware of the tax decision (VATA 1994, s. 83G(1)(a)).   ## In what circumstances will the First-tier Tax Tribunal (FTT) allow a late appeal? A late appeal can be made if the FTT grant permission (VATA 1994, s. 83G(6)). However, case law suggests that permission will only be granted in exceptional circumstances and permission will not be granted unless the FTT is satisfied on balance that it should be allowed using a discretionary balancing exercise (Wan (t/a Wan’s Chinese Takeaway) [1997] BVC 2,364). Factors the FTT take into account in allowing a late appeal: ### 1.      The length of the delay in making an appeal If the delay is very short, then the FTT may consider the breach to be neither “serious nor significant”; however, this is not a carte blanche to allow all short delays to be granted, the following two stages will be considered by the FTT. If the delay is too long, then the FTT may dismiss any application for an extension of time for appeal. For example the FTT dismissed an appeal made 3 years after the expiry of the 30-day limit (Meah (t/a Raj Dharbar Takeaway) [2014] TC 03829).    ### 2.      What was the reason for the delay? The FTT will assess whether there is a reasonable excuse for the delay, for example, where the appellant was not aware that there were grounds for an appeal or before legal advice has been sought.   ### 3. Was the delay caused by the actions of HMRC? Many appellants assume that by entering into correspondence with HMRC over the disputed tax liability stops the clock running and submits reasons why the debt is disputed. This does not constitute an appeal and does not stop the clock running. If HMRC fail to respond to the taxpayer or fail to notify the taxpayer that correspondence does not constitute an appeal, may be grounds the FTT takes into account in granting permission for an out of time appeal. ### 4.      Once the taxpayer is aware of an appeal, did the appeal progress expeditiously? It is important to progress an out of time appeal as soon as you become aware of it. Every day that is delayed will need to be explained to the FTT. Therefore it is imperative to seek legal advice as soon as possible. ### 5.      Will there be prejudice to the taxpayer or to HMRC is allowed or refused? The FTT will take into account all circumstances of the case and will assess whether a late appeal will prejudice HMRC in any way. ### 6.      Are there public interests considerations if an out of time appeal is allowed or refused? The FTT might consider a delay of years might be consideration to denying an appeal as it is not in the public interest to allow litigation over a long period of time. The FTT might not allow permission if it affects other proceedings.  Another consideration is whether the length of time has affected the credibility of the evidence available. ### Case Law Examples on Late Appeals - HMRC decision letter was “on a balance of probabilities” not received by the taxpayers’ accountants and an out of time appeal was allowed (North Berwick Golf Club [2015] TC 04289).- Where it was found that a financial adviser had misled a taxpayer client.- A late appeal was not permitted when the appeal was sought around 8 years later (Balston [2015] TC 046662).- A taxpayer was unsuccessful in the attempt to appeal late when his bankruptcy was annulled (Farrington [2015] TC 04661). ## Expert London HMRC Tax Appeal Lawyers If you need HMRC Tax Disputes advice, we are available to aid you at every stage of the HMRC appeals process. Members of our legal team have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the HMRC internal review process and in front of the Tax Tribunal. Our team specialises in successfully challenging HMRC decisions, submitting out of time appeals, and will assist you in every aspect including developing a strategy. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk). --- # Signup Complete Source: https://taxdisputes.co.uk/signupcomplete/ **Thank You.** We have added you to our mailing list. **Do you have a Tax problem you need help with? We are able to provide clear information and advice to assist you. Our Tax Disputes professionals are here to help. To contact one of our specialists please [click here](https://taxdisputes.co.uk/legal-case-assessment/) or call 02071830529.** --- # HMRC Tax Appeals Source: https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/ *HM Revenue and Customs (HMRC) have actively sought to clamp down on tax evasion or avoidance and increasingly more individuals and businesses are subject to HMRC tax penalties. It is vital that any taxpayer (individuals and businesses) deal with tax issues as soon as they occur to prevent their appeal from being time-barred and to minimise the accrual of penalty fees. * Our London Tax Solicitors and Barristers have vast experience of tax laws and first hand commercial, litigation and advocacy experience . We have a proven track record of successfully contesting disputed tax assessments and penalties with HMRC. The tax authorities have lost many cases that are appealed through negotiation, internal review or through the Tax Tribunal. Our team of expert Tax Solicitors and Barristers provide our clients with advice in relation to: - appealing against a tax assessment; - appealing against a tax penalty; - negotiating with HMRC; - navigating the HMRC internal review process; and - advising on statutory tax appeals within the Tax Tribunal. The following is a brief guide on how individuals or a business can protect themselves from being adversely affected by HMRC tax penalties and assessments. ## The HMRC Appeal Process If a taxpayer disagrees with HMRC, there is a 2-stage process for a taxpayer to dispute a HMRC decision: **Stage 1**: give notice of appeal to HMRC. A taxpayer can appeal in writing within 30 days of HMRC’s notice of their decision. HMRC will confirm their first decision, amend their decision or agree with the taxpayer’s assessment. **Stage 2**: if the taxpayer’s position cannot be agreed with HMRC in stage 1 then a taxpayer can avail themselves of two further options: **i.** HMRC can offer an internal review of the disputed decision (or the taxpayer can request this procedure at any time). The review is an entirely internal procedure completed not by the original HMRC decision maker but by a different HMRC officer. **ii.** A taxpayer can appeal to the First Tier Tax Tribunal if the taxpayer cannot agree their position following the review. The independent tribunal will make a determination on the case. A further appeal is permitted if a taxpayer does not agree with the decision. ## Stage 1: Notice of Appeal to HMRC If you disagree with HMRC's assessment or penalty, then you should first send notice to [appeal the decision to HMRC](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/). If HMRC makes a tax decision against you, you can [contact HM Revenue and Customs (HMRC)](https://www.gov.uk/government/organisations/hm-revenue-customs/contact) or professional advice should be sought.* * The first recourse of a taxpayer wishing to dispute a decision of HMRC is to examine the decision letter sent by HMRC which will contain instructions on how to appeal the decision made. Notice to appeal the tax decision must be made in writing by the taxpayer (or their legal representative) to HMRC by completing the appeal form attached to HMRC’s penalty letter or by following the instructions on the letter. It is essential to appeal promptly within 30 days and seek early specialist advice because a late response can be fatal to any appeal. Members of our legal team have first-hand experience and working knowledge of the internal workings of HMRC. As specialist London Tax Disputes Solicitors, we have the competency and experience to unblock negotiations with HMRC. More detailed guidance on HMRC Penalty Appeals can be found: [here](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/). ## Stage 2(i): HMRC Internal Review The HMRC internal review process can be used by a taxpayer when appealing a HMRC decision. If the stage 1 [appeal to HMRC](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/) after the penalty notice is issued is unsuccessful then either the taxpayer or HMRC can request an internal review of the decision. The review is a statutory process conducted by a different tax officer from the first reviewer and is seen as a useful tool in providing a fresh set of eyes on the interpretation of facts. Not on whether the decision was *“fair”* or for a technical dispute- but on determining whether the decision was made in line with HMRC guidelines. There are a number of advantages in utilising the internal review procedure. The internal review process is conducted within strict time periods, allowing the taxpayer to gain control of the timing of the case and resolution may be achieved faster than using the Tax Tribunal option. Moreover, previously published [official statistics](https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/322801/140610_Reviews_and_Appeals_MI_2013-14_final.pdf) shows that 49% of internal reviews have resulted in HMRC penalties being annulled or amended. This demonstrates that HMRC is prone to making errors when issuing a penalty notice. HMRC's internal review process is subject to a number of formalities and strict time limits, it is important to seek legal representation as soon as possible. If the taxpayer neither accepts the review process nor notifies the appeal to the Tax Tribunal, the tax dispute is considered settled under [section 54](https://www.legislation.gov.uk/ukpga/1970/9/section/54/enacted) TMA 1970 in line with HMRC’s view of the matter. Therefore, it is important to seek legal representation early to help navigate the internal review process because after missing this response deadline, it is impossible to resile from the settlement according to [section 54(2)](https://www.legislation.gov.uk/ukpga/1970/9/section/54/enacted) TMA 1970 (unless the Tax Tribunal allows late notification of the appeal). If after the completion of internal review process the tax issue is still in dispute then recourse is also available by appealing to the [First Tier Tax Tribunal](https://www.gov.uk/courts-tribunals/first-tier-tribunal-tax) ([section 49D](https://www.legislation.gov.uk/ukpga/1970/9/section/49/enacted), TMA 1970) or by considering [alternative dispute resolution (ADR)](https://www.gov.uk/guidance/tax-disputes-alternative-dispute-resolution-adr). More detailed guidance on HMRC Internal Review Advice can be found: [here.](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/) ## Stage 2(ii): Appeals to the Tax Tribunal The Tax Tribunals can be used by a taxpayer when appealing a HMRC decision. If the [appeal to HMRC](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/) after the penalty notice is issued is unsuccessful and the HMRC  [internal review](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/) procedure has not yielded a satisfactory conclusions then recourse is available by appealing to the [First Tier Tax Tribunal](https://www.gov.uk/courts-tribunals/first-tier-tribunal-tax) ([section 49D](https://www.legislation.gov.uk/ukpga/1970/9/section/49/enacted), TMA 1970). It is not permissible to appeal to the Tax Tribunal during the course of the internal review. The procedural rules governing the First Tier Tribunal are found in the *[Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273)](https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/357075/tax-chamber-tribunal-procedure-rules.pdf)*. The Tax Tribunal is completely independent of HMRC and is governed by an overriding objective to deal with cases fairly and justly ([rule 2, First Tier Tribunal Rules (FTR 2009)](https://www.legislation.gov.uk/uksi/2009/273/article/2/made)). The Tribunal will consider the evidence of both parties, equally whilst the judge heavily relies on previous case law. Commencing proceedings at the First Tier Tax Tribunal is subject to statutory time limits. It is recommended that legal advice is sought as soon as you become involved in a HMRC dispute to prevent a situation where a potential claim becomes time-barred. The First Tier Tax Tribunal will then give a direction allocating the case to one of four categories, which all have different procedures: - **Default Paper cases**:  ordinarily involve uncomplicated issues where the facts are simple and there is little dispute as to the law. The First Tier Tax Tribunal will determine the issue without a hearing (unless either party has requested one). - **Basic cases**: typically include standard tax penalties and covers both direct and indirect taxes and includes VAT *“migration appeals”* as well as all [*“reasonable excuse”*](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/) appeals. These cases are generally disposed of at a hearing and involve a minimal exchange of documents prior to the hearing. - **Standard cases**: the cases that can be diposed of in one day, in an area of uncomplicated law, with one witness providing uncontested evidence, are assigned to the Standard track. - **Complex cases**: cases are assigned here if it satisfies one of the conditions in [rule 23(4)](https://www.legislation.gov.uk/uksi/2009/273/article/23/made), FTR 2009. The procedural Tax Tribunal rules are the same save for a special costs regime applying for Complex cases. The First Tier Tax Tribunal is in essence a fact-finding court, therefore it is imperative to prepare the optimum set of facts in advance and this usually requires the most extensive preparation. We are well-versed in the Hearing procedure itself and presenting our clients’ cases to the Tax Tribunal. We consider the preparatory stage an essential part of the Hearing process and extensively complete the best factual picture from which the First Tier Tax Tribunal will draw its inferences. Our specialist Tax Solicitors and Barristers have successfully represented taxpayers before the First Tier Tax Tribunal. Our Tax Disputes team will typically: - advise you for a long period of time prior to the hearing; - discuss the evidence required; - prepare the appeal in detail; and - rehearse your case with you. For example, in a recent case, our client instructed to negotiate with HMRC and then prepare and represent them in an appeal before the Tax Tribunal. We took the following successful steps: - Appealed against the assessment outside of the 30 day limit. Ordinarily, failure to appeal within 30 days is fatal to any appeal. We were successful in presenting a good reason for our client’s default and as such the application to the Tribunal requesting more time to appeal was successful. - Delayed payment of the assessment pending appeal. Normally, once HMRC make an assessment on VAT liability, this amount is due and must be paid before the decision can be appealed (s84(2) VAT Act 1994). However, we were successful in presenting a Hardship Application and made persuasive arguments that our client would suffer hardship if required to pay before the conclusion of the appeal. - Ultimately, our representation ensured that the assessment was withdrawn reducing the assessment amount to nil. ## Expert London Tax Lawyers If you need HMRC Tax Disputes advice, we are available to aid you at every stage of the HMRC appeals process. Members of our legal team have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the HMRC internal review process and in front of the Tax Tribunal. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect including developing a strategy. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk). --- # PAYE Tax Investigation Disputes Source: https://taxdisputes.co.uk/paye-tax-investigation-disputes/ Broadly, PAYE (Pay-as-you earn) is the system used in the UK by HMRC  to collect income tax and national insurance contributions from employees as they earn their wage. The employer will deduct the the income tax and national insurance contributions from the employees salary and will send them to the HMRC on a monthly or quarterly basis. ### SERVICES FOR EMPLOYERS The PAYE process in a very complex minefield and often employers need the assistance of an Accountant to ensure that their PAYE legal obligations have been met. HMRC regularly carry out PAYE audits to ensure that the employer has met their legal obligations and that the correct forms have been filled out and filed with HMRC. If HMRC find that that the correct procedures were not complied with, they could issue penalties to the employer or take further steps and carry out payroll investigations. If a penalty has been issued to the employer, the employer has the opportunity to request that HMRC reconsider their decision. If you have been issued with any fines and/or penalties or find yourself as part of a payroll investigation then you should call us immediately so that we can advise your business accordingly. If necessary we can make detailed representations on your behalf to HMRC explaining why you should not be liable for any penalty. As a final resort our experienced advocates are able to advise and represent you in relation to the appeals process at the Tax Tribunals. ### SERVICES FOR EMPLOYEES HMRC may have contacted you stating that you have unpaid your income tax and as such they will be seeking to recover the underpayment by increasing the amount of income tax you pay for the forthcoming tax period. Often there can be underpayment of income tax due to the fact that the wrong tax code has been assigned to you or that the income tax underpayment is as a result of miscalculation of the tax you pay. If you form the view that you have not underpaid income tax or that the underpayment is not as a result of your own doing then you should contact our specialist advisers immediately so that we can assess your case and advise you on the appropriate course of action, including assisting you with HMRC internal review procedures. **HAVE YOU BEEN CONTACTED BY HMRC IN RELATION TO A PAYE INVESTIGATION****? Our Lawyers are here to help and are able to provide clear advice and information to assist you**. To contact one of our specialist lawyers please [click here](https://taxdisputes.co.uk/legal-case-assessment/) or call 02071830529. --- # Notice of Appeal to HMRC Source: https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/ *If you disagree with HMRC's assessment or penalty, then you should first send notice to appeal the decision to HMRC. If HMRC makes a tax decision against you, you can [contact HM Revenue and Customs (HMRC)](https://www.gov.uk/government/organisations/hm-revenue-customs/contact) or professional advice should be sought.* Our London Tax Solicitors and Barristers have vast experience of tax laws and first hand commercial, litigation and advocacy experience. If you need HMRC Tax Disputes advice, we are available to aid you at every stage of the HMRC appeals process. Members of our legal team have first-hand experience and working knowledge of the internal workings of HMRC. We have a proven track record of successfully contesting disputed tax assessments and penalties with HMRC. ## Notice of Appeal to HMRC The first recourse for a taxpayer wishing to dispute a decision of HMRC is to examine the decision letter sent by HMRC which will contain instructions on how to appeal the decision made. An appeal can be lodged if the taxpayer has the right to appeal the HMRC decision.  For example, appeals can be lodged against decisions about: - **a tax bill** (Corporation Tax/VAT); - alteration of **Self Assessment** after an enquiry because HMRC believe there to be an error; - a claim or disallowing a claim for** tax relief**; - a request to** check business records**; - issuance of an incorrect** coding notice**; - refusal of a** sub-contractor’s certificate**; and - **a penalty** **or surcharge** which is incorrect or unjust (for example, filing a tax return late/providing an inaccurate return/paying tax late/failing to keep adequate records). ## HMRC Appeal against a Tax Decision Notice to appeal the tax decision must be made in writing by the taxpayer (or their legal representative) to HMRC by completing the appeal form attached to HMRC’s penalty letter or by following the instructions on the letter. If there is no appeal form attached to HMRC’s letter, then alternatively a written submission can be made to the [HMRC office](https://www.gov.uk/government/organisations/hm-revenue-customs/contact) related to that particular tax return. The appeal must include: - the taxpayer’s name or business name; - the tax reference number (found on the HMRC decision notice); - what the disputed tax decision is and reasons why the taxpayer believes it be incorrect; - what the correct figure should be and how the taxpayer’s calculation was made; and - the taxpayer’s signature. It is essential to appeal promptly within 30 days and seek early specialist advice because a late response can be fatal to any appeal. It is possible to give notice of appeal after the 30 day limit but only with the permission of either HMRC or the tax tribunal  ([*section 49**, Taxes Management Act 1970*](https://www.legislation.gov.uk/ukpga/1970/9/section/49/enacted)). HMRC can give leave for late notice of appeal only if: - there was a **reasonable excuse** for not giving notice within 30 days; and - the request for permission to appeal after the expiry of the time limit was made **without an unreasonable delay**. ## Appeal to HMRC against a Tax Penalty If HMRC have assessed you for a [tax penalty](https://taxdisputes.co.uk/hmrc-penalties/) then an appeal can be lodged against the penalty. There are penalties for [late payment of tax](https://taxdisputes.co.uk/hmrc-penalties/), [late filing of tax returns](https://taxdisputes.co.uk/hmrc-penalties/) and [late notification of liability to pay tax](https://taxdisputes.co.uk/hmrc-penalties/). Appealing penalties for late filing of returns and paperwork or late payment can be applied to any of these types of taxes: - **Self Assessment Tax Return** deadlines and penalties (form SA 370- see below); - **PAYE/National Insurance** payments and deadlines; - **PAYE** late payment penalties (appeal online using HMRC’s [PAYE for employers](https://www.gov.uk/guidance/what-happens-if-you-dont-pay-paye-and-national-insurance-on-time) service); - Missed **VAT** deadlines – penalties and surcharges ([form WT2](https://www.gov.uk/government/publications/vat-late-submission-of-online-vat-return-reasonable-excuse-wt2) if received a surcharge for submitting online VAT Return late and claim a *“reasonable excuse”*); - Late returns and late return penalties under** CIS**; and - **Corporation Tax** penalties ([form WT1](https://www.gov.uk/government/publications/company-tax-return-it-problems) if there were issues sending a Company Tax Return). For example, you can appeal a penalty for the late filing of a tax return, where a penalty can be charged even if no tax is owed. Late filing penalties start with a fixed £100 penalty that escalates to fixed daily penalties and/or tax-geared penalties if the failure continues. ## "Reasonable Excuse" Appeal against a Late Tax Return Penalty Late filing penalties can be cancelled if you has a “reasonable excuse” for the late filing. Prior to an appeal being lodged, the taxpayer must send a tax return or have told HMRC that there is no need to complete one. The appeal can be issued using the online service for tax returns from 6 April 2015 onwards or by using [form SA370](https://www.gov.uk/government/publications/self-assessment-appeal-against-penalties-for-late-filing-and-late-payment-sa370) and must contain: - the penalty date of issuance; - the Self Assessment tax return date of filing; and - the details of a reasonable excuse for late filing. A *“reasonable excuse”* is an excuse that, when viewed objectively, is reasonable in the context of the delay that triggered the penalty. The *“reasonable excuse”* must continue throughout the period from the missed date of filing to a date shortly before the actual return. HMRC takes a narrow view of what is a valid *“reasonable excuse”* for the late filing of a return and examples include: - no return was due; - HMRC provided incorrect advice about filing deadlines; - no notice to file a return was received; - the taxpayer thought online filing had worked when it later transpired that it did not due to service issues with HMRC online services; - the taxpayer had posted a return on time; - the taxpayer’s partner or close relative died shortly before the tax return deadline; - an unexpected stay in hospital prevented the taxpayer from dealing with their tax affairs; - computer failure before or whilst preparing the tax return; - fire, flood or theft prevented tax return completion; - unexpected postal delays; or - delays related to a disability. According to HMRC, the following are examples of what will not be accepted as a *“reasonable excuse”*: - the taxpayer relied on a third party (for example, an accountant or business advisor) to send the return and the third party failed to do so; - payment failed as the taxpayer did not have sufficient funds; - the taxpayer found HMRC’s online system too difficult to use; - no reminder was issued by HMRC; or - there was a mistake on the tax return. It is strongly recommended that legal representation is sought when appealing a tax dispute with HMRC. We have a team of specialist tax solicitors and barristers that are able to successfully negotiate with HMRC on a taxpayer’s behalf. It is essential to seek advice as soon as possible because an appeal must be lodged within 30 days and a late response can be fatal to any appeal. ## Expert London Tax Lawyers If you need HMRC Tax Disputes advice, we are available to aid you at every stage of the HMRC appeals process. Members of our legal team have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the HMRC internal review process and in front of the Tax Tribunal. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect including developing a strategy. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk). --- # HMRC Tax Dispute Lawyers Source: https://taxdisputes.co.uk/ *Facing a tax dispute with HMRC?* Our team of [ex-HMRC](https://lexlaw.co.uk/hmrc-tax-dispute-lawyers/) [tax barristers and solicitors](https://taxdisputes.co.uk/expert-advice/) can help you reach the best possible outcome. With decades of experience dealing directly with HMRC, we know how to manage investigations, negotiate settlements, and defend your position using proven legal strategies. Whether you are an individual or a business, getting confidential legal advice from qualified lawyers - not from accountants - can make all the difference in protecting your finances and reputation. **ACCOUNTANTS HAVE NO LEGAL DUTY OF CONFIDENTIALITY ** Many taxpayers don’t realise that accountants are not legally required to keep your information confidential. Unlike [solicitors, who must protect every detail of your case by law](https://www.lawsociety.org.uk/topics/gdpr/lpp-and-client-confidentiality), accountants can - and often do - disclose sensitive information to HMRC. This can severely damage your position in a dispute. Our [team of former HMRC solicitors and barristers](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) are experts in protecting your rights and resolving tax problems. We know exactly how to manage your case, control what is disclosed, and negotiate effectively with HMRC. If needed, we can also appeal to tax tribunals or courts and explore mediation to achieve the best possible result. ## Resolving HMRC Tax Penalties & Investigations A tax dispute arises when you and [HM Revenue and Customs (HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs)) disagree about how tax laws apply to your situation; whether that’s your income, deductions, credits, or an alleged underpayment. These disputes can start during tax returns, audits, or after HMRC issues an assessment or penalty. When that happens, it’s vital to have experienced legal representation. Our solicitor and barrister team regularly deal with HMRC to resolve issues, reduce penalties, and protect clients’ interests; often fixing mistakes made or worsened by accountants. ## We are ex-HMRC / Big 4 Tax Litigators Our [leading UK tax counsel](https://lexlaw.co.uk/hmrc-tax-dispute-lawyers/) served as a HMRC in-house tax barrister and as Head of Indirect Tax Litigation at Deloitte and National Tax Litigation Director at PWC. Our Senior Partner has worked at KMPG, Goldman Sachs and ING Barings and is dual-qualified as a Barrister and Solicitor-Advocate. Both lawyers will be available to you at the outset in your first advice conference. #### Taxpayers 39.1mTotal number of taxpayers in the UK (2025-26) #### Appeals 47,250Outstanding Tax Tribunal appeals (2023-24) #### Success 60%Tax appeals settled without hearing (2014) #### Resolved 7,081Tax appeals resolved by hearings (2023) *(Source: [HM Revenue & Customs](https://www.gov.uk/government/organisations/hm-revenue-customs) and the [Ministry of Justice](https://www.gov.uk/government/organisations/ministry-of-justice))* We have decades of experience in negotiating with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) and [managing appeals](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) against their decisions at all levels. Members of the team include qualified [Tax Solicitors](https://taxdisputes.co.uk/tax-solicitors/) and [Tax Barristers](https://taxdisputes.co.uk/tax-barristers/) whom have vast experience of tax laws and first hand commercial, litigation and advocacy experience including previously working at HMRC as senior Tax Counsel and managing Tax Tribunal appeals and defending tax related CPS prosecutions. --- ## Instruct our Professional UK Tax Lawyers *Our dual-qualified Solicitor & Barrister team assess your case at the outset. We will quickly determine the merits and prospects of your tax dispute and then also advise you on how to obtain an optimal outcome.* ![CITY LAWYERS](https://taxdisputes.co.uk/wp-content/uploads/2019/04/Middle-Temple-Badge-Logo-Lexlaw-Solicitors-Barristers-London.jpeg) ##### CITY LAWYERS Qualified tax solicitors & tax barristers with litigation and HMRC expertise. We are the only solicitors' firm in England to operate from professional chambers in Middle Temple, London. [About](https://taxdisputes.co.uk/expert-advice/)![HMRC EXPERTS](https://taxdisputes.co.uk/wp-content/uploads/2019/08/HMRC-Logo-Tax-Disputes-Litigation-Appeals-Tribunal-Lawyers-Solicitors-Barristers-UK-London.jpg) ##### HMRC EXPERTS Our ex-HMRC tax barristers can advise on tax matters such as appeals, penalties, investigations, Tax Tribunal appeals, VAT evasion, MTIC fraud, COP 8 or 9, seized goods, disguised remuneration. [Appeals](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/)![CONFIDENTIAL](https://taxdisputes.co.uk/wp-content/uploads/2019/07/LawSociety_Use_Professional_Solicitor_LEXLAW_London.png) ##### CONFIDENTIAL Our Tax Litigators provide legally privileged & confidential advice (unlike accountants and other non-legal tax advisers). Our expert tax lawyers are regulated by the [SRA ](https://www.sra.org.uk/home/home.page)and [BSB](https://www.barstandardsboard.org.uk/). [SRA](https://www.sra.org.uk/home/home.page) --- ## Our Areas of Expertise vs HMRC: *We regularly take on HMRC tax cases in these areas:* ### HMRC TAX APPEALS Expertise in dealing with: [Penalty appeals: Self Assessment penalties; PAYE/NI; late payment penalties; late VAT returns; late returns; corporation tax penalties](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/); [HMRC Internal Reviews](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/); [Notice of appeal to HMRC](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/) [HMRC Tax Appeals](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) ### TAX TRIBUNAL REPRESENTATION [FTT, UTT & Court advocacy;](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) indirect tax appeals representation (Income tax/VAT/excise duty/CGT/Corporation tax); [First Tier Tribunal; Upper Tier Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/); [Out of Time Appeals ](https://taxdisputes.co.uk/late-hmrc-tax-appeals/) [Tribunal Advocacy](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) ### TAX EVASION & HMRC INVESTIGATIONS [COP 8](https://taxdisputes.co.uk/tax-avoidance-cop-8-investigations-solicitors-london/),[ 9 & 11 investigations; section 144 enquiries](https://taxdisputes.co.uk/tax-evasion-hmrc-code-practice-9-investigations/); [tax avoidance schemes advice: EBTs, SDLT avoidance, IHT schemes; voluntary disclosure; offshore tax evasion](https://taxdisputes.co.uk/offshore-tax-evasion-tax-avoidance-solicitors-london/); disguised renumeration [Tax Evasion Defence](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) ### TAX FRAUD ADVICE [Expert advice on MTIC (carousel) fraud](https://taxdisputes.co.uk/missing-trader-fraud-vat-evasion-solicitors-london/); [VAT Repayment fraud](https://taxdisputes.co.uk/repayment-fraud/); [excise diversion fraud](https://taxdisputes.co.uk/outward-excise-diversion-fraud/); [duty evasion](https://taxdisputes.co.uk/hmrc-duty-evasion-fraud/); [Phoenix companies](https://taxdisputes.co.uk/hmrc-duty-evasion-fraud/); [oils duty fraud](https://taxdisputes.co.uk/oils-fraud-road-fuel-fraud/); [seized goods by HMRC/UKBA](https://taxdisputes.co.uk/goods-seized-by-hmrc-consignment-import-jewellery-seizure-cigarettes-tobacco/); [smuggling](https://taxdisputes.co.uk/smuggling/); [MARD](https://taxdisputes.co.uk/mutual-assistance-recovery-directive-recovery-of-foreign-taxes-by-hmrc-mard/) [Tax Fraud Defence](https://taxdisputes.co.uk/missing-trader-fraud-vat-evasion-solicitors-london/) --- ## Want elite advice from ex-HMRC Tax Counsel? *Want to challenge a HMRC tax penalty or fine? HMRC investigation? VAT issues? Problems with a disguised remuneration scheme or tax evasion? Need representation at the First Tier Tax Tribunal? * We are a [specialist](https://taxdisputes.co.uk/expert-advice/) leading City of London tax law firm based in [Middle Temple](https://www.middletemple.org.uk/) (Barristers' Inns of Court) adjacent to the Royal Courts of Justice. Our [expert tax solicitors and barristers](https://taxdisputes.co.uk/) have years of [experience](https://taxdisputes.co.uk/success/) in of working with and negotiating with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) and managing appeals against their decisions at all levels. Members of the team include qualified [Tax Solicitors](https://taxdisputes.co.uk/tax-solicitors/) and [Tax Barristers](https://taxdisputes.co.uk/tax-barristers/) whom have vast experience of tax laws and first hand commercial, litigation and advocacy experience previously working in-house for multinational accountancy firms and as senior counsel at HMRC itself. Our [experienced](https://bankruptcypetitionandannulmentlaw.co.uk/) lawyers regularly carry out work in many tax disputes areas,  from advising clients on whether HMRC have followed the correct procedures to successfully challenging HMRC's policies. We have specialist knowledge in HMRC internal processes as well as ensuring that we are able to successfully challenge HMRC decisions in the Tax Tribunals. We have a team of established tax and duties specialist lawyers with a [proven track record](https://taxdisputes.co.uk/success/) of delivering authoritative solutions for our high net worth individual and corporate clients. *Please note **we do not undertake legal aid work** and are normally only instructed on HMRC tax disputes that are of a substantial value (this is because legal costs are rarely recoverable in Tax Tribunal cases). Please see our [costs page](https://taxdisputes.co.uk/funding/) for more information.* --- ## Don't risk using an accountant against HMRC... It is important to note that all client communications to **accountants **are ***not ***legally privileged and are easy for [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) to obtain; however, ***[communications to lawyers are legally privileged](https://en.wikipedia.org/wiki/Legal_professional_privilege)*** and highly confidential. Therefore it is beneficial to the [success](https://taxdisputes.co.uk/success/) of many of our clients' cases that we be instructed to instruct an experienced forensic accountant on your behalf. Although you may have instructed an accountant in relation to your accounts and tax matters for yourself or your business, in most cases your accountant should realistically only assist you in tax compliance matters whereas we specialise in assisting you in relation to any investigations that HMRC have brought against you. We regularly work with accountants to ensure that collectively we are able to obtain the best possible resolution to your matter. --- ## Featured guide on HMRC Disputes & Investigations ## The Company Director's Guide on managing HMRC disputes Our specialist tax team regularly provide market leading advice to directors of companies and limited liability partnerships. Our work has featured in [KSA Group](https://www.companyrescue.co.uk/guides-knowledge/guides/worried-directors-guide-3927/)'s [Worried Directors Guide 2018](https://lexlaw.co.uk/wp-content/uploads/2018/05/KSA-Worried-Director-Guide-2018-LEXLAW-taxdisputes-solicitors-london.pdf), including our [authoritative guide on HMRC tax disputes and investigations.](https://taxdisputes.co.uk/wp-content/uploads/2018/05/KSA-Worried-Director-Guide-2018-LEXLAW-taxdisputes-solicitors-london-tax-disputes-hmrc-investigation.pdf) [Download](https://taxdisputes.co.uk/wp-content/uploads/2018/05/KSA-Worried-Director-Guide-2018-LEXLAW-taxdisputes-solicitors-london-tax-disputes-hmrc-investigation.pdf)![](https://taxdisputes.co.uk/wp-content/uploads/2019/05/Guide-to-HMRC-tax-disputes-and-investigations-london-tax-lawyers.jpg) --- ## Latest HMRC Cases & UK Tax Litigation News *[UK Tax Litigation Legal News](https://taxdisputes.co.uk/news/) from London's leading tax solicitors & barristers:* --- --- # HMRC Internal Review Appeals Source: https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/ *The HMRC internal review process can be used by a taxpayer when appealing a HMRC decision. If the [appeal to HMRC](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/) after the penalty notice is issued is unsuccessful then either the taxpayer or HMRC can request an internal review of the decision. The review is conducted by a different HMRC official. Failing this, recourse is also available by appealing to the [First Tier Tax Tribunal](https://www.gov.uk/courts-tribunals/first-tier-tribunal-tax) ([section 49D](https://www.legislation.gov.uk/ukpga/1970/9/section/49/enacted), TMA 1970) or by considering [alternative dispute resolution (ADR)](https://www.gov.uk/guidance/tax-disputes-alternative-dispute-resolution-adr).* When a penalty notice is issued, the taxpayer should obtain legal advice as soon as possible. Our London Tax Solicitors and Barristers have vast experience of the Tax Appeal process and regularly follow the guidelines and appeal to HMRC on your behalf.  We have a proven track record of successfully contesting disputed tax assessments and penalties with HMRC. The tax authorities have lost many cases that are appealed through negotiation, internal review or through the Tax Tribunal. ## What is a HMRC Internal Review? [Internal reviews](https://www.gov.uk/hmrc-internal-manuals/appeals-reviews-and-tribunals-guidance/artg2010#IDAYKWZH) were introduced in 2009 as an alternative to the [tribunal system](https://www.judiciary.gov.uk/about-the-judiciary/the-justice-system/jurisdictions/tribunal-jurisdiction/) and offer the taxpayer an additional means of resolving a HMRC dispute. The review process and the underlying principles apply to both direct and indirect tax decisions, although there are some differences in the way the actual review process is conducted. It is recommended that a taxpayer utilise a legal representative in the review process. The review is a statutory process conducted by a different tax officer from the first reviewer and is seen as a useful tool in providing a fresh set of eyes on the interpretation of facts. Not on whether the decision was *“fair”* or for a technical dispute- but on determining whether the decision was made in line with HMRC guidelines. The new reviewer is independent of the original HMRC decision maker and is not located within their management chain. For example, reviews on whether the taxpayer has a *“reasonable excuse”* for the late filing of a tax return or if there is a disagreement on PAYE coding, will be reviewed by a different specialist office. Moreover, compliance reviews (challenging HMRC’s request to inspect documents at the taxpayer’s premises) will generally be conducted by *“local compliance offices”*, which are far removed from the original decision maker. ## What are the Advantages of a HMRC Internal Review? There are a number of advantages in utilising the internal review procedure. The internal review process is conducted within strict time periods, allowing the taxpayer to gain control of the timing of the case and resolution may be achieved faster than using the Tax Tribunal option. The process ensures both the taxpayer (and their legal representative) and HMRC summarise their positions, which has the bonus of focusing the dispute, which is especially useful for complex claims. Furthermore, the Tax Tribunal has the overriding objective of encouraging dispute resolution wherever possible and if the claim does eventually end up before a Tax judge, they will bear in mind the taxpayer’s attempt to seek alternative resolution. Previously published [official statistics](https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/322801/140610_Reviews_and_Appeals_MI_2013-14_final.pdf) shows that 49% of internal reviews have resulted in HMRC penalties being annulled or amended. This demonstrates that HMRC is prone to making errors when issuing a penalty notice. However, it is likely that successful taxpayers had legal representation as the statistics suggest that it is considerably more difficult for unrepresented Appellants to succeed with penalty appeals. Therefore, the statutory review process is a useful tool for the taxpayer especially when instructing a legal representative. ## What is the HMRC Internal Review Procedure? If you are not satisfied with the initial appeal discussions with HMRC then [section 49A TMA 1970](https://www.legislation.gov.uk/ukpga/1970/9/section/49/enacted)  provides three means to resolve an appeal: - **Taxpayer requests an internal review** You can request a review of your tax dispute at any time after notice of appeal has been provided to HMRC. However, the review cannot be requested once you have notified the appeal to the Tax Tribunal because both processes are independent solutions to the same dispute. Only once the review is conducted do you have the right to present your case to the Tax Tribunal. HMRC must provide you with its response within 30 days of receiving the review request ([section 49B](https://www.legislation.gov.uk/ukpga/1970/9/section/49/enacted) TMA 1970). Following this, HMRC has 45 days from the date it notifies its response to present the conclusions of their review ([section 49E](https://www.legislation.gov.uk/ukpga/1970/9/section/49/enacted) TMA 1970). This 45 day period can be extended by mutual agreement. - **HMRC offers an internal review** When a taxpayer appeals to HMRC in[ stage 1](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/), the original decision maker usually contacts the taxpayer to discuss the case further and provides the Appellant a further opportunity to present arguments in favour of their position. However, if these discussions do not satisfy the matter then HMRC has the right to initiate the review process by making an offer to the taxpayer after the taxpayer has given notice to appeal to HMRC in stage 1. HMRC can only offer a review if they have not already done so or if the appellant has notified their appeal to the Tax Tribunal ([section 49C(7)](https://www.legislation.gov.uk/ukpga/1970/9/section/49/enacted) TMA 1970). HMRC’s offer of a review must be accompanied by a “notification of HMRC’s view of the matter” ([section 49C(2)](https://www.legislation.gov.uk/ukpga/1970/9/section/49/enacted) TMA 1970). The taxpayer then has 30 days from this offer to either accept the offer of an internal review or to notify the appeal to the Tax Tribunal ([section 49C(3)](https://www.legislation.gov.uk/ukpga/1970/9/section/49/enacted) TMA 1970). This deadline is important because after 30 days the taxpayer may only notify the appeal to the Tax Tribunal with the Tribunal’s acquiescence. In addition, if the taxpayer neither accepts the review process nor notifies the appeal to the Tax Tribunal, the tax dispute is considered settled under [section 54](https://www.legislation.gov.uk/ukpga/1970/9/section/54/enacted) TMA 1970 in line with HMRC’s view of the matter. Therefore, it is important to seek legal representation to help navigate the internal review process because after missing this response deadline, it is impossible to resile from the settlement according to [section 54(2)](https://www.legislation.gov.uk/ukpga/1970/9/section/54/enacted) TMA 1970 (unless the Tax Tribunal allows late notification of the appeal). If a taxpayer has accepted the review offer, HMRC has 45 days to deliver its review conclusions. This 45 day period can be varied by mutual agreement.  The taxpayer does not have to agree to extend the review period and if an agreement cannot be reached, then HMRC must deliver a notice declaring that the review is concluded without a decision and allowing the right to appeal to the Tax Tribunal. ## What are the Next Steps Following an HMRC Internal Review? Following the 45 day review period, HMRC will notify the taxpayer of the outcome, either: - The reviewer agrees with the taxpayer and cancels HMRC’s original decision. This is the end of the matter. - The reviewer agrees partially with the taxpayer and varies HMRC’s decision. - The reviewer agrees with HMRC’s first decision and rejects the appeal. The taxpayer can either accept this position and settle the dispute in line with [section 54](https://www.legislation.gov.uk/ukpga/1970/9/section/54/enacted) TMA 1970. Alternatively, the taxpayer has a further 30 days from the date of the review conclusion letter, to provide notice of appeal to the Tax Tribunal ([section 49E](https://www.legislation.gov.uk/ukpga/1970/9/section/49/enacted) TMA 1970). It is strongly recommended that legal representation is sought when appealing a tax dispute through HMRC’s internal review process. We have a team of specialist Tax Disputes Solicitors and Barristers that have the experience and ability to successfully present a taxpayer’s case to HMRC and navigate the review procedure. It is essential to ascertain when HMRC validly offers the internal review and the time limit deadlines in general as the consequences of missing a HMRC deadline will likely lead to the appeal being automatically determined in HMRC’s favour. ## Expert London Tax Lawyers If you need HMRC Tax Disputes advice, we are available to aid you at every stage of the HMRC appeals process. Members of our legal team have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the HMRC internal review process and in front of the Tax Tribunal. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect including developing a strategy. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk). --- # First Tier Tax Tribunal Source: https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/ *The Tax Tribunals can be used by a taxpayer when appealing a HMRC decision. If the [appeal to HMRC](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/) after the penalty notice is issued is unsuccessful and the HMRC  [internal review](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/) procedure has not yielded a satisfactory conclusions then recourse is available by appealing to the [First Tier Tax Tribunal](https://www.gov.uk/courts-tribunals/first-tier-tribunal-tax) ([section 49D](https://www.legislation.gov.uk/ukpga/1970/9/section/49/enacted), TMA 1970).* *When a penalty notice is issued, a taxpayer should obtain legal advice as soon as possible. Our London Tax Solicitors and Barristers have vast experience of the Tax Appeal process and regularly appear before the First Tier Tax Tribunal on behalf of our clients. Members of our legal team have first-hand experience and working knowledge of the internal workings of HMRC. * *We have a proven track record of successfully contesting disputed tax assessments and penalties with HMRC. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one.The tax authorities have lost many cases that are appealed through negotiation, internal review or through the Tax Tribunal.* ## What is the First Tier Tax Tribunal? A taxpayer can appeal immediately to the [First Tier Tax Tribunal](https://www.gov.uk/courts-tribunals/first-tier-tribunal-tax) on HMRC decisions regarding indirect taxes such as VAT, excise duty or customs duty. However, for decisions about direct taxes (such as Income Tax, PAYE, Corporation Tax, Capital Gains Tax, Statutory Sick or Maternity Pay and Inheritance Tax), a taxpayer must [appeal to HMRC first](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/). For both direct and indirect taxes, there may have been an [internal review](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/). It is not permissible to appeal to the Tax Tribunal during the course of the internal review. The current Tax Tribunal system came into effect in 2009 and unifies the old Tax Tribunal system into two tiers comprising: a First Tier Tribunal and an Upper Tribunal. The First Tier Tribunal is divided into Chambers with the Tax Chamber hearing tax appeals and all first-instance appeals against the exercise of Revenue functions by HMRC. An appeal against a HMRC penalty would first go to the Tax Tribunal. Appeals from the First Tier Tribunal, subject to leave, go to the Upper Tribunal (which is on the same level as the High Court), then potentially to the Court of Appeal and Supreme Court. The procedural rules governing the First Tier Tribunal are found in the *[Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273)](https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/357075/tax-chamber-tribunal-procedure-rules.pdf)*. The Tax Tribunal is completely independent of HMRC and is governed by an overriding objective to deal with cases fairly and justly ([rule 2, First Tier Tribunal Rules (FTR 2009)](https://www.legislation.gov.uk/uksi/2009/273/article/2/made)). The Tribunal will consider the evidence of both parties, equally whilst the judge heavily relies on previous case law. ## How to Commence Proceedings at the First Tier Tax Tribunal To commence proceedings, the Appellant must notify the appeal to the Tax Tribunal. An appellant or their legal representative can [appeal to the Tax Tribunal online](https://appeal-tax-tribunal.service.gov.uk/) or fill in a [T240 notice of appeal form](https://assets.publishing.service.gov.uk/media/669e61a8a3c2a28abb50d45a/T240_0724_save.pdf). Proceedings will commence once the Appellant has sent a notice of appeal to the tribunal within the specific time limits as set out by the particular Act. The [First Tier Tribunal Rules 2009](https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/357075/tax-chamber-tribunal-procedure-rules.pdf) sets out that the notice of appeal must include: > “(a) the name and address of the appellant; > (b) the name and address of the appellant's representative (if any); > (c) an address where documents for the appellant may be sent or delivered; > (d) details of the decision appealed against; > (e) the result the appellant is seeking; and > (f) the grounds for making the appeal.” > [[Rule 20(2), FTR 2009](https://www.legislation.gov.uk/uksi/2009/273/article/20/made)] and: > “The appellant must provide with the notice of appeal a copy of any written record of any decision appealed against, and any statement of reasons for that decision, that the appellant has or can reasonably obtain.” > [[Rule 20(3), FTR 2009](https://www.legislation.gov.uk/uksi/2009/273/article/20/made)] Following this step, the First Tier Tax Tribunal will give notice of the proceedings to HMRC ([rule 20(5)](https://www.legislation.gov.uk/uksi/2009/273/article/20/made), FTR 2009). If the notice of appeal is served out of time, a request for an extension of time must be included with the notice ([rule 20(4)](https://www.legislation.gov.uk/uksi/2009/273/article/20/made), FTR 2009). The Tax Tribunal has discretion whether to admit late appeal notices by generally considering: - the purpose of the time limit; - the length of the delay; - whether there was a good explanation for the delay; and - the consequences for the parties of an extension or non-extension of time. In any event, it is recommended that legal advice is sought as soon as you become involved in a HMRC dispute to prevent a situation where a potential claim becomes time-barred. ## The First Tier Tax Tribunal Process The First Tier Tax Tribunal will then give a direction allocating the case to one of four categories, which all have different procedures: - ### Default paper cases Default paper cases ordinarily involve uncomplicated issues where the facts are simple and there is little dispute as to the law. For example, late filling penalties for small sums and appeals against small penalties generally, are dealt with through case allocation.. HMRC must serve a [statement of case](https://www.justice.gov.uk/courts/procedure-rules/civil/standard-directions/general/statements-of-case) within 42 days after receiving notice of appeal ([rule 25](https://www.legislation.gov.uk/uksi/2009/273/article/25/made), FTR 2009). The appellant then has 30 days to serve a written reply to HMRC’s statement ([rule 26](https://www.legislation.gov.uk/uksi/2009/273/article/26/made), FTR 2009). We have years of experience in drafting detailed replies setting out the Appellant’s response and providing further information. Following this, the First Tier Tax Tribunal will determine the issue without a hearing (unless either party has requested one). - ### Basic Cases Basic cases typically include standard tax penalties and covers both direct and indirect taxes and includes VAT *“migration appeals”* as well as all [*“reasonable excuse”*](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/) appeals. These cases are generally disposed of at a hearing and involve a minimal exchange of documents prior to the hearing. HMRC are not required to provide a statement of case and ordinarily, a case will go straight to a hearing ([rule 24](https://www.legislation.gov.uk/uksi/2009/273/article/24/made), FTR 2009). If HMRC intend to raise new grounds at the hearing, then the Appellant must be notified as soon as practicable to enable their legal representative to respond at the hearing. - ### Standard Cases Any appeal against a tax assessment that is neither legally nor factually complicated enough to be allocated into the Complex track will be categorised as a standard case. Typically, the cases that can be diposed of in one day, in an area of uncomplicated law, with one witness providing uncontested evidence, is assigned to the Standard track. For both Standard and Complex cases the procedural Tax Tribunal rules are the same. HMRC are required to submit a statement of case within 60 days on the Tribunal sending the notice of appeal ([rule 25](https://www.legislation.gov.uk/uksi/2009/273/article/25/made), FTR 2009). Both HMRC and the Appellant then have 42 days to serve a document list on the other side and the Tribunal ([rule 27](https://www.legislation.gov.uk/uksi/2009/273/article/25/made), FTR 2009). Each party has the right to inspect any document on the list, unless it is privileged. - ### Complex Cases The First Tier Tax Tribunal, at its discretion, may allocate a case as Complex only if the case satisfies one of the conditions under [rule 23(4)](https://www.legislation.gov.uk/uksi/2009/273/article/23/made): > “The Tribunal may allocate a case as a Complex case under paragraph (1) or (3) only if the Tribunal considers that the case— > > (a)  will require lengthy or complex evidence or a lengthy hearing; > (b)  involves a complex or important principle or issue; or > (c)  involves a large financial sum.” > [[Rule 23(4)](https://www.legislation.gov.uk/uksi/2009/273/article/23/made), FTR 2009] Once a case has been allocated as Complex, then the special costs regime applies. This is important as there is no requirement for either party to have acted unreasonably before a costs order is made. The allocation to the Complex track also ensures the possibility of a transfer of the case to the Upper Tribunal. ## The First Tier Tax Tribunal Hearing All Basic, Standard and Complex cases are determined by a Hearing. Usually two people sit on the tribunal: a legally qualified judge and a non-lawyer member (for example an accountant). Each party, their witnesses and their legal representatives are entitled to attend the hearing. In Basic and Standard cases, HMRC will be represented by a *“presenting officer”* from its Appeal and Reviews Unit. In complex cases, either a solicitor or barrister will represent HMRC. The First Tier Tax Tribunal will provide 14 days notice of a hearing ([rule 31](https://www.legislation.gov.uk/uksi/2009/273/article/31/made), FTR 2009). Generally, all hearings are held in public ([rule 32(1)](https://www.legislation.gov.uk/uksi/2009/273/article/32/made), FTR 2009), but a taxpayer can apply for private hearing on the grounds that a minor is involved; to protect one’s private life; or if it is believed that publicity might affect the hearing being fair and just. During the hearing itself, the taxpayer’s representative opens the case by presenting the documents, arguments on the law, witness evidence and agreed facts. Following this, HMRC cross-examines the witnesses face-to-face if they seek to challenge witness evidence. HMRC will then present arguments on the law and the taxpayer’s representative will close by replying to these arguments. ## The First Tier Tax Tribunal Procedure The First Tier Tax Tribunal is in essence a fact-finding court, therefore it is imperative to prepare the optimum set of facts in advance and this usually requires the most extensive preparation. We are well-versed in the Hearing procedure itself and presenting our clients’ cases to the Tax Tribunal. We consider the preparatory stage an essential part of the Hearing process and extensively complete the best factual picture from which the First Tier Tax Tribunal will draw its inferences. It is imperative to collect the relevant evidence in advance (oral and documentary). Moreover, an important part of the process is to agree facts with HMRC in advance of the hearing. The statement of agreed facts in required by the standard directions and in essence takes the form of a chronology of events. The importance of legal representation is apparent as HMRC are increasingly reluctant to agree all the facts in a case, we work with our clients to ensure that both parties can agree to the substantial facts in a case. Furthermore, nowadays witness evidence is typically provided in the form of a written witness statement. It is important that a taxpayer starts to draft their witness statement as early as possible. The witness statement must be comprehensive and contain all the facts which the appellant wishes the witness to give. In addition, evidence may be provided by experts- this is typically accountancy evidence. The tribunal prefers the two parties to use a single expert or to encourage their experts to meet to narrow the points of expert dispute.  HMRC and the taxpayer provides a list of documents to each other prior to the hearing. It is useful to have a clear, understandable and well-presented set of agreed documents at the hearing. Our specialist Tax Solicitors and Barristers have successfully represented taxpayers before the First Tier Tax Tribunal. Our Tax Disputes team will typically: - advise you for a long period of time prior to the hearing; - advise you on the merits of your case; - discuss the evidence required; - prepare the appeal in detail; and - rehearse your case with you. ## The First Tier Tax Tribunal Decision Under [rule 34](https://www.legislation.gov.uk/uksi/2009/273/article/34/made) FTR 2009, the First Tier Tax Tribunal may make a Consent Order disposing of the proceedings if the appeal is settled in advance of or during the course of the Hearing. For Default Paper and Basic cases hearings, the First Tier Tax Tribunal may provide a decision orally at the hearing ([rule 35(1)](https://www.legislation.gov.uk/uksi/2009/273/article/35/made) FTR 2009). For Standard and Complex cases, the First Tier Tax Tribunal will likely produce a written decision within six weeks. The decision notice will contain a summary of the factual findings and reasons for that decision ([rule 35(3)](https://www.legislation.gov.uk/uksi/2009/273/article/35/made) FTR 2009). A losing party has the options of either accepting the decision, seeking a review or appealing the decision ([rule 35(2)](https://www.legislation.gov.uk/uksi/2009/273/article/35/made) FTR 2009). ## The Costs of Tax Tribunal Appeals Costs are generally awarded on the standard basis. Each party will normally be liable for their own costs and cannot be ordered to pay the costs of the other party- even if they are the losing party. As such, a taxpayer will have to fund their own appeal but there is normally no risk in having to pay HMRC’s costs. However, the First Tier Tax Tribunal may make a Costs Order where either party has acted unreasonably in defending, bringing or conducting the appeal. Therefore, you could be ordered to pay HMRC’s costs if the First Tier Tax Tribunal believes you have acted unreasonably ([rule 10(1)(b)](https://www.legislation.gov.uk/uksi/2009/273/article/10/made) FTR 2009). It is very uncommon for the Tax Tribunal to make an order for costs against an unsuccessful party simply because they should have realised that their case was weak ([Invicta Foods v HMRC [2014] UKFTT 456 (TC)](http://www.bailii.org/uk/cases/UKFTT/TC/2014/TC03583.html)). However, in [Gekko and Co Ltd v HMRC [2017] UKFTT 0586](http://www.bailii.org/uk/cases/UKFTT/TC/2017/TC06029.html)*[, ](http://www.bailii.org/uk/cases/UKFTT/TC/2017/TC06029.html)*costs were awarded against HMRC for its *“unreasonable”* failure to abide by its litigation and settlement strategy. Moreover, in [Sussex Cars Association v HMRC [2017] UKFTT 691](http://www.bailii.org/uk/cases/UKFTT/TC/2017/TC06110.pdf)* *the First Tier Tax Tribunal made an order for costs against HMRC because HMRC had acted *“unreasonably”* in its failure to seek legal advice at an earlier stage in the proceedings. However, unlike an appeal to the First Tier Tax Tribunal (which involves little risk of substantial costs), a losing appeal to the Upper Tribunal could leave you liable for HMRC’s costs as well as your own. Nevertheless, a taxpayer has the option of opting out of the costs regime. This ensures that neither party will be liable for the costs of the other party. ## First Tier Tax Tribunal Case Study Our client, the Appellant, was a special purpose vehicle (“SPV”) which bought and sold a commercial property. The property was let out to tenants already in occupation at the time of the purchase and also to tenants entering possession after the purchase. The SPV later sold the property and was issued with a VAT assessment of over £1m.  HMRC argued that the sale was not a transfer of a going concern (they alleged that the use of the property following the sale differed from the use before). The SPV instructed us as tax specialist lawyers to negotiate with HMRC and then prepare and represent them in an appeal before the Tax Tribunal. We took the following successful steps: - Appealed against the assessment outside of the 30 day limit. Ordinarily, failure to appeal within 30 days is fatal to any appeal. We were successful in presenting a good reason for our client’s default and as such the application to the Tribunal requesting more time to appeal was successful. - Delayed payment of the assessment pending appeal. Normally, once HMRC make an assessment on VAT liability, this amount is due and must be paid before the decision can be appealed (s84(2) VAT Act 1994). However, we were successful in presenting a Hardship Application and made persuasive arguments that our client would suffer hardship if required to pay before the conclusion of the appeal. - Ultimately, our representation ensured that the assessment was withdrawn reducing the assessment amount to nil. ## Expert London Tax Lawyers If you need HMRC Tax Disputes advice, we are available to aid you at every stage of the HMRC appeals process. Members of our legal team have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the HMRC internal review process and in front of the Tax Tribunal. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect including developing a strategy. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk). --- # HMRC Tax Investigations Source: https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/ *HMRC is a powerful investigating authority and has an arsenal of legislative penalties to conduct civil tax investigations and criminal investigations where it is suspected that tax or duty has been evaded, underpaid or under declared, or that a tax fraud has taken place. VAT registered traders can face accusations of failing to declare their true liability on VAT returns by suppressing sales and/or inflating purchases. * Our expert team of established Tax and Duties Specialist Solicitors and Barristers have first-hand experience and knowledge of the internal workings of HMRC. We have extensive experience in advising individuals, employees, directors and corporate clients in relation to serious tax investigations and prosecutions conducted by [Her Majesty’s Revenue and Customs (HMRC)](https://www.gov.uk/government/organisations/hm-revenue-customs). The way a taxpayer responds to HMRC enquiries and investigations can have a substantial bearing on any tax penalties imposed, even where errors are made innocently. Therefore, it is important to take professional legal advice early to minimise tax fines, mitigate tax exposure as far as possible and ensure a settlement is reached on favourable terms. If you require advice on any tax investigation against you, contact our London Tax Solicitors and Barristers for a confidential consultation. ## Tax Investigation Advice Our Tax Solicitors and Barristers are highly experienced in dealing with voluntary tax disclosures and will advise you on the best strategy and manage the entire process on your behalf. We can advice on all of HMRC’s investigatory areas, including: - **Civil Evasion and Fraud Tax Investigations:** - Personal Tax Return Section 9A TMA 1970 Enquiry; - [Code of Practice 8](https://taxdisputes.co.uk/tax-avoidance-cop-8-investigations-solicitors-london/) (suspicion of serious Tax Avoidance using schemes such as EBT/PBT structures); - [Code of Practice 9](https://taxdisputes.co.uk/tax-evasion-hmrc-code-practice-9-investigations/) (suspicion of serious Tax Fraud); and - [Code of Practice 11](https://web.archive.org/web/20160827075914/http://thepensionsregulator.gov.uk/docs/code-11-dispute-resolution.pdf) (Self Assessment Tax Investigations). - **Criminal Tax Investigation:** -[Section 144 Enquiry](https://taxdisputes.co.uk/hmrc-interviews/); and -Interviews under [PACE (Police and Criminal Evidence Act 1984)](https://www.legislation.gov.uk/ukpga/1984/60/contents). - **Corporate Tax Evasion:** - Code of Practice 14 Investigation (Company Tax Return Enquiries) - **Partnership Tax Return Enquiry:** - Section 12A TMA 1970 Notice Investigations. - **Self Assessment Tax Investigations:** - [Code of Practice 11 Investigation](https://web.archive.org/web/20160827075914/http://thepensionsregulator.gov.uk/docs/code-11-dispute-resolution.pdf) (Local Compliance Offices). - **VAT and PAYE Investigations:** - PAYE Audit Tax Investigation [-VAT Evasion](https://taxdisputes.co.uk/vat-evasion/) Investigation ## Tax Investigation Advice for Directors Our specialist tax team regularly provide market leading advice to directors of companies and limited liability partnerships. Our work has featured in [KSA Group](https://www.companyrescue.co.uk/guides-knowledge/guides/worried-directors-guide-3927/)'s [Worried Directors Guide 2018](https://lexlaw.co.uk/wp-content/uploads/2018/05/KSA-Worried-Director-Guide-2018-LEXLAW-taxdisputes-solicitors-london.pdf), including our [authoritative guide on HMRC tax disputes and investigations.](https://taxdisputes.co.uk/wp-content/uploads/2018/05/KSA-Worried-Director-Guide-2018-LEXLAW-taxdisputes-solicitors-london-tax-disputes-hmrc-investigation.pdf) ## What is a Tax Investigation? A tax investigation is an enquiry conducted by HMRC into the tax affairs and tax payment history of any UK individual, employee, director or company. A HMRC tax investigation can come in many forms and covers a range of taxes covered under HMRC jurisdiction such as: VAT; income tax; corporation tax and capital gains tax. The type and severity of the investigation is completely dependent on the facts of any individual case. Typically, an investigation generally commences when HMRC notice irregularities in information supplied via a Self Assessment Tax return. A taxpayer will receive a letter from HMRC informing  them that an investigation has been opened into their tax affairs and may include a request for information. It is strongly recommended that you consult a tax lawyer as soon as possible to receive detailed advice on how to take control of the situation and negotiate with HMRC. ## What triggers a HMRC investigation? Typically, HMRC will not specifically detail what has initiated an investigation into your tax affairs in the letter sent by HMRC notifying you that an investigation has commenced. There is limited HMRC guidance on the criteria of a civil tax investigation, however, the following are common triggers of a government audit: - **Mistakes, Omissions or Inconsistencies** on a Company or Personal Tax Return: for example, the submission of inaccurate figures and the submission of frequent inaccuracies could cause HMRC to investigate in order to ascertain a clearer picture of your finances. - HMRC receiving a **tip-off** can be the catalyst for an investigation: examples of informers include d[isgruntled former employees and embittered divorcees](http://ig-legacy.ft.com/content/0f98bbc0-2db6-11e2-9988-00144feabdc0#axzz57qED81Px). - Part of a **HMRC target area**: HMRC regularly set up taskforces to target either geographic areas or specific job sectors thought to be at high risk of tax fraud. Job sectors such as the medical profession, those with multiple sources of income and landlords have been targeted using HMRC’s [Connect investigative software](https://www.ifa.org.uk/media/653935/Tax-HMRC-Connect-system.pdf), which provides an indication of industries where there are potential tax shortfalls. - [HMRC Campaigns](https://taxdisputes.co.uk/hmrc-voluntary-disclosure-campaigns-solicitors-london/) - **Random check**: this is unlikely but larger businesses that have undergone a rapid period of growth may attract the attention of HMRC based on this sudden change. - **Suspicious activity** that attracts the interest of HMRC: for example, the fluctuation of numbers by a large margin; years of unprofitability for a business; your figures are inconsistent with industry standards for those in the same profession; an omission of income. The triggers for a criminal investigation by HMRC are more clearly elucidated by the government [here](https://www.gov.uk/government/publications/criminal-investigation/hmrc-criminal-investigation-policy) and HMRC will generally consider starting a criminal, rather than civil investigation where: - organised criminal gangs attack the tax system or systematic frauds where losses represent a serious threat to the tax base, including conspiracy; - an individual holds a position of trust or responsibility; - materially false statements are made or materially false documents are provided in the course of a civil investigation; - pursuing an avoidance scheme, reliance is placed on a false or altered document or such reliance or material facts are misrepresented to enhance the credibility of a scheme; - deliberate concealment, deception, conspiracy or corruption is suspected; - cases involve importation or exportation breaching prohibitions and restrictions; - cases involve money laundering; - the perpetrator has committed previous offences or there is a repeated course of unlawful conduct or previous civil action; and - where there is a link to suspected wider criminality. ## How will you know if you are subject to a HMRC investigation? HMRC will notify a taxpayer in writing when it commences to examine their tax affairs. Typically, if HMRC starts a formal civil investigation, a letter will be sent requesting more information. For example, a taxpayer may receive a request for information on a property transaction or further information about a tax return from a local compliance audit. However, if HMRC suspects criminal VAT fraud or high amounts of tax evaded then it may commence criminal investigations. Typically, unlike for a civil investigation, HMRC are unlikely to notify you at the start of the process but instead you will be informed once you receive a letter requesting attendance to a voluntary interview under caution or when you are arrested. Alternatively, even where criminal tax evasion is suspected, HMRC may wish to deal with the investigation through the civil route under Code of Practice 9.  This process offers a taxpayer a civil solution for potentially criminal evasion by allowing a full disclosure under contract (Contractual Disclosure Facility). It is crucial that once under review, specialist Tax Investigation Lawyers are instructed. We regularly liaise with HMRC at formal meetings, agree what the scope of the disclosure should be and prepare the report on your behalf and reach a civil settlement with HMRC.  We have wide-ranging experience in assisting those facing a COP 9 investigation whilst helping to navigate the rigid time-limits and strict rules. ## How far back can HMRC investigate tax returns? An investigation will often start by enquiring into last year’s tax return and the time HMRC can go back into your tax affairs varies depending on the seriousness of the charge against you. The tables of time limits in HMRC’s Compliance Handbook provides a [full summary](https://www.gov.uk/hmrc-internal-manuals/compliance-handbook/ch56000). The time limits for Captial Gains Tax, Corporation Tax, Income Tax, PAYE and VAT are all the same. Instead, the amount of time HMRC can go back depends on whether the mistake made was innocent, careless or deliberate according to the [Taxes Management Act 1970](http://www.legislation.gov.uk/ukpga/1970/9/contents/enacted). HMRC will first investigate the most recent tax return. If they find no mistakes, then the investigation will be closed. If HMRC find a mistake was made innocently, then the investigation is permitted to go back 4 years. If HMRC decides the mistake was due to negligence or careless behaviour then the investigation can go back 6 years. If the mistake is construed as a deliberate attempt to avoid the payment of tax, then the investigation can go back 20 years. In any investigation, especially one scrutinising tax returns over many years, it is important to obtain professional legal advice at an early stage. We ensure that you make the right decisions at every stage and challenge HMRC’s requests if appropriate in the circumstances. ## How long will a tax investigation last? It depends on the scope and nature of the HMRC investigation. The opening letter issued by the HMRC is usually a good guide on the potential length of any investigation. Some tax investigations finish after one letter; other investigations can take months with HMRC consistently requesting more information; and some investigations can be extending to longer than a year if involving complex tax structures or large businesses. It is important to engage professional advice early on to minimise the length of any investigation as we identify any problems quickly and efficiently to get to the heart of the matter. ## How will HMRC deal with you? This varies dependent on the type of investigation conducted. HMRC tax investigations are subject to the specific circumstances of your case, but the relevant Code Of Practice will provide guidance on the process of your tax investigation. In any event, as specialist Tax Investigation Solicitors we will ensure your rights are protected and that HMRC operate strictly within the limits of their power.  More information on the procedure of each Code of Practice investigation can be found here. ## What information will you need to provide during a tax investigation? The initial letter sent by HMRC will normally outline the information required. If the investigation is uncomplicated and in a specific area, then the amount of paperwork will be self-contained. However, other cases will involve years of financial documentation, bank statements and information. HMRC have extensive powers to request information from both you and third parties. As a last resort, HMRC have the statutory power to issue determinations if there is no co-operation. A formal detailed disclosure report is generally only required when an enquiry is opened under [Code of Practice 8](https://taxdisputes.co.uk/tax-avoidance-cop-8-investigations-solicitors-london/) or [Code of Practice 9](https://taxdisputes.co.uk/tax-evasion-hmrc-code-practice-9-investigations/). As specialist Tax Disputes Solicitors we are able to acquire, organise, interpret and present the information required to HMRC on your behalf. ## Are you required to attend a meeting or interview with HMRC? Generally during civil investigations, HMRC often request a meeting but HMRC are not entitled to require you to attend a meeting or [interview](https://taxdisputes.co.uk/hmrc-interviews/). The requirement to be transparent and openly communicate with HMRC (to mitigate any potential penalties) can be adequately addressed in correspondence or in meetings between us and HMRC. However, in serious tax evasion cases where there is a criminal investigation, HMRC can request an interview under caution. It is essential to seek legal representation- as specialist and experienced tax investigation lawyers we can accompany and represent you at this interview. More information on HMRC Interviews can be found [here.](https://taxdisputes.co.uk/hmrc-interviews/) ## Are tax investigations made public? The majority of HMRC investigations are conducted privately. Only criminal prosecutions become public. However, under HMRC’s Name and Shame policy, under [section 94 Finance Act 2009](https://www.legislation.gov.uk/ukpga/2009/10/section/94), HMRC can publish details of tax defaulters. These are people who have received penalties either for: - making deliberate errors in their tax returns; or - deliberately failing to comply with their tax obligations. HMRC have reserved the right to publish information about the deliberate tax defaulter where: - HMRC has carried out an investigation and the person has been charged with one or more penalties for deliberate defaults; and - Those penalties involve tax of more than £25,000. ## What are you liable to pay in a HMRC tax investigation? The amount of tax payable at the end of the investigation depends on how much has been found to have been underpaid. Even if HMRC do not push for criminal prosecution, you will be liable for any tax found to be due with related interest and penalties. If tax is underpaid, then often penalties will also be payable. Depending on the circumstances and nature of the tax irregularity, [HMRC penalties](https://taxdisputes.co.uk/hmrc-penalties/) can vary from 15% of the tax you owe, up to 200% (for overseas offences). The first stage is for HMRC to decide on the penalty range which depends on whether the tax loss was due to: - lack of *“reasonable care”*; - a deliberate error such as intentionally providing false information; and - concealed deliberate error where false information is intentionally covered up. The second stage involves HMRC considering factors to mitigate any penalty in the above range. These factors include cooperation with HMRC, the gravity of the wrongdoing and confessions. During the investigation we may find factual variations and technical issues which may mitigate the amount of tax due. The regulations relating to penalties is complex and the amount owed can be mitigating if the correct procedures are followed. It is therefore strongly recommended to consult us as specialist Tax Solicitors as soon as an investigation commences into a tax irregularity. ## Can you get a prison sentence for tax offences? HMRC can conduct investigations on either a criminal or civil basis. It is important to seek legal representation as a potential prison sentence is an option at the conclusion of a criminal tax investigation. However, not all criminal evasion investigations result in criminal prosecutions. HMRC have the option to utilise different Disclosure Protocol when seeking a resolution on a civil basis. For example, the COP 9 procedure can protect you against prosecution if the correct criteria are met and full disclosure and co-operation is provided. ## Can you appeal against a tax investigation? No, unfortunately you cannot appeal against an investigation being opened. However, once HMRC have concluded their investigation and issued a penalty, then you have 30 days to appeal the decision. You can appeal in writing by giving [Notice of Appeal to HMRC](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/). HMRC will either confirm their first decision, amend their decision or agree with your assessment. If your position cannot be agreed with HMRC then two further options are available. HMRC could offer an[ internal review](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/) of the disputed decision (or you can request this procedure at any time). The review is an entirely internal procedure completed not by the original HMRC decision maker but by a different HMRC officer. You could also [appeal to the First Tier Tax Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) if you cannot agree your position following the review. The independent tribunal will make a determination on the case. A further appeal is permitted if you do not agree with the decision. We have a proven track record of successfully contesting disputed tax assessments and penalties with HMRC. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one.The tax authorities have lost many cases that are appealed through negotiation, internal review or through the Tax Tribunal. Detailed advice on HMRC Tax Appeals can be found [here](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/). ## Expert London Tax Investigation Lawyers If you need HMRC Tax Investigation advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. **We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk).** --- # Start Your Case Assessment Now Source: https://taxdisputes.co.uk/legal-case-assessment/ **Speed up the process of getting expert legal advice today.** Simply fill in the form below. It's the easiest way to start your no-obligation Case Assessment with our legal team in Middle Temple, London. The Case Assessment will ensure we are able to help you resolve your Tax Dispute. Please note we do not provide any free legal advice or undertake any legal aid work. We normally only accept work on HMRC tax disputes that are of a substantial value; this is because legal costs are generally not recoverable in Tax Tribunal cases. See our [Costs page](https://taxdisputes.co.uk/funding/) for more information. You can call us on ☎ 02071830529 - our Tax Lawyers in London are waiting to help. --- # Tax Avoidance Schemes & Code of Practice 8 Investigations Source: https://taxdisputes.co.uk/tax-avoidance-cop-8-investigations-solicitors-london/ *[HM Revenue and Customs (HMRC)](https://www.gov.uk/government/organisations/hm-revenue-customs) may open a [Code Of Practice 8 (COP 8) investigation](https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/682664/COP8_02_18.pdf) against you if they believe that you are underpaying tax or have opened a tax avoidance scheme to reduce a tax liability. The Fraud Investigation Service (FIS) at HMRC can carry out a COP 8 investigation against any individual or business. The investigation can include any type of taxation (both direct and indirect). The COP 8 investigation is normally a civil tax investigation if carefully managed by expert legal Tax Solicitors. If HMRC’s case against you is successful, then you will be liable to pay back all the tax owed, interest accrued and penalties due. However even if HMRC’s position is established, liability for penalties can be challenged.  * ## Specialist City of London Code Of Practice 8 Investigations Lawyers HMRC recommend that anyone under a COP 8 investigation instruct a professional adviser. Our [expert team of established London Tax Solicitors and Barristers](https://taxdisputes.co.uk/) have first-hand experience and knowledge of the internal workings of HMRC. We have extensive experience in advising individuals, employees, directors and corporate clients in relation to serious tax investigations and prosecutions conducted by Her Majesty’s Revenue and Customs (HMRC). The way a taxpayer responds to HMRC enquiries and investigations can have a substantial bearing on any tax penalties imposed, even where errors are made innocently. If you are subject to an investigation by HMRC for tax avoidance, our team of specialist London Tax Solicitors and Barristers can assist you by: - **Reviewing your entire matter; ** - **Providing expert advice throughout the entire investigative process;  ** - **Representing you in correspondence, interviews and meetings with HMRC;** - **Collating and preparing all documentation required by HMRC;** - **Contesting disputed tax assessments and penalties ; ** - **Managing the entire Litigation process; and** - **Representing you in HMRC’s internal review, Court or First Tier Tax Tribunal if necessary. ** ## Tax Avoidance Schemes Advice Code of Practice 8 investigations generally arise where HMRC suspect that artificial tax avoidance schemes have been used to underpay tax. HMRC defines tax avoidance as: > “[B]ending the rules of the tax system to gain a tax advantage that Parliament never intended. It often involves contrived, artificial transactions that serve little or no purpose other than to produce this advantage. It involves operating within the letter, but not the spirit, of the law.” > *[HM Revenue and Customs (HMRC)](https://www.gov.uk/government/organisations/hm-revenue-customs) * Tax avoidance structures are used to minimise tax exposure and can be considered perfectly legal if a particular interpretation of tax legislation is applied. If the planning of a scheme has been challenged by HMRC, it is essential to consult [legal tax specialists](https://taxdisputes.co.uk/), because the adviser who promoted the scheme may lack the objective clarity to honestly review and defend the arrangement. ## How to identify a Tax Avoidance scheme HMRC offers the following guidance on the warning signs that you might be in a tax avoidance scheme: - **It sounds too good to be true: **Some schemes promise to lower your tax bill for little or no real cost. They will say you do not have to do much more than pay the scheme promoter and sign some papers. - **Pay in the form of loans: **Some [schemes designed for contractors ](https://www.gov.uk/guidance/contractor-tax-loan-schemes-can-cost-you-more)involve giving you some or all of your payment in the form of a loan that you’re not expected to pay back. It is diverted through a chain of companies, trusts or partnerships and you’ll be told this is to save you tax. - **Huge benefits: **The benefits of the scheme seem out of proportion to the money being generated or the cost of the scheme to you. The scheme promoter will claim there’s very little risk to your investment. - **Round in circles: **The scheme involves money going around in a circle back to where it started, or some similar artificial arrangement. - **HMRC has given it a [Scheme Reference Number (SRN)](https://www.gov.uk/government/publications/tax-avoidance-withdrawn-scheme-reference-numbers/tax-avoidance-withdrawn-scheme-reference-numbers): **This is where HMRC has identified the arrangement as having the hallmarks of tax avoidance and are investigating it. You will have been given an SRN by your promoter and will have included it on your tax return. Having an SRN does not mean that HMRC has ‘approved’ the scheme. HMRC does not approve any tax avoidance schemes. - **Schemes HMRC has concerns about: **You can find examples of [tax avoidance schemes HMRC is looking at closely](https://www.gov.uk/government/collections/tax-avoidance-schemes-currently-in-the-spotlight). Even if a scheme is not mentioned, it may still be challenged by HMRC. ## What will HMRC do if they discover you are part of a Tax Avoidance scheme? HMRC will investigate fully your tax affairs if it is discovered that you are part of a tax avoidance scheme. In addition, HMRC may also: - **Require upfront payment of the tax avoided: **You may receive a tax bill called an [accelerated payment notice](https://www.gov.uk/government/publications/ten-things-about-accelerated-payment-notices). This is a requirement to pay the full amount of tax HMRC calculates as being due, upfront and within 90 days. - **Take legal action** - **Treat you as a high-risk taxpayer: **HMRC will closely scrutinise all your tax affairs in future, not just your use of the avoidance scheme. If you are implicated in a tax avoidance scheme, it is imperative to seek legal advice early. The implications for tax avoidance are serious, potentially leading to a prison sentence. [Contact](https://taxdisputes.co.uk/) our dedicated team of London Tax Solicitors and Barristers today for urgent and confidential advice. ## Examples of Tax Avoidance Schemes [Specialist Tax Solicitors](https://taxdisputes.co.uk/) should be consulted as soon as you enter into or suspect that you are part of tax avoidance scheme or are being investigated by HMRC. Examples of schemes that have formed part of a COP 8 notice include: - **Pension Schemes:** - *Artificial Surplus:* Some pension schemes create an [artificial surplus](https://www.gov.uk/government/publications/pensions-schemes-artificial-surplus-spotlight-3/spotlight-3-pensions-schemes-artificial-surplus). The scheme purports to enable a member of a registered pension scheme to remove funds from the pension scheme tax free. This can be by artificially creating a funding surplus through the surrender of rights by a member. - *Employer Financed Retirement Benefits Scheme (EFRBS)*: this unapproved pensions scheme involves the establishment of an offshore trust whereby an employer transfers funds and trustees apply funds via sub-trusts to the benefit of the employees.  This ensures that retirement benefits in the form of tax exempt or low tax amounts in the form of a loan. - **Employee Benefit Trusts ([EBT](https://www.taxation.co.uk/articles/2016-04-05-334565-heads-i-win-tails-you-lose))**: These enable a person (trustee) to own an asset on behalf of another person (beneficiary) which minimises liability to pay National Insurance contributions and Income Tax. Employers pay into the trust which would then be distributed to employees in the form of tax free loans. Previously, those in EBT schemes could utilise the [Liechtenstein Disclosure Facility](https://www.gov.uk/government/publications/offshore-disclosure-facilites-liechtenstein) which allowed taxpayers to disclose hidden assets to HMRC. However, this voluntary disclosure facility has been closed for new registrations since December 2015. Instead, HMRC recommends using the EBT settlement opportunity. - **[Stamp Duty Avoidance Schemes](https://www.gov.uk/government/collections/tax-avoidance-schemes-currently-in-the-spotlight):** this is where property sale arrangements have been artificially structured to avoid paying the correct amount of SDLT. HMRC has repeadely stated that it will continue to challenge these schemes.  HMRC successfully challenged a Stamp Duty Land Tax (SDLT) avoidance scheme in the [First Tier Tax Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) in [Vardy Properties and Vardy Properties (Teesside) Limited [2012] UKFTT 564 (TC)](http://www.bailii.org/uk/cases/UKFTT/TC/2012/TC02242.html). - **Share Loss Relief Schemes:** these schemes reduce the amount of tax payable on earnings by creating capital losses. - **Inheritance Tax Schemes (IHT)**: to avoid inheritance tax some schemes exist to allow the homeowner to sell a property to a trust and leave the proceeds of the sale outstanding as a loan which would then be gifted to a second trust. - **[Contractor loan schemes. ](https://www.gov.uk/guidance/contractor-loan-schemes-misleading-advertising-spotlight-42)** - **[Capital Gains Tax: Entrepreneurs’ Relief tax avoidance scheme. ](https://www.gov.uk/guidance/capital-gains-tax-entrepreneurs-relief-tax-avoidance-scheme)** - **[Employee Bonus Schemes: Growth Securities Ownership Plan tax avoidance](https://www.gov.uk/government/publications/spotlight-28-employee-bonus-schemes-growth-securities-ownership-plan-and-other-avoidance-schemes-based-on-contracts-for-difference)**. - **[Gift Aid with no real gift. ](https://www.gov.uk/government/publications/spotlight-20-gift-aid-with-no-real-gift-update)** - **[VAT: artificial leasing. ](https://www.gov.uk/government/publications/spotlight-2-vat-artificial-leasing)** ## The Code Of Practice 8 Investigation Procedure Unlike for a COP 9 investigation, there is no standardised procedure for a COP 8 investigation. COP 8s primarily focus on gathering large amounts of information therefore it is essential to understand which documents are protected by privilege and what the limitations of HMRC’s powers are. An approach utilised by HMRC in COP 8 cases is to challenge the interpretation of the tax legislation upon which the tax avoidance scheme relies upon. We are highly experienced in formulating argument s to persuade HMRC that their own interpretation of the tax legislation is incorrect and that the particular facts of our clients case do not warrant a COP 8 investigation. We have experience and are well prepared to argue your tax disputes cases in front of the independent [First Tier Tax Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/). Anyone subject to a COP 8 investigation should instruct us as [expert Tax Solicitors](https://taxdisputes.co.uk/expert-advice/) to handle the COP 8 investigation procedure. We ensure that an active approach is taken to all Code of Practice investigations. We will attend any meetings with HMRC and ensure to identify and address HMRC’s main concerns early in the investigative process. Our tax experts are highly experienced in collating and presenting the information requested by HMRC into a report which puts your case in context and presents technical tax arguments which may benefit your case. In addition, we will challenge HMRC if they request information which is outside the purview of the COP 8 investigation and we can apply to the Tax Tribunal for a [Closure Notice](https://www.gov.uk/government/publications/tax-enquiries-closure-rules/tax-enquiries-closure-rules) if HMRC’s investigation is unjustified or unwarrantedly lengthy. ## Can Tax Avoidance lead to criminal prosecution? HMRC do not undertake a Code Of Practice 8 investigation with a view to criminal prosecution. However, they may take a different view if the suspicion of or evidence of fraud is discovered during the investigation. If serious tax fraud is suspected, then HMRC may open an investigation under [Code of Practice 9](https://www.gov.uk/government/publications/code-of-practice-9-where-hm-revenue-and-customs-suspect-fraud-cop-9-2012). Alternatively, if HMRC wish to conduct an investigation with a view to criminal prosecution, then they will investigate under the [Police and Criminal Evidence Act (1984)](https://www.legislation.gov.uk/ukpga/1984/60/contents) (PACE 1984), the [Criminal Procedure and Investigation Act (1996)](https://www.gov.uk/government/publications/criminal-procedure-and-investigations-act-code-of-practice) and their respective Codes of Practice. ## Do you have a Professional Negligence claim? Our [Expert Tax Lawyers](https://taxdisputes.co.uk/expert-advice/) will assist clients in negotiating settlements with HMRC if a penalty is levied against them following a Code Of Practice 8 investigation. Our [team of Specialist Professional Negligence Lawyers](https://lexlaw.co.uk/practice-areas/professional-negligence-solicitors-london/) can assist in securing compensation for the penalties from any advisor who mis-sold or recommended the Tax Avoidance scheme to them in the first place. The following advisors owe a duty of care to provide honest advice about the risks and consequences of entering into a tax avoidance scheme: - **Conveyancing solicitors;** - **Accountants;** - **Tax advisors; and/or** - **Financial advisors.** A professional negligence claim may exist where any of the above advisors have breached their duty of care owed to you and you have suffered loss as a result of HMRC investigating a Tax avoidance scheme. Our Specialist Professional Negligence Lawyers have years of experience in handling and resolving negligence claims. Our lawyers have market-leading experience of providing bespoke legal advice and bringing complex claims to settlement.  We ensure that we provide the best possible outcome for our clients by conducting in depth investigation and research into the realistic prospects of a case before advising on the appropriate course of action in order to reduce time and expense. Where appropriate we encourage the use of alternative dispute resolution (such as mediation and without prejudice negotiation) and our negotiation skills are first-class. If required, we are extremely experienced and capable at navigating our clients through the litigation process. Just call our Professional Negligence Lawyers on 02071830529 or email contact@lexlaw.co.uk. ## Expert London HMRC Tax Investigations & Tax Avoidance Lawyers If you need HMRC Tax Investigation advice, we are available to aid you at every stage of the HMRC investigation process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, Code of Practice 8 (COP 8) investigations, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email contact@lexlaw.co.uk. --- # HMRC Voluntary Disclosure & HMRC Campaigns Source: https://taxdisputes.co.uk/hmrc-voluntary-disclosure-campaigns-solicitors-london/ *HMRC campaigns are run to encourage those that have not been efficient in sorting out their taxes to come forward and deal with their taxes now. In return HMRC have stated that they will be lenient on those who come forward and voluntarily disclose their financial information on undeclared earnings or additional income.* Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability.  Our lawyers specialises in submitting disclosure reports and negotiating potential penalties with HMRC. We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email contact@lexlaw.co.uk. ## What are HMRC Campaigns? HMRC campaigns encourage taxpayers that have undeclared income to voluntarily disclose their undeclared earnings or additional income*. *In return, HMRC will usually be more lenient when it comes to potential penalties. on those who come forward and voluntarily disclose their financial information on HMRC campaigns commenced with the offshore disclosure facility in 2007 to allow those with off-shore savings to disclose to HMRC their previously undeclared income. HMRC estimates that since 2007, over £610 million has been recovered from voluntary disclosure. The HMRC campaign disclosure facility is one means to disclose undeclared income to HMRC. If disclosure cannot be made under a current open campaign, HMRC encourages you to make a voluntary disclosure using the [Digital Disclosure Service (DDS)](https://www.gov.uk/government/publications/hm-revenue-and-customs-disclosure-service). ## Who does a HMRC campaign target? HMRC regularly launch campaigns to enable those who are a part of a particular industry to come forward and disclose their financial information and settle their tax liabilities. Campaigns have targeted business sectors such as electricians, plumbers, doctors, solicitors and e-traders in the past. HMRC campaigns have also focused on types of investment such as second homes and assets offshore. HMRC have also motivated those with compliance failures such as outstanding sel-assessment or VAT returns to make a voluntary disclosure. ## What are HMRC campaigns for? According to HMRC, campaigns are intended to: - Enable people to bring their taxes up to date; - Ensure people keep their taxes up to date; and - Prevent people getting their taxes wrong in the first place. ## What are the benefits of voluntary disclosure? The campaigns have been described as a tax penalty amnesty and HMRC believe that this incentive will encourage people to sort out their tax matters whilst avoiding harsh penalties. HMRC encourage early disclosure to minimise penalties, interest and a prevent a potential investigation. HMRC state that during these campaigns, if people do not come forward within the time specified then the penalties would be a lot harsher if it is later discovered that their earnings or financial information was not disclosed. HMRC have an array of means to find non-compliant taxpayers using the Connect software, information from third parties and the Land Registry (amongst others). Therefore, it is important to take professional legal advice if you have undisclosed income covering a number of years. ## Current HMRC Campaigns As of February 2018, there are 2 campaigns currently open. Even if an active campaign does not cover your tax position, then you can still make a voluntary disclosure [Digital Disclosure Service (DDS)](https://www.gov.uk/government/publications/hm-revenue-and-customs-disclosure-service). It is recommended that professional legal advice is sought when making a voluntary disclosure to HMRC. Our team specialises in submitting disclosure reports and negotiating potential penalties with the tax authorities. ### Credit Card Sales Campaign The [Card Transaction campaign ](https://cardtransactions.campaign.gov.uk/)is aimed at individuals or businesses who accept debit or credit card payments and offers those that have not declared all their UK income and tax liabilities to HMRC to make a voluntary disclosure. HMRC can identify businesses that have not paid all the tax that they owe as they hold details of debit and credit card payments made to UK traders and businesses. To ensure lower potential penalties, a taxpayer should notify HMRC and then make a disclosure and pay the tax within 90 days. The taxpayer must self-assess the tax and any penalties.. HMRC may allow time to pay, depending on circumstances. We have extensive experience in notifying HMRC and make disclosures on behalf of our clients. ### Let Property Campaign According to HMRC, The [Let Property Campaign](https://letproperty.campaign.gov.uk/) targets the residential property letting market and offers a chance for landlords letting out property in the UK and abroad to get up to date or put right any errors they have made and then remain compliant. Thus far, over 9,500 landlords have taken the opportunity to bring their tax affairs up to date. The Let Property Campaign allows all residential property landlords (single property; multiple property owners; student or workforce landlords and holiday home landlords- amongst others) to disclose undeclared rental income. However, this campaign is not open to companies, trusts or individuals letting out commercial properties. The campaign opened in 2013 and although it was intended to run 18 months, as of February 2018, the campaign remains open. We have extensive experience in notifying HMRC and make disclosures on behalf of our clients. ### Worldwide Disclosure Facility (WDF) HMRC’s [Worldwide Disclosure Facility](https://www.gov.uk/guidance/worldwide-disclosure-facility-make-a-disclosure) opened as a final opportunity for taxpayers to ensure their tax affairs are correct before new tougher HMRC sanctions come into force on 30 September 2018. On this date, the Common Reporting Standard (CRS) will be effective. This is an international initiative involving over 100 countries committing to exchange information on a multilateral basis to significantly increase international tax transparency and toughen the approach to offshore non-compliance. Any UK or non-resident person wanting to disclose a UK tax liability relating wholly or partly to an offshore issue can avail themselves of the facility. According to HMRC, offshore issues include unpaid or omitted tax on: - income arising from a source in a territory outside the UK; - assets situated or held in a territory outside the UK; - activities carried on wholly or mainly in a territory outside the UK; and - anything having effect as if it were income, assets or activities of a kind described above If HMRC knows or suspects that assets included in your disclosure are made up of criminal property, then they have the discretion to refuse the application to participate in the scheme. WDF disclosure is a voluntary facility and as such, penalties are lower than if HMRC had conducted a formal enquiry. It is essential to contact our Tax team to discuss any potential disclosure. Taxpayers can notify HMRC using the [Digital Disclosure Service (DDS)](https://www.gov.uk/government/publications/hm-revenue-and-customs-disclosure-service). However, it is important to seek advice before this because individual circumstances should be reviewed by professionals prior to registration. We have particular expertise in applying the eligibility criteria for the facility and can provide advice on whether you are eligible to participate and the entire disclosure process in the Worldwide Disclosure Facility. ## Past HMRC Campaigns ### Second Incomes Campaign HMRC’s Second Incomes Campaign targeted employees in the UK who have undeclared self-employed or freelance income. This closed on 7 August 2017. ### Wider Impact Campaign HMRC have previously launched campaigns for off shore savers, doctors, electricians and plumbers to come forward and disclose their financial information voluntarily. The ‘wider impact campaign’ was for anyone who had not previously declared their earnings or relevant financial information. They had the opportunity to do so regardless of the industry they are in, and in return HMRC have stated that they were lenient when considering the penalties. ### Direct Selling Campaign HMRC targeted those involved in “direct selling”. HMRC state direct selling “may involve demonstrating a product in a customers’ home, sometimes at a party, or you might sell door to door, using catalogues. You might only sell to your friends and relatives. As a direct seller you will usually take commission on the sales you make. You may be involved in direct selling as a full time business, to top up your income from another job or to fit around your caring commitments”. ### Other Past Campaigns HMRC voluntary disclosure campaigns have targeted the following sectors: - those who sell items over the internet or at car boot sales. Analysts state that this is very unlikely to be those who sell the odd household item, but is more aimed at those who regularly sell items with a view to a profit; - self-employed people who do not disclose all their earnings; - those with second homes who do not declare their rental income; - businesses and self- employed people who are not charging VAT properly (i.e they are not VAT registered when they should be); and - the ‘trades sector’ which includes carpenters, joiners, brick layers, roofers and others involved in the building trade. ## Will HMRC be lenient to taxpayers making a voluntary disclosure? Under normal circumstances if HMRC investigate your tax matters and find that you have not paid the amount of tax that you were meant to or that you have failed to disclose financial information then HMRC can penalise you in a number of ways, which could include imposing a penalty of up to 100% of your tax liability or even prosecuting you. HMRC work out the penalties using various factors, including calculating the amount of potential lost revenue, determining ‘behaviour’ of the tax payer, deciding whether the disclosure was prompted or unprompted and considering the HMRC penalty ranges. For example is someone deliberately concealed financial information from HMRC and HMRC prompted them to provide the information then the person could face penalties of between 50% – 100% of the tax liability. The advantage of the ‘wider impact campaign’ or a targeted campaign are that HMRC would be willing to significantly reduce the penalties and in some cases may even waive the penalties altogether. There may also be some instances where the HMRC decide not to prosecute those who have failed to disclose information previously, due to the fact that the disclosure made during the campaign was unprompted. Our solicitors have the specialist knowledge and understanding when negotiating penalties with the HMRC. We do this by making detailed representations on your behalf to HMRC specifying any mitigating circumstances and explaining why your tax penalties are excessive. ## Should you make a voluntary disclosure? It is important to note that HMRC exercise their discretion when reducing or waiving penalties and consider each case separately. HMRC have by their own admission stated that where there are systematic fraudulent matters they will not hesitate to commence prosecution even if the disclosure of the information came as a result of a campaign. Although it is safe to assume that if you disclose your financial information voluntarily then the HMRC are likely to be more lenient when deciding what penalties to impose. If you are under the impression that you should not disclose financial information because you have ‘got away with it’, then the advice would be to disclose the information now rather than later or never, regardless of which industry you belong to. This is due to the fact that HMRC are likely to impose harsher penalties if they later discover that you haven’t disclosed the information. If you find yourself in a position where you need to disclose elements of your earnings or elements of your financial information for previous years then you should contact us as we work with specialist tax advisers who will be able to establish your tax liability. Our specialist solicitors are subsequently able to robustly negotiate the terms of any tax settlement with HMRC. Alternatively, we are able to work with your accountant to ensure that collectively we are able to obtain the best possible outcome for you. ## Disclosures outside current campaigns: HMRC Digital Disclosure Service If you do not qualify for a current campaign or the Worldwide Disclosure Facility, HMRC encourages taxpayers to use the [Digital Disclosure Service (DDS)](https://www.gov.uk/government/publications/hm-revenue-and-customs-disclosure-service) or to call the voluntary disclosure helpline on 0300 1231078. This facility allows people to declare the right amount of tax on: - Income Tax - Capital Gains Tax - National Insurance contributions - Corporation Tax Typically, if a full and frank disclosure of unpaid liabilities is made, HMRC will charge a lower penalty than if they had found out about the liabilities through an enquiry, investigation or compliance check. It is recommended that professional legal advice is sought when making a voluntary disclosure to HMRC. Our team specialises in submitting disclosure reports and negotiating potential penalties with the tax authorities. ## Expert City of London Tax Disclosure Lawyers If you need advice on undeclared income, voluntary disclosure, the Worldwide Disclosure Facility or HMRC campaigns advice, we are available to aid you at every stage of the HMRC disclosure and negotiation process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC. Our team specialises in submitting disclosure reports and negotiating potential penalties with HMRC. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. **Our Tax Disputes professionals are available to give information and advice in negotiating penalties with HMRC. To contact one of our specialist Tax Lawyers please [click here](https://taxdisputes.co.uk/2011/08/2011/08/2011/07/legal-case-assessment/) or call 02071830529.** --- # Tax Evasion & HMRC Code of Practice 9 Investigations Source: https://taxdisputes.co.uk/tax-evasion-hmrc-code-practice-9-investigations/ *[HM Revenue and Customs (HMRC)](https://www.gov.uk/government/organisations/hm-revenue-customs) **[Specialist Investigations](https://www.gov.uk/hmrc-internal-manuals/specialist-investigations-operational-guidance) team commence [Code Of Practice 9 investigations](https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/494808/COP9_06_14.pdf) if they suspect “serious” tax fraud has been committed by deliberate action. COP9 is a civil investigative procedure utilised by HMRC where serious tax fraud is suspected but they do not want to bring a criminal investigation. Taxpayers are afforded the opportunity to make a full discourse under a contract called a [Contractual Disclosure Facility](https://www.gov.uk/guidance/admitting-tax-fraud-the-contractual-disclosure-facility-cdf) (CDF) in exchange for immunity from criminal prosecution. * ## Specialist City of London Code Of Practice 9 Investigations Lawyers HMRC strongly advise that you seek to appoint independent professional advice. Our [specialist team of Tax Solicitors and Barristers](https://taxdisputes.co.uk/expert-advice/) are experts on all matters covered by the COP9. It is crucial that once under revenue investigation Specialist Tax Solicitors are instructed as COP9s can be poorly managed by non-specialist accountants.  Our team of Tax Lawyers have wide-ranging experience in assisting those facing a COP9 investigation whilst helping to navigate the rigid time-limits and strict rules. We can assist you by: - **Reviewing your entire matter;** - **Providing expert advice throughout the entire investigative process;  ** - **Representing you in correspondence, interviews and meetings with HMRC;** - **Negotiating the scope of the Disclosure Report;** - **Collating and preparing all documentation required by HMRC, including Outline Disclosure, Full Disclosure and the Disclosure Report; and** - **Contesting disputed tax assessments and penalties.** ## What is a Code of Practice 9 investigation? HMRC will instigate a COP9 investigation is they have evidence that you have or may have committed a serious tax fraud. There are two options for a taxpayer under a COP9 investigation: - **Accept the Contractual Disclosure Facility (CDF):** in return for immunity from criminal prosecution, a taxpayer is given the opportunity to make an outline disclosure to HMRC setting out all the areas where tax fraud has been brought about by deliberate conduct at the outset. Penalties and interest apply. This offer expires after 60 days. The CDF can also be used when you wish to disclose a tax fraud voluntarily. - **Reject the Contractual Disclosure Facility (CDF):** if you do not believe that you have brought about a loss of tax through deliberate conduct you can return a CDF Rejection Letter within 60 days. If HMRC carry on with the investigation and finds that you have committed fraud, you will receive higher penalties and you could receive a prison sentence. **NB: the Denial route for taxpayers has been withdrawn**: previously, a taxpayer could deny fraud, but would fully co-operate with HMRC during the investigation. Removal of the Denial option means if you are subject to a COP9, you have 2 options: accept the CDF or reject the CDF. ## What is serious tax fraud? In the context of COP9 investigations, fraud is defined as *“dishonest behaviour that led to, or was intended to lead to, the loss of tax”*. A person commits an offence if they are knowingly concerned in the fraudulent evasion of tax or duty, by themselves or by another individual. This includes: - withholding or concealing relevant facts; - failing to disclose a tax or duty liability; or - misrepresenting your tax affairs. It is irrelevant whether you have actually gained from *“deliberate conduct”*. Deliberate conduct is defined as a taxpayer knowing that an entry in a tax return was wrong, but they submitted it regardless. Tax fraud cannot be committed accidentally and the CDF is not appropriate for those wanting to disclose only careless errors or mistakes. Code of Practice 9 includes tax losses brought about [through Missing Trader Intra-Community (MTIC) fraud](https://taxdisputes.co.uk/carousel-mtic-fraud-missing-trader-intra-community-fraud-kittel/) and the loss of excise duties through your deliberate conduct. ## How will HMRC’s offer the Contractual Disclosure Facility? HMRC will send an opening letter notifying you of their suspicion of tax fraud. This letter will include a copy of COP9 and the offer of a contract through the CDF. It is imperative to consult [Specialist Tax Lawyers](https://taxdisputes.co.uk/expert-advice/) as soon as you receive this communication from HMRC because as soon as the letter is received, time starts to tick on the 60 day response window. If you do not respond in this time, HMRC will withdraw their CDF offer. ## What is the effect of entering into a CDF? By entering into the CDF you will admit that tax has been withheld from HMRC due to your deliberate conduct. As such, HMRC will be permitted to recover tax, penalties and interest that you evaded from 20 years to the present. A CDF means that you will be required to fully co-operate with HMRC (with the assistance of [Specialist Tax Lawyers](https://taxdisputes.co.uk/expert-advice/)), which ensures the greatest possible reductions on any penalties due. ## What happens if you reject the Contractual Disclosure Facility? If you sign the CDF Rejection Letter, HMRC will start its own investigation. A Rejection Letter can be used in court or Tax Tribunal proceedings, therefore legal advice should be taken prior to communicating with HMRC. It is essential to consult [Specialist Tax Lawyers](https://taxdisputes.co.uk/expert-advice/) because even if you intend to accept the CDF, if the Outline Disclosure is incorrectly filled in then HMRC will not be bound to observe their side of the contract. HMRC will investigate their suspicions either with or without your co-operation. If the CDF is rejected then HMRC may: - start their own investigation which may become a criminal investigation; - find information about your financial and business affairs from third parties; - take formal action including raising assessments for the tax and interest due; - charge higher penalties; - start legal proceedings to secure some or all of your assets; - require a financial security from you against unpaid taxes and duties; and/or - publish your details as a deliberate defaulter. ## What will you have to disclose in the Contractual Disclosure Facility? There are 2 stages to the disclosure process. Our team [Specialist Tax Lawyers](https://taxdisputes.co.uk/expert-advice/) are highly experienced in managing the entire disclosure process for our clients. ### Outline disclosure You will be required to make a valid [Outline Disclosure](http://www.hmrc.gov.uk/gds/fcim/attachments/outline_disc_form.doc) within 60 days of the date you receive HMRC’s offer letter. An Outline Disclosure form will be sent with the CDF offer letter. HMRC do not expect the form to contain precise details if you cannot reasonably get them within the 60 days allowed. However, it needs to be an honest description of the deliberate conduct you are disclosing, made in good faith and to the best of your recollection, with the help of any documents that are readily available. You must also clearly indicate the period of time during which you brought about a loss of tax through deliberate conduct. The Outline Disclosure should contain a description of what the deliberate conduct was that has brought about the tax loss. Our team of [Specialist Tax Lawyers](https://taxdisputes.co.uk/expert-advice/) will discuss all of the requirements with you and ask you for all the information that is required and prepare and submit the Outline Disclosure on your behalf. For each separate tax loss, you are required to provide the following details: - what you did; - how you did it; - the involvement of other people and entities; and - how you benefited from the deliberate conduct. You are further required to include names, addresses and tax references of any other individuals or entities that were involved. It is important to note that HMRC are not bound to provide the same undertaking of non-prosecution for any other individual named or implicated. If you have utilised other entities such as companies, trusts, nominees, or partnerships, you must provide HMRC with their details and explain how they have been used. ### Formal Disclosure Following the Outline Disclosure, HMRC will decide how the investigation should proceed. If the Outline Disclosure does not disclose all of the details which HMRC suspect that you may have been involved in, then HMRC are entitled to commence a criminal investigation into deliberate conduct which has not been disclosed. However, if a valid disclosure is made then your case will proceed along either of 2 options: - In straightforward cases, HMRC will usually not seek further information. We will negotiate with HMRC and look to agree on potential additional duties, the interest payable and any penalties due. You will be required to make your Formal Disclosure by certifying that a complete disclosure has been provided of all your tax irregularities by providing: - a certified statement of worldwide assets and liabilities; - a certificate of bank accounts operated; - a certificate of credit cards operated; and - a Certificate of Full Disclosure. Finally, we will negotiate with HMRC on your behalf and make a financial offer to cover the tax, interest and penalties to settle the investigation. - In complex cases, HMRC may decide that additional information is required to complete the investigation. In this case, we will prepare a [Disclosure Report](https://www.gov.uk/government/publications/hmrc-your-guide-to-making-a-disclosure/your-guide-to-making-a-disclosure) as well as negotiate in a meeting or through correspondence with HMRC on the scope of said report. We will also negotiate the timetable for the submission of the Disclosure report with HMRC- this will depend on the complexity of the work needed, the amount that needs to be done and how easy it is to access the details required. We will also keep HMRC informed of the progress of the report and will attend meetings on your behalf at the request of HMRC. According to HMRC, a typical Disclosure Report contains: - a brief business history; - a description of all tax irregularities (including those brought about by unintentional conduct) and how they arose; - quantification of all the irregularities; - information to show how you quantified the irregularities and ensure that nothing has been missed; - summaries of tax and/or duties, interest and penalties due; - a reconciliation of your irregularities figure with the summary of tax and/or duties; - a certified statement of worldwide assets and liabilities; and - certificates of bank accounts and credit cards you operated. You will also be required to provide a witnessed and signed [Certificate of Full Disclosure](http://www.hmrc.gov.uk/gds/ttog/attachments/appendix-15.doc). This simply affirms that you have made a full, accurate and complete disclosure of all irregularities, to the best of your knowledge and belief. ## How do HMRC calculate penalties? Penalties can be charged up to 200% of the tax lost, subject to a reduction for good behaviour during the disclosure process. It is vital to seek advice from our [Specialist Tax Lawyers](https://taxdisputes.co.uk/expert-advice/) as soon as you receive a COP9 letter as we will act on your behalf and ensure all of HMRC’s rigorous steps and time limits, meetings are adhered to. We ensure that we represent your case in the best possible way and therefore limit the amount of penalties charged. For more information on HMRC Penalties click [here](https://taxdisputes.co.uk/hmrc-penalties/). ## Expert London Tax Investigation Lawyers If you need HMRC Tax Investigation advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk). --- # HMRC Tax Investigations Source: https://taxdisputes.co.uk/hmrc-tax-investigations/ Our expert team of established Tax and Duties Specialist Solicitors and Barristers have first-hand experience and knowledge of the internal workings of HMRC. We have extensive experience in advising individuals, employees, directors and corporate clients in relation to serious tax investigations and prosecutions conducted by [Her Majesty’s Revenue and Customs (HMRC)](https://www.gov.uk/government/organisations/hm-revenue-customs). The way a taxpayer responds to HMRC enquiries and investigations can have a substantial bearing on any tax penalties imposed, even where errors are made innocently. Therefore, it is important to take professional legal advice early to minimise tax fines, mitigate tax exposure as far as possible and ensure a settlement is reached on favourable terms. If you require advice on any tax investigation against you, contact our London Tax Solicitors and Barristers for a confidential consultation. ## Expert London Tax Investigation Lawyers If you need HMRC Tax Investigation advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. **We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk).** --- # Missing Trader Fraud (MTIC VAT Evasion) Source: https://taxdisputes.co.uk/missing-trader-fraud-vat-evasion-solicitors-london/ *[Missing Trader intra-community fraud](https://www.gov.uk/government/publications/vat-missing-trader-fraud) or Carousel Fraud involves organised fraudsters taking advantage of the VAT rule that cross-border transactions are zero-rated for VAT purposes. However, innocent UK companies can be caught up in the fraudsters “carousel” and left with significant tax liabilities owed to HMRC after the organised fraudsters have disappeared. The Government’s measures to combat MTIC fraud places a responsibility on innocent traders to take precautions as they risk heavy financial penalties if they knew or ought to have known about VAT fraud.* ## Specialist Missing Trader Fraud Solicitors London We have a huge amount of experience of obtaining decisions from [HM Revenue & Customs (HMRC)](https://www.gov.uk/government/organisations/hm-revenue-customs) Officers, seeking Judicial Review where necessary, managing and representing in VAT Assessment appeals and responding to the criminal legal processes that HMRC have deployed in order to combat missing trade intra community fraud in the Mobile, CPU and CO2 industries in which many of our clients operate. Our lawyers have in-depth knowledge of our clients’ industries and have developed a number of expert contacts. We know precisely what expert and other evidence will be required of Appellants to mount a successful appeal and to provide a thorough rebuttal to HMRC’s often completely unfounded accusations as to the Appellant’s knowledge of VAT fraud elsewhere in the supply chain. The firm is completely unique in bringing together the skill of its Taxation, Civil Litigation and Criminal Defence legal practice groups to provide clients with a tenacious closely managed civil appeal before the Tribunal or criminal defence before the Courts. We provide Appellant legal representation in many high value and complex appeals at the Finance and Tax Tribunals (Tax Chamber) of the new [First-Tier Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) (formerly the Special and the General Commissioners, and the VAT & Duties Tribunal) and, where appropriate, on appeal to the Upper Tribunal or the Court of Appeal. We also provide Defendant legal representation in the criminal courts in respect of MTIC prosecution by the Revenue and Customs Prosecutions office and associated asset confiscation/forfeiture. We are able to provide not only our experience but the highest quality of advocacy, cross examination and management of these cases which routinely involve complex facts, expert reports and voluminous paperwork. ## What is MTIC Fraud? Missing trader fraud occurs when a fraudster exploits rules which state that cross-border transactions within the EU are zero-rated for VAT purposes.  Carousel fraud is the term used for the continuation of MTIC fraud through a chain of cross-border transactions. In a VAT supply chain where there is no fraud, a VAT-registered business charges VAT to customers when it sells goods (output tax) and will be charged VAT by suppliers when it buys good (input tax). A business can reclaim VAT it has paid and therefore provides HMRC with the net VAT it collects and reclaims any excess input tax from HMRC. MTIC fraud typically targets high-value, low-weight goods which are easy and inexpensive to transport, such as mobile phones or computer chips. In recent times, other assets such as power, gas, precious metals and carbon emissions allowances have been targeted. ## MTIC Fraud Explained The goods are purchased from a supplier in the EU by a UK Vat-registered company (“Company A”), soon to become the missing trader in the fraud. The goods are correctly zero rated for VAT as an intra- community transaction between two VAT-registered businesses, and are then sold on inclusive of VAT by Company A to another UK trader, Company B. The latter may be an innocent party, or more likely will be part of the fraud fulfilling the role of a “buffer” to conceal the identity of Company A from the VAT authorities. Company B sells the goods inclusive of VAT to another UK trader, Company C who again may be an innocent party or a second line buffer. Company C sells on to Company D who exports the goods from the UK to the original EU supplier, who in turn will sell back to Company A, and so the “carousel” continues until it is identified by Customs. The transactions may be conducted on a “back to back” basis between the various dealers, with the goods remaining in a third party warehouse after first entry into the UK. The goods will often be sold on four or five times within a matter of hours before finally being exported to the original EU supplier. The transactions are high value with correspondingly large sums of VAT being charged in the supply chain, and hence the attraction to fraudsters. Company A is the essential ingredient in MTIC frauds, the missing trader, and is set up solely to acquire goods VAT free and sell inclusive of UK VAT, without completing a VAT return and accounting for the VAT received. This VAT represents the financial benefit in such frauds. Company A requires a VAT registration number at the outset, which it may obtain by applying to register a business for VAT, disguising the activities of the business to avoid scrutiny by Customs, or simply by ‘hi-jacking’ another company’s VAT registration number and creating false invoices bearing this number. On the sale of the goods by Company A to Company B, the fraud usually requires payment to be made by Company B, and in some cases by Company C, to both Company A and the EU supplier. Often the VAT element of the transaction is paid to Company A and the balance to the EU supplier, either to an overseas bank account in its own country or to a bank account in the UK. In due course, Company A, the missing trader, will disappear having achieved its aim of obtaining substantial amounts of VAT on the sale of the goods in the UK, and those behind Company A may re-surface in another form to initiate another carousel, possibly buying from the same EU supplier or a new supplier. Payments to the EU supplier by Company B are referred to as “third party payments”, although it has been known for fourth and fifth party payments to have taken place in some frauds where Companies C and D make the payments. In some cases, the VAT inclusive price is paid to the EU supplier, thereby immediately removing the VAT evaded from the jurisdiction of the UK authorities. ## How are innocent companies affected by MTIC fraud? Once an MTIC fraud is discovered by HMRC, ordinarily the fraudsters have disappeared leaving behind their VAT registered companies as shells with their assets stripped and their officers absconded. Frequently, innocent companies caught up in the carousel chain are the only ones which HMRC can trace and have any assets which HMRC can target. Directors of innocent companies should take immediate advice from specialist Tax lawyers because typically the strategy employed by HMRC is to transfer the risk of lost VAT to innocent companies. ## HMRC’s Prosecution and Civil strategies: The government confirmed in the Spring 2017 Budget that it will introduce a fixed 30% penalty of potential VAT lost for participating in VAT fraud. The penalty will apply to anyone who has entered into a transaction connected with fraudulent VAT evasion and that person knew or should have known that fraud was involved. This penalty was included as [s68 Finance (No.2) Act 2017](http://www.legislation.gov.uk/ukpga/2017/32/section/68/enacted), which has introduced new sections of s69C-E of the Value Added Tax Act 1994 (VAT 1994). The new legislation has not allowed for reductions of the penalty for cooperation. The most effective legislation that enables HMRC to address MTIC fraud is to pursue the innocent companies caught up in the carousel. The aim of this is to encourage innocent traders to more carefully question the legitimacy of potential transactions. Although the innocent companies were not part of the creation of the fraudulent scheme in the first place, HMRC can still pursue them for VAT defrauded if they “knew or should have known” that the missing trader fraudster  would not pay the VAT due.  If HMRC can objectively prove that the innocent company should have known there was fraud involved in the transaction, then they can recover the VAT due by asserting that the innocent company did not have the right to deduct their input tax. *[Optigen Ltd and others v Customs and Excise Commissioners (Cases C-354/03, C-355/03 and C-484/03 )](https://uk.practicallaw.thomsonreuters.com/D-000-5605?originationContext=document&transitionType=PLDocumentLink&contextData=(sc.Default)&comp=pluk)* has confirmed that where it can be objectively shown that a trader knew or should have known that by participating in the transaction connected with VAT fraud, HMRC can refuse to allow the trader to deduct input tax unless the trader can show that "he took every precaution which could reasonably be required of him to ensure that his transactions were not connected with fraud". In *[Mobilx (in administration) v HMRC [2010] EWCA Civ 517](https://uk.practicallaw.thomsonreuters.com/D-000-5606?originationContext=document&transitionType=PLDocumentLink&contextData=(sc.Default))*, the Court of Appeal held that, where a taxpayer knew or should have known that it was party to a transaction connected with MTIC fraud, it lost the right to deduct input tax. This decision further confirmed that the test is a strict one and that if an innocent trader had any way of knowing that a transaction may be fraudulent, then they should have known that it was fraudulent. However, the Court asserted that undue emphasis should not be placed on whether due diligence had been exercised. It was possible that an innocent trader could have asked all the appropriate questions but the circumstances of a transaction should have alerted them that it was potentially fraudulent. The penalties for those instigating carousel fraud are more severe. On the basis of the current case law, indictments in carousel frauds are usually drafted to include the common law offence of cheating the revenue offence, or conspiracy to cheat under S 1(1) of the Criminal Law Act 1977, where the ‘VAT’ evaded in the fraud is often referred to as ‘monies purporting to be VAT’. Indictments may also include offences relating to converting or removing the proceeds of criminal conduct from the jurisdiction of the UK authorities, contrary to Proceeds of Crime Act 2002 ss 327-329. In the alternative HMRC have adopted a strategy of withholding monies to the UK Exporter (whom reclaims) thereby forcing that entity to lodge a civil appeal before the VAT and Duties Tribunal (now the First-Tier Tax Tribunal). These appeals are part of the Civil regime however HMRC use leading criminal prosecution barristers to argue their case before the Tribunal. Our team of Specialist Tax lawyers know precisely what expert and other evidence will be required of Appellants to mount a successful appeal and to provide a thorough rebuttal to HMRC’s often completely unfounded accusations as to the Appellant’s knowledge of VAT fraud elsewhere in the supply chain. ## How can companies protect themselves from MTIC fraud? If companies do not exercise due care initially then HMRC may demonstrate that the company knew or should have known that the trading was linked to fraudulent tax losses. The following signs below are considered red flags by HMRC that you may potentially be dealing with a MTIC fraudster. - Newly established or recently incorporated companies with no financial or trading history. - Contacts have a poor knowledge of the market and products. - Unsolicited approaches from organisations offering an easy profit on high-value/volume deals for no apparent risk. - Repeat deals at the same or lower prices and small or consistent profit. - Instructions to make payments to third parties or offshore. - Individuals with prior history of wholesale trade in ‘high value, low volume’ goods such as computer parts and mobile phones. - Unsecured loan with unrealistic interest rates and/or terms. - Instructions to pay less than the full price (and often even less than the VAT invoiced) to the supplier. - Established companies that have recently been bought by new owners who have no previous involvement in your sector - New companies managed by individuals with no prior knowledge of the product, who hire specialists from within the sector. - Entities trading from residential or short-term lease accommodation and serviced offices. ## Expert London VAT & MTIC Disputes Lawyers A large number of companies can get implicated in MTIC carousel fraud. We have the experience and knowledge to assist and defend allegations against our clients in either the civil regime before the courts and the tax tribunals or before the criminal courts. We can also advise our clients on how best to avoid being affixed with constructive notice (the legal concept that a trader should have known) of fraud in the supply chain by having stringent due diligence procedures in place. **Has HMRC made you a part of an extended verification exercise or visited and served you with Notice 726? We have a wealth of experience and are able to provide clear advice to assist you in managing HMRC’s investigation and in improving your Due Diligence process. Our Tax Disputes Solicitors and Barristers are here to help you. ** **To contact one of our specialist VAT Lawyers please email contact@lexlaw.co.uk ****or call 02071830529.** --- # HMRC Tax Appeals Source: https://taxdisputes.co.uk/hmrc-tax-appeals/ Our London Tax Solicitors and Barristers have vast experience of tax laws and first hand commercial, litigation and advocacy experience . We have a proven track record of successfully contesting disputed tax assessments and penalties with HMRC. The tax authorities have lost many cases that are appealed through negotiation, internal review or through the Tax Tribunal. Our team of expert Tax Solicitors and Barristers provide our clients with advice in relation to: - appealing against a tax assessment;- appealing against a tax penalty;- negotiating with HMRC;- navigating the HMRC internal review process; and- advising on statutory tax appeals within the Tax Tribunal. ## Expert London Tax/Penalties Appeals Lawyers If you need HMRC Tax Disputes advice, we are available to aid you at every stage of the HMRC appeals process. Members of our legal team have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the HMRC internal review process and in front of the Tax Tribunal. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect including developing a strategy. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk). --- # HMRC Enforcement Action Source: https://taxdisputes.co.uk/hmrc-enforcement-action/ [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) can enforce tax debts in a number of ways and it is imperative that you seek legal advice at the earliest opportunity to protect your position. If you have received a [statutory demand](https://windinguppetitionsolicitors.co.uk/debt-recovery-claims-pre-action-protocol/), you must act quickly (usually within 18 days) if you hope to avoid HMRC bankrupting you as an individual or applying for a winding up petition if you are a company. With debt enforcement by HMRC it is inevitable that unless action is taken the demand will eventually lead to the presentation of a[ winding up](https://windinguppetitionsolicitors.co.uk/) or [bankruptcy petition](https://windinguppetitionsolicitors.co.uk/debt-recovery-claims-pre-action-protocol/). Our tax team work closely with our [insolvency team](https://windinguppetitionsolicitors.co.uk/expert-advice/) to manage the HMRC enforcement process for you. Many specialist tax firms cannot offer dual expertise in both practice areas, but our firm can provide a bespoke solution to your individual circumstances be it with tax advice or insolvency solutions. ## Instruct specialist HMRC Debt Enforcement Lawyers Our specialist [HMRC Debt Enforcement Solicitors and Barristers](https://taxdisputes.co.uk/expert-advice/) deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. **We provide urgent advice and representation to clients from our unique expert team of established HMRC debt action specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk).** ### Share this: --- # HMRC Security Notices Source: https://taxdisputes.co.uk/legal-representation/hmrc-notice-requirement-tribunal-appeals-solicitor-legal-advice/ ## When can HMRC Issue a Notice of Requirement to give Security for PAYE, NICs or VAT? If you or your business have failed to pay a [VAT](https://www.gov.uk/government/publications/securities-in-respect-of-vat-at-risk) return or assessment or [PAYE/NIC](https://www.gov.uk/government/publications/securities-in-respect-of-paye-and-national-insurance-contributions) bill to [HMRC](https://www.gov.uk/money/tax-compliance) on time then Revenue may demand a bond or deposit as security to settle future tax liabilities. HMRC ask you to pay the security as they think there’s a risk you will not pay your tax or duty on time. If you do not pay your tax bill HMRC use the security to settle it. There are a number of ways to defeat such security demands from [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) and *you should act promptly and take legal advice at the outset *as HMRC have the power to issue personal liability demands on directors and to refer unpaid security notices to the Crown Prosecution Service for prosecution resulting in substantial fines and criminal record for the director(s). ## Notice of Requirement Letter from HMRC Indv and Small Business Compliance Team? If you or your company have outstanding debt owed to HMRC in respect of PAYE, NIC, VAT, Corporation Tax, or CIS, you may receive a 'Notice of Requirement to give Security' letter from the HMRC Securities Team (Indv and Small Business Compliance). The letter may also come from 'Fraud Investigation Service - Securities Team.' This can be intimidating and is designed to be however this letter does not necessarily signify a tax fraud investigation but it is the ringing bell that you could become guilty of a Criminal Offence if you fail to pay the security notice. The HMRC Securities Team sends these letters to both the relevant limited company and the directors personally making you jointly and severally liable for the security notice. Receiving such a letter is a serious matter, as non-compliance with the requirement is a criminal offence. It is crucial to promptly address this situation and seek appropriate legal advice to ensure the situation with HMRC is managed carefully and your rights are protected (for example by an appeal to the First Tier Tax Tribunal). Our tax defence team is ex-HMRC and ex-Big 4 (PWC and Deloitte) - we're here to assist you in effectively navigating through these matters and achieving the best possible outcome. Our tax team is composed of heavily experienced and leading tax solicitors and barristers who can handle your Security Notice tax dispute. Our leading counsel was formerly in-house at HMRC and has has lead two of the Big 4 accountancy tax litigation disputes practices (PWC and Deloitte). Our lawyers have decades of expertise in dealing with complex tax matters, and are deft at negotiating with HMRC and handling tax appeals before the First-Tier and Upper-Tier Tax Tribunals and in the High Court, Magistrates Court and Crown Court. [![Defend HMRc Security Notice for PAYE or VAT Solicitor London Tax notice of Requirement barrister](https://taxdisputes.co.uk/wp-content/uploads/2024/06/HMRC-Security-Notice-VAT-PAYE-NIC-Solicitor-Prosecution-Magistrates-Legal-Advice-Help.png)](https://taxdisputes.co.uk/wp-content/uploads/2024/06/HMRC-Security-Notice-VAT-PAYE-NIC-Solicitor-Prosecution-Magistrates-Legal-Advice-Help.png) ## What is a HMRC Notice of Requirement to give Security (NOR)? The Notice of Requirement to give security (NOR) is a formal written notice issued by HMRC to a taxpayer that it requires security from by a specified date. If not paid it can lead to criminal liability and a trial in the Magistrates Court. Usually a notice of requirement is not sent in the first instance as HMRC mostly gives a warning first, unless they feel there is a real risk that doing so will make you less likely to pay the taxes owed. A Notice of Requirement (NOR) to give security states: - The amount that is due; - The time by which the amount due must be paid; and - The available modes of payment ## Is it a Criminal Offence not to pay dues after receiving Notice of Requirement (NOR)? Receiving a notice of requirement is a matter not be taken lightly as not complying with requirements that if not adhered is a criminal offence. Similarly, in not responding to the notice a director of a limited company may become personally liable for the due amount requested. Yes, it is a criminal offence to continue to make or receive taxable supplies without giving the security shown on a notice of requirement. Taxable supplies mean the supply of any goods or services that are taxable under the Laws of England & Wales. This includes supplies made between members of a group registration. If you have received a notice of requirement and you continue to make taxable supplies without giving the security in full, you may be prosecuted. In the event of a successful prosecution, you may have to pay a fine of up to £20,000 for each taxable supply you make without giving the security.  If you're involved in a business that continues to make or receive taxable supplies without giving the security, you may be prosecuted along with each individual involved in that business. You may also be personally responsible for paying any fines and compensation awarded by the court. ## What are the CPS Criminal Charges for not paying a HMRC Security Notice of Requirement? Here are the typical charges you could face from the Crown Prosecution Service (CPS) on behalf of HMRC under the Prosecution of Offences Act 1985: > *[NAME] on [DATE] in [AREA] having been required by an officer of Revenue and Customs, failed to give security, or further security, in respect of National Insurance contributions , which you were required to pay under a Notice of Requirement dated [DATE], for the payment of amounts for which you were accountable to HM Revenue and Customs in accordance with Part 3B of Schedule 4 to the Social Security (Contributions) Regulations 2001 Contrary to Section 684(4A) of the Income Tax (Earnings and Pensions) Act 2003 Contrary to section 684(4A) Income Tax (Earnings and Pensions) Act 2003. (IT03001).* > > > Typical charges laid by CPS for NICs > [NAME] on [DATE] in [AREA] having been required by an officer of Revenue and Customs, failed to give security, or further security, in respect of Pay As You Earn, which you were required to pay by a Notice of Requirement dated [DATE], for the payment of amounts for which you were accountable to HM Revenue and Customs in accordance with Part 4A of the Income Tax (Pay As you Earn) Regulations 2003 Contrary to Section 684(4A) of the Income Tax (Earnings and Pensions) Act 2003 Contrary to section 684(4A) Income Tax (Earnings and Pensions) Act 2003. (IT03001) > > > Typical charges laid by CPS for PAYE ## How much Security can HMRC Request? HMRC can request 4-6 months of payments up front, plus an amount equal to the current arrears.  If you were 6 months behind in payments, they would request a years’ worth of tax or duty to be paid, up front, or face the consequences. ## What happens if you don't pay a HMRC Security Notice? - PAYE is HMRC system to collect Income Tax and National Insurance from employment & Class 1 National Insurance contributions (paid by the employer) on benefits and expenses to their employees and qualifies them for other state benefits; it is a criminal offence not to give the security in full. In this instance, the HMRC can take you to Court and they may fine you up to £5,000. - For VAT, Landfill Tax, Aggregates Levy, Insurance Premium Tax & Climate Change Levy; It is a criminal offence not to give the security in full. HMRC can take you to Court and they may fine you up to £5,000 for each taxable supply made. - In case of an NOR sent for Machine Games Duty, the HMRC have the ability to take away your registration and if you are not yet registered anyone in a business contract with you may become liable to pay your duty. ## How long can HMRC keep the security following a notice of requirement? - In the case of an NOR for PAYE or Class 1 National Insurance contributions, the HMRC may retain your security for **2 years,** however once HMRC believe there is no risk of you not paying your tax on time, they will return the security sooner. - For VAT, Landfill Tax, Aggregates Levy, Insurance Premium Tax & Climate Change Levy; 12 months for a business on monthly returns or 2 years for a business on quarterly returns - For Machine Games Duty, the HMRC will return the security sooner if they think there’s no longer a risk you won’t pay on time. ## How we can offer assistance in removing an NOR? We can offer assistance and draft a Time-to-Pay Arrangement, to offer the HMRC as an alternative arrangement to the Security Notice. Such an arrangement is agreed by HMRC, as it conveniently settles the arrears in a timely fashion and enables the business to maintain ongoing liabilities. With the right approach and advice, the HMRC will more than likely remove the Security Notice served upon you. Depending on the circumstances of the business, it may be possible to appeal and get the Notice removed, for instance; - If an office holder (usually Director) of the new company was not directly responsible for the failures of the previous business he was associated with, it is unreasonable of HMRC to ask for security in such circumstances. - If a previous business failed for reasons beyond its control. For example, a major customer going bust and the knock on effect causing failure, again, it may be considered unreasonable to ask for security from such a business and a possible appeal may lie. - In case of a new business (picking up after a failed Company) is financially sound and has its returns submitted on time and paid in full, it may not be reasonable to request security as it would be nearly impossible to justify a revenue risk. - If HMRC have failed to conduct thorough enquiry into the new company, they could not possibly be in any position to assess potential risk to revenue therefore, it would be unreasonable to demand for security. [![Fight Defend HMRC Notice Requirement Security VAT PAYE](https://taxdisputes.co.uk/wp-content/uploads/2024/06/Defend-Defeat-HMRC-Requirement-Security-Notice-VAT-PAYE-Solicitor-Prosecution-Magistrates-Court-Legal-1024x585.png)](https://taxdisputes.co.uk/wp-content/uploads/2024/06/Defend-Defeat-HMRC-Requirement-Security-Notice-VAT-PAYE-Solicitor-Prosecution-Magistrates-Court-Legal.png) ## Can I appeal the notice of requirement? Yes. We have a proven track record of successfully appealing securities following a notice of requirement from HMRC and preventing them instigating criminal proceedings against directors. Our [specialist Tax Solicitors and Barristers](https://taxdisputes.co.uk/) deliver expert technical knowledge, strong negotiation skills and advice which can make a pronounced difference to eventual tax penalties, charges and liability. ## The HMRC Appeal Process If you disagree with HMRC's notice of requirement, there is a 2-stage process to dispute their decision: **Stage 1**: Give notice of appeal to HMRC. This must be done in writing within 30 days of HMRC’s notice of their notice of requirement. HMRC will confirm their first decision, amend their decision or agree with the your assessment. **Stage 2**: If your position cannot be agreed with HMRC in stage 1 then you have two further options: **i.** HMRC can offer an internal review of the disputed decision (note that you can request this at any time). The review is an entirely internal procedure completed not by the original HMRC decision maker but by a different HMRC officer. **ii.** A taxpayer can appeal to the First Tier Tax Tribunal if the taxpayer cannot agree their position following the review. The independent tribunal will make a determination on the case. A further appeal is permitted if a taxpayer does not agree with the decision. More detailed guidance on HMRC Penalty Appeals can be found: [here](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/). ## Case Study: D-Media Communications v HMRC [2016] UKFTT 430 (17 June 2016) D-Media Communications made an appeal against the decision of the HMRC to issue a Notice of Requirement to require security to be given for PAYE and NIC under Part 4A of the Income Tax (Pay As You Earn) Regulations 2003 (‘PAYE Regulations’) and Part 3B of Schedule 4 to the Social Security (Contributions) Regulations 2001 (“NICs Regulations”). It required an amount of security to be given in relation to PAYE of £79,127.55, and in relation to NICs, £68,007.33.  The total amount of security required was therefore £147,134.88.  The period for which the security was required to be given was 24 months and the date stated for the giving of the security was 13 October 2015. At the time of the decision to give the Notice of Requirement, the HMRC officer took into account the facts that D-Media had PAYE and NICs debts dating back to June 2014, that Real Time Information (RTI) returns had been rendered without payment in full, that 14 RTI returns remained unpaid, that the last remittance had been paid in January 2015 and set off against the September 2014 debt and that the total debt for 2014/15 and 2015/16 amounted to £111,366.71. The grounds taken for appeal were that the HMRC failed to thoroughly investigate the matter and had it done so, it would have arrived fair and just conclusion that security was neither appropriate nor required. The tribunal allowed the appeal and the NOR was varied to the extent of substituting for the sum of £147,134.88 the revised sum of £25,000 to be paid within 30 days of the decision. ## Case Study: William Martland v The Commissioners for HM Revenue and Customs (Tax) [2018] UKUT 178 (TCC) (1 June 2018) The FTT had refused the appellants application for permission to notify a late appeal to the FTT in connection with an assessment of Excise Duty of £24,694 and a related wrongdoing penalty of £9,507. Accordingly, it struck out the appeal. The appellant sought permission to appeal against the FTT decision on two grounds; Firstly, that the FTT had wrongly mixed together two questions that it was required to consider separately, namely (a) the reason for the delay; and (b) the consequences of a refusal to extend time. Secondly, that the FTT had clearly been wrong to find there was no sufficient reason for extending time to appeal, which should be the exception rather than the rule. The Upper Tribunal found no error of law in the FTT’s decision and therefore no basis to interfere with it and subsequently dismissed the appeal. ## Case Study: Pachangas Mexican Restaurant Ltd v HMRC [2019] UKFTT 436 (TC) The appellant had received a notice of requirement to give security but it did not disclose any reason for the decision, upon further inquiry by the appellant he was informed that due to his business links with non-compliant businesses, he was taken to be at risk of the same. Due to failure to provide reasons for Notice to require giving of security, and not being afforded any chance of making representations, or to comment upon any of the facts before the decision was made, was found to be a serious shortcoming on the part of the HMRC. Without deliberating on any findings of fact, the Tribunal held that the decision dated 27th September 2017 was quashed and the Notice was subsequently set aside. ## Case Study: Swann v Revenue & Customs [2020] UKFTT 176 (TC) (02 April 2020) The Tribunal followed the guidance set out in *Martland vs HMRC* [[2018] UKUT 178 (TCC)](https://www.bailii.org/uk/cases/UKUT/TCC/2018/178.html). A couple of factors were taken into account to consider whether the appeal could be admitted after the time for it had lapsed; the delay was just five days and so neither serious nor significant, that the Appellant’s explanation for his delay was that he had been on holiday in late September 2019 when the review decision was received and then ill, the possible prejudice to the Appellant if the appeal was not admitted, and that the Respondents did not object to an extension of time being granted, which indicated that they would suffer no prejudice if the appeal was admitted. The appeal was admitted and then the issue to be considered were whether it was reasonable for the Respondents (HMRC) to require security, whether, in the circumstances of this case, the security was sought from an appropriate person, whether the amount sought was appropriate, and the length of time over which the security should be held. The Appellant has failed to satisfy that the decision to require security from him, as director and shareholder of Auto Claims (UK) Limited, was unreasonable.  However, because the reviewing officer did not take into account the six payments of PAYE and NICs made by Auto Claims (UK) Limited in August 2019, the tribunal found that there was an incorrect calculation of the security therefore, the Respondents were required to recalculate the security which was required, using their standard formula and using the figures as at 23 September 2019. The tribunal allowed the appeal to the extent of varying the security calculated under the Notice of Requirement was varied. ## Case Study: Eunoia Initiatives v Revenue & Customs (VAT - Notice of Requirement to provide security) [2021] UKFTT 65 (TC) (09 March 2021) The issue was that the appeal was made out of time against a Notice of Requirement to Provide Security (NOR) in relation to VAT issued by HMRC. The appeal was made 16 months and 1 day late. To consider whether the delay in appeal could be allowed, *Martland vs HMRC* [[2018] UKUT 178 (TCC)](https://www.bailii.org/uk/cases/UKUT/TCC/2018/178.html) was followed as guide. The point at issue was whether the there was any reasonable excuse for the significant delay. The reason for the delay was that the director of the Appellant was not aware (despite the NOR setting it out) that there was a right of Appeal. She had passed the NOR straight on to her solicitors and the next correspondence she had received failed to mention appeal rights. The tribunal found that due to considerable prejudice to the Appellant and the director, and the fact that they consistently engaged with HMRC, meant that the overall circumstances of the case did merit the full facts case being heard, notwithstanding the considerable delay in the making of the appeal, therefore the appeal was allowed. ## Case Study: FMC (Fabrics Maintenance Contractors) Ltd v Revenue And Customs (VALUE ADDED TAX - Notice of requirement to provide security) [2021] UKFTT 233. The tribunal had to address whether or not the decision by the Respondents to require the Appellant to provide the level of security which they have was unreasonable. It was found that the security required was not unreasonable as there were substantial arrears of VAT owing by the Appellant at that time.  That alone was indicative of the fact that requiring the Appellant to provide security of some sort might not be unreasonable.  However, when that was coupled with the extensive defaults by the Appellant in the previous few years, the decision to require security was, eminently reasonable.  Some support for the conclusion that past defaults are a highly relevant matter to consider in this context may be found in the earlier first instance decisions in *Lewis Ball* and *Southend United.  *Those decisions suggest that the Respondents (HMRC)’ power to require security for the protection of the revenue may reasonably be exercised in any case where there has been habitual and persistent late payment in the past.  Even if a taxpayer genuinely intends to meet its VAT obligations in full in due course that does not mean that it will inevitably succeed in doing so.  It is perfectly possible that, despite those intentions, it will be forced into insolvent liquidation at a time when it owes a considerable amount of VAT to the Respondents. The Appellant could not satisfy the Tribunal that the decision of the HMRC  to require security of £100,779.39 as set out in the NOR was unreasonable under the circumstances and therefore the appeal was subsequently dismissed. ## Legal Representations against a Notice of Security We have successfully defended clients against NOR Security cases and can challenge HMRC notices of intention to impose a security by making written representations against the Imposition of a Notice of Security. We can help you at every stage of the HMRC appeal process and have defended CPS prosecutions. Our legal team has first-hand experience and [knowledge of how HMRC works](https://lexlaw.co.uk/hmrc-tax-investigation-penalty-advice-solicitors/) at every level at First-Tier and Upper-Tier Tax Tribunals and at the Magistrates Court (with appeals to the Crown Court). We understand the legal process in relation to Security Notices.  We provide the [very best representation](https://taxdisputes.co.uk/success/) in negotiations with HMRC and defending all allegations in a tax enquiry, [tax fraud investigation](https://taxdisputes.co.uk/hmrc-duty-evasion-fraud/), [criminal tax evasion](https://taxdisputes.co.uk/tax-evasion-hmrc-code-practice-9-investigations/) or similar investigation including in defending against the imposition of a Security and CPS prosecutions for failure to pay such Security notices on the basis of reasonableness or ongoing Tax Tribunal appeal (we are able to make appeals out of time).  --- # HMRC Statutory Demand Source: https://taxdisputes.co.uk/hmrc-statutory-demand/ ## Can I challenge a statutory demand from HMRC? Yes. If you have been served a statutory demand you have the right to apply to court to set aside the statutory demand (pursuant to [rule 10.4 of the Insolvency Rules 2016](http://www.legislation.gov.uk/uksi/2016/1024/article/10.4/made)). You must act quickly (usually 18 days) to avoid the creditor applying to bankrupt you (if you are an individual) or present a winding up petition (if you are a company). ## When must the application to set aside HMRC's statutory demand be made? It is important to ascertain when the statutory demand was served upon you (and essentially whether it was validly served). An application to set aside a statutory demand must be made within **18 days** from the date the statutory demand was served. ## Can a statutory demand from HMRC be set aside outside the time limit? The advice would always be to adhere to the deadline and apply to have the statutory demand set aside within the 18 day window as far as practicable. However, the Court may consider an application to set aside a statutory demand outside the time limit (note: this discretion only applies if the creditor has not requested for a [bankruptcy petition](https://bankruptcypetitionandannulmentlaw.co.uk/defending-a-bankruptcy-petition/) to be issued yet). It is imperative to [seek legal advice](https://bankruptcypetitionandannulmentlaw.co.uk/) as soon as a statutory demand is served upon you, otherwise you may not be able to set aside the statutory demand in time. ## What if I agree that I am liable for the debt in HMRC's statutory demand? If you agree that the debt is due, tax debtors in that situation may wish to instruct a solicitor experienced in insolvency to negotiate a settlement plan with the creditor (or their solicitor if they have legal representation). It is important to try and negotiate a settlement plan within the **21 day** statutory demand period, some options to consider are (note: these options do not constitute legal advice): - instalment plan;- consider refinancing or a bridging loan;- offer a voluntary charge against your property to secure the debt;- obtain a personal guarantee from a relative or friend;- negotiate a reduction in the debt to less than £5,000 (therefore the creditor will then not be able to issue a bankruptcy petition); or- apply for an individual voluntary arrangement (to agree an arrangement to pay your debt in instalments over a defined time period). ## How do I apply to have a statutory demand set aside? ### 1. Ascertain the reason why the statutory demand should be set aside The Court can set aside a statutory demand if any of the following reasons apply (pursuant to [rule 10.5(5), Insolvency Rules 2016](http://www.legislation.gov.uk/uksi/2016/1024/article/10.5/made)): - the tax debtor appears to have a counterclaim, set-off or cross demand which equals or exceeds the amount of the debt specified in the statutory demand;- the tax debt is disputed on grounds which appear to the court to be substantial i.e. you believe that HMRC's tax assessment is factually wrong;- it appears that HMRC holds some security in relation to the debt claimed by the demand, and either rule 10.1(9) is not complied with in relation to it, or the court is satisfied that the value of the security equals or exceeds the full amount of the debt; or- the court is satisfied, on other grounds, that the demand ought to be set aside. The Court will also consider other reasons to set aside a statutory demand including: the statutory demand has not been issued in the correct manner, you owe less than £5,000 or you have a legal defence to court action being taken against you. ### 2. Find the right court The statutory demand should contain the information about where and how an application can be made to set aside the statutory demand. For example, if the statutory demand is from [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) and the demand states that the petition will be presented in the [High Court](https://www.judiciary.uk/you-and-the-judiciary/going-to-court/high-court/), then an application to set aside the statutory demand should be made at the High Court. ### 3. Complete application form IAA You can download a word version template Form IAA [here](https://bankruptcypetitionandannulmentlaw.co.uk/wp-content/uploads/iaa-eng.doc). Guidance notes can be found [here](https://bankruptcypetitionandannulmentlaw.co.uk/wp-content/uploads/iaa-n-eng.docx). It is important to seek [legal advice](https://bankruptcypetitionandannulmentlaw.co.uk/expert-legal-advice/) when completing Form IAA because all relevant information must be included such as the grounds for dismissing the statutory demand, the date you became aware of the statutory demand and copies of the demand and any evidence which you have sought to rely on. ### 4. Draft a witness statement in support of the application Depending on the facts of your case, a witness statement can be submitted to the Court in support of the application. [Legal advice](https://bankruptcypetitionandannulmentlaw.co.uk/expert-legal-advice/) should be sought when drafting the witness statement, [guidance notes](http://www.justice.gov.uk/courts/procedure-rules/civil/standard-directions/general/witness-statements) on the [Civil Procedure Rules](http://www.justice.gov.uk/courts/procedure-rules/civil/rules) states that a witness statement must: - start with the name of the case and the claim number;- state the full name and address of the witness;- set out the witness’s evidence clearly in numbered paragraphs on numbered pages;- end with this paragraph:  ‘I believe that the facts stated in this witness statement are true.’ and- be signed by the witness and dated. ### 5. Attend a hearing If the Court is satisfied that there is a good reason for the application then you (or your solicitor) will receive a notice of hearing from the Court which contains the date, time and location of the hearing to set aside the statutory demand. Our [specialist insolvency team](https://bankruptcypetitionandannulmentlaw.co.uk/) can arrange representation for you at the hearing. It is recommended that you attend Court as well in support of the application. We are based in the [City of London](https://web.archive.org/web/20200622210953/https://www.cityoflondon.gov.uk/Pages/default.aspx) but provide national coverage by either attending the hearing ourselves or by arranging counsel local to you to attend the hearing with instructions from us on how to proceed. ## Next steps after an application to set aside a statutory demand from HMRC is dismissed You may be liable for HMRC's costs of and occasioned by the failed application to set aside the statutory demand. HMRC can then straight away make a bankruptcy petition to make you bankrupt. Our team provides expert guidance on the bankruptcy process. Our [FAQs](https://bankruptcypetitionandannulmentlaw.co.uk/bankruptcy-faqs/) provide a comprehensive guide on the bankruptcy rules. ## Instruct specialist statutory demand solicitors We provide a no cost initial case review to establish whether or not we can help you. We are a specialist [City of London](https://web.archive.org/web/20200622210953/https://www.cityoflondon.gov.uk/Pages/default.aspx) law firm made up of Solicitors & Barristers and based in the [Middle Temple Inns of Court](https://www.middletemple.org.uk/) adjacent to the Royal Courts of Justice.  We are experts in dealing with matters surrounding insolvency in particular issues.  Our team have unparalleled experience at serving [statutory demands](https://bankruptcypetitionandannulmentlaw.co.uk/statutory-demands/), negotiating with debtors/creditors, setting aside statutory demands and both [issuing](https://bankruptcypetitionandannulmentlaw.co.uk/declaring-yourself-bankrupt/) and [defending](https://bankruptcypetitionandannulmentlaw.co.uk/declaring-yourself-bankrupt/) bankruptcy petitions vigorously at the [Bankruptcy Court](https://www.gov.uk/courts-tribunals/insolvency-list), at the [Royal Courts of Justice](https://www.find-court-tribunal.service.gov.uk/courts/royal-courts-of-justice) (Rolls Building), or the relevant High Court District Registry or County Court with jurisdiction under the Insolvency Rules. --- # Judicial Review applications against HMRC Source: https://taxdisputes.co.uk/judicial-review-applications-against-hmrc-challenge-decision-advice/ *Judicial review is the procedure whereby the court can consider the lawfulness of a decision made by a public body. A judicial review claim may be bought against legislation or public bodies, including HMRC.* *Judicial review is generally only available where there is no adequate alternative remedy.* ## What claims would lend themselves to Judicial Review? HMRC have a duty to act fairly and lawfully at all times. However, more and more taxpayers are finding that HMRC are falling short of this mark. A claim for judicial review may be brought by an individual if any of the following criteria ### Illegality Where a public body such as HMRC acts *ultra vires *(beyond the powers conferred on them) then they would have acted illegally. ### Irrationality This is also known as *[Wednesbury](https://taxdisputes.co.uk/wp-content/uploads/2020/02/Associated-Provincial-Pictures-v-Wednesbury-Corporation-1948-1-KB-223.pdf) *unreasonableness. One formulation of this test is that to be considered unreasonable or irrational it must be: > "So outrageous in it s defiance of logic or accepted moral standards that no sensible person who had applied his mind to the question to be decided could have arrived at it". > > Council of Civil Service Unions -v- Minister for the Civil Service [1985] AC 374 ### Procedural impropriety There are two fundamental pillars to procedural impropriety described as the rule against bias and the right to be heard. Additionally, there is a right to be given the reasoning for a decision made by a public body. The courts must determine that there is a real possibility of bias. > The question is whether the fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased. > > Magill -v- Porter [2001] UKHL 67 103 ### A breach of legitimate expectations This is a discrete ground of judicial review where a party is given an expectation that a public body will act in a certain way. This expectation can arise from previous conduct of that body or because of express statements made by them. For a successful legitimate expectation claim in judicial review, there must have therefore been a clear promise or evidence of regular practice made by the public body. ### Breach of Human Rights This is governed by the [Human Rights Act 1998](http://www.legislation.gov.uk/ukpga/1998/42/contents) and may give rise to a judicial review claim: > it is unlawful for a public authority to act in a way which is incompatible with a Convention right. > > Section 6(1) Human Rights Act 1998 If you believe that a decision made by HMRC fulfilled any of the above criteria, you should contact our expert team[ now.](https://taxdisputes.co.uk/contact-us/) ## Is there a time limit to bring my claim? A judicial review claim must be made promptly and in any event no later than 3 months after the grounds to make the claim arose (*[CPR 54.5(1)](https://www.justice.gov.uk/courts/procedure-rules/civil/rules/part54#54.5)*). Note that this date **cannot **be extended by agreement between parties. Therefore, if you believe that you may have a claim against HMRC for judicial review, then you should [seek legal advice promptly](https://taxdisputes.co.uk/contact-us/). ## What are the available remedies for a Judicial Review claim? The following are [remedies](http://www.legislation.gov.uk/ukpga/1981/54/section/31) which The High Court or the Upper Tribunal can provide at a judicial review hearing: - a **declaration**- this is a statement made by a High Court judge which clarifies the law through stating the law as an order;- a **prohibitory order** - an order preventing a public body from acting beyond its powers in the future;- a **quashing order **- sets aside the decision of a public body on the basis that it is invalid ;- an** injunction** - this is sought as a form of interim relief during proceedings which essentially compel a party to act or prohibit them from acting;- a **mandatory order** - this is an order requiring the defendant to carry out a duty that it is obliged to do by law; or - **damages**- whilst there is no right in judicial review to claim damages for losses caused by an unlawful administrative action, it is possible to claim damages if there is another cause of action. If this established cause of action is separate to the grounds under which judicial review is sought, then damages may be a remedy the court will consider. Examples may include: breach of statutory duty, misfeasance in public office or private action in tort. ## Instruct Specialist HMRC Judicial Review Solicitors We have decades of experience in negotiating with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) and [managing appeals](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) against their decisions at all levels. Members of the team include qualified [Tax Solicitors](https://taxdisputes.co.uk/tax-solicitors/) and [Tax Barristers](https://taxdisputes.co.uk/tax-barristers/) whom have vast experience of tax laws and first hand commercial, litigation and advocacy experience including previously working at HMRC as senior Tax Counsel. --- # HMRC Winding-Up Petitions / Statutory Demand Source: https://taxdisputes.co.uk/hmrc-winding-up-petitions/ *The presentation of a [winding up petition](https://windinguppetitionsolicitors.co.uk) is the first stage of compulsory liquidation. It means that the petitioner (creditor) is attempting to have the company compulsorily shut down.  If a [winding up petition](https://windinguppetitionsolicitors.co.uk/opposing-a-winding-up-petition/) is granted by the Court it will ordinarily signal the beginning of the end for the company.* *Legal advice should be taken as quickly as practicable.* *It is important to get urgent legal advice as Directors facing petitions could have [insolvency claims brought against them directors by the eventual liquidator](https://lexlaw.co.uk/solicitors-london/legal-guide-to-defending-claims-from-manolete-partners/) for improper expenditure added to an overdrawn directors loan accounts, unlawful dividends, wrongful trading or transactions at undervalue or preferences. * ## Will HMRC serve a Statutory Demand before a Winding-up Petition? Her Majesty's Revenue and Customs (HMRC), the governmental body responsible for collecting taxes in the UK, follows a standard procedure when pursuing unpaid taxes from a company or individual. This procedure involves several steps, one of which is the issuance of a Statutory Demand. A[ Statutory Demand is a formal notice that serves as a precursor to more serious legal action such as the compulsory winding-up of a company](https://taxdisputes.co.uk/hmrc-statutory-demand/). It is a written demand for the payment of a debt that outlines specific details about the amount owed and provides a specified period for the debtor to respond or settle the debt. Before HMRC takes further legal steps, such as filing a winding-up petition, they first issue a Statutory Demand. A winding-up petition is a legal request to the court for the compulsory liquidation of a company. It is a serious step that, if granted, leads to the closure and dissolution of the company, with its assets being distributed to creditors. By [issuing a Statutory Demand](https://lexlaw.co.uk/statutory-demand-debt-enforcement-recovery-solicitors-london-advice/) prior to a winding-up petition, HMRC aims to give the debtor an opportunity to address the outstanding debt and potentially avoid more severe legal consequences. This initial warning allows the debtor to either make payment arrangements or dispute the debt if they believe there are valid grounds to do so. In summary, the process starts with HMRC issuing a Statutory Demand, providing the debtor with an opportunity to address the debt. If the debt remains unresolved, HMRC may then proceed with more severe legal action, such as filing a winding-up petition. ## HMRC Winding-Up Petitions A winding up petition from [Her Majesty's Revenue and Customs (HMRC)](http://windinguppetitionsolicitors.co.uk/useful-hmrc-contact-details-insolvency-notifications/) is just the same as from any other creditor. A large number of winding up petitions are often filed by HMRC as a result of unpaid taxes. HMRC wound up 4,308 companies last year (2019) which is an increase of 6% on 2018.  When HMRC issues a winding up petition it is normally as a [last resort](https://taxdisputes.co.uk/hmrc-statutory-demand/), with no other option but to shut the company down. If the company has secured creditors, it is by no means certain that HMRC (who are unsecured creditors) will recover all (if any) of the monies they are owed. However, on 6 April 2020 the [House of Commons](https://www.parliament.uk/business/commons/) intends to amend insolvency legislation which will return HMRC to their previous status as preferential creditors. The debt on a HMRC petition will be for a sum of at least £750, and will usually be in the order of tens to hundreds of thousands of pounds. HMRC will generally give the company notice that the amount is now overdue and should be paid as soon as possible. If the amount is not paid, HMRC will serve a [statutory demand](https://taxdisputes.co.uk/hmrc-statutory-demand/) and the company will then have 7 days to pay its debts to HMRC. The monies owed to HMRC could be for the following: - VAT returns; - Unpaid VAT assessments; - PAYE payments; - Employer’s National Insurance Contributions; and - Unpaid corporation tax. ## HMRC Winding-Up Petition Procedure Winding up petitions can be issued by [HMRC if they are owed £750](https://windinguppetitionsolicitors.co.uk/what-is-the-process-of-winding-up-procedure/) or more and the debt is undisputed. [Winding up petitions](https://lexlaw.co.uk/winding-up-petition-court-hearing-representation-advocacy-solicitors-london/) are likely to be served in the High Court, namely the Chancery Division (Companies Court) based at the Royal Courts of Justice (Rolls Building) in London.   Once a winding up petition is issued by HMRC, it is then served on the company usually by a process server visiting the company’s registered office address or sometimes by first class post. ## Can I challenge a winding-up petition from HMRC? In short yes. If your company has been served with a winding-up petition from HMRC, you have the right to challenge it if any of the following grounds apply: - The debt alleged in the petition is genuinely disputed on substantial grounds by the company; - The company has a genuine right to set-off against the creditor which exceeds the amount of monies claimed in the petition; or - Certain other limited circumstances (for example where the Company is likely to become insolvent or there has been a procedural error or delay). ## Advertising the Winding-Up Petition Once a winding up petition has been served, the company has seven business days from the day on which the petition is served to deal with the petition before notice of petition is placed in the London Gazette by HMRC. Once the petition has been advertised it is likely to come to the attention of the company's bank, creditors employees, suppliers and customers. ## Unfreezing of Company Assets: Validation Orders   Where the company’s bank accounts have been frozen, an application for an order validating the disposition of the company’s assets (known as a [validation order](http://windinguppetitionsolicitors.co.uk/validation-order/)) should be made. Considering the application is successful, a validation order will unfreeze the company’s accounts and allow the company to continue trading. The court must be satisfied that the proposed disposals will be at a proper value. ## Can you represent me at my Winding-up petition hearing? [Yes.](https://lexlaw.co.uk/winding-up-petition-court-hearing-representation-advocacy-solicitors-london/) The rules surrounding insolvency are technical and it is unlikely that a someone not versed in personal insolvency laws will achieve a successful outcome. [Winding up](https://lexlaw.co.uk/winding-up-petition-court-hearing-representation-advocacy-solicitors-london/) particularly and insolvency in general is a niche practice area – indeed many solicitors in general practice will rarely have experience in this discipline. Do not underestimate the severe consequences that winding up a company entails. It is likely that [seeking the advice of a specialist insolvency lawyer](https://lexlaw.co.uk/winding-up-petition-court-hearing-representation-advocacy-solicitors-london/) will be of far more benefit to you than ignoring impending proceedings or seeking to conduct the litigation yourself as a layman. [Our team](https://taxdisputes.co.uk/contact-us/) is made of highly experienced and tough negotiators that will fight to get the best results for our clients. We have years of experience of negotiating with creditors and debtors alike from large multi-million pound cases to smaller matters with equally large consequences for the person involved. ## HMRC Petition Advice If you have received a HMRC winding up petition we are able to provide urgent help, advice or representation. We provide expert legal advice from our team of leading HMRC Petition Solicitors or Barristers. *Please note: If you have been warned about your file being passed to HM Revenue & Customs’ Solicitor’s Office or have been served a statutory demand or petition do not delay in contacting us as your matter can be handled more effectively the sooner you contact us. * ## Expert London Tax Investigation Lawyers We can help you at every stage of any[ HMRC Investigation](https://taxdisputes.co.uk/hmrc-tax-investigations/). Our legal team has first-hand experience and [knowledge of how HMRC works](https://lexlaw.co.uk/hmrc-tax-investigation-penalty-advice-solicitors/) at every level, in particular in relation to their legal and complaints teams.  We provide the [very best representation](https://taxdisputes.co.uk/success/) in negotiations with HMRC and defending all allegations in a tax enquiry, [tax fraud investigation](https://taxdisputes.co.uk/hmrc-duty-evasion-fraud/), [criminal tax evasion](https://taxdisputes.co.uk/tax-evasion-hmrc-code-practice-9-investigations/) or similar investigation.  We have a [track record of successfully challenging HMRC](https://taxdisputes.co.uk/success/) decisions and will assist you and appoint forensic support where necessary to provide expert reports. Unlike accountant tax advisers we analyse the merits at the outset and keep them under review and we won’t have to hand over all your confidential data as lawyers have legal advice privilege unlike accountants. Our [specialist Tax Solicitors and Barristers](https://taxdisputes.co.uk) deliver expert technical knowledge, strong negotiation skills and advice which can make a pronounced difference to eventual tax penalties, charges and liability. We provide tax advice and representation against HMRC. [Get in touch ](https://taxdisputes.co.uk/contact-us/)with our expert tax solicitors and barristers so we can get you a result. We provide a quick no cost initial telephone case review to establish whether or not we can help you; just call one of our team on 02071830529. --- # Disguised Remuneration Source: https://taxdisputes.co.uk/disguised-remuneration-loan-charge-hmrc-tax-appeals-lawyers/ *Disguised remuneration schemes have been one of the priorities for HM Revenue and Customs (HMRC) in recent years. These schemes are a form of [tax avoidance](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/), seeking to avoid Income Tax and National Insurance contributions (NICs) by paying users their income as a loan. As there was no intention to repay these loans, they are deemed to be normal income and therefore taxable.* *[The Finance Act (No 2) 2017](http://www.legislation.gov.uk/ukpga/2017/32/contents/enacted) introduced new legislation intending to tax those loans, which date back to 6 April 1999 and remained unpaid as of 5 April 2019. HMRC hoped to raise a staggering £3.2 billion through this new legislation. However, it is currently understood that only 2,000 people have opted to settle with the Revenue for circa £1 billion to avoid further loan charge penalties. It is yet to be clarified if the loan charge will be cancelled following the ongoing[ review](https://www.gov.uk/government/publications/disguised-remuneration-independent-loan-charge-review) commissioned by the Chancellor. * ## What is “disguised remuneration”? [Disguised remuneration schemes](https://bankruptcypetitionandannulmentlaw.co.uk/solicitors-london/new-3-billion-disguised-remuneration-loan-charge-leaves-contractors-facing-bankruptcy/) seek to avoid Income Tax and NICs by paying users their income in the form of loans that are never repaid. However, as the loans were never intended to be repaid, they do not differ to normal income and are therefore taxable. You may have been part of one of these schemes if you worked for someone as a paid: director, employee or contracted worker, and agreed to receive your salary in the form of a loan. Importantly, the understanding would be that this loan would not need to be repaid at any time. These loans are described as disguised remuneration loans. The most common forms of disguised remuneration in recent years have been [Employee Benefit Trusts](https://www.thegazette.co.uk/all-notices/content/101229) (EBTs) and unregulated pension schemes known as [Employer Financed Retirement Benefit Schemes](https://www.gov.uk/expenses-and-benefits-retirement-benefit-schemes), both of which have now been identified by HMRC as disguised remuneration schemes. ## What is the loan charge? This is an anti-tax avoidance measure which was introduced by the [Finance Act 2016](http://www.legislation.gov.uk/ukpga/2017/32/contents/enacted) to recoup losses to the Exchequer from the aforementioned disguised remuneration schemes. The average amount of tax avoided per person was in the region of £20,000 per annum, with a large proportion of those using a disguised remuneration scheme doing so for more than 1 year. The sums involved clearly leaves at least 50,000 people facing a significant tax bill which could force many into [bankruptcy. ](https://bankruptcypetitionandannulmentlaw.co.uk) ## Who is affected? It is [estimated that less than 0.2%](https://www.gov.uk/government/publications/hmrc-issue-briefing-disguised-remuneration-charge-on-loans/hmrc-issue-briefing-disguised-remuneration-charge-on-loans) of individual Income Tax payers in the UK used these schemes, with 65% of that group coming from the business services sector. This includes a variety of professions from management consultants to IT consultants. ## Would I know if I have been part of a disguised remuneration scheme? If you were caught by the aforementioned legislation, then HMRC would have been in contact and initially offered the opportunity to settle, with advantageous terms by 5 April 2019. However, due to the complexity of the claims, this was further extended to 31 August 2019, with many cases still unresolved. If you fall into this group, whereby your claim has been registered but you have not settled, our expert legal team may be able to help. However, if you have not been contacted by HMRC at this point, it may be worth waiting for the Chancellors review, which is meant to be published mid-November. ## What's new? The Chancellor, Sajid Javid recently commissioned a review into loan charges to determine whether the current policy is appropriate to deal with disguised remuneration schemes, which will be published in mid-November. HMRC have advised that those who have settled or in the process of doing so, will not be directly impacted by this and should proceed as before. To keep up-to-date with this matter, subscribe below to receive the latest updates, as and when they occur. ## What we can do for you? - Review your entire matter;- Provide expert advice throughout the entire process;- Represent you in correspondence, interviews and meetings with HMRC;- Collate and prepare all documentation required by HMRC, including Outline Disclosure, Full Disclosure and the Disclosure Report; and- Contesting disputed tax assessments and penalties ## Need Expert Tax Disclosure Lawyers Advice? If you have entered into a disguised remuneration scheme (or any other tax avoidance scheme), it is important you seek legal advice as soon as possible. Whether you are an employer, employee or contractor, our [expert tax solicitors and barristers](https://taxdisputes.co.uk/expert-advice/) can assist you in managing HMRC’s investigation and entering into negotiations by providing [comprehensive legal advice](https://bankruptcypetitionandannulmentlaw.co.uk/) and robust responses to the investigators. Our [tailored team ](https://bankruptcypetitionandannulmentlaw.co.uk/expert-legal-advice/)which also comprises of specialist forensic accountants can calculate what you owe and make representations on your behalf to HMRC. **Our Tax Disputes professionals are available to give information and advice in negotiating penalties and loan charge settlement with HMRC. To contact one of our specialist Tax Lawyers please [click here](https://taxdisputes.co.uk/2011/08/2011/08/2011/07/legal-case-assessment/) or call 02071830529.** --- # Upcoming IR35 changes by HMRC you should know starting in 2020. Source: https://taxdisputes.co.uk/hmrc-ir35/ ## What is IR35 Legislation? The [IR35 ](https://www.gov.uk/topic/business-tax/ir35)is a UK tax legislation introduced by [HM Revenue & Customs](https://www.gov.uk/government/organisations/hm-revenue-customs) (HMRC) in 2000. Its purpose is to ensure contractors pay the right amount of tax and National Insurance by ensuring workers (classed as ‘disguised employers’) cannot use a limited company , to pay less tax as they should be employed directly by the client they are working for and treated as an employee. If a worker is seen as an employee, they would have to pay the same tax and National Insurance as a permanent employee. The government defines IR35 as ‘off-payroll working through an intermediary’. ## Changes to IR35 Legislation? Changes are being implicated into IR35 Legislation due to contractors not paying the correct tax and National Insurance and incorrectly assessing their IR35 status. The non-compliance has reportedly costed HMRC millions therefore the rules are changing in hope to ensure compliance.  IR35 changes are being introduced in April 2020 to move the responsibility for assessing IR35 obligations from the contractor to the end user. The fee payer will be responsible for calculating and paying the related tax and National Insurance contributions to HM Revenue & Customs.  ## Who is affected by IR35 upcoming rules? • Contractors providing services to medium and large businesses; • Fee-payers in the recruitment sector; and • Medium and large businesses in private sector that are end user of the worker’s services. ## Expert London Tax Investigation Lawyers If you need HMRC Tax Investigation advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist[ Tax Solicitors](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. **We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk).** --- # HMRC VAT Investigations Source: https://taxdisputes.co.uk/hmrc-vat-investigations-evasion-input-ouput-double-taxation-tribunal-legal-advice/ If a business is registered for [Value Added Tax (VAT)](https://www.gov.uk/vat-rates) then it must charge [VAT ](https://www.gov.uk/vat-rates)on all products and services and then pass this onto [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs). However, this also allows companies who are registered to reclaim [VAT](https://www.gov.uk/vat-rates) on all the goods and services used by your business. In order to claim [VAT ](https://www.gov.uk/vat-rates)back, it is important to understand what and services you can and can't claim [VAT ](https://www.gov.uk/vat-rates)on. ## What can I claim back on VAT? You can only claim back [VAT ](https://www.gov.uk/vat-rates)on services and goods that are used wholly and exclusively for your business, this could include: office supplies, transport costs and services such as accountancy as they are all used solely for the purpose of the business. If a supplier does not give you back a valid [VAT ](https://www.gov.uk/vat-rates)invoice then in the majority of cases you will not be able to claim [VAT](https://www.gov.uk/vat-rates) back.  If a service or good is used partially for the business and partially for home use, you may also still claim back a proportion of the [VAT ](https://www.gov.uk/vat-rates)that is equal to the amount used by your business. An example of this could be home broadband.  If you raise an invoice and pay [VAT ](https://www.gov.uk/vat-rates)on the expected income however the invoice is not paid by a customer, this is considered bad debt. The [VAT ](https://www.gov.uk/vat-rates)that has been paid on the invoice can then be claimed back from [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)on your next return. Furthermore if the customer then later does pay the invoice the [VAT ](https://www.gov.uk/vat-rates)can then be repaid then.  ## How is VAT recovered? A [VAT](https://www.gov.uk/vat-rates)- registered business has the right to recover the [VAT ](https://www.gov.uk/vat-rates)charged and therefore the recovery can be exercised before a supplier has been paid for the supply in question.  To recover the [VAT ](https://www.gov.uk/vat-rates)a [VAT](https://www.gov.uk/vat-rates)-registered business must complete a [VAT ](https://www.gov.uk/vat-rates)return for the period that is in question. [VAT ](https://www.gov.uk/vat-rates)returns are generally completed quarterly.  To return [VAT ](https://www.gov.uk/vat-rates)through the [VAT ](https://www.gov.uk/vat-rates)return the following is calculated:  - The input tax is subtracted from the output tax that the business is required to pay [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs). - If there is then an excess of recoverable input tax over output tax the business will be able to claim a [VAT ](https://www.gov.uk/vat-rates)return from [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)equal to that excess.  A business must keep the appropriate records to justify the output tax chargeable by the business for the period in question.  ## What proof do I need to reclaim VAT? [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)guidelines dictate that you must have the appropriate documentary evidence to reclaim [VAT ](https://www.gov.uk/vat-rates)and provides the following examples: - [VAT ](https://www.gov.uk/vat-rates)invoices which show all the information required by law- self-billed invoices, with all the required details, and only if [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)has agreed you can use them- less detailed invoices where the tax-inclusive value of the supply is £250 or less- construction industry authenticated receipts for stage payments If the invoice or receipt that you are claiming [VAT ](https://www.gov.uk/vat-rates)for is in your name for goods or services supplied you can not reclaim the [VAT ](https://www.gov.uk/vat-rates)simply by “putting it through the business”, however if the invoice is in someone else’s name i.e. an employee, and the purchase was made for the business, you would be entitled to reclaim the [VAT](https://www.gov.uk/vat-rates).  If you do not have a receipt or invoice to back up the [VAT ](https://www.gov.uk/vat-rates)claim [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)will accept if you can show proof that: - The purchase took place;- The purchase was made for business purposes;- Reasonable checks were made regarding the supplier; and - There was a commercial arrangement between you and the supplier. ## HMRC Penalties for VAT evasion HMRC usually deal with these cases under the civil evasion penalty regime. In relation to VAT and VAT credits, the prescribed penalty is 100% of the amount evaded and with respect to refunds and repayments it is the aggregate of the amount of input tax which was overstated and output tax  which was understated. Penalty mitigation may apply (in terms of a reduction up to 40%) if one is able to self-report and provide an early and honest explanation. Sometimes though, if the case meets one of the criteria for criminal prosecution, then HMRC will seek to commence proceedings in the criminal courts. Intentional evasion of VAT is an offence under section 72(1) of the Value Added Tax Act. The maximum penalty at the Crown Court is 7 years imprisonment and unlimited fine. ## How far back can HMRC investigate tax returns? An investigation will often start by enquiring into last year’s tax return and the time HMRC can go back into your tax affairs varies depending on the seriousness of the charge against you. The tables of time limits in HMRC’s Compliance Handbook provides a [full summary](https://www.gov.uk/hmrc-internal-manuals/compliance-handbook/ch56000). The time limits for Captial Gains Tax, Corporation Tax, Income Tax, PAYE and VAT are all the same. Instead, the amount of time HMRC can go back depends on whether the mistake made was innocent, careless or deliberate according to the [Taxes Management Act 1970](http://www.legislation.gov.uk/ukpga/1970/9/contents/enacted). HMRC will first investigate the most recent tax return. If they find no mistakes, then the investigation will be closed. If HMRC find a mistake was made innocently, then the investigation is permitted to go back 4 years. If HMRC decides the mistake was due to negligence or careless behaviour then the investigation can go back 6 years. If the mistake is construed as a deliberate attempt to avoid the payment of tax, then the investigation can go back 20 years. In any investigation, especially one scrutinising tax returns over many years, it is important to obtain professional legal advice at an early stage. We ensure that you make the right decisions at every stage and challenge HMRC’s requests if appropriate in the circumstances. ## What information will you need to provide during a tax investigation? The initial letter sent by HMRC will normally outline the information required. If the investigation is uncomplicated and in a specific area, then the amount of paperwork will be self-contained. However, other cases will involve years of financial documentation, bank statements and information. HMRC have extensive powers to request information from both you and third parties. As a last resort, HMRC have the statutory power to issue determinations if there is no co-operation. A formal detailed disclosure report is generally only required when an enquiry is opened under [Code of Practice 8](https://taxdisputes.co.uk/tax-avoidance-cop-8-investigations-solicitors-london/) or [Code of Practice 9](https://taxdisputes.co.uk/tax-evasion-hmrc-code-practice-9-investigations/). As specialist Tax Disputes Solicitors we are able to acquire, organise, interpret and present the information required to HMRC on your behalf. ## How long will a tax investigation last? It depends on the scope and nature of the HMRC investigation. The opening letter issued by the HMRC is usually a good guide on the potential length of any investigation. Some tax investigations finish after one letter; other investigations can take months with HMRC consistently requesting more information; and some investigations can be extending to longer than a year if involving complex tax structures or large businesses. It is important to engage professional advice early on to minimise the length of any investigation as we identify any problems quickly and efficiently to get to the heart of the matter. ## Expert London Tax Lawyers If you need [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)Tax Disputes advice, we are available to aid you at every stage of the [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) appeals process. Members of our legal team have first-hand experience and working knowledge of the internal workings of [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs). We can provide you with the very best representation in negotiations, throughout the [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)internal review process and in front of the Tax Tribunal. Our team specialises in successfully challenging [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)decisions and will assist you in every aspect including developing a strategy. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](javascript:;). --- # Excise Duty Appeals Source: https://taxdisputes.co.uk/excise-duty-appeals/ ## What is excise duty? An excise tax is a legislated indirect tax and is chargeable, in addition to any Customs Duty which may be due, on the following goods: - **Alcohol**: including beer, wine, cider, and spirits;- **Tobacco products**: including cigarettes, cigars, rolling tobacco, and chewing tobacco;- **Gambling activities**: including bingo, the National Lottery, machine games, and online games that involved the betting of money; and- **Hydrocarbon fuels:** including light fuels, heavy fuels, biofuels, and road fuels. These goods may be either of UK origin, received following an intra EU movement or imported from outside the EU. The duty falls due at the time when the goods leave any duty suspension arrangements including when: - they are released for consumption or otherwise made available for consumption (generally via the warehouse system) registered trader (REDS) or occasional importer receives them in the UK- a vendor makes a delivery under distance selling arrangements- missing consignments and other dutiable shortages are discovered- goods imported for personal use are then sold or put to commercial use ## I deal in duty-paid excise goods If you intend to import into the UK, or arrange the importation of excise goods that are duty-paid or released for consumption, in another EU Member State for a commercial purpose, the goods will be liable to excise duty in the UK. There are [three different ways](https://www.gov.uk/government/publications/excise-notice-204b-commercial-importers-and-tax-representatives-eu-trade-in-duty-paid-excise-goods/excise-notice-204b-commercial-importers-and-tax-representatives-eu-trade-in-duty-paid-excise-goods) in which duty-paid excise goods can be imported into the UK for a commercial purpose: - the standard UK duty-paid scheme for unregistered commercial importers- the Registered Commercial Importer scheme- distance selling arrangements for sales to private individuals ## What rate applies to my goods? Different rates can apply to different sub categories of goods. In addition to the commodity description and code number each excisable item is allocated a tax type code number (for example, 419 for still or sparkling wine, exceeding 22% alcohol). The codes identify the type and rate of Excise Duty payable. These codes are set out in the [UK Trade Tariff: Box 47(a) tax type codes](https://www.gov.uk/government/publications/uk-trade-tariff-box-47a-tax-type-codes/uk-trade-tariff-box-47a-tax-type-codes). ## I've received a penalty from HMRC If you have failed to pay excise duty on goods e.g. the supply of alcohol, or you have you may be liable for a penalty from HMRC. *"When any person uses spirits or hydrocarbon oils for a purpose that attracts a higher rate of Excise Duty (this is called ‘misuse’), for example, red diesel (normally used in farm machinery) carries a lower duty than diesel for road vehicles if someone uses red diesel in a road vehicle, this is misuse, which is a wrongdoing"* *"For example, someone goes on holiday to France. They buy cigarettes to bring back into the United Kingdom (UK) with the intention of selling them. As the cigarettes were not imported for their own use, they should have paid the duty on them. They have committed a wrongdoing. The person they sold the cigarettes to has also committed a wrongdoing for handling the goods."* HMRC has set out its [guidance](https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/799518/CC-FS12.pdf) on the penalties for excise duty wrongdoing. The penalty percentage will fall within a range depending on whether the wrongdoing was deliberate and whether the disclosure to HMRC was prompted or unprompted. For example, a prompted disclosure of deliberate wrongdoing can result in an additional penalty in the region of 50% to 100% of the tax owed. If you have received a penalty you will normally have a 30 day time limit by which you have to submit an appeal against the penalty. If you dispute the penalty it is important you seek legal advice as soon as possible to protect your position. ## My goods have been seized If you fail to pay excise duty on goods falling within the regime, your goods may be seized and you will receive a Notice of Seizure (Notice 12A). You can [challenge the Notice](https://taxdisputes.co.uk/goods-seized-by-hmrc-consignment-import-jewellery-seizure-cigarettes-tobacco/) and must do so promptly. If you fail to do so in good time, or within any tie limits prescribed by HMRC, you may lose your rights to challenge the Notice in the Tribunal at a later date. The complex nature of the excise duty regime means there are various situations where those involved in the supply chain can become liable, where a duty point has arisen, for unpaid duty and/or can be liable for a penalty. If you are a business dealing in the aforementioned goods it is important to assess your supply chain carefully and carry out adequate due diligence to check who will be paying the excise duty and that it doesn't go unpaid. ## I want to contact HMRC about an excise enquiry ### Online [Send a general enquiry about excise](https://online.hmrc.gov.uk/shortforms/form/CITEX_EGEF) ### Phone Telephone: **0300 200 3700** / Outside UK: **+44 2920 501 261** ### Post HM Revenue and Customs Excise Written Enquiries Team, Ground Floor, Portcullis House, 21 India Street, Glasgow, G2 4PZ  ### Need Expert Tax Advice? If you are unsure of your obligations under the excise duty regime or you have received a penalty from HMRC, it is important you seek legal advice as soon as possible. Whether you are an individual or business, our [expert tax solicitors and barristers](https://taxdisputes.co.uk/expert-advice/) can assist you in managing HMRC’s investigation and entering into negotiations by providing [comprehensive legal advice](https://bankruptcypetitionandannulmentlaw.co.uk/) and robust responses to the investigators. Our [tailored team ](https://bankruptcypetitionandannulmentlaw.co.uk/expert-legal-advice/)which can also comprises of specialist forensic accountants and tax advisors can calculate what you owe and make representations on your behalf to HMRC. #### It is important to obtain legal advice before 5 April 2019. Call us on 02071830529 or complete our online contact form. --- # HMRC Compliance Checks: Coronavirus Job Retention “Furlough” Scheme (CJRS) Source: https://taxdisputes.co.uk/hmrc-compliance-checks-coronavirus-job-retention-furlough-scheme-fraud-investigation-penalty-assessment-appeal/ *Earlier this year, HMRC started sending nudge letters to thousands of employers advising them they may need to repay amounts received under the [Coronavirus Job Retention Scheme](https://www.gov.uk/guidance/claim-for-wages-through-the-coronavirus-job-retention-scheme). HMRC is now investigating the position further by opening compliance checks into a company's affairs. If you received correspondence from HMRC and require advice on an [investigation](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) or to appeal a [penalty assessment](https://taxdisputes.co.uk/hmrc-penalties/), you should seek legal advice as soon as possible to understand your position and take necessary action. * ## What is furlough fraud? The main ways in which a company could commit furlough fraud or abuse of the Coronavirus Job Retention Scheme ("CJRS") include: - Asking a furloughed employee to return to work as a ‘volunteer’ without pay; - Not informing the staff that they have been furloughed, so the worker only finds out when they receive their wages;- Not paying employees the full amount received from HMRC;- Employers making backdated claims that include periods in which the employee was working; - Employers pretending to hire staff shortly prior to the qualifying period to take advantage of the payments. ## What is a compliance check or tax investigation? A compliance check is an enquiry conducted by HMRC into the tax affairs and tax payment history of any UK individual, employee, director or company. A HMRC tax investigation can come in many forms and covers a range of taxes covered under HMRC jurisdiction such as: VAT; income tax; corporation tax and capital gains tax and in this case with [tax support payments](https://www.gov.uk/coronavirus/business-support) granted to businesses as a result of the [coronavirus pandemic](https://www.gov.uk/coronavirus/business-support) e.g. the Coronavirus Job Retention Scheme ("CJRS") i.e. furlough scheme. The type and severity of the investigation is completely dependent on the facts of any individual case. Typically, an investigation generally commences when HMRC notice irregularities in information supplied via a Self Assessment Tax return. A taxpayer will receive a letter from HMRC informing  them that an investigation has been opened into their tax affairs and may include a request for information. It is strongly recommended that you consult a tax lawyer as soon as possible to receive detailed advice on how to take control of the situation and negotiate with HMRC. ## What will happen if employers are found to not be entitled to furlough payments? If employers are found to have not been entitled to their claimed grant, the payments can be clawed back by way of a 100% income tax charge regardless of whether the claim was made innocently or deliberately. Employers will also not be entitled to payments where an employee may have left or the employer has not used the amount to pay the intended costs within a reasonable period. ## How will deliberate furlough fraud be treated? [Deliberate behaviour](https://taxdisputes.co.uk/2020/07/hmrc-tax-investigation-increase-in-furlough-fraud-arrests-allegations-defence-advice/) that is not corrected using the amnesty time limit will also potentially expose employers to HMRC's criminal powers, as well as HMRC's powers to publish details of deliberate tax defaulters in order to 'name and shame'. In July HMRC made it's [first arrest](https://taxdisputes.co.uk/2020/07/hmrc-tax-investigation-increase-in-furlough-fraud-arrests-allegations-defence-advice/) in a 'dawn raid' as part of an investigation into a suspected £495,000 furlough fraud. By August 2020, HMRC had received almost 8,000 reports of furlough fraud on their Fraud Hotline and HMRC have now begun a stream of compliance checks and [tax investigations](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/). ## Can I appeal against a tax investigation being commenced? No, you cannot appeal against an investigation being opened. You must cooperate with HMRC as much as possible and it is recommended to seek legal advice as soon as possible. Once HMRC have concluded their investigation, they may issue a [penalty assessment](https://taxdisputes.co.uk/hmrc-penalties/) following which you have 30 days to appeal the decision. You can appeal in writing by giving [Notice of Appeal to HMRC](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/). HMRC will either confirm their first decision, amend their decision or agree with your assessment. ## How do I appeal a furlough CJRS penalty assessment? If a taxpayer disagrees with HMRC, the taxpayer has the following options: **Stage 1**: **Request a HMRC review**: A taxpayer can appeal in writing within 30 days of HMRC’s notice of their decision. HMRC can offer an internal review of the disputed decision (or the taxpayer can request this procedure at any time). The review is an entirely internal procedure completed not by the original HMRC decision maker but by a different HMRC officer. **Stage 2**: **Appeal to the Tax Tribunal**: A taxpayer can [appeal to the First Tier Tax Tribunal](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) if the taxpayer cannot agree their position following the review. The independent tribunal will make a determination on the case. A further appeal is permitted if a taxpayer does not agree with the decision. There are strict time limits for appealing to the Tax Tribunal and you should seek legal advice as soon as possible. We have a proven track record of successfully contesting disputed tax assessments and penalties with HMRC. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one.The tax authorities have lost many cases that are appealed through negotiation, internal review or through the Tax Tribunal. Detailed advice on HMRC Tax Appeals can be found [here](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/). ## What is a furlough nudge letter from HMRC? You may have received a nudge letter from HMRC which set out a time period for you to take certain action. The intention of the nudge letter is to prompt UK taxpayers into reviewing their tax returns to check whether they need to notify HMRC of any further gains, income or profits which they are yet to disclose. If you are unsure if you have received a “nudge letter” from HMRC, you can see an [example of one here.](https://taxdisputes.co.uk/wp-content/uploads/2020/08/Offshore-letter-represented-customer.pdf) Whether or not a businesses believes they have over claimed or not they have been told they should contact HMRC either way. ## Expert London Tax Investigation Lawyers If you need HMRC Tax Investigation advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. --- # Online sellers face HMRC compliance checks and VAT assessments Source: https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/online-sellers-businesses-vat-compliance-hmrc-tax-liability-fraud-evasion-investigation-penalty-assessments/ There has been a considerable shift towards online businesses and those that operate internationally, particularly following closure of offices and premises as a result of COVID-19 but with the change in business models, consideration needs to be given to legal requirements and tax liability a business may have. If you are an online seller, there are certain checks you must carry out to satisfy HMRC's requirements and there can be consequences for failing to do so. ## Online and distance selling goods in the UK HMRC are monitoring online sellers and can approach businesses directly and via the marketplaces such as Amazon and eBay if they consider businesses to be non-VAT compliant. HMRC can commence investigations and request evidence and proof of compliance with their VAT requirements and can shut down online accounts until this information is provided. Liability to account for and pay VAT falls to the seller. HMRC have published [guidance](https://www.gov.uk/online-and-distance-selling-for-businesses) for businesses which include additional requirements on operators of online platforms to undertake due diligence checks on their sellers. ## Joint and several liability notice to online platforms If HMRC identifies any seller on an online marketplace such as Amazon or eBay that has not met their VAT requirements, they will issue the operator with a [“joint and several liability” notice](https://www.gov.uk/guidance/vat-online-marketplace-seller-checks#hmrc-notifications-for-sellers-who-fail-to-meet-vat-requirements). The operator will then usually have 30 days to stop the seller from offering goods for sale in the UK on the marketplace. ## HMRC's tax investigations into online sellers In 2019, HMRC investigated a total of 7,000 online sellers and flagged 4600 sellers as evading VAT on goods sold in the UK on popular marketplaces such as Amazon and eBay. Many of the online sellers have been shut down as a result of HMRC issuing notices to the selling platforms. HMRC can commence an [investigation ](https://taxdisputes.co.uk/vat-evasion/)into a business at any time. We can advise you from the outset and throughout the process. ## What is VAT fraud? VAT fraud is the simplest and most prevalent form of VAT fraud uncovered by HMRC. Here, VAT registered traders are accused by HMRC of failing to declare their actual or true liability on VAT returns by suppressing sales or inflating purchases, and sometimes both. Cash-based businesses such as restaurants, pubs, taxi firms, and launderettes are the main suspects targeted by HMRC. ## HMRC Penalties for VAT evasion HMRC usually deal with these cases under the civil evasion penalty regime. In relation to VAT and VAT credits, the prescribed penalty is 100% of the amount evaded and with respect to refunds and repayments it is the aggregate of the amount of input tax which was overstated and output tax  which was understated. Penalty mitigation may apply (in terms of a reduction up to 40%) if one is able to self-report and provide an early and honest explanation. Sometimes though, if the case meets one of the criteria for criminal prosecution, then HMRC will seek to commence proceedings in the criminal courts. Intentional evasion of VAT is an offence under section 72(1) of the Value Added Tax Act. The maximum penalty at the Crown Court is 7 years imprisonment and unlimited fine. ## How do I appeal a VAT assessment from HMRC? If a seller has not complied with VAT requirements, HMRC may issue a VAT assessment. If a taxpayer disagrees with HMRC, there is a 2-stage process for a taxpayer to dispute a HMRC decision: **i.** HMRC can offer an internal review of the disputed decision or the taxpayer can request this procedure at any time. The review is an entirely internal procedure not completed by the original HMRC decision maker but by a different HMRC officer. **ii.** A taxpayer can appeal to the First Tier Tax Tribunal if the taxpayer cannot agree their position following the review or within 30 days of the Tax Tribunal. There are strict time limits on appealing to HMRC and the Tribunal so you should seek legal advice as soon as possible. ## Expert London VAT investigation Lawyers Our lawyers have the necessary expertise to effectively liaise with HMRC in respect of any inquiry or investigation, and if necessary assist our clients in either the civil regime before the civil courts/tax tribunals or to defend our clients before the criminal courts. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. --- # Cryptoassets Tax Investigations Source: https://taxdisputes.co.uk/cryptocurrency-cryptoassets-bitcoin-hmrc-tax-investigation-advice/ [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) may investigate your tax affairs if you have invested in cryptoassets, cyptocurrency, and virtual currencies such as [Bitcoin](https://bitcoin.org/en/) (BTC), [Ethereum](https://www.ethereum.org/) (ETH), [Litecoin](https://litecoin.org/) (LTC), [Monero](https://www.getmonero.org/) (XMR), [Zcash](https://z.cash/) (ZEC) and [Ripple](https://www.ripple.com/) (XRP). Our [expert team of established Tax Specialist Solicitors and Barristers](https://taxdisputes.co.uk/expert-advice/) have first-hand experience and knowledge of the internal workings of HMRC. We have extensive experience in advising individuals, employees, directors and corporate clients in relation to serious tax investigations and prosecutions conducted by [Her Majesty’s Revenue and Customs (HMRC)](https://www.gov.uk/government/organisations/hm-revenue-customs). The way a taxpayer responds to HMRC enquiries and investigations can have a substantial bearing on any tax penalties imposed, even where errors are made innocently. Therefore, it is important to take [professional legal advice](https://taxdisputes.co.uk/) early to minimise tax fines, mitigate tax exposure as far as possible and ensure a settlement is reached on favourable terms. If you require advice on any tax investigation against you, [contact](https://taxdisputes.co.uk/contact-us/) our London Tax Solicitors and Barristers for a confidential consultation. ## Why are HMRC investigating cryptoassets? Cryptocurrencies are a new type of asset and are consistently evolving given the fluid nature of the underlying technology and areas in which they are used. Therefore regulations, [investigations](https://taxdisputes.co.uk/hmrc-tax-investigations/) and HMRC [enforcement](https://taxdisputes.co.uk/hmrc-enforcement-action/) of the taxation of cryptos is evolving. HMRC is a powerful investigating authority and has an arsenal of legislative penalties to conduct civil tax investigations and criminal investigations where it is suspected that tax or duty has been evaded, underpaid or under declared, or that a tax fraud has taken place.  ## What are cryptoassets? HMRC define cryptoassets as cryptographically secured digital representations of value/contractual rights that can be transferred, stored or traded electronically. However, HMRC utilise the [Cryptoasset Taskforce report (CATF)](https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/752070/cryptoassets_taskforce_final_report_final_web.pdf) in considering that cryptoassets are not currency or money. ## What is a tax investigation? A [tax investigation](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) is an enquiry conducted by HMRC into the tax affairs and tax payment history of any UK individual, employee, director or company. A HMRC tax investigation can come in many forms and covers a range of taxes covered under HMRC jurisdiction such as: VAT; Income Tax; Corporation Tax and Capital Gains Tax. The type and severity of the investigation is completely dependent on the facts of any individual case. Typically, an investigation generally commences when HMRC notice irregularities in information supplied via a Self Assessment Tax return. A taxpayer will receive a letter from HMRC informing  them that an investigation has been opened into their tax affairs and may include a request for information. It is strongly recommended that you [consult a tax lawyer ](https://taxdisputes.co.uk/contact-us/)as soon as possible to receive detailed advice on how to take control of the situation and negotiate with HMRC. ## Can I appeal against a tax investigation of cryptoassets? No. You cannot appeal against an investigation being opened. However, once HMRC have concluded their investigation and issued a penalty, then you have 30 days to appeal the decision. You can appeal in writing by giving [Notice of Appeal to HMRC](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/). HMRC will either confirm their first decision, amend their decision or agree with your assessment. If your position cannot be agreed with HMRC then two further options are available. HMRC could offer an[ internal review](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/) of the disputed decision (or you can request this procedure at any time). The review is an entirely internal procedure completed not by the original HMRC decision maker but by a different HMRC officer. You could also [appeal to the First Tier Tax Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) if you cannot agree your position following the review. The independent tribunal will make a determination on the case. A further appeal is permitted if you do not agree with the decision. We have a proven track record of successfully contesting disputed tax assessments and penalties with HMRC. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one.The tax authorities have lost many cases that are appealed through negotiation, internal review or through the Tax Tribunal. Detailed advice on HMRC Tax Appeals can be found [here](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/). ## How will I know if I am subject to a HMRC investigation into my cryptocurrency? HMRC will notify a taxpayer in writing when it commences an investigation into their tax affairs. Typically, if HMRC starts a formal civil investigation, a letter will be sent requesting more information. For example, a taxpayer may receive a request for information on a property transaction or further information about a tax return from a local compliance audit. However, if HMRC suspects criminal VAT fraud or high amounts of tax evaded then it may commence criminal investigations. Typically, unlike for a civil investigation, HMRC are unlikely to notify you at the start of the process but instead you will be informed once you receive a letter requesting attendance to a voluntary interview under caution or when you are arrested. Alternatively, even where criminal tax evasion is suspected, HMRC may wish to deal with the investigation through the civil route under Code of Practice 9.  This process offers a taxpayer a civil solution for potentially criminal evasion by allowing a full disclosure under contract (Contractual Disclosure Facility). It is crucial that once under review, [specialist Tax Investigation Lawyers ](https://taxdisputes.co.uk/)are instructed. We regularly liaise with HMRC at formal meetings, agree what the scope of the disclosure should be and prepare the report on your behalf and reach a civil settlement with HMRC.  We have wide-ranging experience in assisting those facing a COP 9 investigation whilst helping to navigate the rigid time-limits and strict rules. ## Which taxes apply to crptocurrency? HMRC does not constitute the purchase and selling of cyptoassets as gambling, therefore taxes do have to be paid once the online currency is sold. In most circumstances, cryptoassets are held as personal investments by individuals (either to make online purchases or for capital appreciation). In this case, individuals will be liable to pay Capital Gains Tax (CGT) when the cryptoassets are sold. In addition, individual taxpayers are liable to pay Income Tax and National Insurance contributions on cryptoassets if they are received from mining, airdrops or their employer as a non-cash payment. ## Do I need to pay tax from investment in cryptoassets? Yes, however, there could be limitations to this. It is likely [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) will now discover [bitcoin](https://bitcoin.org/en/) holdings as they begin to contact the biggest cryptocurrency exchange websites. [Guidance regarding taxation of cryptocurrency ](https://www.gov.uk/government/publications/tax-on-cryptoassets/cryptoassets-for-individuals)was updated this year stating that gains from 2018-19 should be recorded and taxes should be paid by January. It was also stated that losses should be declared also as they can be offset against capital gains.   ## Taxation on cryptocurrency: HMRC example The following is an example of buying and selling cryptoassets which HMRC considers to be taxable: Victoria bought 100 token A for £1,000. A year later Victoria bought a further 50 token A for £125,000. Victoria is treated as having a single pool of 150 of token A and total allowable costs of £126,000. A few years later Victoria sells 50 of her token A for £300,000. Victoria will be allowed to deduct a proportion of the pooled allowable costs when working out her gain: |   |   | Amount | | ------ | ------ | ------ | | Consideration |   | £300,000 | | Less allowable costs | £126,000 x (50 / 150) | £42,000 | | Gain |   | £258,000 | Victoria will have a gain of £258,000 and she will need to pay Capital Gains Tax on this. After the sale, Victoria will be treated as having a single pool of 100 token A and total allowable costs of £84,000. If Victoria then sold all 100 of her remaining token A then she can deduct all £84,000 of allowable costs when working out her gain. ## I have received an assessment from HMRC Our [expert tax solicitors and barristers](https://taxdisputes.co.uk/expert-advice/) can assist you in submitting an appeal to HMRC or the Tribunal and entering into negotiations with HMRC by providing [comprehensive legal advice](https://bankruptcypetitionandannulmentlaw.co.uk/) and robust responses to the investigators. Our [tailored team ](https://bankruptcypetitionandannulmentlaw.co.uk/expert-legal-advice/)which also comprises of specialist forensic accountants can calculate what you owe and make representations on your behalf to HMRC. ## Expert London Cryptocurrency Tax Investigation Lawyers If you need [HMRC Tax Investigation](https://taxdisputes.co.uk/hmrc-tax-investigations/) advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations into your cryptoassets. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. **We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk).** --- # Second Opinion? Source: https://taxdisputes.co.uk/second-opinion/ ## Time for a first-class Second Opinion? Our solicitors & barristers can help by assessing your case prospects. We have dual-qualified lawyers, so if our view is your case has limited merit or high risk we warn you in our first meeting. [Contact Our Team](https://taxdisputes.co.uk/contact-us/)![HMRC Litigation Lawyers in London](https://lexlaw.co.uk/wp-content/uploads/2020/02/LEXLAW-LOGO-400x82-TRANSP-Solicitors-London.png.webp) ### First-class Second Opinions ✔ Discounted fixed fee advice. Some firms offer free meetings with unqualified or junior lawyers and only after you've spent more do you get advice from a senior partner or barrister possibly that the case shouldn't be pursued. Some of our [professional negligence](https://lexlaw.co.uk/practice-areas/professional-negligence-solicitors-london/) cases against lawyers are based on this type of possibly negligent approach. ## How are we different? *We do things differently from all other law firms in England & Wales.* We offer you partner and counsel-led advice in our first meeting, for a heavily discounted fixed fee. That way our best solicitors and barristers can review your litigation case and give you the correct advice at the outset, when it matters the most. Legal advice is just one aspect of getting a solution. The most important thing is what you do with the legal knowledge about your case, how you present it to the other side and how you negotiate your way to the optimal legal settlement. Our lawyers are masters of strategically securing optimal litigation settlement. *Want your case assessed or a second legal opinion?* Call ☎ [02071830529](tel:+442071830529) or message our London litigators: ## Trust in your solicitor matters. - Are you unsatisfied with the advice being given to you by your solicitor in relation to tax disputes? - Is your case being mismanaged? - Are you unhappy with the level of service from your law firm? - Do you feel like you have been overcharged for the work done by your solicitor? - Do you want to transfer your case for an independent, expert and discounted fixed fee review? We can take over your case immediately following our initial consultation with you. We have taken over many cases from clients across all practice areas who have been unhappy with their solicitor at the start of their litigation or part way through the litigation process. We know how to take over a case and we manage the entire process of transferring law firms for you. ## Our Case Transfer Service We do things differently from other law firms in England & Wales. We offer you partner and counsel-led advice in our first meeting, for a heavily discounted fixed fee, during which we will advise you on: - How to transfer your litigation case seamlessly from your current solicitor to us.- How to get your current solicitor to release your litigation papers to us.-  Giving you a second legal opinion directly from one one of our specialist barristers or solicitors on your underlying litigation case.- Whether you can challenge the costs charged by your solicitor. Unlike many law firms we have an in-house Legal Costs Disputes team to advise you on whether the time claimed for is reasonable and whether you have been overcharged.- How to maximise chances of any settlement from your former solicitor and/or their professional indemnity insurer.- Whether you have professional negligence claim against your solicitor for the bad advice, poor service or any errors made (on which we may enter into a no win no fee following our assessment of the merits of the case at the initial meeting).- How to win. Strategic advice on how to maximise your chances of being the successful in appealing an HMRC decision. Please note for the avoidance of doubt, we do not give and are not retained to give any tax planning or tax or financial services advice whatsoever. --- # Appeal HMRC VAT de-registration Source: https://taxdisputes.co.uk/appeal-hmrc-vat-de-registration-cancel-number-taxable-goods-supplies-kittel-decision-letter-judicial-review-legal-advice/ *[HM Revenue and Customs (HMRC)](https://www.gov.uk/government/organisations/hm-revenue-customs) have actively sought to clamp down on tax fraud and increasingly more businesses in a variety of sectors (away from the traditional [MTIC](https://taxdisputes.co.uk/missing-trader-fraud-vat-evasion-solicitors-london/) cases involving alcohol or mobile phones) are subject to HMRC decisions de-registering a VAT number. It is vital that any company deal with tax issues as soon as they occur to prevent their appeal from being time-barred (and such decisions are usually subject to a strict 30 day time limit). * De-registration of a VAT number can lead to serious consequences for a company, especially one where taxable supplies are being made and are contemplated. For example, a company without a VAT number would be unlikely to secure future lucrative contracts, would not be able to issue tax invoices charging VAT or showing a VAT registration number, and would not be able to claim back input tax from taxable supplies and as such would be consequently subject to a hefty assessment. It is therefore crucial to take [specialist advice](https://taxdisputes.co.uk/) early and appeal the decision in good time. There are a number of avenues a company can take in appealing such a decision from the Commissioners. Our [London Tax Solicitors and Barristers](https://taxdisputes.co.uk/contact-us/) have vast experience of tax laws and first hand commercial, litigation and advocacy experience . We have a proven track record of successfully contesting disputed tax assessments and penalties with HMRC. The tax authorities have lost many cases that are appealed through negotiation, internal review or through the Tax Tribunal. ## In what circumstances do HMRC de-register VAT numbers? HMRC can exercise it powers under [paragraph 13 of Schedule 1 of the VAT Act 1994](http://www.legislation.gov.uk/ukpga/1994/23/schedule/1) to cancel a VAT registration. The two main reasons are when HMRC conclude after an investigation that a company is either no longer making taxable supplies or a Commissioner believes that the company has been registered with the principal aim of the registration is to facilitate a fraud on the VAT system. ## On what basis do HMRC allege that connections to fraud can lead to de-registration of a VAT number? The [UK VAT Act 1994](http://www.legislation.gov.uk/ukpga/1994/23/schedule/1) is governed by the EU Principal VAT Directive (Dir. 2006/112), the directive requires UK VAT legislation to be interpreted in conformity with it. Case law such as [Kittel (C-439/04)](https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A62004CJ0439) and Mecsek (C-273/11) establishes the principle that community law cannot be relied on for fraudulent ends and the right to input tax recovery can be denied in circumstances where a transaction chain is connected with VAT fraud and the trader is found to have the requisite level of knowledge. Therefore, we have seen cases where HMRC cancel a VAT registration where the Commissioners conclude that a trader is using its VAT registration for fraudulent purposes (or will do so in the future). ## How can a company get its VAT number re-instated? The answer is, it depends on the facts of each individual case. For example, in cases where fraud is alleged, the onus is on HMRC to establish that fraudulent activyt has occured or that the company is part of a chain of fraudulent transactions and that the trader knew- or ought to have known- about the fraud. Fraud is a serious accusation to level and HMRC should be put to the proof on this at the outset. Normally, such decision letters from HMRC do not go into detail. Deregistration would ordinarily be a step taken after months of investigation by HMRC into a company's affairs. In other cases, HMRC seek to import a wider interpretation to Community law than what the judges intended at the time. For example, [Kittel](https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A62004CJ0439) refers to taxable goods, however, we have seen cases where HMRC attempt to expand the meaning of [Kittel](https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A62004CJ0439) to include taxable supplies. It is not known at this stage how a Tribunal would interpret such a wide importation given by HMRC. ## Can a company seek judicial review of a decision to cancel a VAT registration? Again, the answer depends on the facts of the case. Generally it can be argued that cancelling the VAT number of a business that makes taxable supplies can be disproportionate. Arguments could be made that such a disproportionate action is incompatible with rights under the European Convention on Human Rights, contrary to[ section 6(1) of the Human Rights Act 1998](https://www.equalityhumanrights.com/en/human-rights/human-rights-act). ## Is there a time limit to bring a judicial review claim? Yes. A judicial review claim must be made promptly and in any event no later than 3 months after the grounds to make the claim arose (*[CPR 54.5(1)](https://www.justice.gov.uk/courts/procedure-rules/civil/rules/part54#54.5)*). Note that this date **cannot **be extended by agreement between parties. Therefore, if you believe that you may have a claim against HMRC for judicial review, then you should [seek legal advice promptly](https://taxdisputes.co.uk/contact-us/). ## The HMRC Appeal Process If a taxpayer disagrees with HMRC regarding a VAT de-registration decision, there is a 2-stage process for a taxpayer to dispute a HMRC decision: **Stage 1**: give notice of appeal to HMRC. A taxpayer can appeal in writing within 30 days of HMRC’s notice of their decision. HMRC will confirm their first decision, amend their decision or agree with the taxpayer’s assessment. **Stage 2**: if the taxpayer’s position cannot be agreed with HMRC in stage 1 then a taxpayer can avail themselves of two further options: **i.** HMRC can offer an internal review of the disputed decision (or the taxpayer can request this procedure at any time). The review is an entirely internal procedure completed not by the original HMRC decision maker but by a different HMRC officer. **ii.** A taxpayer can appeal to the First Tier Tax Tribunal if the taxpayer cannot agree their position following the review. The independent tribunal will make a determination on the case. A further appeal is permitted if a taxpayer does not agree with the decision. ## Notice of Appeal to HMRC If you disagree with HMRC’s deicison to de-register a VAT number, then you should first send notice to [appeal the decision to HMRC](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/). If HMRC makes a tax decision against you, you can [contact HM Revenue and Customs (HMRC)](https://www.gov.uk/government/organisations/hm-revenue-customs/contact) or professional advice should be sought. The first recourse of a taxpayer wishing to dispute a decision of HMRC is to examine the decision letter sent by HMRC which will contain instructions on how to appeal the decision made. Notice to appeal the tax decision must be made in writing by the taxpayer (or their legal representative) to HMRC by completing the appeal form attached to HMRC’s penalty letter or by following the instructions on the letter. It is essential to appeal promptly within 30 days and seek early specialist advice because a late response can be fatal to any appeal. Members of our legal team have first-hand experience and working knowledge of the internal workings of HMRC. As specialist London Tax Disputes Solicitors, we have the competency and experience to unblock negotiations with HMRC. More detailed guidance on HMRC Penalty Appeals can be found: [here](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/). ## HMRC Internal Review The HMRC internal review process can be used by a taxpayer when appealing a HMRC decision. If the stage 1 [appeal to HMRC](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/) after the penalty notice is issued is unsuccessful then either the taxpayer or HMRC can request an internal review of the decision. The review is a statutory process conducted by a different tax officer from the first reviewer and is seen as a useful tool in providing a fresh set of eyes on the interpretation of facts. Not on whether the decision was *“fair”* or for a technical dispute- but on determining whether the decision was made in line with HMRC guidelines. There are a number of advantages in utilising the internal review procedure. The internal review process is conducted within strict time periods, allowing the taxpayer to gain control of the timing of the case and resolution may be achieved faster than using the Tax Tribunal option. Moreover, previously published [official statistics](https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/322801/140610_Reviews_and_Appeals_MI_2013-14_final.pdf) shows that 49% of internal reviews have resulted in HMRC penalties being annulled or amended. This demonstrates that HMRC is prone to making errors when issuing a penalty notice. HMRC’s internal review process is subject to a number of formalities and strict time limits, it is important to seek legal representation as soon as possible. If the taxpayer neither accepts the review process nor notifies the appeal to the Tax Tribunal, the tax dispute is considered settled under [section 54](https://www.legislation.gov.uk/ukpga/1970/9/section/54/enacted) TMA 1970 in line with HMRC’s view of the matter. Therefore, it is important to seek legal representation early to help navigate the internal review process because after missing this response deadline, it is impossible to resile from the settlement according to [section 54(2)](https://www.legislation.gov.uk/ukpga/1970/9/section/54/enacted) TMA 1970 (unless the Tax Tribunal allows late notification of the appeal). If after the completion of internal review process the tax issue is still in dispute then recourse is also available by appealing to the [First Tier Tax Tribunal](https://www.gov.uk/courts-tribunals/first-tier-tribunal-tax) ([section 49D](https://www.legislation.gov.uk/ukpga/1970/9/section/49/enacted), TMA 1970) or by considering [alternative dispute resolution (ADR)](https://www.gov.uk/guidance/tax-disputes-alternative-dispute-resolution-adr). More detailed guidance on HMRC Internal Review Advice can be found: [here.](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/) ## Appeals to the Tax Tribunal The Tax Tribunals can be used by a taxpayer when appealing a HMRC decision. If the [appeal to HMRC](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/) after the penalty notice is issued is unsuccessful and the HMRC  [internal review](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/) procedure has not yielded a satisfactory conclusions then recourse is available by appealing to the [First Tier Tax Tribunal](https://www.gov.uk/courts-tribunals/first-tier-tribunal-tax) ([section 49D](https://www.legislation.gov.uk/ukpga/1970/9/section/49/enacted), TMA 1970). It is not permissible to appeal to the Tax Tribunal during the course of the internal review. The procedural rules governing the First Tier Tribunal are found in the *[Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273)](https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/357075/tax-chamber-tribunal-procedure-rules.pdf)*. The Tax Tribunal is completely independent of HMRC and is governed by an overriding objective to deal with cases fairly and justly ([rule 2, First Tier Tribunal Rules (FTR 2009)](https://www.legislation.gov.uk/uksi/2009/273/article/2/made)). The Tribunal will consider the evidence of both parties, equally whilst the judge heavily relies on previous case law. Commencing proceedings at the First Tier Tax Tribunal is subject to statutory time limits. It is recommended that legal advice is sought as soon as you become involved in a HMRC dispute to prevent a situation where a potential claim becomes time-barred. The First Tier Tax Tribunal will then give a direction allocating the case to one of four categories, which all have different procedures: - **Default Paper cases**:  ordinarily involve uncomplicated issues where the facts are simple and there is little dispute as to the law. The First Tier Tax Tribunal will determine the issue without a hearing (unless either party has requested one).- **Basic cases**: typically include standard tax penalties and covers both direct and indirect taxes and includes VAT *“migration appeals”* as well as all [*“reasonable excuse”*](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/) appeals. These cases are generally disposed of at a hearing and involve a minimal exchange of documents prior to the hearing.- **Standard cases**: the cases that can be diposed of in one day, in an area of uncomplicated law, with one witness providing uncontested evidence, are assigned to the Standard track.- **Complex cases**: cases are assigned here if it satisfies one of the conditions in [rule 23(4)](https://www.legislation.gov.uk/uksi/2009/273/article/23/made), FTR 2009. The procedural Tax Tribunal rules are the same save for a special costs regime applying for Complex cases. The First Tier Tax Tribunal is in essence a fact-finding court, therefore it is imperative to prepare the optimum set of facts in advance and this usually requires the most extensive preparation. We are well-versed in the Hearing procedure itself and presenting our clients’ cases to the Tax Tribunal. We consider the preparatory stage an essential part of the Hearing process and extensively complete the best factual picture from which the First Tier Tax Tribunal will draw its inferences. Our specialist Tax Solicitors and Barristers have successfully represented taxpayers before the First Tier Tax Tribunal. Our Tax Disputes team will typically: - advise you for a long period of time prior to the hearing;- discuss the evidence required;- prepare the appeal in detail; and- rehearse your case with you. ## Expert VAT De-registration Appeals Lawyers If you need HMRC Tax Disputes advice, we are available to aid you at every stage of the HMRC appeals process. Members of our legal team have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the HMRC internal review process and in front of the Tax Tribunal. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect including developing a strategy. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](javascript:;). --- # Notice 12A: Seizure of Goods by UKBA / HMRC Source: https://taxdisputes.co.uk/notice-12a-steps-to-take-if-goods-have-been-seized-by-hmrc-ukba/ *We recognize the need of contacting [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) and the [UK Border Force](https://www.gov.uk/government/organisations/border-force) as soon as possible in order to minimize the issues and financial distress that our clients may face if their items are held or confiscated. If your goods have been detained or seized and you want assistance, please contact our [expert team](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/)[ ](https://lexlaw.co.uk/)at [taxteam@lexlaw.co.uk](https://taxdisputes.co.uk/author/taxdispsols/). * This article gives important advice and information about what to do if you have had something seized by the [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [Border Agency](https://www.gov.uk/government/organisations/border-force). It applies to the seizure of things, such as goods and vehicles, under [section 139 of the Customs and Excise Management Act 1979](https://www.legislation.gov.uk/ukpga/1979/2/section/139). It does not apply to seizures under any other law. Details of the things seized from you will be listed on one of the following: - a seizure information notice handed to you or your agent if the thing was seized in your or their presence — the reason for the seizure should have been explained to the person present at the time of seizure- a notice of seizure sent to you if you or your agent were not present when the thing was seized The information in this article covers seizures by [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) and[ Border Force](https://www.gov.uk/government/organisations/border-force) because the process is the same even though they are separate government organisations. However, it gives different contact details for [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) and Border Force. It is important that you contact the correct organisation, depending on who seized something from you, so your case can be dealt with promptly. ## Your options if you disagree with the seizure If you have had something seized by [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [Border Force](https://www.gov.uk/government/organisations/border-force) and you do not accept there was a legal right to seize it and you want them to consider returning it, you have 3 options. You can: (a) **challenge the legality** of the seizure by sending a **notice of claim** to [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [Border Force](https://www.gov.uk/government/organisations/border-force), (b) write to [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [Border Force](https://www.gov.uk/government/organisations/border-force) asking for the thing to be returned to you even if you accept it was seized legally, this is called** restoration**, (c) do both of the above at the same time by challenging the legality of the seizure and asking for the seized thing to be returned in the meantime. The legality of a seizure is a matter that is dealt with before a court by way of condemnation proceedings, usually by a magistrate’s courts, or in Scotland the Sheriff’s court. Restoration is decided by either [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs)[ ](http://government/publications/notice-12a-what-you-can-do-if-things-are-seized-by-hm-revenue-and-customs/excise-notice-12a-what-you-can-do-if-things-are-seized-by-hm-revenue-and-customs)or [Border Force](https://www.gov.uk/government/organisations/border-force) but if you do not agree with their decision you can ask for a statutory review. If you choose option (c), the 2 processes may be dealt with at the same time but in separate ways. They cannot be combined because magistrates’ courts and tribunals have different areas of authority. If you do not challenge the legality of the seizure by submitting a notice of claim, you will not be able to challenge it later at the tribunal. *The import or export of any item that requires a permit under the [1973 Convention on International Trade in Endangered Species (CITES)](https://cites.org/eng/disc/text.php) is now creating much consternation. Our [litigation team](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) has successfully resolved numerous cases in which individuals and businesses might potentially lose enormous amounts of money as a result of seizures and failure to secure the necessary Import Permits before the items arrived in the UK. Our [team of experts](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) can help you in contacting [Border Force](https://www.gov.uk/government/organisations/border-force) or HMRC about the seized items and Advise you on the legality of the seizure and whether it should be challenged*. ## Challenging the legality of a seizure If you believe something should not have been seized, you can challenge the legality of the seizure. That will lead to a court hearing where [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [Border Force](https://www.gov.uk/government/organisations/border-force) has to prove the seizure was lawful. The burden is on the claimant to prove goods are duty paid. You may believe that [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [Border Force](https://www.gov.uk/government/organisations/border-force) had no legal right to seize something because, for example: - excise goods brought into Northern Ireland from an EU country were for your own use or to be given away- goods imported into Great Britain (England, Scotland and Wales) from outside the UK, or into Northern Ireland from outside both the UK and the EU, were within your statutory allowance- duty has been paid on UK excise goods that are liable to duty- goods were not prohibited or restricted- a vehicle running on duty-rebated fuel (such as red diesel) was allowed to use it Challenging the legality of a seizure can take several months from when you send [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [Border Force](https://www.gov.uk/government/organisations/border-force) your [notice of claim](https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/754463/Notice_of_Claim_letter.pdf) to when it is heard in court. The court hearing itself usually lasts less than a day. **Who can challenge the seizure?** Any person can challenge the legality of the seizure but the person who does that (or their solicitor) must swear an oath at court that they owned the thing at the time of seizure. As the owner you may ask someone else to send a notice of claim for you but it must include your signed authority for them to act on your behalf. *Recently, [our firm](https://lexlaw.co.uk/) has assisted various companies in restoring consignments imported from Asia. We constantly question the legitimacy of the seizure because the products were to be sold legally in the catering business. * All challenges to seizure made by Border Force must include an authority form. Failure to provide a signed authority may cause delay in Border Force giving you a decision. There’s an [example of an authority form](https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/659954/Agent_authority_form.pdf) you can use. Where some of the seized things are owned by different people, each person who wants to challenge the seizure of their items must send a notice of claim to[ HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [Border Force](https://www.gov.uk/government/organisations/border-force) within the time limit. If you want to write a joint letter each person must: - sign the letter- give their full name and address- state which of the seized things their challenge refers to- use continuation sheets where necessary to include all relevant information **How to challenge a seizure?** You can challenge a seizure by sending a notice of claim to[ ](/government/publications/notice-12a-what-you-can-do-if-things-are-seized-by-hm-revenue-and-customs/excise-notice-12a-what-you-can-do-if-things-are-seized-by-hm-revenue-and-customs)[HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [Border Force](https://www.gov.uk/government/organisations/border-force), depending on who made the seizure, setting out the reasons for your challenge. In legal terms, by making a notice of claim you are asking [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)or[ Border Force ](https://www.gov.uk/government/organisations/border-force)to start court action known as condemnation proceedings. These proceedings decide whether something was liable to forfeiture and seized lawfully by [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)or [Border Force](https://www.gov.uk/government/organisations/border-force). The proceedings do not involve court action against any person to decide if they are guilty of an offence in relation to seized things, such as smuggling. A [notice of claim letter](https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/754463/Notice_of_Claim_letter.pdf) may be used to challenge the seizure or you may challenge it in your own words. If the seizure is challenged in your own words, it must include clear reasoning and explanation as to why HMRC or Border Force was wrong to seize the goods. It is extremely important that the notice of claim is sent to the correct address. If not, there could be a delay in [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or[ Border Force](https://www.gov.uk/government/organisations/border-force) dealing with the challenge against the seizure. For both [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) and [Border Force](https://www.gov.uk/government/organisations/border-force) claims send as much information as you can so your notice of claim is referred to the correct person to deal with your case. It is particularly important that you write in English wherever possible and include any case reference numbers on the notice of seizure or seizure information notice as these will help identify the goods and ensure your notice of claim is directed to the correct place. **Time limit to challenge the seizure** [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [Border Force](https://www.gov.uk/government/organisations/border-force) must receive your notice of claim within one calendar month of the date of seizure shown on the seizure information notice or the date shown on the notice of seizure. If [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [Border Force](https://www.gov.uk/government/organisations/border-force) does not receive a notice of claim within the time limit, you will not be able to challenge the legality of the seizure. The time limit is set by the law and there is no provision for late challenges. This means that unless the legality of a seizure is challenged within the one month time limit, ownership will pass to [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [Border Force ](https://www.gov.uk/government/organisations/border-force)(depending on who seized the goods). There is no other way to challenge the legality of a seizure even if you later decide to appeal against a duty assessment or wrongdoing penalty. The one calendar month period starts on the day after the seizure and ends at 11:59pm on the last day of the one month period, irrespective of how many days are in the month. For example, if the seizure occurred on the 30 June, the calendar month starts on 1 July and ends at 11:59pm on 31 July. **What happens when HMRC or Border Force receives a notice of claim?** When [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [Border Force](https://www.gov.uk/government/organisations/border-force) receives a notice of claim, they apply to the appropriate court for condemnation proceedings, which is the process for dealing with a claim against a seizure. [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [Border Force](https://www.gov.uk/government/organisations/border-force) will apply to the court as soon as possible, in most cases within 6 months, in England, Wales, Northern Ireland and Scotland. The court then sends you details of when and where the hearing will take place. The type of court and the document you receive with details of the hearing varies, depending on where in the UK the goods were seized. Condemnation proceedings for things seized in: - England or Wales are usually held in a magistrates’ court and you will receive a summons- Northern Ireland are held in a magistrates’ court and you will receive a notice of application- Scotland are usually held in a sheriff’s court and you will receive a writ **What happens if you are successful/not successful** If the court decides in your favour, the seized thing will be returned to you. If [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [Border Force](https://www.gov.uk/government/organisations/border-force) has already disposed of the seized thing, the owner has the right to ask for compensation of an amount equal to the: - sum paid for the goods in question- proceeds of sale (where [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [Border Force](https://www.gov.uk/government/organisations/border-force) have sold the goods in question)- market value of the goods at the time of seizure If the court finds in favour of [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [Border Force](https://www.gov.uk/government/organisations/border-force), it will make an order forfeiting the seized thing to them. The court may also order you to pay their costs. ## Request for restoration of seized goods The process of returning a seized thing to someone is called restoration. [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) and [Border Force ](https://www.gov.uk/government/organisations/border-force)normally only restore a thing to its rightful owner but they will take arrangements with third parties into consideration. You can ask [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [Border Force](https://www.gov.uk/government/organisations/border-force) to consider returning the seized thing even if: - you accept it was legally seized- you have already challenged the seizure and you are waiting for a court hearing- the time limit for challenging the seizure has expired and ownership of the thing has passed automatically to [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [Border Force](https://www.gov.uk/government/organisations/border-force) — this must be within a reasonable period Your goods will not be restored if your reason for that request is that things were not legally seized or, in the case of excise goods, they were imported for your ‘own use’. You should challenge the legality of the seizure instead bearing in mind the one calendar month time limit for doing that. **How to request for restoration** You should ask for restoration of the seized goods in writing. To help [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [Border Force](https://www.gov.uk/government/organisations/border-force) deal with your request quickly, your letter should: - be written in English- include your full name and address- quote any reference number shown on the seizure information notice or notice of seizure- explain why you think the thing should be restored to you, giving the full circumstances and enclosing any available evidence to support your request- include proof of ownership of the thing (such as purchase receipts) [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [Border Force](https://www.gov.uk/government/organisations/border-force) will normally acknowledge your letter within 10 working days of receiving it. **Time limit for requesting restoration** There is no time limit in law although [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)or[ Border Force](https://www.gov.uk/government/organisations/border-force) usually expects to receive a request for restoration of a seized thing within one calendar month of the date of seizure or the date on the Notice of Seizure.  [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) and [Border Force](https://www.gov.uk/government/organisations/border-force) will dispose of perishable goods as quickly as possible. They usually begin disposing of non-perishable things **45 days** after the date of seizure unless the legality of the seizure is challenged or they receive a restoration request. In those cases they usually keep the goods until the challenge or restoration is decided. f the seized thing has been destroyed, [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)or [Border Force](https://www.gov.uk/government/organisations/border-force) cannot restore it to you but they will usually offer you an appropriate payment instead. This may be an amount equal to the sum paid by you for the goods in question or an amount equal to the proceeds of sale (where [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [Border Force](https://www.gov.uk/government/organisations/border-force) have sold the goods in question) or an amount equal to the market value of the goods at the time of seizure and not including any additional compensation (for costs, travel expenses, interest). **What happens when HMRC or Border Agency receives a restoration request** When [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [Border Force](https://www.gov.uk/government/organisations/border-force)[ ](/government/publications/notice-12a-what-you-can-do-if-things-are-seized-by-hm-revenue-and-customs/excise-notice-12a-what-you-can-do-if-things-are-seized-by-hm-revenue-and-customs)receives a request for restoration, they consider all the facts and decide either to offer or refuse restoration. If they offer to restore a seized thing, it will normally be on payment of a fee, which will vary depending on the specific circumstances. They may also ask you to pay any duty or VAT due. If you accept the offer and comply with any conditions related to it, the seized thing can be returned to you. If you accept the restoration offer and take back possession of the seized thing but you are unhappy with the fee you paid, you can ask for a review of the restoration decision. **Restoration reviews** If you do not agree with[ HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs)'s or[ Border Force](https://www.gov.uk/government/organisations/border-force)'s restoration decision, you can ask for it to be reviewed by an officer not previously involved in the matter.  If you ask for a review, you should clearly set out the reasons why you disagree with the decision and include any supporting evidence. An impartial review officer, who was not involved in the decision on the restoration of the seized thing, will consider your case and go over all documents relating to it. The review officer may contact you to explain or to ask for more information. The review officer can confirm, vary or cancel the original decision. They will write to you to tell you the outcome of the review, and what to do if you disagree with it. Your letter asking for a review must be received by [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [Border Force](https://www.gov.uk/government/organisations/border-force) within **45 days** of the date of the restoration decision letter, whether it is a request for a review of the decision to refuse restoration or of the restoration conditions, such as the decision to charge a fee. [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [Border Force](https://www.gov.uk/government/organisations/border-force) then have up to 45 days from the date they receive your letter to carry out a review and tell you the outcome. If you ask for a review after the 45-day time limit has expired, it will not be accepted unless you can give a reasonable excuse. So if your review request is outside the time limit, you should explain why it is late when making your request. If appropriate, you should include proof of postage. If [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)or[ Border Force](https://www.gov.uk/government/organisations/border-force) does not agree that the reasons why your review request was late amount to a ‘reasonable excuse’, you can appeal to an independent tribunal against their refusal. You must make that appeal within 30 days of the date of the refusal letter. **Right to Appeal** If you disagree with the review officer’s decision you have the right to appeal to a tribunal within 30 days of the review conclusion. The tribunal is independent of [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) and [Border Force](https://www.gov.uk/government/organisations/border-force). You should send your appeal against the review officer’s decision to the HM Courts and Tribunals Service and not to [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [Border Force](https://www.gov.uk/government/organisations/border-force). You must include a copy of the original restoration decision by [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [Border Force ](https://www.gov.uk/government/organisations/border-force)and a copy of the review officer’s letter telling you of the outcome of their review. If you do not agree with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs)’s or [Border Force](https://www.gov.uk/government/organisations/border-force)’s restoration decision you must first ask them to review their original decision. You can only appeal to the tribunal about decisions involving restoration when the review has been completed. ## Why instruct our expert legal counsel? Our[ team of solicitors and barristers](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) represent your interests at all times. We start off with a customized strategy for each client. We can provide you with the best representation in negotiations with[ HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) and defend all forms of [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)enquiries and investigations. Our [specialist Tax Solicitors and Barristers](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) deliver expert technical knowledge which ensures best results for our clients. We are based in legal epicentre of London, just across the road from the [Royal Courts of Justice](https://www.find-court-tribunal.service.gov.uk/courts/royal-courts-of-justice). **HAVE YOUR GOODS BEEN SEIZED BY [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [UK BORDER AGENCY](https://www.gov.uk/government/organisations/border-force)? Our [expert team](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) is here to help and are able to provide clear advice and information to assist you**. W**e regularly negotiate and defend seizures on behalf of our clients. **Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk).* * --- # Drafting Witness Statements Source: https://taxdisputes.co.uk/taxpayer-witness-statement-drafting-representation-hmrc-advice/ *Witness statements are a crucial piece of evidence when presenting your case in dispute with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs). Skill and effort are required in drafting such statements, and the Court or Tax Tribunal will often criticise poorly drafted statements without statements of truth for example. A good [CPR](https://www.justice.gov.uk/courts/procedure-rules/civil/rules) compliant witness statement is an important part of advocacy. * *Our*[* specialist tax disputes lawyers*](https://taxdisputes.co.uk/expert-advice/)* have years of experience in presenting cases and facts in the form of well presented witness statements and in advocating on behalf of taxpayers against HMRC in the Tax Tribunal. * ## What is a witness statement? A [witness statement](https://www.justice.gov.uk/courts/procedure-rules/civil/standard-directions/general/witness-statements) is a formal document that contains a witness’s account of the facts relating to a particular dispute. The purpose of a witness statement is to provide written evidence to support a particular party’s case. A witness statement can either be in support of your case or your opponent’s case. A witness statement is a crucial piece of evidence that will be referred to and relied upon at trial or at the [First Tier Tax Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/). Therefore, it is important to ensure that your witness statement is both accurate and comprehensive. ## Contents of a witness statement When doing a witness statement you should only disclose relevant information to the case and usually the person requesting the witness statement will set out what to cover in the witness statement. We suggest you seek [legal advice](https://taxdisputes.co.uk/) if you are having difficulty in complying with what your witness statement should include. ## Who provides witness statements on behalf of HMRC? - Tax Credit Office - Centre for Exchange of Intelligence (CEI)- Child Benefit Office - Law Enforcement Operations Any member of [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) staff can provide and sign a witness statement providing that they have permission to disclose the information. When a witness statement is prepared, the person who produced the witness statement may be called to Court to make a statement of oath. ## How do I prepare a witness statement? The first step will be to arrange a meeting at which we will run through your recollection of all of the relevant facts and events with which you have been involved. This is called taking a proof of evidence. The proof of evidence will set out everything that you tell us which relates to the issues in question, and it will be for internal purposes only. We will use the proof of evidence as a basis for preparing a draft of your witness statement. This will be provided to you for your consideration and input, where necessary, and it is normal for there to be several drafts of the witness statements for you to consider. The witness statement must be in your own words. Therefore, you must ensure that you understand what is included in your witness statement and that the contents of the witness statement accurately reflect your recollection of the facts. ## Expert London Tax Lawyers If you need HMRC Tax Disputes advice, we are available to aid you at every stage of the HMRC appeals process. Members of our legal team have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the HMRC internal review process and in front of the Tax Tribunal. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect including developing a strategy. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk). --- # Labour/Payroll Supplies Chain VAT Fraud Source: https://taxdisputes.co.uk/labour-payroll-supplies-chain-vat-mtic-deregistration-entitlement-deduct-input-tax-appeal-investigation-kittel-fraud-advice/ *[HM Revenue and Customs (HMRC)](https://www.gov.uk/government/organisations/hm-revenue-customs) have actively sought to clamp down on tax fraud and increasingly more businesses in a variety of sectors (away from the traditional [MTIC](https://taxdisputes.co.uk/missing-trader-fraud-vat-evasion-solicitors-london/) cases involving alcohol or mobile phones) are subject to HMRC decisions de-registering a VAT number. It is vital that any company deal with tax issues as soon as they occur to prevent their appeal from being time-barred (and such decisions are usually subject to a strict 30 day time limit).* Our [London Tax Solicitors and Barristers](https://taxdisputes.co.uk/contact-us/) have vast experience of tax laws and first hand commercial, litigation and advocacy experience . We have a proven track record of successfully contesting disputed tax assessments and penalties with HMRC. The tax authorities have lost many cases that are appealed through negotiation, internal review or through the Tax Tribunal. Our Tax Litigators provide legally privileged & confidential advice (unlike accountants and other non-legal tax advisers). Our expert tax lawyers are regulated by the [SRA ](https://www.sra.org.uk/home/home.page)and [BSB](https://www.barstandardsboard.org.uk/). ## HMRC investigations on Labour/Payroll chains connected with fraud We have seen a number of decision letters and investigations from HMRC's Fraud Investigation Service against companies in the construction and car industries alleging supply chain fraud. These letters- if related to an investigation- seek a meeting. Or alternatively, if a decision has been made by HMRC- a notification that a company is not entitled to deduct input tax or ultimately the VAT number has been de-registered. In the latter case, an appeal must be made within the strict time limits (see below). ## Supply chain connected with fraud? Case law such as [Kittel (C-439/04)](https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A62004CJ0439) and Mecsek (C-273/11) establishes the principle that community law cannot be relied on for fraudulent ends and the right to input tax recovery can be denied in circumstances where a transaction chain is connected with VAT fraud and the trader is found to have the requisite level of knowledge. Therefore, we have seen cases where HMRC cancel a VAT registration where the Commissioners conclude that a trader is using its VAT registration for fraudulent purposes (or will do so in the future). ## Notified of a decision to refuse entitlement to the right to deduct input tax? Following [Kittel](https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A62004CJ0439), HMRC are increasingly sending decision letters alleging that labour/payroll supplies are connected with the fraudulent evasion of VAT (and that the taxpayer knew or should have known that this was the case). HMRC will normally allege that services received were from fraudulent defaulters. HMRC may also state that there is no evidence of any meaningful due diligence undertaken by the taxpayer on their clients or suppliers. So what can a company do in this situation? The answer is an appeal of the decision should be sought as soon as possible, and in any event, within 30 days of the date of the decision. ## How can a company appeal the decision to refuse the entitlement to deduct input tax? The answer is, it depends on the facts of each individual case. For example, in cases where fraud is alleged, the onus is on HMRC to establish that fraudulent activyt has occured or that the company is part of a chain of fraudulent transactions and that the trader knew- or ought to have known- about the fraud. Fraud is a serious accusation to level and HMRC should be put to the proof on this at the outset. Normally, such decision letters from HMRC do not go into detail. Deregistration would ordinarily be a step taken after months of investigation by HMRC into a company’s affairs. In other cases, HMRC seek to import a wider interpretation to Community law than what the judges intended at the time. For example, [Kittel](https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A62004CJ0439) refers to taxable goods, however, we have seen cases where HMRC attempt to expand the meaning of [Kittel](https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A62004CJ0439) to include taxable supplies. It is not known at this stage how a Tribunal would interpret such a wide importation given by HMRC. ## What is the HMRC Appeal Process? If a taxpayer disagrees with HMRC regarding a VAT de-registration decision, there is a 2-stage process for a taxpayer to dispute a HMRC decision: **Stage 1**: give notice of appeal to HMRC. A taxpayer can appeal in writing within 30 days of HMRC’s notice of their decision. HMRC will confirm their first decision, amend their decision or agree with the taxpayer’s assessment. **Stage 2**: if the taxpayer’s position cannot be agreed with HMRC in stage 1 then a taxpayer can avail themselves of two further options: **i.** HMRC can offer an internal review of the disputed decision (or the taxpayer can request this procedure at any time). The review is an entirely internal procedure completed not by the original HMRC decision maker but by a different HMRC officer. **ii.** A taxpayer can appeal to the First Tier Tax Tribunal if the taxpayer cannot agree their position following the review. The independent tribunal will make a determination on the case. A further appeal is permitted if a taxpayer does not agree with the decision. ## Notice of Appeal to HMRC If you disagree with HMRC’s deicison to de-register a VAT number, then you should first send notice to [appeal the decision to HMRC](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/). If HMRC makes a tax decision against you, you can [contact HM Revenue and Customs (HMRC)](https://www.gov.uk/government/organisations/hm-revenue-customs/contact) or professional advice should be sought. The first recourse of a taxpayer wishing to dispute a decision of HMRC is to examine the decision letter sent by HMRC which will contain instructions on how to appeal the decision made. Notice to appeal the tax decision must be made in writing by the taxpayer (or their legal representative) to HMRC by completing the appeal form attached to HMRC’s penalty letter or by following the instructions on the letter. It is essential to appeal promptly within 30 days and seek early specialist advice because a late response can be fatal to any appeal. Members of our legal team have first-hand experience and working knowledge of the internal workings of HMRC. As specialist London Tax Disputes Solicitors, we have the competency and experience to unblock negotiations with HMRC. More detailed guidance on HMRC Penalty Appeals can be found: [here](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/). ## Should I consider HMRC Internal Review? The HMRC internal review process can be used by a taxpayer when appealing a HMRC decision. If the stage 1 [appeal to HMRC](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/) after the penalty notice is issued is unsuccessful then either the taxpayer or HMRC can request an internal review of the decision. The review is a statutory process conducted by a different tax officer from the first reviewer and is seen as a useful tool in providing a fresh set of eyes on the interpretation of facts. Not on whether the decision was *“fair”* or for a technical dispute- but on determining whether the decision was made in line with HMRC guidelines. There are a number of advantages in utilising the internal review procedure. The internal review process is conducted within strict time periods, allowing the taxpayer to gain control of the timing of the case and resolution may be achieved faster than using the Tax Tribunal option. Moreover, previously published [official statistics](https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/322801/140610_Reviews_and_Appeals_MI_2013-14_final.pdf) shows that 49% of internal reviews have resulted in HMRC penalties being annulled or amended. This demonstrates that HMRC is prone to making errors when issuing a penalty notice. HMRC’s internal review process is subject to a number of formalities and strict time limits, it is important to seek legal representation as soon as possible. If the taxpayer neither accepts the review process nor notifies the appeal to the Tax Tribunal, the tax dispute is considered settled under [section 54](https://www.legislation.gov.uk/ukpga/1970/9/section/54/enacted) TMA 1970 in line with HMRC’s view of the matter. Therefore, it is important to seek legal representation early to help navigate the internal review process because after missing this response deadline, it is impossible to resile from the settlement according to [section 54(2)](https://www.legislation.gov.uk/ukpga/1970/9/section/54/enacted) TMA 1970 (unless the Tax Tribunal allows late notification of the appeal). If after the completion of internal review process the tax issue is still in dispute then recourse is also available by appealing to the [First Tier Tax Tribunal](https://www.gov.uk/courts-tribunals/first-tier-tribunal-tax) ([section 49D](https://www.legislation.gov.uk/ukpga/1970/9/section/49/enacted), TMA 1970) or by considering [alternative dispute resolution (ADR)](https://www.gov.uk/guidance/tax-disputes-alternative-dispute-resolution-adr). More detailed guidance on HMRC Internal Review Advice can be found: [here.](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/) ## What is the Appeal to the Tax Tribunal Process? The Tax Tribunals can be used by a taxpayer when appealing a HMRC decision. If the [appeal to HMRC](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/) after the penalty notice is issued is unsuccessful and the HMRC  [internal review](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/) procedure has not yielded a satisfactory conclusions then recourse is available by appealing to the [First Tier Tax Tribunal](https://www.gov.uk/courts-tribunals/first-tier-tribunal-tax) ([section 49D](https://www.legislation.gov.uk/ukpga/1970/9/section/49/enacted), TMA 1970). It is not permissible to appeal to the Tax Tribunal during the course of the internal review. The procedural rules governing the First Tier Tribunal are found in the *[Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273)](https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/357075/tax-chamber-tribunal-procedure-rules.pdf)*. The Tax Tribunal is completely independent of HMRC and is governed by an overriding objective to deal with cases fairly and justly ([rule 2, First Tier Tribunal Rules (FTR 2009)](https://www.legislation.gov.uk/uksi/2009/273/article/2/made)). The Tribunal will consider the evidence of both parties, equally whilst the judge heavily relies on previous case law. Commencing proceedings at the First Tier Tax Tribunal is subject to statutory time limits. It is recommended that legal advice is sought as soon as you become involved in a HMRC dispute to prevent a situation where a potential claim becomes time-barred. The First Tier Tax Tribunal will then give a direction allocating the case to one of four categories, which all have different procedures: - **Default Paper cases**:  ordinarily involve uncomplicated issues where the facts are simple and there is little dispute as to the law. The First Tier Tax Tribunal will determine the issue without a hearing (unless either party has requested one).- **Basic cases**: typically include standard tax penalties and covers both direct and indirect taxes and includes VAT *“migration appeals”* as well as all [*“reasonable excuse”*](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/) appeals. These cases are generally disposed of at a hearing and involve a minimal exchange of documents prior to the hearing.- **Standard cases**: the cases that can be diposed of in one day, in an area of uncomplicated law, with one witness providing uncontested evidence, are assigned to the Standard track.- **Complex cases**: cases are assigned here if it satisfies one of the conditions in [rule 23(4)](https://www.legislation.gov.uk/uksi/2009/273/article/23/made), FTR 2009. The procedural Tax Tribunal rules are the same save for a special costs regime applying for Complex cases. The First Tier Tax Tribunal is in essence a fact-finding court, therefore it is imperative to prepare the optimum set of facts in advance and this usually requires the most extensive preparation. We are well-versed in the Hearing procedure itself and presenting our clients’ cases to the Tax Tribunal. We consider the preparatory stage an essential part of the Hearing process and extensively complete the best factual picture from which the First Tier Tax Tribunal will draw its inferences. Our specialist Tax Solicitors and Barristers have successfully represented taxpayers before the First Tier Tax Tribunal. Our Tax Disputes team will typically: - advise you for a long period of time prior to the hearing;- discuss the evidence required;- prepare the appeal in detail; and- rehearse your case with you. ## Expert Supply Chain VAT Fraud Lawyers If you need HMRC Tax Disputes advice, we are available to aid you at every stage of the HMRC appeals process. Members of our legal team have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the HMRC internal review process and in front of the Tax Tribunal. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect including developing a strategy. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](javascript:;). --- # Professional Negligence: Negligent Tax Advice Claims Source: https://taxdisputes.co.uk/professional-negligence-negligent-tax-advice-sue-accountant-claims/ Our tax team is comprised of highly experienced solicitors and barristers with decades of experience in litigation and managing disputes and appeals with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) at all levels. Our [experienced](https://bankruptcypetitionandannulmentlaw.co.uk/) lawyers regularly carry out work in many [tax disputes areas](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/), from advising clients on whether HMRC have followed the correct procedures to successfully challenging HMRC’s policies.  Unlike many other tax firms, members of our team are experienced litigators with [professional negligence](https://professionalnegligenceclaimsolicitors.co.uk) [experience](https://professionalnegligenceclaimsolicitors.co.uk/case-studies/) and in particular when it comes to claims for [negligent tax advice](https://professionalnegligenceclaimsolicitors.co.uk/bad-hmrc-finance-advice-sue-advisor/). Given our tax law expertise, we are well placed to spot when you have been given bad tax planning advice (by a [negligent tax adviser](https://professionalnegligenceclaimsolicitors.co.uk/bad-hmrc-finance-advice-sue-advisor/) or [accountant](https://professionalnegligenceclaimsolicitors.co.uk/compensation-negligent-accountants-financial-tax-advisors/)) or when a tax lawyer has conducted your case without the due care and skill expected of a legal professional specialising in tax disputes. ## Have you been given bad advice by a tax adviser? Tax advisers will give tax planning advice. If you have received negligent advice to enter into a tax avoidance scheme and have received a [Follower Notice](https://www.gov.uk/government/publications/follower-notices-and-accelerated-payments) or [Accelerated Payment Notice](https://www.gov.uk/government/publications/follower-notices-and-accelerated-payments) from HMRC then you may have a claim for compensation for the financial loss that you have suffered. If HMRC have or are contemplating enforcement action against you as a taxpayer, and if you HMRC's enforcement has been caused by negligent advice given by a tax adviser, then you may have a claim for your losses. Investing money into financial products carries risks and a tax adviser must ensure that the risks are adequately explained to a client before entering into the investment. It is also paramount to ensure said tax schemes are legal. If you have been given bad advice or have a complaint about a financial adviser it is important that you take [independent legal advice](https://professionalnegligenceclaimsolicitors.co.uk) to seek compensation for your loss before the [time limits expire](https://lexlaw.co.uk/solicitors-london/limitation-in-litigation-know-your-limits/) (usually six years). We work closely with our [specialist professional negligence lawyers](https://professionalnegligenceclaimsolicitors.co.uk/expert-uk-negligence-legal-advice/) who can be instructed to provide advice on the merits of any claim. ## How do I start a professional negligence claim against my tax adviser? In order to commence a [professional negligence claim](https://professionalnegligenceclaimsolicitors.co.uk/professional-negligence-claims/) before a Court in England & Wales you must issue a [County Court](https://www.judiciary.uk/you-and-the-judiciary/going-to-court/county-court/) or [High Court](https://www.judiciary.uk/you-and-the-judiciary/going-to-court/high-court/) claim form accompanied with Particulars of Claim setting out the details of the claim including the remedy sought from the errant immigration [solicitor](https://professionalnegligenceclaimsolicitors.co.uk/sue-negligent-solicitor-law-firm/) or [barrister](https://professionalnegligenceclaimsolicitors.co.uk/sue-a-barrister/). The issuance of the Claim Form must be done within strict time limits known as [limitation periods](https://lexlaw.co.uk/solicitors-london/limitation-in-litigation-know-your-limits/) and the relevant court fee must be paid (which is a percentage of the losses claimed up to a maximum of £10,000). For a step-by-step guide on how to start a professional negligence claim for compensation [click here](https://professionalnegligenceclaimsolicitors.co.uk/start-issue-professional-negligence-court-claim-case-legal-advice/). ## What is the time limit for commencing a claim against a tax adviser or accountant? Time limits and limitation periods are essential to adhere to in litigation. [Missing a limitation period](https://lexlaw.co.uk/solicitors-london/professional-negligence-late-service-of-claim-form-particulars-limitation-expiry/) is fatal to the chances of success of any claim and will leave a claim statute-barred. When it comes to ascertaining the limitation date for a particular claim, there are a number of factors to consider. In simple terms, the limitation period is six years from the accrual of the cause of action ([*section 2, Limitation Act 1980*](https://www.legislation.gov.uk/ukpga/1980/58)). However, if the six year time limit has passed but you have only just discovered the effect of any latent damage, then the limitation period may be extended to three years from the date of knowledge ([section 14A, Limitation Act 1980](https://www.legislation.gov.uk/ukpga/1980/58)). If you have a complaint against a tax adviser, then our advice is that you [take independent legal advice](https://professionalnegligenceclaimsolicitors.co.uk/) as soon as possible. ## What is the basis for a professional negligence claim against an accountant or tax adviser? A [negligence claim](https://professionalnegligenceclaimsolicitors.co.uk/professional-negligence-faqs/) for negligent tax advice must satisfy three basic requirements on the balance of probabilities otherwise it will fail: (1) a duty of care must be owed by the professional (tax adviser or accountant or financial adviser); (2) the professional must have breached this duty; and (3) the breach of that duty must cause a loss. If you have suffered a loss regardless of the immigration adviser’s negligence or if the real cause of your loss was due to an extraneous factor outside of the responsibility of the professional then a claim could be reduced or extinguished. ## Common examples of negligence by tax advisers A [tax adviser](https://professionalnegligenceclaimsolicitors.co.uk/bad-hmrc-finance-advice-sue-advisor/), tax planner, [financial adviser](https://professionalnegligenceclaimsolicitors.co.uk/financial-negligence-claim-solicitor/) or [accountant](https://professionalnegligenceclaimsolicitors.co.uk/compensation-negligent-accountants-financial-tax-advisors/) could be negligent for a variety of reasons, it is important to seek professional advice at the outset from our specialist team who can assess whether you have a claim for compensation: - failure to recommend a tax planning or financial scheme suitable for your needs;- recommendation of a scheme that is flawed or illegal;- overcharging of fees;- failure to follow your instructions;- recommendation of a scheme which is too risky and one which you would not have entered if you have been appraised properly on the risks in advance;- poor financial planning advise provided to you as an individual or as a director of a company;- mistakes when preparing accounts for you or your company;- inadequate business advice;- undervaluation of companies in relation to disputes or on the disposal of shares;- incorrect advice regarding tax reliefs and exemptions;- failure to advise a client that a tax avoidance scheme had a significant risk of failing. ## Have you been recommended a tax avoidance scheme by a tax adviser or accountant? A tax avoidance scheme is used to minimise tax exposure. HMRC defines tax avoidance as:  > *“bending the rules of the tax system to gain a tax advantage that Parliament never intended. It often involves contrived, artificial transactions that serve little to no purpose other than to produce this advantage, it involves operating within the letter, but not the spirit, of the law.”* > > HMRC on Tax Avoidance If you are part of such a scheme, or suspect you are part of a tax avoidance scheme, seek advise from our [expert tax lawyers](https://taxdisputes.co.uk) as soon as possible. Following this assessment our [specialist professional negligence lawyers](https://professionalnegligenceclaimsolicitors.co.uk/expert-uk-negligence-legal-advice/) can advise you on whether you have a claim against the adviser that recommended such a scheme. ## How do I know whether I am part of a tax avoidance scheme? The following warning signs demonstrate that you might be part of tax avoidance scheme: - Paying in the form of loans: some schemes designed for contractors involve payments in the form of loan that you are not expected to pay back.- Substantial benefits: if the benefits of the scheme seem disproportionate to the money being generated.- Money goes round in circles: a sign of an artificial relationship is where the money goes around in a circle back to where it started- or some other artificial arrangement.- HMRC has given it a scheme reference number: An SRN is where HMRC have identified the arrangement as having the hallmarks of tax avoidance and are investigating it. Having an SRN does not mean that HMRC have approved the scheme (HMRC does not approve any tax avoidance schemes).- Schemes HMRC have concerns about: [click here for examples of tax avoidance schemes HMRC is looking closely at](https://www.gov.uk/government/collections/tax-avoidance-schemes-currently-in-the-spotlight). ## Do I have a claim against my tax adviser if HMRC have take enforcement action against me? If you are implicated in a tax avoidance scheme it is imperative that you seek legal advice as soon as possible. Our [professional negligence lawyers](https://professionalnegligenceclaimsolicitors.co.uk/expert-uk-negligence-legal-advice/) work in tandem with our [specialist tax solicitors and barristers](https://taxdisputes.co.uk/) and provide a dual strategy in both advising you on your dispute with HMRC and advising you on whether a claim can be made against your the adviser who recommended that you enter into the scheme in the first place. ## How do I prove that my tax adviser has been negligent? In order to sue a professional for negligence, a claimant must establish three elements to the civil standard of proof (on a balance of probabilities, i.e. it must be proved by the claimant that the financial adviser’s breach of duty caused the claimant to suffer loss). 1.Demonstrate that the tax adviser owed you a **duty of care**: the boundary lines between when a tortious duty of care is owed or not owed is subject to tests that are being continuously evolved by the courts. A duty of care exists where the tax adviser can be shown to have objectively assumed responsibility (and the courts have demonstrated increasing willingness to find that a tax adviser is liable to whomever reasonably relies on their advice). 2. Establish that the tax adviser has **breached** the duty of care owed to you: proving breach will obviously vary depending on the individual circumstances of the case. A claimant needs to demonstrate that the breach shows that the tax adviser fell below the standards of a reasonably competent adviser in that speciality. 3. Prove that the tax adviser’s breach **caused loss** to you: you must prove both factual and legal causation. The test for factual causation is that “but for” the tax adviser’s breach you would not have suffered loss. Legal causation must also be proved i.e. the loss must be reasonably foreseeable at the time when the relevant duty was breached. ## Examples of tax avoidance schemes If you have been advised to enter into a tax avoidance scheme and you are concerned that HMRC will take enforcement action or if you have received a Follower Notice or Accelerated Payment Notice from HMRC, then take legal advice as soon as possible to assess whether you have claim against your financial adviser for negligence. - **Pension Schemes:** – *Artificial Surplus:* Certain pension schemes create an [artificial surplus](https://www.gov.uk/government/publications/pensions-schemes-artificial-surplus-spotlight-3/spotlight-3-pensions-schemes-artificial-surplus) enabling a member of a registered pension scheme to remove funds from the pension scheme tax free. – *Employer Financed Retirement Benefits Scheme (EFRBS)*: this pensions scheme creates the establishment of an offshore trust where an employer transfers funds and trustees apply funds via sub-trusts to the benefit of the employees. - **Employee Benefit Trusts (EBT)**: EBTs enable a trustee to own an asset on behalf of a beneficiary which has the effect of minimising liability to pay National Insurance contributions and Income Tax. The point of an EBT is that employers pay into the trust which would then be distributed to employees in the form of tax free loans. Previously, those in EBT schemes could utilise the [Liechtenstein Disclosure Facility](https://www.gov.uk/government/publications/offshore-disclosure-facilites-liechtenstein) which allowed taxpayers to disclose hidden assets to HMRC. However, this voluntary disclosure facility has been closed for new registrations since December 2015. Instead, HMRC recommends using the EBT settlement opportunity. EBTs are increasingly common complaints against financial advisers, if you believe that you are part of an EBT, get in touch with our expert tax and professional negligence lawyers for confidential advice.- **Stamp Duty Avoidance Schemes:** examples include property sale arrangements that have been artificially structured to avoid paying the correct amount of SDLT. HMRC repeatedly challenge these schemes as it is a priority of the Commissioners to collect the correct amount of SDLT. For example, HMRC successfully challenged a Stamp Duty Land Tax (SDLT) avoidance scheme in the [First Tier Tax Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) in [Vardy Properties and Vardy Properties (Teesside) Limited [2012] UKFTT 564 (TC)](http://www.bailii.org/uk/cases/UKFTT/TC/2012/TC02242.html). If you have suffered loss as a result of a SDLT scheme then you may have a claim against the financial adviser that sold you the scheme.- **Share Loss Relief Schemes:** share loss relief schemes reduce the amount of tax payable on earnings by creating capital losses.- **Inheritance Tax Schemes (IHT)**: IHTS are utilised primarily to avoid inheritance tax. Some schemes exist to allow the homeowner to sell a property to a trust and leave the proceeds of the sale outstanding as a loan which would then be gifted to a second trust. - **[Contractor loan schemes.](https://www.gov.uk/guidance/contractor-loan-schemes-misleading-advertising-spotlight-42)**- **[Capital Gains Tax: Entrepreneurs’ Relief tax avoidance scheme.](https://www.gov.uk/guidance/capital-gains-tax-entrepreneurs-relief-tax-avoidance-scheme)**- **[Employee Bonus Schemes: Growth Securities Ownership Plan tax avoidance](https://www.gov.uk/government/publications/spotlight-28-employee-bonus-schemes-growth-securities-ownership-plan-and-other-avoidance-schemes-based-on-contracts-for-difference)**.- **[Gift Aid with no real gift.](https://www.gov.uk/government/publications/spotlight-20-gift-aid-with-no-real-gift-update)**- **[VAT: artificial leasing.](https://www.gov.uk/government/publications/spotlight-2-vat-artificial-leasing)** ## Book an Initial Consultation with our Professional Negligence Lawyers Do you have a[ claim against a professional](https://lexlaw.co.uk/practice-areas/professional-negligence-solicitors-london/)? If you want expert legal advice, do not delay in instructing us so we can assess the legal merit of your case. We can often take on such claims on a no win no fee basis (such as a Conditional Fee Arrangement) once we have discussed the claim with you and then assessed and advised you on the merits of the proposed professional negligence action. Our expert legal team of leading [Professional Negligence Solicitors & Barristers](https://professionalnegligenceclaimsolicitors.co.uk/) can provide urgent help, advice or representation to you. Just call our Professional Negligence Lawyers on 02071830529 or [email us now](https://professionalnegligenceclaimsolicitors.co.uk/contact-us-london/). ## Instruct Specialist Professional Negligence Solicitors We are a specialist [City of London](https://professionalnegligenceclaimsolicitors.co.uk/contact-us-london/) law firm made up of Solicitors & Barristers operating from the only law firm based in the [Middle Temple Inn of Court](https://www.middletemple.org.uk/) adjacent to the Royal Courts of Justice. Our team have expertise in advising on claims for compensation against professionals that have fallen below the standard expected, which causes clients financial or personal loss. We are experienced in bringing successful claims against negligent solicitors, barristers, financial advisers, insurance brokers, surveyors, valuers, architects, tax advisers and IFAs. --- # HMRC Hardship Applications Source: https://taxdisputes.co.uk/hmrc-hardship-application-dispute-vat-assessment-appeal-tribunal-successful-outcome/ Life often throws unexpected financial challenges our way, and fulfilling tax obligations can become increasingly burdensome during difficult times. Fortunately, the UK tax authority, [HM Revenue & Customs](https://www.gov.uk/government/organisations/hm-revenue-customs) (HMRC), provides a mechanism for individuals and businesses to seek relief when facing financial hardship. We have seen an increase in the number of small businesses facing[  VAT assessments](https://taxdisputes.co.uk/labour-payroll-supplies-chain-vat-mtic-deregistration-entitlement-deduct-input-tax-appeal-investigation-kittel-fraud-advice/) of significant amounts, likely to have a severe impact on the company’s cash flow and financial status, particular in light of the current challenges concerning COVID-19. We have been successful in a number of hardship applications made on behalf of our clients, to allow our clients to pay the disputed sums following their appeal in the Tax Tribunal. Our [London Tax Solicitors and Barristers ](https://taxdisputes.co.uk/expert-advice/)have vast experience of tax laws and first hand commercial, litigation and advocacy experience. We have a proven track record of successfully contesting [disputed tax assessments](mailto:https://taxdisputes.co.uk/2021/03/self-assessment-tax-returns-take-action-to-avoid-late-filing-penalties/) and [penalties with HMRC](mailto:https://taxdisputes.co.uk/hmrc-penalties/). The tax authorities have lost many cases that are appealed through negotiation, [internal review](mailto:https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/) or through the [Tax Tribunal](https://www.gov.uk/tax-tribunal). ## What is a Hardship Application? Where a company or an individual has received an assessment from HMRC for payment of tax and this is the subject of an appeal to the [First Tier Tax Tribunal](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/), HMRC can request that payment of the assessment be made in full prior to the Tribunal hearing the appeal under section 84 of the VAT Act 1994. It is for the taxpayer to make an application and demonstrate that payment of the disputed tax would cause them to suffer financial hardship and each case will be considered on the basis of the facts. ## Types of Taxes Eligible for HMRC Hardship Applications **Income Tax** Individuals who find themselves unable to meet their income tax payments due to financial hardship can apply for relief through an HMRC hardship application. **Value Added Tax (VAT)** Businesses and individuals who are struggling with VAT payments can request hardship assistance, especially when a financial crisis affects their ability to pay. **Corporation Tax** Companies experiencing financial hardship can apply for relief from Corporation Tax obligations through an HMRC hardship application. **Construction Industry Scheme (CIS) Tax** Individuals and businesses engaged in the construction industry can seek assistance with CIS tax payments if they are facing financial difficulties. **National Insurance Contributions (NICs)** Employers or individuals struggling with NICs payments can apply for relief based on financial hardship. ## Why a Hardship Application is Needed? A hardship application is crucial in situations where individuals or businesses find themselves in financial distress that prevents them from meeting their tax obligations. Several factors can contribute to the need for a hardship application: - **Unexpected Life Events:** Life is unpredictable. Illness, disability, or a sudden medical emergency can lead to significant healthcare costs or loss of income. In such cases, individuals may find it challenging to allocate funds for tax payments. - **Economic Downturn:** Economic downturns, recessions, or market disruptions can affect the financial stability of both individuals and businesses. Reduced income, job loss, or a decline in business revenue may make it difficult to meet tax commitments. - **Natural Disasters:** Events like floods, earthquakes, fires, or other natural disasters can cause extensive property damage and financial losses. Individuals and businesses dealing with recovery may require financial relief to fulfill their tax responsibilities. - **Business Struggles:** Businesses facing financial difficulties, declining profits, or insolvency may find it impossible to pay corporate taxes and VAT. HMRC recognises that providing a path for these businesses to recover is essential for economic stability. - **Unforeseen Expenses:** Unforeseen expenses, such as legal fees, necessary repairs, or the cost of resolving disputes, can drain financial resources. These expenses may affect one's ability to meet tax obligations. - **Temporary Financial Hardship:** Temporary financial hardship can also warrant a hardship application. For instance, individuals awaiting a delayed payment, compensation, or insurance claim may need temporary relief from tax payments until their financial situation stabilises. ## Information requested by HMRC when considering hardship applications In giving serious consideration to hardship applications and exercising their discretion, HMRC has previously issued [guidance](https://www.gov.uk/hmrc-internal-manuals/appeals-reviews-and-tribunals-guidance/artg3340) on the information they require about a company’s financial affairs. - An explanation as to why the company would suffer financial hardship if it required to pay the disputed amount before a Tribunal Hearing - Copy of the most recent annual accounts and management accounts - Bank account statements for a requested period - Any loan or overdraft facilities the company has with any bank or financial institution - Assets and liabilities of the Company - Budget and cash flow forecast (at least the next six months) to include all income streams, revenue costs and capital expenditure. It should identify the expected funding requirements throughout the year and also the maximum funding available. - Business premises’ owned or leased by the business - Investments that are held by the company. This should include stocks, shares and investments in other businesses - Steps taken by the company to raise funds to pay the assessments - Any assets subject to a charge by a bank or other financial institution as security against existing borrowings In the event that all the information is not provided or HMRC are not satisfied that the taxpayer would suffer hardship, HMRC will [reject the application](https://taxdisputes.co.uk/2020/06/hmrc-rejects-small-business-hardship-application-vat-assessment-tax-appeal-tribunal/). Where HMRC grants the application, the appeal will proceed to be heard in the Tax Tribunal without the taxpayer being required to pay the disputed sums first. ## How to Make an HMRC Hardship Application Applying for hardship relief from HMRC is a lifeline for individuals and businesses struggling to meet their tax obligations during challenging times. Whether it's income tax, VAT, corporation tax, CIS tax, or NICs, you have options to seek assistance. By carefully following the steps outlined in this guide and providing all required documentation, you can increase the likelihood of a successful hardship application. Making an HMRC hardship application involves several crucial steps, and it is essential to follow these procedures accurately for a successful application: **Step 1: Determine Eligibility** Before you begin the application process, you must ascertain that you meet the eligibility criteria for seeking hardship relief. Typically, HMRC considers applications from individuals, self-employed individuals, and businesses who are facing financial difficulties that prevent them from fulfilling their tax obligations. **Step 2: Gather Necessary Documents** Collect all relevant documentation to support your application. This may include financial statements, proof of income, evidence of hardship (e.g., medical bills, economic downturn impacts), and any correspondence with HMRC regarding your tax obligations. **Step 3: Complete the Application Form** Visit the HMRC website and locate the specific hardship application form for your type of tax obligation. Fill out the form meticulously, providing detailed information about your financial situation, the reasons for your hardship, and the specific tax liabilities you are seeking relief from. **Step 4: Submit Your Application** Once your application form is complete, submit it to the HMRC. The address for submission may vary based on your tax type, so ensure you use the correct address provided by HMRC. It is essential to include single-sided, unstapled copies of your supporting documents with your application. **Step 5: Await HMRC Review** After you've submitted your application, HMRC will review your case to determine whether you qualify for hardship relief. This review process may take some time, and you may be required to provide additional information or clarification if necessary. ## Who can apply for an HMRC Hardship Application? Individuals, self-employed individuals, and businesses facing financial difficulties related to tax obligations are eligible to apply for hardship relief. ## What are the reasons that justify applying for hardship? Valid reasons include financial distress due to unexpected circumstances such as illness, natural disasters, economic downturns, or other exceptional situations. ## Must I pay the full tax amount before applying for hardship? Normally, you are required to pay the tax amount claimed by HMRC before appealing. However, exceptions are made for financial hardship cases. ## Are penalties, surcharges, or interest payable before an appeal? No, you do not need to pay penalties, surcharges, or interest before initiating an appeal. ## How do I request a deferral of payment due to financial hardship? Contact HMRC to request a deferral before your appeal can proceed to the Tribunal. ## Case Study: HMRC grants Company’s successful hardship application To date, we have been successful in making hardship applications on our clients’ behalf. Recently HMRC requested information from our client to assess its hardship application within 30 days. We work with our clients to obtain and assess the information requested by HMRC to identify any gaps or weaknesses where HMRC may oppose an application for hardship and we carefully prepare witness evidence in support of an application for hardship. In the event HMRC oppose an application, the Tribunal will consider the same therefore it is important to seek legal advice from the outset and carefully prepare evidence in the required form to achieve a successful outcome. In this case, in light of the information provided and arguments made that the company would suffer hardship if required to pay the disputed sums before its appeal was determined, HMRC granted the company’s application. ## How do I appeal to the Tax Tribunal? Upon receiving an assessment, if the HMRC  [internal review](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/) procedure has not yielded a satisfactory conclusion, then recourse is available by appealing to the [First Tier Tax Tribunal](https://www.gov.uk/courts-tribunals/first-tier-tribunal-tax) ([section 49D](https://www.legislation.gov.uk/ukpga/1970/9/section/49/enacted), TMA 1970). The procedural rules governing the First Tier Tribunal are found in the *[Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273)](https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/357075/tax-chamber-tribunal-procedure-rules.pdf)*. The Tax Tribunal is completely independent of HMRC and is governed by an overriding objective to deal with cases fairly and justly ([rule 2, First Tier Tribunal Rules (FTR 2009)](https://www.legislation.gov.uk/uksi/2009/273/article/2/made)). The Tribunal will consider the evidence of both parties, equally whilst the judge heavily relies on previous case law. Commencing proceedings at the First Tier Tax Tribunal is subject to statutory time limits. It is recommended that legal advice is sought as soon as you become involved in a HMRC dispute to prevent a situation where a potential claim becomes time-barred. Our specialist Tax Solicitors and Barristers have successfully represented taxpayers before the First Tier Tax Tribunal. Our Tax Disputes team will discuss the evidence required, prepare the appeal and manage your case with you advising you throughout. ## Expert VAT Appeal Tax Lawyers: Successful hardship applications If you require HMRC Tax Disputes advice, we are available to aid you at every stage of the HMRC appeals process. Members of our legal team have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the HMRC internal review process and in front of the Tax Tribunal. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect including developing a strategy. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](javascript:;). --- # Legal Representation Source: https://taxdisputes.co.uk/legal-representation/ If you need HMRC Tax Disputes advice, we are available to aid you at every stage of the HMRC appeals process. Members of our legal team have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the HMRC internal review process and in front of the Tax Tribunal. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect including developing a strategy. ## How we can help you Our team is made of highly experienced and tough negotiators that will fight to get the best results for our clients. We have years of experience of negotiating with HMRC and providing representation to companies where multi-million pound sums are in dispute to smaller matters with equally large consequences for the person involved. ## Not based in London? We provide nationwide representation That does not matter, we will represent you no matter where you are based in England or Wales. If you contact us through our contact form, by email or by phone, one of our tax team members will contact you by phone to discuss your matter and assess whether we can help you. If we can, we will arrange a conference with a senior member(s) of our tax team. This meeting will take place either in person or using our telephone conference facilities or via Skype if you prefer. Therefore, no matter where you are based in England or Wales we can represent you. ## Instruct Specialist Tax Tribunal Lawyers We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk). --- # Phoenix Companies: The £280,000 HMRC Warning for Directors Source: https://taxdisputes.co.uk/2026/06/phoenix-companies-the-280000-hmrc-warning-for-directors/ According to Companies House records and liquidator reports, Cllr Bowker was a director of four companies that entered Creditors' Voluntary Liquidation at different points between 2010 and 2022. The first was Aristacars Ltd, a taxi business incorporated in 2006 that was liquidated in 2010 owing [HMRC](https://taxdisputes.co.uk/2022/06/dealing-with-a-hmrc-7-day-letter-before-winding-up-action/) nearly £98,000. The liquidator submitted a conduct report on the directors to what was then the Department for Business, Innovation and Skills under the [Company Directors Disqualification Act 1986](https://www.legislation.gov.uk/ukpga/1986/46/contents), noting in its report that the directors had failed to deliver up any company books or records. The liquidator also identified a successor business, Aristacars Wigan Ltd, incorporated shortly before the first company's collapse and offering near-identical services, which it characterised explicitly as a phoenix company. That second business was itself liquidated in March 2012, leaving a total deficit of approximately £214,899. Of that sum, £153,726 was owed to [HMRC](https://taxdisputes.co.uk/2026/05/kfc-dip-pots-cost-hmrc-106000-in-major-vat-appeal-defeat/), a further £27,833 was owed to Wigan Council in unpaid business rates, and £3,918 was owed to the local magistrates court. The combined public liability from those two companies alone exceeded £280,000. A third company, Wigan Fast Foods Limited, went into liquidation in 2013 owing approximately £7,383 in unpaid employee redundancy claims, adding further to the cumulative cost to public funds. The most complex failure came in 2022, when Overall Hygiene Ltd entered liquidation owing £50,000 to RBS. The characteristics of that debt, specifically its exact correspondence to the maximum available under the Covid Bounce Back Loan Scheme, the identity of RBS as an approved scheme lender, and the timing of the company's incorporation in July 2020 during the scheme's eligibility window, have led to questions about whether that sum represents a government-guaranteed loan. Because Bounce Back Loans carried a 100% government guarantee, a confirmed BBLS debt lost in liquidation falls ultimately on the public. No creditor recovered anything from the liquidation of Overall Hygiene Ltd. The liquidator of Overall Hygiene Ltd also found that Cllr Bowker had received £12,639 from the company in a transaction constituting an unjustified preference under section 239 of the [Insolvency Act 1986](https://www.legislation.gov.uk/ukpga/1986/45/contents), meaning a payment made to a connected party that improperly disadvantaged the company's other creditors at a time when the company was insolvent. A settlement of £1,000 was accepted after the liquidator concluded that no greater recovery was achievable given Cllr Bowker's financial position. A conduct report was also submitted to the Insolvency Service in respect of this liquidation, though no director disqualification order appears to have been made. ## Company Summary: Public Liabilities Across Four Liquidated Businesses | Company | Liquidated | Total Deficit | Public Purse Exposure | Key Legal Issue | | ------- | ---------- | ------------- | --------------------- | --------------- | | Aristacars Ltd | 2010 | ~£128,719 | ~£97,700 (HMRC) | Books not delivered; phoenix successor identified; conduct report filed | | Aristacars Wigan Ltd | 2012 | ~£214,899 | ~£185,000 (HMRC + council rates + court debt) | Characterised as phoenix company of Aristacars Ltd | | Wigan Fast Foods Ltd | 2013 | ~£29,000 | £7,383 (redundancy fund) | Unpaid employee redundancy claims met from public fund | | Overall Hygiene Ltd | 2022 | ~£155,000 | Up to £50,000 (potential BBLS guarantee) | Section 239 preference finding; conduct report filed; suspected BBLS loss | ## What Is a Phoenix Company and Why Does HMRC Take It So Seriously? The term phoenix company describes the practice of allowing one business to fail, leaving creditors including [HMRC ](https://taxdisputes.co.uk/2026/05/hmrc-crypto-tax-investigations-what-bitcoin-binance-offshore-exchange-users-must-know/)unpaid, and then transferring the trade, assets, or customer relationships of the failed entity into a new company controlled by the same individuals. The new company begins with a clean balance sheet while the debts of the old company are written off against its creditors. [HMRC](https://taxdisputes.co.uk/2026/05/hmrc-crypto-tax-investigations-what-bitcoin-binance-offshore-exchange-users-must-know/) estimates that of the approximately £6 billion in tax debts it is forced to write off every year, over one fifth is attributable to phoenixing. That translates to over £1.2 billion in lost public revenue annually from this practice alone. HMRC has dedicated resources to identifying and investigating suspected phoenix activity, and [tax investigation teams](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) will examine whether assets were transferred at below market value, whether the successor company assumed any of the trade or workforce of its predecessor, and whether the directors of the failed company took steps to preserve value for themselves at the expense of creditors. Where HMRC identifies a phoenix pattern, it can pursue recovery through the civil courts, seek director disqualification through the Insolvency Service, and in serious cases refer the matter for criminal investigation. Directors who believe they may be under scrutiny for phoenix activity should seek immediate advice from [specialist tax and insolvency solicitors](https://lexlaw.co.uk/). ## The Legal Framework: Insolvency Act 1986 and Director Disqualification The primary legislative framework governing the conduct of directors in the context of company insolvency is the Insolvency Act 1986, supplemented by the [Company Directors Disqualification Act 1986](https://www.legislation.gov.uk/ukpga/1986/46/contents). When a company enters liquidation, the appointed liquidator is required by law to investigate the conduct of every director who held office in the three years prior to the insolvency, and to submit a report to the Insolvency Service where the conduct is considered to warrant further scrutiny. This obligation applies regardless of whether the liquidation is a voluntary one initiated by the directors or a compulsory winding up ordered by the court. Section 239 of the [Insolvency Act 1986](https://www.legislation.gov.uk/ukpga/1986/45/contents) addresses preference transactions specifically. A preference occurs where, at a time when the company is unable to pay its debts, a director or connected person receives a payment or benefit that puts them in a better position than they would have been in if the company had gone into liquidation without that payment being made, and the company was influenced by a desire to produce that outcome. Where a preference is established, the liquidator can apply to the court to have the transaction set aside and the funds recovered for the benefit of all creditors. The two-year look-back period applies where the preference is in favour of a connected person such as the director themselves, compared to the shorter six-month period for transactions with unconnected third parties. Section 214 of the [Insolvency Act 1986](https://www.legislation.gov.uk/ukpga/1986/45/contents) addresses wrongful trading, which arises where a director allows a company to continue trading and incur further debts, including tax liabilities, at a point when they knew or should have known there was no reasonable prospect of avoiding insolvent liquidation. Where wrongful trading is established, the court can order a director to make a personal contribution to the company's assets, effectively creating [personal liability for debts](https://taxdisputes.co.uk/hmrc-enforcement-action/) that would otherwise be the company's alone. [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs), as a major creditor in most corporate insolvencies, takes a keen interest in wrongful trading cases where significant tax debts have accrued during the period the company should have ceased trading. Under the[ Company Directors Disqualification Act 1986](https://www.legislation.gov.uk/ukpga/1986/46/contents), a director whose conduct in relation to an insolvent company is found to be unfit can be disqualified from acting as a director for a period of between two and fifteen years. The Secretary of State, acting through the Insolvency Service, has the power to bring disqualification proceedings following the receipt of a conduct report from a liquidator. Conduct that is routinely considered unfit includes failure to maintain or deliver up proper accounting records, failure to file returns and pay tax, and the phoenix pattern of transferring business assets to avoid creditor claims. Critically, a disqualification order or undertaking does not cancel any personal financial liability that may have arisen from the conduct in question. ## HMRC as a Preferential Creditor: What Changed in 2020 Prior to December 2020, [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)ranked as an unsecured creditor in most corporate insolvency proceedings, meaning it stood alongside trade creditors and other unsecured parties with little realistic prospect of recovery once secured creditors had been paid. The [Finance Act 2020](https://www.legislation.gov.uk/id/ukpga/2020/14) significantly changed this position by reinstating HMRC as a secondary preferential creditor in respect of certain tax debts, specifically VAT, PAYE income tax, employee National Insurance contributions, and Construction Industry Scheme deductions. These are taxes that a business collects on behalf of [HMRC ](https://taxdisputes.co.uk/2022/06/dealing-with-a-hmrc-7-day-letter-before-winding-up-action/)from its customers or employees and holds in trust, rather than taxes on its own profits. HMRC's enhanced status means that these so-called crown preference debts now rank ahead of the claims of floating charge holders and unsecured creditors, materially improving HMRC's prospects of recovery in insolvency. The practical consequence for directors is significant. If your company is in financial difficulty and is holding unremitted VAT or PAYE that it cannot pay, you should be aware that [HMRC ](https://taxdisputes.co.uk/2022/06/dealing-with-a-hmrc-7-day-letter-before-winding-up-action/)now has a strengthened legal position in any subsequent insolvency. Continuing to trade and accumulate these liabilities while insolvent exposes directors to personal liability claims. Taking early [specialist tax advice](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) at the first signs of financial difficulty is far preferable to allowing the position to deteriorate to the point where insolvency, enforcement action, or personal liability becomes unavoidable. ## Bounce Back Loans and the Public Cost of Corporate Failure The Covid-19 Bounce Back Loan Scheme provided government-guaranteed loans of up to £50,000 to businesses affected by the pandemic. Because the loans carried a 100% government guarantee, lenders bore no credit risk and the public purse absorbed the full cost of any unrecovered loan where the borrowing company subsequently failed. The scheme was characterised by unusually light-touch verification requirements, which made it both accessible to legitimate businesses in genuine need and vulnerable to abuse by those who had no intention of repaying. [The Insolvency Service](https://www.gov.uk/government/organisations/insolvency-service) has pursued hundreds of director disqualifications and prosecutions in connection with Bounce Back Loan abuse, and [HMRC ](https://taxdisputes.co.uk/2026/06/challenging-hmrc-decisions-by-judicial-review-in-2026/)has worked alongside it to identify cases where loans were obtained fraudulently or used for purposes outside the scheme's terms. Where a company entered liquidation with an outstanding Bounce Back Loan and the liquidator's investigations reveal irregularities in how the funds were used, or where the loan was obtained by a company that had no legitimate business basis for borrowing, the director can face both civil recovery action by the liquidator and criminal investigation. If you are a director of a company that received a Bounce Back Loan and is now in financial difficulty, seeking advice from [specialist insolvency solicitors](https://windinguppetitionsolicitors.co.uk/) at the earliest opportunity is essential. ## What This Case Illustrates for Directors and Business Owners The pattern of company failures documented in the Bowker case is instructive for any director who finds themselves at the head of a business that is struggling to meet its tax obligations. The central lesson is that the consequences of corporate insolvency do not end when the company is dissolved. Liquidator investigations, conduct reports to the [Insolvency Service](https://www.gov.uk/government/organisations/insolvency-service), preference transaction challenges, and [HMRC](https://taxdisputes.co.uk/2026/05/kfc-dip-pots-cost-hmrc-106000-in-major-vat-appeal-defeat/)'s enhanced creditor status in insolvency all mean that the legal exposure of a director can persist for years after a company closes. The fact that no disqualification order appears to have followed the conduct reports in this case is not a template others can rely upon: the Insolvency Service's approach to enforcement has tightened considerably in recent years, and the political and reputational dimensions of cases involving public figures add a further layer of scrutiny. Directors who are concerned about their company's tax position, who have already been through a corporate insolvency that left HMRC unpaid, or who are facing an [HMRC investigation](https://taxdisputes.co.uk/hmrc-tax-investigations/) into their affairs should take specialist advice without delay. The team at [LEXLAW Solicitors and Barristers](https://lexlaw.co.uk/) advises on the full range of HMRC enforcement and insolvency-related matters, from [penalty appeals](https://taxdisputes.co.uk/hmrc-penalties/) and [internal reviews](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/) through to defending [winding-up petitions](https://windinguppetitionsolicitors.co.uk/) and advising on personal liability exposure in the context of corporate insolvency. ### Frequently Asked Questions (FAQs) 1. What is a phoenix company and is it illegal? A phoenix company arises when a business is allowed to fail, leaving creditors unpaid, and the same directors immediately restart a near-identical business free of the old debts. It is not automatically illegal to start a new company after an old one becomes insolvent, but where the process involves transferring assets at undervalue, abusing the corporate form to avoid HMRC, or breaching specific provisions of the Insolvency Act 1986, it can give rise to serious civil and criminal liability. HMRC dedicates significant resources to identifying phoenix patterns and [pursuing directors](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) involved in them, particularly where substantial VAT or PAYE debts have been left unpaid. 2. Can HMRC pursue me personally for my company's unpaid tax debts? In certain circumstances, yes. Where a director has engaged in wrongful trading under section 214 of the Insolvency Act 1986, allowed a company to continue incurring tax liabilities when insolvency was inevitable, or has been involved in fraudulent conduct, personal liability for the company's debts can follow. HMRC also has specific powers to issue personal liability notices to directors in cases involving deliberate non-payment of PAYE and National Insurance. If you are concerned about your personal exposure in connection with a company's [unpaid tax liabilities](https://taxdisputes.co.uk/hmrc-enforcement-action/), taking early specialist advice is essential. 3. What is a section 239 preference, and what are the consequences? A section 239 preference under the Insolvency Act 1986 occurs when a company that is insolvent, or becomes insolvent as a result, makes a payment or transfers an asset to a director or connected person in a way that puts them in a better position than other creditors. The liquidator can apply to court to have the transaction reversed and the money returned to the insolvent estate. For transactions involving connected parties such as directors, the liquidator can look back two years before the onset of insolvency. If you have received payments from a company that has since entered [liquidation](https://windinguppetitionsolicitors.co.uk/), you may face a preference claim regardless of whether you believed the payment was legitimate at the time. 4. What happens to unpaid HMRC debts when a company goes into liquidation? Since the Finance Act 2020, HMRC holds secondary preferential creditor status for VAT, PAYE, employee National Insurance, and CIS deductions, meaning these debts now rank ahead of floating charge holders and unsecured creditors in the distribution of a liquidated company's assets. Despite this improved position, HMRC still writes off billions of pounds in uncollected tax each year due to corporate insolvencies. Where HMRC suspects that the insolvency was engineered to avoid payment, or that assets were improperly transferred beforehand, it will work with the liquidator and the Insolvency Service to pursue recovery. Directors of companies with significant [outstanding VAT or tax liabilities](https://taxdisputes.co.uk/hmrc-vat-investigations-evasion-input-ouput-double-taxation-tribunal-legal-advice/) should take legal advice before any insolvency process is initiated. 5. What are the consequences of a liquidator filing a conduct report about a director with the Insolvency Service? A conduct report triggers a review by the Insolvency Service, which can result in disqualification proceedings under the Company Directors Disqualification Act 1986. A disqualification order prevents a person from acting as a director, or being involved in the management of a company, for a period of between two and fifteen years. Breach of a disqualification order is a criminal offence. In addition, a disqualified director who continues to act in management of a company can be held personally liable for the debts that company incurs during that period. The filing of a report does not guarantee that disqualification proceedings will follow, but it does mean your conduct will be formally scrutinised, and having [specialist legal representation](https://lexlaw.co.uk/) in place before that process concludes can make a material difference to the outcome. --- # Challenging HMRC Decisions by Judicial Review in 2026 Source: https://taxdisputes.co.uk/2026/06/challenging-hmrc-decisions-by-judicial-review-in-2026/ *Judicial review is one of the most powerful legal tools available to a taxpayer facing an unlawful, irrational, or procedurally unfair decision by HMRC. Where the ordinary [statutory appeal process](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) cannot adequately address the wrong that has been done, or where HMRC has acted outside its legal powers entirely, an application for judicial review before the Administrative Court can compel HMRC to reconsider, set aside its decision, or compensate for the consequences of its unlawful conduct. In 2026, as HMRC continues to expand its investigative and enforcement reach, understanding when and how to bring a judicial review challenge has never been more important for businesses and individuals in dispute with the tax authority.* ## What Is Judicial Review and Why Does It Apply to HMRC? Judicial review is the process by which the High Court supervises the exercise of public power. Because HMRC is a public body exercising statutory functions, its decisions are subject to judicial scrutiny in a way that purely private commercial decisions are not. When HMRC makes a decision that is unlawful, whether because it has exceeded its legal authority, applied the wrong legal test, acted in a procedurally unfair manner, or behaved in a way that no reasonable public authority could behave, the Administrative Court has jurisdiction to intervene. A successful [judicial review application against HMRC](https://taxdisputes.co.uk/judicial-review-applications-against-hmrc-challenge-decision-advice/) can result in the quashing of the decision under challenge, a mandatory order requiring HMRC to act in a particular way, or a declaration that HMRC has acted unlawfully. It is important to understand that judicial review is not an appeal on the merits of a tax liability. The Administrative Court does not substitute its own view of how much tax is owed. Rather, it examines the legality of the process by which HMRC reached its decision and, where that process is found to be defective, sends the matter back to HMRC to be reconsidered lawfully. This distinction is critical because it defines both when judicial review is appropriate and what outcome a claimant can realistically expect. ## When Is Judicial Review the Right Route to Challenge an HMRC Decision? The first question any adviser must ask is whether the taxpayer has an adequate alternative remedy. The courts have consistently held that judicial review should not be used as a substitute for a statutory appeal where such an appeal is available and provides an effective remedy. A taxpayer who disagrees with a VAT assessment, for example, would ordinarily be expected to pursue an [HMRC internal review](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/) and then a formal [appeal to the First-tier Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) before seeking judicial review. The court will refuse permission for judicial review if a suitable alternative remedy exists and has not been exhausted. However, there are numerous circumstances in which judicial review is either the only available route or clearly the more appropriate one. This is the case, firstly, where there is no statutory right of appeal against the particular decision HMRC has taken. Secondly, it applies where HMRC has acted in a manner that goes beyond a mere error on the merits, raising a genuine public law defect that the tribunal cannot remedy. Thirdly, judicial review may be the right route where HMRC's conduct is so procedurally improper that waiting for the tribunal process to run its course would itself cause irreparable harm to the claimant. In each of these scenarios, [specialist legal representation](https://taxdisputes.co.uk/legal-representation/) is essential from the outset. ## The Legal Grounds on Which HMRC Decisions Can Be Challenged The grounds on which a [judicial review challenge against HMRC](https://taxdisputes.co.uk/judicial-review-applications-against-hmrc-challenge-decision-advice/) may be mounted were classically formulated by the House of Lords in *Council of Civil Service Unions v Minister for the Civil Service* [1985] AC 374, and they remain the framework courts apply today. The three core grounds are illegality, irrationality, and procedural impropriety, though the courts have developed these over the decades to encompass proportionality, legitimate expectation, and breaches of common law fairness. Illegality means that HMRC has acted outside its legal powers, either by doing something it has no statutory authority to do or by misunderstanding the legal limits of a power it does possess. If HMRC purports to exercise a discretion it does not have, or applies a legal test that is simply wrong, its decision will be unlawful on grounds of illegality. Taxpayers facing [HMRC investigations](https://taxdisputes.co.uk/hmrc-tax-investigations/) that involve demands for information beyond the scope of HMRC's statutory powers, for example, may have a strong illegality ground. Irrationality, often described by reference to the classic statement in *Associated Provincial Picture Houses Ltd v Wednesbury Corporation* [1948] 1 KB 223, means that HMRC's decision is so unreasonable that no reasonable public authority, properly directing itself, could have made it. This is a high threshold, but it is regularly reached in practice where HMRC has ignored highly relevant evidence, taken into account wholly irrelevant factors, or reached a conclusion that is simply irrational on the material before it. Where [HMRC penalties](https://taxdisputes.co.uk/hmrc-penalties/) are assessed in circumstances where the facts clearly did not justify the level of sanction imposed, an irrationality challenge may be available alongside or instead of the ordinary penalty appeal route. Procedural impropriety covers a broad range of failures by HMRC to follow fair process. This includes failing to give the taxpayer a fair opportunity to respond before a decision is made, failing to consult where consultation was required, failing to give adequate reasons for a decision, and breaching HMRC's own published policies and guidance in a way that causes prejudice to the taxpayer. The duty to act fairly is a fundamental principle of public law, and HMRC is not exempt from it. ## Legitimate Expectation as a Ground for Judicial Review Against HMRC One of the most frequently litigated grounds in [judicial review cases involving HMRC](https://taxdisputes.co.uk/judicial-review-applications-against-hmrc-challenge-decision-advice/) is legitimate expectation. The principle, established in domestic law through cases including *R v Inland Revenue Commissioners, ex parte MFK Underwriting Agencies Limited* [1990] 1 WLR 1545, is that where HMRC has made a clear, unambiguous, and unqualified representation to a taxpayer as to how it will treat a particular matter, and the taxpayer has relied on that representation in ordering their affairs, HMRC may be prevented from departing from that representation without giving the taxpayer an opportunity to be heard and, in appropriate cases, without being held to it entirely. In practice, legitimate expectation arguments arise in contexts including HMRC clearance decisions that are subsequently reversed, published concessions that are withdrawn without adequate notice, and individual rulings given to a taxpayer that HMRC later seeks to resile from. The Court of Appeal's decision in *David Beadle v HMRC* [2020] EWCA Civ 562 confirmed that legitimate expectation arguments can in principle be raised in enforcement proceedings, although the extent to which the First-tier Tribunal can entertain such arguments as part of a statutory appeal remains a contested and developing area of law. Where there is any doubt about the appropriate forum, a taxpayer facing a significant legitimate expectation issue should take [an early case assessment](https://taxdisputes.co.uk/legal-case-assessment/) from specialist solicitors before committing to a particular route. ## The Procedural Requirements for Bringing a Judicial Review Claim Against HMRC Judicial review claims are governed by Part 54 of the Civil Procedure Rules. A claim must be filed promptly and in any event within three months of the date of the decision being challenged. This time limit is strictly applied, and the courts will only extend it in exceptional circumstances. In some contexts, including certain planning and procurement decisions, even shorter time limits apply, and while tax cases do not generally attract these shorter periods, the three-month window can pass quickly, particularly where a taxpayer is attempting to resolve the matter informally or is waiting for HMRC to respond to a pre-action letter. Before filing a claim, a claimant must send HMRC a pre-action protocol letter setting out the decision being challenged, the grounds of challenge, and the remedy sought. HMRC then has 14 days to respond, though in practice extensions are frequently agreed. This pre-action stage is important and should not be treated as a formality: a well-drafted pre-action letter from [experienced tax investigation solicitors](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) will frequently prompt HMRC to reconsider its position without the need for full litigation, saving time and cost for both parties. If the matter proceeds to court, the claimant must first obtain permission from a judge to bring the claim. The permission stage is a filter designed to weed out claims that are unarguable or hopeless, and while it is not an insurmountable hurdle for a well-founded claim, it underscores the importance of careful preparation. A claimant who rushes to judicial review without properly identifying their grounds, gathering supporting evidence, and exhausting any available alternative remedies is likely to find their application refused at the permission stage. ## Key Decisions in 2025 and 2026 Shaping Judicial Review Against HMRC The courts have continued to develop the law on judicial review of HMRC decisions in recent years. The Supreme Court's decision in[ *R (Haworth) v HMRC* [2021] UKSC 25](https://www.supremecourt.uk/cases/uksc-2019-0124) remains highly significant for taxpayers challenging follower notices, having confirmed that HMRC's decision to issue such a notice is amenable to judicial review and that the court will scrutinise whether HMRC had reasonable grounds for concluding that a judicial ruling was relevant to the taxpayer's arrangements. The decision sent a clear signal that HMRC's exercise of its more aggressive statutory powers is not beyond judicial scrutiny, and that taxpayers who receive notices they consider to be ill-founded have a real prospect of success in challenging them before the Administrative Court. In parallel, the expanding scope of HMRC's [enforcement action](https://taxdisputes.co.uk/hmrc-enforcement-action/) against businesses, including the increased use of statutory demands and the presentation of [winding-up petitions](https://windinguppetitionsolicitors.co.uk/) where the underlying liability is disputed, has created new pressure points at which judicial review arguments intersect with insolvency law. Where HMRC presents a winding-up petition based on a debt that is genuinely disputed on substantial grounds, there is a well-established jurisdiction in the Companies Court to restrain that petition as an abuse of process. In more serious cases, where the petition itself reflects a decision made without lawful authority or in breach of a legitimate expectation, the Administrative Court's judicial review jurisdiction may provide an additional or alternative remedy. ## What a Successful Judicial Review of an HMRC Decision Can Achieve When a judicial review claim succeeds, the court has a range of remedies available. A quashing order sets aside the decision under challenge, treating it as if it never existed. A mandatory order compels HMRC to take a particular step, such as providing reasons for a decision it had unlawfully failed to explain. A prohibiting order prevents HMRC from taking a step it has threatened to take unlawfully. A declaration confirms that HMRC has acted unlawfully without necessarily setting aside any particular decision. In appropriate cases, damages may also be available, though this is relatively uncommon in a pure public law context. It is important to be realistic about what judicial review achieves. Quashing an HMRC decision does not extinguish the underlying tax liability: it sends the matter back to HMRC to be decided again, this time lawfully. However, this can be enormously valuable in practice, because a properly conducted reconsideration frequently results in a significantly different and more favourable outcome for the taxpayer, particularly where the original decision was tainted by procedural unfairness or a failure to consider relevant evidence. Working with [experienced HMRC appeal lawyers](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/) throughout this process is critical to ensuring the reconsideration is properly managed. ## How LEXLAW Can Help You Challenge an Unlawful HMRC Decision At[ LEXLAW ](https://lexlaw.co.uk/contact-us/)our dual-qualified solicitors and barristers have extensive experience in bringing and defending judicial review applications against HMRC across a wide range of tax contexts. We advise on the full spectrum of public law challenges to HMRC conduct, from the initial assessment of whether grounds exist, through the pre-action protocol stage, to permission hearings and substantive hearings before the Administrative Court. We also advise on the interaction between judicial review and the statutory appeal process, ensuring that our clients pursue the right route at the right time and do not inadvertently compromise either avenue by acting without specialist guidance. If you have received an [HMRC decision](https://taxdisputes.co.uk/hmrc-tax-investigations/) that you believe is unlawful, procedurally unfair, or contrary to a clear representation previously made to you, we urge you to seek advice without delay. The three-month time limit for judicial review claims moves quickly, and delay in taking legal advice is one of the most common reasons why otherwise strong claims are lost before they begin. Contact our team today for a confidential, fixed-fee [case assessment](https://taxdisputes.co.uk/legal-case-assessment/) and let us advise you on whether judicial review is the right tool for your circumstances. ### Frequently Asked Questions (FAQs) 1. How long do I have to bring a judicial review claim against HMRC? You must file your claim within three months of the HMRC decision you are challenging, and the court expects you to act promptly within that window. Delays caused by informal correspondence with HMRC do not pause the clock. If you think you have grounds for a [judicial review challenge](https://taxdisputes.co.uk/judicial-review-applications-against-hmrc-challenge-decision-advice/), seek specialist advice immediately. 2. Can I judicially review HMRC if I also have a right of appeal to the tribunal? Not usually, because the courts expect you to use any adequate alternative remedy first. However, judicial review remains the right route where the [tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) cannot grant the specific remedy you need or where the challenge raises a pure public law issue rather than a dispute about the amount of tax owed. Taking [early specialist advice](https://taxdisputes.co.uk/legal-representation/) is essential to ensure you pursue the correct route. 3. What does it mean in practice if a judicial review of an HMRC decision succeeds? A successful claim does not cancel your tax liability. It sets aside HMRC's unlawful decision and requires HMRC to retake it properly, which in practice very frequently produces a significantly more favourable outcome. The court can also make mandatory orders and declarations, depending on what remedy your circumstances require, and our [HMRC appeal lawyers](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/) will advise you on the most effective remedy to pursue. 4. Can judicial review be used to stop HMRC presenting a winding-up petition against my company? Where HMRC is threatening a [winding-up petition](https://windinguppetitionsolicitors.co.uk/) based on a genuinely disputed liability, the Companies Court can restrain that action as an abuse of process. Where the underlying HMRC decision is itself unlawful, a parallel judicial review challenge in the Administrative Court may also be available. Both situations are urgent and require same-day legal advice given the irreversible consequences of a petition becoming public. 5. Does HMRC have to explain the reasons for its decisions, and what can I do if it refuses? HMRC is not always under a statutory duty to give reasons, but the common law duty of fairness requires adequate explanation where a decision significantly affects your legal or financial position. A failure to give proper reasons is itself a recognised ground of [judicial review](https://taxdisputes.co.uk/judicial-review-applications-against-hmrc-challenge-decision-advice/), and a successful challenge on this basis will require HMRC to remake its decision transparently. Contact us for a [confidential case assessment](https://taxdisputes.co.uk/legal-case-assessment/) if you have received a decision with no adequate explanation. --- # Customs officers arrest suspects over £1m construction industry fraud Source: https://taxdisputes.co.uk/2011/05/customs-officers-arrest-two-suspected-over-1m-construction-industry-fraud/ TWO men have been arrested over a suspected £1m fraud linked to the construction industry after raids on businesses, including in Harrow. Customs officers stormed four business address in Harrow, Ruislip and Ipswich yesterday morning and the pair, aged 42 and 69, both from London, are being interviewed by customs officers. They are suspected of involvement in a tax and money laundering fraud. John Pointing, assistant director of HM Revenue and Customs (HMRC) Criminal Investigation, said: “HMRC criminal investigators have uncovered a suspected million pound tax and money laundering fraud." --- # Alleged £2m electronic advertising VAT repayment fraud Source: https://taxdisputes.co.uk/2011/05/alleged-2m-electronic-advertising-vat-repayment-fraud/ TWO people have been arrested during a dawn raid led by investigators probing a £2 million VAT fraud. A team from HM Revenue and Customs (HMRC) as part of "operation Kickdon" swooped on a residential address in Swadlincote in the early hours of yesterday. After searching the property, a 29-year-old man and a 31-year-old woman were detained and interviewed under caution. The raid came after suspicions arose that the pair were involved in attempting to steal £1.97 million through false VAT repayment claims relating to the sale of large-screen electronic advertising space. Assistant director of criminal investigation for HMRC Adrian Farley said: “I can confirm that two men and one woman were arrested in dawn raids on Monday morning. The raids came after information led us to believe that the three may have attempted to steal £1.97 million through false VAT repayment claims relating to the sale of large-screen electronic advertising space. The arrests that took place were a result of our investigation to disrupt and prevent what is believed to be a major fraud. One of our key priorities is to identify the abuse of our tax systems by organised crime gangs stealing vast amounts of public money for their own gain.” --- # HMRC ordered to repay £1.5m to Mobile Phone Trader Source: https://taxdisputes.co.uk/2011/05/hmrc-ordered-to-repay-1-5m-to-mobile-phone-trader/ A High Court ruling ends six-year Brayfal dispute over contra-trading allegation. HM Revenues and Customs (HMRC) has paid back mobile phone trader Brayfal £1.5 million in VAT returns, after a six-year dispute. Brayfal had been accused by the HMRC of what the judge in the case described as, “contra-trading” relating to goods that have been obtained fraudulently being passed from business to business before eventually being sold. Brayfal always claimed it had no knowledge the devices had been part of any form of a VAT carousel fraud, saying it had been a broker in what it called a “clean supply chain”, with each participant accounting correctly for VAT in relation to the sales and purchases. But HMRC said that the company “knew or should have known” that it was part of a contra-trading scheme. Mr Justice Lewison stated in his court notes that stock had passed through IGB Group owned Future Communications who acted as a “contra-trader in an overall scheme to defraud the public revenue”. HMRC alleged that Brayfal was a part of this scheme. HMRC based its claims on a European case involving Belgian companies, Kittel and Recolta, which were denied VAT payments based on the fact they should have known they were part of criminal activity. This accusation was held up on appeal by the VAT and Duties Tribunal on August 22, 2008, which found HMRC had failed to prove the company knew or had the means of knowing it had entered into a contra-trading scheme. However, HMRC appealed against this decision and it was remitted. In March 2010 the Tribunal ruled in its favour, which ultimately led to Brayfal taking its case to the High Court. But Justice Lewison called on another case – that of trader Moblix versus HMRC, which saw the latter win based on evidence it produced proving Moblix should have been aware of its involvement in a contra-trading scheme. He ruled Brayfal was not aware of any fraudulent activity relating to any of its stock. He said: “If anything, the way in which the members formulated their conclusion imposed a higher burden on Brayfal than they should have. They found Brayfal had proved it did not have actual knowledge or the means of knowledge, whereas we now know from Moblix that the burden of proof lies on HMRC to prove Brayfal did have knowledge or the means of knowledge. The appeal must be dismissed.” --- # Tribunal orders HMRC to repay ET £13m VAT Source: https://taxdisputes.co.uk/2011/05/tribunal-orders-hmrc-to-repay-et-13m-vat/ Mobile handset distributor European Telecom wins VAT and Duties Tribunal case against HMRC over £8.8 million in witheld VAT repayments and HMRC ordered to repay VAT plus costs and interest. European Telecom went into administration in May 2007, owing around £8 million to creditors but owed £8.8 million in withheld VAT repayments from HMRC for suspected involvement in a VAT carousel fraud. The disallowed VAT was on 33 purchases totalling £50.2 million from Unique Distribution, another defunct UK distributor, which was at the time official UK supplier for Nokia. The Tribunal judgement this month noted European Telecom was an established trader with more than 100 staff selling to the UK and overseas markets. It also noted European Telecom did not use the First Curucao International Bank, which has been central to HMRC’s investigation as a conduit for fraudulent VAT funds. It said: “Customs has not satisfied the Tribunal the only reasonable explanation for Global’s purchases from Unique were that they were connected with fraud. Nor viewing the evidence has Customs satisfied us that it knew transactions were connected with fraud. The appeal is allowed with costs.” --- # HMRC’s tax crackdown on eBay traders Source: https://taxdisputes.co.uk/2011/06/hmrcs-tax-crackdown-on-ebay-traders/ Those who make extra cash from giving private lessons are now on the HM Revenue & Customs' hitlist of potential tax cheats. They join people who make a business of selling goods on the internet, personal trainers, tradesmen and businesses that fail to register for VAT as the latest targets of the tax crackdown. Thousands of teachers make extra money tutoring children for exams — HMRC now wants its cut from these extra earnings. Millions of pounds worth of goods are bought and sold on sites such as eBay and Amazon every day. HMRC insists it is not targeting those who sell only a few items and are unlikely to be liable for tax. It will trawl the internet using 'web robot' software to catch out people and companies breaking its rules, failing to pay the right tax or trading illegally. Software will also be used to uncover inconsistencies between the amount firms or people are paying in tax and their bank interest, property income and lifestyle. HMRC announced last month that a campaign will be launched in the summer targeting VAT rule-breakers trading above the £73,000 turnover threshold but who have not registered for VAT. The taxman is offering an amnesty to those who come clean about underpaid tax in the next few months. Rather than fines equivalent to all of the tax owed, they will be face a surcharge penalty of 10%. [ ](http://www.thisismoney.co.uk/tax/income/article.html?in_article_id=537219&in_page_id=77#ixzz1PQtabC2Z)   | | | --- | | | --- # Ken Clarke under fire from taxman over legal fee reforms Source: https://taxdisputes.co.uk/2011/06/ken-clarke-under-fire-from-taxman-over-legal-fee-reforms/ Kenneth Clarke's Ministry of Justice is embroiled in a row with Revenue & Customs (HMRC) over its planned no-win, no-fee legal reforms after tax chiefs demanded an exemption for their use of the controversial legal arrangements. Clarke, who recently ran into controversy over comments about rape, introduced plans late last year that would prevent victorious litigants claiming their lawyer's success fees from defendants. The justice secretary's reforms have been brought in to deal with "ambulance-chasing" lawyers in personal injury cases where the threat of huge fees for a losing side can encourage them to settle early. But the move to restrict the use of conditional fee arrangements[ ](http://www.guardian.co.uk/law/2011/feb/16/jackson-litigation-costs-reform?INTCMP=SRCH)applies not just to personal injury cases but also to a range of other legal disputes, including insolvency situations. The plans have raised fears that insolvency practitioners may find it harder to pursue fraudulent company directors to recover cash for creditors. HMRC would be the biggest loser, with its losses due to insolvencies and fraud running into billions of pounds every year. Critics of the Ministry of Justice's plans say that the reforms are being rushed through, and will result in huge losses to the exchequer. As the major creditor in most insolvency situations, HMRC submitted a response to the consultation process on the reforms this year and is now in talks with the Ministry of Justice about finding a solution to the problem. Revenue & Customs is believed to be particularly worried that the new regulations may restrict its ability to recover funds in even the most flagrant cases, such as carousel frauds. R3, the Association of Business Recovery Professionals, is spearheading a campaign to get insolvency situations exempted from the new regulations. Research carried out by the association over the last month suggests that the new rules could reduce the returns to creditors in recovery situations by almost 50%. In 23 cases considered by R3, the availability of conditional fee arrangements and insurance against losing a case – another cost that is currently recoverable – meant a further return to creditors of £7.6m. Frances Coulson, president of R3,said: "Under these proposals it will be harder for insolvency practitioners to recoup money from dodgy directors, so creditors such as the business community and HMRC could be left with nothing. It is essential that insolvency is exempt from these proposals so that businesses and HMRC are not left out of pocket and wrongdoing is not seen to be excused. Every penny left in the pocket of a director in a carousel fraud case is likely to fund another fraud." Andy Slaughter, the shadow justice minister, said: "The government's insistence on a one-size-fits-all approach to their plans for radically reshaping civil justice threatens to punish ordinary citizens, honest hard-working small businesses and, in this case, the public purse itself." A spokesman for the Ministry of Justice said: "We are considering the impact of abolishing CFA [conditional fee arrangements] recoverability in insolvency and related proceedings. These proceedings can bring substantial returns to creditors, including Her Majesty's Revenue & Customs. We are therefore discussing the specific implications with a view to reaching a satisfactory conclusion." A spokesman for Revenue & Customs said: "HMRC is in discussion with the Ministry of Justice about the implications of the Jackson Report but is unable at present to comment further on this matter." The row is a further embarrassment for Ken Clarke, under pressure from the right over his proposals to reduce sentences for those pleading guilty early and from the left for his gaffes on the subject of rape. --- # Property developer jailed for £25m VAT fraud Source: https://taxdisputes.co.uk/2011/06/property-developer-jailed-for-25m-vat-fraud/ A Middlesex man who evaded £25m in tax by submitting false VAT repayment claims for 15 different companies has been jailed for eight and a half years after an investigation by HM Revenue & Customs (HMRC). Charles Victor Scarrott (61) who was the sole director of 15 property development companies, pleaded guilty to 15 counts of cheating the revenue at Kingston Crown Court and was sentenced to eight and a half years on each of the counts to run concurrently. The investigation uncovered evidence that between 2003 and 2008, Scarrott submitted 178 fraudulent repayment claims totalling more than £25m. He provided false purchase invoices, bank statements and other business records to support the claims and used the proceeds of his crime to purchase luxury items which included: - £1m penthouse in Teddington, Middlesex - £500,000 holiday home in Dorset - Flats for his two children - £36,000 attending sporting events - £42,000 on private school fees - £40,000 on dental work - Over £80,000 on holidays - Maserati luxury car When passing sentence, His Honour Judge Hopmeir said: “You played with high stakes, you have now lost and must pay the price. Those that cheat the Revenue cause direct and indirect damage to the community. Those that pay their taxes are effectively victims of those like you that cheat the system. As a result of careful and conscientious work by customs officers, your **fraud** has been detected.” John Cooper, Assistant Director of Criminal Investigation for HMRC said: “Scarrott stole from the pockets of innocent people and deprived the nation of vital funds needed for public services whilst funding his own extravagant lifestyle by claiming fraudulent VAT refunds. The sentence Scarrott received yesterday will act as a deterrent to anyone considering carrying out this type of crime. HMRC investigators will look to recover the profits made from these illegal activities.” Confiscation of assets is being sought. --- # Report on Abuse of Charities for Money-Laundering and Tax Evasion Source: https://taxdisputes.co.uk/2011/06/report-on-abuse-of-charities-for-money-laundering-and-tax-evasion/ Many countries recognize the important and significant role the voluntary sector plays in building a strong, caring and well-functioning society as well as in contributing to employment, welfare and economic growth. The vast majority of charities are legitimate, but some may be targeted by criminals to launder the proceeds of tax crimes and other serious offences. Tax evasion and tax fraud through the abuse of charities is a serious and increasing risk in many countries, although its impact is variable. Some countries have not identified any abuse, while others estimate that the abuse of charities costs their treasury many hundreds of millions of dollars and is becoming more prevalent. The report summarizes the status attached to charities in 19 countries surveyed and compiles the common methods of the abuse of charities and the sectors at risk. It sets out the detection strategies that countries have adopted. It also provides the red flag indicators that will help tax staff in processing tax returns and carrying out audits. The report gives examples of information resources and describes the detection and investigation approaches adopted by a number of the countries. The abuse of charities is becoming more organised and more sophisticated. Most countries surveyed that have identified problems with the abuse of charities find it difficult to detect all cases of abuse. The report gives illustrative case studies to aid comprehension and to raise the awareness of tax authorities about the potential abuse of charities in their countries. --- # HMRC to target riding instructors Source: https://taxdisputes.co.uk/2011/06/hmrc-to-target-riding-instructors/ HMRC has this week announced a major new clampdown on private tutors who it believes are avoiding or paying the incorrect amounts of tax. This latest clampdown from HMRC follows similar campaigns targeting doctors, plumbers and restaurants, and will, according to accountants James Cowper, include riding instructors who give private lessons. The campaign, which is looking at both VAT and income tax, will use sophisticated new technology, including a web robot, to help HMRC pinpoint more accurately people who have failed to pay the correct tax. It can, according to HMRC, help ’uncover anomalies between such elements as bank interest and lifestyle indicators before homing in on unexplained inconsistencies’. This campaign will not only be looking at those who earn a living from riding tuition and but also at those who supplement their income by giving regular lessons. HMRC is becoming much more aggressive in tracking down unpaid tax and is now using some pretty sophisticated techniques to track down those it believes are not paying the correct tax. It is also likely to identify those who advertise regularly both online and in popular magazines to identify those providing lessons. This HMRC initiative is not solely aimed at taxpayers who are not already submitting accounts but is also likely to include those business which HMRC have reason to believe are not fully declaring their income through their annual tax returns and accounts. Equine tax affairs are notoriously complicated, and often the dividing line between hobby and business can be difficult to draw precisely. It is all too easy to move from enjoying a hobby with the occasional lesson to help fund it, to running a business. The best way to ensure that tax affairs are up to date and to fend off HMRC enquiry is to maintain records and keep them up to date.’ VAT is equally complex, sole traders and self-employed tutors and exempt from VAT, but employees of a business are not. A self-employed tutor giving lessons to or on behalf of a business will incur VAT, but a partner in partnership business giving lessons is exempt. Mistakes are easily and inadvertently made. This announcement from HMRC will undoubtedly trigger a response from people who know or suspect that they have not been paying the correct amounts of tax; this is the very reason for the announcement. I would always recommend that individuals who believe they owe tax seek advice from their accountant or tax adviser and look to take advantage of these opportunities to bring their tax affairs up to date. Do not approach HMRC directly without first speaking with your accountant or tax adviser. HMRC are increasingly tough negotiators and without detailed knowledge of the tax system a larger tax bill and penalty than necessary could be charged. Do not ignore this clampdown. It is possible that HMRC is already aware of your financial details and so, having publicly drawn attention to this area, it is likely that future penalties might be higher.   --- # HMRC seeking tax evaders – restaurateurs targetted Source: https://taxdisputes.co.uk/2011/05/hmrc-seeking-tax-evaders-restaurateurs-targetted/ HM Revenue & Customs has unveiled the taskforce that will form part of a £900m effort to clamp down on high earners using loopholes to lower their tax bills. In a statement, HMRC said the first step will focus on the restaurant trade, targeting businesses in London in the coming weeks. The statement said specialist teams would undertake "intensive bursts" of compliance activity in specific high-risk trade sectors and locations across the UK. The restaurant trade in Scotland and the northwest of England will be the next areas to be targeted. Mike Eland, director general of enforcement and compliance for HMRC, said: "Only those who choose to break the rules or deliberately evade the tax they should be paying will be targeted. Honest businesses have absolutely nothing to worry about. "But the message is clear – if you deliberately seek to evade tax, HMRC can and will track you down and you will face not only a heavy fine, but possibly a criminal prosecution as well." HMRC is planning to create a further nine task forces in 2011/2012 with more to follow in 2012/2013. --- # Tax hit-squads target restaurants Source: https://taxdisputes.co.uk/2011/05/tax-hit-squads-target-restaurants/ Restaurant owners in the north west are being targeted by a hit squad set up by by HM Revenue to tackle tax dodgers. The move follows the government's pledge to invest £900m to combat tax evasion, avoidance and fraud with a goal of raising an additional £7bn in revenues by 2014/15. The restaurant trade is also being targeted in London and Scotland. Mike O'Grady, assistant director of criminal investigation for HMRC, said: “The task force will tackle rule-breakers and evaders quickly and effectively. The first task force in the north west will focus on the restaurant trade over the coming weeks. “Honest businesses have absolutely nothing to worry about. Only those who choose to break the rules or deliberately evade the tax they should be paying will be targeted.” HMRC's task forces comprise compliance and enforcement experts who undertake intensive bursts of activity targeting specific sectors and locations where there is evidence of high risk of tax evasion. HMRC is likely to base its challenges around surveillance visits where diners pay cash and leave without a receipt, or where staffing numbers seem incompatible with the needs of the restaurant. Typically HMRC officers will visit each restaurant they are investigating and in many cases eat at the premises and collect data on customer numbers. Restaurateurs who have been less than honest in the past may consider using a tax amnesty to own up. --- # HMRC sets its focus on VAT cheats Source: https://taxdisputes.co.uk/2011/05/hmrc-sets-its-focus-on-vat-cheats/ Those that fiddle their VAT returns are to be targeted by HM Revenue & Customs (HMRC). The new campaign will home in on individuals and firms who are trading above the VAT threshold but have not yet registered for VAT. Currently, the threshold for VAT is £73,000 turnover on a rolling annual basis. In line with other tax campaigns by HMRC, the initiative is likely to invite people to voluntarily disclose their tax affairs in return for no or a lesser penalty. Those that do not choose to give up their information and start paying VAT that are caught after the campaign face being hit by a far heavier penalty. Such campaigns have proven to be a success for HMRC, dragging back tens of millions of pounds in previously lost tax revenues by targetting offshore investments, medical professionals and people working in the plumbing industry. They have raised more than £500 million from voluntary disclosures and a further £100 million from follow-up activity. "Each campaign is aimed at reducing the tax gap by focusing on areas where a significant underpayment has been identified," said HMRC. "The department provides simple, straightforward opportunities for customers to put their records in order on the best possible terms, followed immediately by activity focused on the non-compliant who choose not to take up the opportunity." The campaign is to be officially launched later this summer. --- # HMRC cracking down on unregistered VAT dodgers Source: https://taxdisputes.co.uk/2011/05/hmrc-cracking-down-on-unregistered-vat-dodgers/ HM Revenue & Customs (HMRC) continues its crackdown on tax evasion with a focus on VAT. The government body this week urged plumbers and heating engineers to pay back any taxes they owe ahead of the May 31st deadline on its current leniency period. But all businesses could face investigation in the months to come if they are suspected of avoiding paying VAT receipts. Plumbers have already faced a crackdown in this area, along with offshore investors and medical professionals. Mike Wells, director of risk and intelligence at HMRC, says: "Our aim is to get as much input as possible into our future campaigns so that the views and experience of people and organisations outside the department play a fuller part." As such, its campaign - which aims to tackle companies who have not registered for VAT, despite trading above the VAT threshold - is not due to launch until late summer. --- # Smugglers Caught with 8 Million Cigarettes from UAE Source: https://taxdisputes.co.uk/2011/05/smugglers-caught-with-8-million-cigarettes-from-uae/ Eight million cigarettes thought to have originated from Dubai were seized in Northern Ireland on Tuesday, British customs officials said. A raid in Armagh has busted cigarette smugglers who had some 8 million cigarettes seized. The seizure was worth an estimated £1.7 million (Dh10m) in lost duty, according to HM Revenue and Customs (HMRC). A multi-agency cross-border operation targeting the illicit tobacco trade was conducted and two men were detained. “HMRC can confirm that we have indications that the product came from Dubai and investigations are continuing." Officials said they suspected that the Port of Dubai was used to ship the product, however they were still investigating where the cigarettes were produced. “Tobacco smuggling is organised crime on a global scale, with huge profits ploughed straight back into the criminal underworld, feeding activities like drug dealing, people smuggling and fraud. Buying cheap cigarettes without the duty paid on them means trading with criminals and undermining honest businesses,” John Whiting, the assistant director of criminal investigation at HMRC, said yesterday. According to a report by the European Commission’s Taxation and Customs Union last year, more than 12 per cent of the illegal cigarettes, cosmetics and other items smuggled into Europe carried documentation showing they were produced in the Emirates. European customs officials at the time acknowledged that the validity of documentation found with illegal goods could also be questioned. David Boublil, a spokesman for the Taxation and Customs Union’s directorate general, said the origin of the product referred to where it was produced or where the manufacturer or importer pretended it was produced. “We did not try to distinguish between countries of origin and countries of provenance this time,” he said. “It is difficult to make the distinction, because if the counterfeiters are ready to break one law, they may break another one and try to produce fake certificates." Customs officials in Dubai said many items attributed to the Emirates may have passed through UAE ports after originally being shipped from another country. They pointed out that Dubai Customs did not have legal authority to inspect goods on ships that arrived in UAE ports on their way to other destinations. Many goods from other parts of the world transit through the UAE, Mr Boublil acknowledged. The report showed that 56 per cent of illegal cigarettes seized were made in the UAE, as were 26 per cent of foodstuffs and beverages, 13 per cent of cosmetics and personal care products and 9 per cent of medicines. --- # Cigarette fraud arrests in Newark, Doncaster and Retford Source: https://taxdisputes.co.uk/2011/06/cigarette-fraud-arrests-in-newark-doncaster-and-retford/ Five men have been arrested in Nottinghamshire and South Yorkshire by customs officers investigating a £20m illegal tobacco fraud. About 60 officers from HM Revenue and Customs (HMRC) raided addresses on Friday morning as part of a probe into excise duty fraud and money laundering. Two men, aged 26 and 27, were arrested in Doncaster and a 47-year-old man was arrested in Newark. Two more men, aged 23 and 27, were arrested in Retford. --- # Arcade machines seized in Gloucestershire and Somerset Source: https://taxdisputes.co.uk/2011/06/arcade-machines-seized-in-gloucestershire-and-somerset/ Customs officers have seized 31 illegal gaming machines from amusement arcades in Gloucestershire and Somerset.The machines were taken last month during raids by HM Revenue and Customs officials investigating tax evasion. A total of 17 machines were confiscated in Gloucester and 14 in Taunton with the money forfeited by the owners.Customs spokesman Bob Gaiger said they were investigating the non-payment of at least £180,000 in amusement machine licence duty over a three-year period. "Gaming machine operators are legally required to pay the excise duty on each machine to purchase the appropriate licence," said Mr Gaiger. "We only seize machines as the last resort, when all other efforts have been exhausted." --- # Leeds Customs raid uncovers £53,000 illegal tobacco Source: https://taxdisputes.co.uk/2011/06/leeds-customs-raid-uncovers-53000-illegal-tobacco/ A haul with a street value of £53,000 was uncovered after HM Revenue and Customs (HMRC) staff raided three addresses in the Chapeltown area of Pudsey, Leeds. The contraband included 42,000 cigarettes and 150 kilos of rolling tobacco on which £42,000 excise duty and VAT had not been paid. A spokeswoman for HMRC said the packages had been sent through Parcel Post and were labelled as loose China tea. Paperwork accompanying the item described the contents as clothing. The tobacco destined for the black market included Benson & Hedges cigarettes in parcels and it is suspected it included counterfeit cigarettes and possibly bogus tobacco. Investigations are continuing to establish the source of the illegal tobacco and who sent it. HMRC are appealing to communities for information to help stop the influx of illegal cigarettes and tobacco into Leeds and West Yorkshire. Regional head of detection, Michael Connolly said: “We know that there are criminal gangs in central Leeds and across West Yorkshire who are illegally supplying and selling duty free, and potentially counterfeit, tobacco goods. “This criminal activity is something we, along with other law enforcement agencies, want to stamp out. “Communities are being targeted by organised criminals making substantial profits at the expense of taxpayers, People are being sold unregulated, low quality counterfeit tobacco products.   --- # £2 million VAT fraud brothers jailed Source: https://taxdisputes.co.uk/2011/06/2-million-vat-fraud-brothers-jailed/ Two brothers, who stole more than £1.6m through tax fraud and by stealing from their employees to finance their luxury lifestyles, have been jailed at Croydon Crown Court today for six years, following a complex investigation by HM Revenue & Customs (HMRC). Haris and Adam Mukhtar, from Ilford, made £1.3m worth of fake VAT claims for various bogus companies, from chauffeuring to importing rice. Haris Mukhtar also told 200 of his own staff that £330,000 cash taken from their debit and credit cards was for national insurance and tax payments; Haris, described in court by the judge as “thoroughly dishonest” and “totally bent”, pocketed some of the cash for himself. HMRC specialist investigators prevented a further £320,000 being paid in other fraudulent VAT claims. Haris and Adam bought themselves Lamborghinis and a hand-built Mercedes McLaren with their ill-gotten cash. The brothers, who shared a home, filled it with high-spec televisions, buying one for every room in the house. John Pointing, Assistant Director of Criminal Investigation for HMRC, said: “Criminals such as this are menaces who steal from honest taxpayers. HMRC is cracking down on fraud and the Government has made a further £900 million available to us for tackling evasion, avoidance and attacks by criminal gangs.” Confiscation proceedings against both brothers are ongoing. --- # Fake businessman jailed for VAT fraud Source: https://taxdisputes.co.uk/2011/06/fake-businessman-jailed-for-vat-fraud/ A SOUTH Yorkshire fraudster who gambled millions of pounds and lived a life of luxury after setting up fake companies to falsely reclaim VAT has been jailed for over three years. Patrick Nelis, aged 25, led the life of a successful businessman after setting up fake companies which he claimed traded in rebated fuels such as red diesel and Liquid Petroleum Gas, for which suppliers can reclaim VAT costs. But the companies were shams, used to create fictitious fuel transactions so Nelis could exploit the VAT system for profit. The former salesman, who has been jailed for three years and four months, was caught out by HM Revenue and Customs in September 2009 when checks revealed he had supplied fake invoices and receipts. When officials checked with some of the firms he claimed to have dealt with, they had never heard of him. Nelis, of Sanders Way, Dinnington, registered RP Fuels and R&P Fuels to a property on Redwall Close, Dinnington, ST Travel to an address in North Anston, and CC Fuels Ltd to premises in Burton on Trent. He admitted £700,000 VAT fraud at Leeds Crown Court. Peter Hollier, HMRC’s Regional Director for Criminal Investigation, described his crime as “brazen fraud” and added: “This crime was motivated by greed. Nelis thought he had found a way to exploit the VAT system and tried to fool everyone into thinking his business was legitimate. “He even attempted to charm HMRC officers with tales of how successful his businesses were and reams of customer invoices.” Nelis, who was made bankrupt in 2007, kept fake records which alleged daily deliveries of fuel, and the supply of millions of litres to customers across the UK. Nelis also employed ‘front men’ to run the companies on his behalf, in an attempt to distance himself from the fraud. One accomplice - Craig Chamberlain, aged 35, of Astil Street, Burton on Trent - was jailed for 12 months after pleading guilty to helping to falsify paperwork in order to illegally claim back VAT for one of the fake companies. --- # Public sector fraud taskforce prepares zero-tolerance crackdown Source: https://taxdisputes.co.uk/2011/06/public-sector-fraud-taskforce-prepares-zero-tolerance-crackdown/ The government is to set up a new counter-fraud network to identify career fraudsters who target the public sector, contributing to £21bn of taxpayers' money leaking out of the system illegally. Ministers say 3p in every pound spent by the government is lost to fraud, the vast majority through tax evasion and corruption in the welfare system, and there is evidence of fraudsters manipulating the government's payment systems repeatedly to siphon off funds. Some get insider help from state employees. The Cabinet Office counter-fraud taskforce has published a report revealing in detail how fraud operates across all levels of government and proposing plans for a new zero-tolerance approach which, it said, would end the "pay first, check later" culture in the civil service. Intelligence-sharing networks across government will issue alerts when new types of fraud are identified. Names of individuals who are defrauding the system could be circulated. The taskforce says it will "consider the development of a watchlist of people who have committed insider-enabled fraud against the public sector". The £21bn of fraud in the public sector identified in a report last year includes £15bn of tax evasion, £1.5bn of tax and benefits fraud and £1.5bn of procurement fraud. That includes the practice of double-invoicing government departments for the same items. More than £472m is lost to grant fraud – groups wrongly securing government grants. There is also £177m of payroll fraud – including operators of the systems setting up fake employees to siphon off salaries, £165m in NHS patient charges being fraudulently submitted by contractors and £31m of student finance fraud. In local government, £900m is lost to council tenancy fraud, £855m to procurement fraud, £90m to council tax fraud and £46m to fraud in the blue badge parking schemes. Francis Maude, the Cabinet Office minister, said pilots launched last year to tackle fraud had already saved £12m out of the £21bn annual total. That included more than £10m cut from both fraud and error in the tax system through better screening techniques. The transport department had also saved £500m by detecting overpayments. The Cabinet Office could not say what proportion of each was from deliberate fraud instead of error. HMRC has reduced late self-assessment returns by 5% by texting previous offenders to remind them. A Cabinet Office spokesman said: "The £12m savings equate to pilots that have focused on preventing and detecting fraud, but these have also had an impact on preventing error. "HMRC's pilot, which saved £10.63m, prevented payments being made following false or incorrect applications and so making sure that payments go to those who are most eligible and those who need it most." In a foreword to the document, David Cameron writes: "It is deeply unfair to allow opportunist fraudsters and organised criminals to steal money that should be used for frontline services, especially at a time when we have had to ask many in the public sector to make difficult decisions to bring the economy back on track." --- # HMRC in tax evasion probe Source: https://taxdisputes.co.uk/2011/06/hmrc-in-tax-evasion-probe/ Taxi drivers and chip shop owners are among those being investigated by tax inspectors over offshore bank accounts and evasion. HM Revenue and Customs (HMRC) has identified around half a million Britons using offshore accounts, it was revealed. An official has said that more and more middle-class people are taking advantage of the tax-free havens. The official told The Sunday Times that those under investigation included "chip shop owners, taxi drivers and landladies from Blackpool". They could be facing large penalties if they are found to have dodged their payments with HMRC looking to raise billions in interest, tax and fines. They may consider seeking financial advice in the future rather than using offshore alternatives. The potential offenders have been identified through enforced data-sharing with banks and whistleblowers. Individuals have also been checked on a new IT system that allows their pay, lifestyle and assets to be compared with tax paid. Eight arrests have been made and five people interviewed under caution in recent weeks but officials expect many more to follow. Treasury Minister David Gauke said: "The options for hiding money offshore to evade UK tax are narrowing all the time and I would strongly urge anyone who is at all concerned that they may not have been paying the right tax on their offshore investments to talk to HMRC. "The Government has made £917 million available to HMRC to tackle tax cheats and some of this money is already being very effectively deployed against off shore tax evaders." --- # Tax fraud detection saved £11m in six months – report Source: https://taxdisputes.co.uk/2011/06/tax-fraud-detection-saved-11m-in-six-months-report/ A £1 million system developed by Fujistsu for the UK government's fraud task force saved nearly £11 million of taxpayers' money in six months, according to a report released today by the Cabinet Office. The Fraud and Error Assessment Tool (FEAST) is used by the task force, part of HM Revenue and Customs, to analyse tax credit applications for evidence of fraudulent claims. "FEAST works by applying a set of dynamic risk criteria to every tax credit claim," a spokesperson for HM Revenue and Customs told* Information Age* today. "Where those risk parameters are tripped, it automatically diverts the claim to an operator for intervention, allowing us to investigate and confirm the circumstances of the customer. Where these are found to be erroneous, we have the ability to change the information before the claim goes into payment or reject the claim where fraud is suspected." The Cabinet Office report said that HMRC now plans to roll FEAST out more widely, expecting to save £256 million over the next four years. The task force, launched in December last year by Minister for the Cabinet Office, Francis Maude, has overseen eight pilot schemes aimed at reducing public sector fraud. Other pilots included an alert system which cross references government databases to alert individual departments to potential fraud, as well as a data mining operation which analysed referrals to the Tax Evasion Hotline.   --- # HMRC getting tough on inheritance tax Source: https://taxdisputes.co.uk/2011/06/hmrc-getting-tough-on-inheritance-tax/ HMRC is increasingly challenging the valuations of properties given for inheritance-tax purposes, according to an accountant. UHY Hacker Young says this made the taxman £70m in additional tax last year — an average of £24,600 extra tax per case. HMRC is targeting beneficiaries who claim a property they have inherited is worth less than it is to pay less tax. Inheritance tax is payable at 40% on any amount over £325,000. Mark Giddens at the firm says: 'If a property is undervalued by £20,000, this could result in an extra £8,000 tax, plus, say, a 30% penalty of the additional tax, making a total of £10,400. That is a considerable sum of money to raise when the estate and its beneficiaries may not be very cash-rich.' In 2010-11, 16,000 estates paid inheritance tax. Of these, more than a fifth — 3,441 — had the valuation of the property increased, while just 800 had valuations reduced, according to HMRC figures. When someone dies leaving a property that is not being sold immediately, beneficiaries should get several valuations. A spokesman for HMRC says: 'Only about 3% of estates pay inheritance tax, but when the value of the property can materially affect the tax payable it's right that we confirm the figure. This helps to protect the Exchequer and the taxpayer.' Beneficiaries have 12 months after the death to submit valuations for inheritance tax before they incur a penalty. However, HMRC can start charging interest six months after the death, so people are under pressure to get valuations and pay the tax quickly. --- # HMRC opens 16 criminal cases over tax evasion Source: https://taxdisputes.co.uk/2011/06/hmrc-opens-16-criminal-cases-over-tax-evasion/ The taxman is thought to have clawed back nearly £500m in unpaid tax as a result of over 50,000 voluntary disclosures from professionals including doctors and plumbers. It is investigating a further 3,000 leads on top of the criminal investigations. Gary Ashford, head of tax investigations at RSM Tenon said: "HMRC is sticking to its word to try and deliver a five-fold increase in prosecutions by opening these criminal investigations, and this is a clear indication that they are stepping-up their fight against tax evasion and non compliance." The taxman's amnesty, the Offshore Disclosure Facility and New Disclosure Opportunity, has resulted in over 50,000 voluntary disclosures. In addition, the Tax Health Plan, which was aimed at medical professionals, produced a further 1,500 voluntary disclosures. The next step is a crackdown on people holding overseas bank accounts. This will be followed by a name and shame exercise through an online register of tax evaders. --- # Exposed 500,000 face big offshore tax penalties Source: https://taxdisputes.co.uk/2011/06/exposed-500000-face-big-offshore-tax-penalties/ HM Revenue & Customs says it has uncovered 500,000 people with money in offshore tax havens who could face severe financial penalties if they have used them to evade tax. The Revenue is using enforced data-sharing with banks, information from whistleblowers and a new IT system which looks at anomalies between where people live, their financial assets and how much tax they pay to flag up potential tax dodgers. It says it is confident it will raise billions of pounds in unpaid tax, interest and penalties. An HMRC spokesman says: “We are not out to victimise people but we are determined to ensure we receive what we are owed. This is not just about the very wealthy, we have found chip shop owners, taxi drivers and landladies with offshore accounts.” Last month, HMRC launched a consultation on plans to blacklist high-risk tax avoidance schemes and force users to tell HMRC that they are in a listed scheme. --- # HMRC interest in eBay sellers of bullion and jewellery Source: https://taxdisputes.co.uk/2011/06/hmrc-interest-in-ebay-sellers-of-bullion-and-jewellery/ HMRC (Her Majesty's Revenue and Customs), employ specialist officers who work in the "backroom". As far as the eBay bullion market is concerned, the "specialist" refers to use of knowledge and experience gained in the jewellery and bullion markets and they are responsible for successfully prosecuting a range of complex cases from VAT and duty evasion on imported precious-metal products to plain tax evasion through failure to declare revenue from the sale of raw and worked precious-metal products. Jewellers are of particular interest due to the many opportunities available for irregular dealing, but coin dealers and bullion dealers are not unwatched! An important part of HMRC's work is the detection of suppliers of counterfeit and forged currency, and the creation of "network maps" is usually the key to the uncovering and liquidation of the source. This is also the case if you misrepresent the metal composition or falsely describe it; so if you knowingly sell a base metal item as silver, for example,  or knowingly describe 9 carat gold as "solid gold", (in fact, it only contains 9 parts gold to 15 parts other metal, so it's not solid), or pass off or falsify a hallmark, then you would be rendering yourself liable to prosecution. --- # Illegal fuel and vehicles seized Source: https://taxdisputes.co.uk/2011/06/illegal-fuel-and-vehicles-seized/ Illegal fuel and 12 vehicles have been seized by HM Revenue and Customs (HMRC) officers in Londonderry. The van and one other vehicle were seized by officers on the Buncrana Road on Wednesday. Both vehicles had been adapted to carry smuggled fuel, and 1,600 litres were recovered. Ten other vehicles were also found to contain either red or green diesel in the tanks, resulting in the seizure of 3,000 litres of fuel. The seizures were part of a joint operation between HMRC, the PSNI and the Driver and Vehicle Agency. During the operation 14 vehicles were found to have no tax. Nine of them were clamped. Brian Dixon from HMRC said fuel smuggling was not a "victimless crime". "The criminals involved in the transportation of smuggled fuel care nothing for the safety of other road users," he said. "The vehicles used are unsafe, and the dangers they pose to anyone in the vicinity show a total disregard for public safety. "HMRC takes the unfair sale and use of smuggled fuel very seriously. "Genuine businesses are already facing difficult times and it is wrong that they should be undercut by these criminals." Red diesel is for use in agricultural machinery and not for use in road vehicles. Green diesel is the Republic of Ireland equivalent to red diesel. --- # Battle lines drawn on unpaid tax Source: https://taxdisputes.co.uk/2011/06/battle-lines-drawn-on-unpaid-tax/ Experts are warning that the UK tax authority is more inclined to prosecute evaders as figures show millions of pounds of unpaid tax has been recouped. Follow-up enquiries have added millions to the collections made following high-profile disclosure campaigns. Criminal investigations have been launched into 10 people with offshore accounts and six in medical trades. Maximum fines for tax evaders have recently increased, but can be reduced for those who come forward voluntarily. "Criminal investigations have not been the weapons of choice for HM Revenue and Customs, but now they are part of the armoury," said Gary Ashford, representative for the Chartered Institute of Taxation. **Campaigns ** Tax evaders include "chip shop owners, taxi drivers and landladies", HM Revenue and Customs (HMRC) has said. It has been set targets by the government to harvest unpaid tax. The original campaign aimed at evaders with offshore accounts was launched in 2007 and gathered £400m after 45,000 came forward. Subsequent inquiries have brought in another £91m and 1,000 enquiries are continuing, the BBC has been told. "This is proof of HMRC's determination to increase the number of prosecutions we take forward in all areas” Chris Harrison HMRC A second campaign was launched in September 2009. This garnered £85m from 5,500 disclosures. Follow-up inquiries yielded another £6m. Ten criminal investigations are ongoing, although these will not necessarily lead to prosecutions. New penalties were introduced in April which raised the maximum fine level for those with offshore accounts to 200% of unpaid tax, in addition to the repaying the tax owed. Mr Ashford said HMRC was taking a "very tough line" against these evaders. **Medics ** The tax authority has also threatened to publish the names of people who deliberately evaded tax. This could have serious implications for those in medical professions who were uncovered as part of a campaign by HMRC targeting that sector, according to Mr Ashford. Some £10m has been gathered from 1,500 disclosures during the campaign. Six criminal investigations have been launched. Medical professionals who admitted unpaid tax before 30 June could pay past tax, plus interest, and a penalty of 10% of the unpaid tax. Mr Ashford advised evaders to make a disclosure, as they could still reduce the penalties they faced by coming forward voluntarily. More recently, HMRC has launched tax payment campaigns against plumbers and restaurant owners. "We are confident that these and more cases will be taken forward in the future," said Chris Harrison, HMRC criminal investigations deputy director. "This is proof of HMRC's determination to increase the number of prosecutions we take forward in all areas. We are committed to ensuring everyone pays what they owe so that the maximum is available to spend on public services used by everyone." --- # Preston gang guilty of mobile phones scam Source: https://taxdisputes.co.uk/2011/06/229/ An international manhunt has been launched to catch two Preston businessmen convicted of being part of a £56m fraud ring. Adam Umerji, 33, formerly of St John’s Court, Broughton, and Abdullah Yusuf Allad, 32, formerly of Black Bull Lane, Fulwood, are believed to be hiding in Dubai after fleeing a major fraud investigation by HM Revenue and Customs. The pair were convicted in their absence at Liverpool Crown Court for their part in a multi-million pound VAT and money laundering ring, known as ‘missing trader’ fraud. Three others – also from Preston – previously pleaded guilty to their part in the crime, which dates back to as early as 2005. One of the men – Sajid Patel, 35, from Fulwood – hit the headlines last year when a gunman shot at him in front of his luxury house. Now immigration officials have started extradition proceedings with officials in the Arab state, in a bid to get the two absconding criminals returned to Britain. Mike O’Grady, assistant director of criminal investigations at HMRC, said: “Missing trader fraud is not merely a paper fraud, but often has links to other forms of criminal activity. “In a blatant attack on our tax system, these men stole a massive amount of money, lining their own pockets at the expense of the British taxpayer.” The gang operated a number of companies in the Preston area, trading in mobile phones. Fellow defendants Sajid Muhammed Patel, 35, from Ferndale, Fulwood; Wai Fong, also known as Katie Yeung, 32, of Garstang Road, Fulwood; and Mohammed Mehtajee, 32, of Garstang Road, Fulwood pleaded guilty to conspiring to cheat the public revenue at hearings at Liverpool Crown Court in April and May. They submitted fraudulent VAT repayment claims to reclaim millions of pounds in VAT allegedly paid by them on the purchase of large quantities of stock. They then transferred their criminal proceeds out of the UK to Dubai, in an effort to conceal their illegal activities in an operation known as ‘missing trader’ or ‘carousel’ fraud, according to HMRC investigators. HMRC said they first started investigating the gang in 2005. They were all charged in January 2009, but they have only just gone to trial because of the complexity of the case, investigators said. Umerji and Allad were convicted in their absence at Liverpool Crown Court, after a four-week jury trial, which began on May 12. They are believed to be living off their proceeds in Dubai, which is home. Bench warrants have been issued for their arrest and extradition proceedings have started. All five are due to be sentenced in September. The charges are expected to carry a prison term of between 12 and 15 years. A reporter spoke to Sajid Patel’s wife at their home in Ferndale, Fulwood, on Thursday but she declined to comment. In January, Uwais Ilyas, 22, from Ilford, Essex, was jailed for five years after he admitted firing a shot from a 9mm semi-automatic pistol as Sajid Patel was helping his four-year-old son outside the family home. The bullet smashed through the Patels, living room window but nobody was hurt.     --- # HMRC to target tax evaders through the web Source: https://taxdisputes.co.uk/2011/06/hmrc-to-target-tax-evaders-through-the-web/ ** *** *Previously invisible tax evaders are to be traced online by HM Revenue and Customs, which has announced plans for the introduction of "cutting-edge" tools over the next year. Outlining a number of new campaigns to target VAT defaulters, private tutors and e-marketplaces, HMRC said it intended to use "web root" software to search the internet and accurately pinpoint people who have failed to pay the right amount of tax. Web root is to be used alongside the department's Connect computer system, which finds tax evaders by matching third party data with the vast amounts held by HMRC. HMRC said the web root tools would find targeted information about specific companies and individuals, adding that before it designed and launched its campaigns, input from interested parties would be sought. Mike Wells, HMRC's director of risk and intelligence, said: "We want to make sure HMRC listens to as many informed views as possible for our future campaigns. We want the views and experience of people and organisations outside the department to play a fuller part in the campaigns that we design for customers. "By being open about our areas of interest for the coming year we hope to maximise that exchange of information and ensure we reduce the tax gap and help customers pay what they owe. "We will use the information we gather to pursue people who choose not to use the opportunities we provide for them to put their affairs in order on the best possible terms. It will be more expensive if we come and find people, so I urge them to come forward and disclose voluntarily." HMRC also detailed plans to target people trading through e-marketplaces who failed to pay tax, but the department said this was unlikely to affect those only selling a few items.   --- # Swoop on Conran Street Market in Harpurhey nets haul of fake goods Source: https://taxdisputes.co.uk/2011/06/swoop-on-conran-street-market-in-harpurhey-nets-haul-of-fake-goods/ Police swooped on a market to seize clothes, jewellery, tobacco and DVDs in a raid on counterfeit goods. Officials from the UK Border Agency and Trading Standards joined in the search of Conran Street Market in Harpurhey in a joint operation codenamed Project Cove. The action saw a large police presence surround the site as officers searched stalls and interviewed vendors. Police chased one man through the market to arrest him on an outstanding warrant for criminal damage while another was arrested for selling counterfeit DVDs. Staff from vehicle licensing authority VOSA also checked cars and vans with six vehicles seized for not having insurance or road tax. Sniffer dogs were also brought in to search for contraband tobacco at the market, which sells clothes, food and homewares from 60 stalls. The operation was co-ordinated by police in north Manchester who say they acted on intelligence that illegal activity was taking place there. Insp Gareth Parkin, lead officer for Project Cove, said: "It’s important to carry out operations like this because counterfeit goods fund criminal gangs. "It was a very worthwhile operation and we have seized clothes, jewellery, DVDs and tobacco. "Counterfeit goods are not a victimless crime – these organisations are making thousands of pounds. "We’ve had complaints from residents about illegal activity on the market. They say they feel intimated by the rogue individuals there. Working with other agencies sends out a clear message that we are working as a team to make criminals’ lives even harder." But as police closed entrances to the market some traders and customers said they thought the action was too heavy-handed. One shopper who did not want to give her name said: "I agree with them looking for stolen goods but this is just over the top. "I’ve been coming to this market for years and most of the traders are genuine people just trying to make a living. "I think the police should concentrate on burglaries and old people getting robbed in this area." --- # Swiss Bank Account Holders in Line of Fire Source: https://taxdisputes.co.uk/2011/10/swiss-bank-account-holders-in-line-of-fire/ Swiss bank account holders who have legitimate reasons for keeping their money offshore are on the taxman's hit list.  Her Majesty's Revenue and Customs (HMRC) has announced it has written to 6,000 people with bank accounts with HSBC in Geneva, urging them to declare their potential tax liabilities. Many people with have legitimate reasons for not having declared their Swiss accounts. For example non-domicillaries would have no reason to declare an account to HMRC, but might have been contacted by the Revenue because HSBC's list of account holders would not include their domiciliary status which might already be established with HMRC. If you have received what is known as a Code of Practice 9 letter from HMRC you should seek professional legal advice and, if necessary, declare liabilities to HMRC as quickly as possible. HMRC has confirmed individuals will have 30 days from receiving their letters to declare their liabilities. The Revenue has threatened to begin criminal investigations, including those surrounding possible serious fraud offences, one these grace periods have expired. **Our Tax Disputes professionals are available to give information and advice. To contact one of our specialist Lawyers please [click here](https://taxdisputes.co.uk/2011/08/2011/08/2011/07/legal-case-assessment/) or call 02071830529.** --- # Supreme Court Backs HMRC in Key UK IR20 Tax Residency Case Source: https://taxdisputes.co.uk/2011/10/supreme-court-backs-hmrc-in-key-uk-ir20-tax-residency-case-residence-ordinary-residence/ # THE SUPREME COURT has found in favour of HMRC in the long-running Gaines-Cooper v The Commissioners for Her Majesty’s Revenue and Customs case over the former’s tax residency status. The international businessman lost his long-running dispute with HM Revenue and Customs, with the UK’s highest court ruling in favour of the taxman in a contentious dispute over the interpretation and application of residency guidance. The dispute centred around IR20, which was the authority’s guidance on what constitutes residency for tax purposes.The ruling comes in a judgment handed down by the Supreme Court today. Controversy surrounds the understanding of the phrases “residence” and “ordinary residence” for the purposes of an individual’s liability for UK income and capital gains tax. Explaining the reasoning behind its 4-1 majority decision the court said that while guidance on how to achieve non-residence “should have been much clearer”, the guidance, when taken as a whole, informed taxpayers that one would need to leave the UK permanently, indefinitely or for full-time employment, and do more than to take up residence abroad and relinquish ‘usual residence’ in the UK. Information was also provided that subsequent returns to the UK had to be no more than ‘visits’ and that any ‘property’ retained in the UK by the taxpayer for their use could not be used as a place of residence. Gaines-Cooper migrated to the Seychelles in 1976, and spent less than 91 days each year in the UK in accordance with non-domicile residency rules. He owns a house in England, which is occupied by his second wife and son. He keeps classic cars and a collection of paintings at the property, and sent his son to a British public school. He also had his will drawn up under English law. It was Gaines-Cooper’s links with England that led the Court of Appeal to find that the UK remained Gaines-Cooper’s “center of gravity of his life and interests” – a decision which has prompted tax experts to accuse HMRC and the courts of “moving the goalposts.” Gaines-Cooper said today: “The judgement I have received today is a disappointment to me and to my family. I also consider it to be a blow for all UK taxpayers who have relied on HMRC’s published guidance when planning their tax affairs. My next step is to seek the views of my legal advisers with a view to referring my case to the European Court.” In the near future the government is set to introduce a Statutory Residence Test in April next year which we trust will clarify the rules surrounding residence and domicile in the UK. **Our Tax Disputes professionals are available to give information and advice. To contact one of our specialist Lawyers please [click here](https://taxdisputes.co.uk/2011/08/2011/08/2011/07/legal-case-assessment/) or call 02071830529.** --- # Ex-Policeman convicted of VAT Carousel Fraud Source: https://taxdisputes.co.uk/2011/11/ex-policeman-convicted-of-vat-carousel-fraud-london-vat-fraud-defence-lawyers-solicitors-mtic-lawyers/ A former South Yorkshire policeman has been jailed for 10 years and three months for his part in the UK's largest ever VAT fraud. Nigel Cranswick, a 47-year-old former police officer, claimed his new business, Ideas 2 Go Ltd, had sold more than six million mobile phones and had a turnover of more than £2.4 billion after just eight months of trading. Using details from hijacked or fictitious companies, Mr Cranswick, along with five accomplices, produced thousands of invoices for sales of mobile phones and computer software - many of which had never even been manufactured - producing billions of pounds in fabricated turnover. Mr Cranswick claimed that in the first six weeks of trading Ideas 2 Go had turned over more than £527m. Incredibly, the company had "traded" over £47m before it got round to opening a company bank account. The scam generated around £330m in fraudulent VAT repayments. Judge Forster, sitting at Newcastle Crown Court, said: "The figures in this case are astonishing, they reveal the blatant nature of the fraud." Mr Cranswick, now known as the "singing policeman" after videos of him performing his own songs and those of his indie band "Not The Police" on YouTube came to light, went from "rags to riches" in a matter of weeks. After being heavily in debt during his working years, Cranswick retired and, just a few weeks after Ideas 2 Go Ltd had begun trading, began to splash out on expensive home improvements, private tuition for his children, and a luxury apartment in Marbella. The court heard that "company director" Cranswick was not the mastermind of the fraud, but had been recruited to play his role in an MTIC (missing trader intra-community) fraud, also known as carousel fraud, by others who did not appear in court. Also sentenced after admitting conspiracy to cheat the Revenue were Thomas Murphy, 27, of Dinnington, who was jailed for four and a half years; Cranswick's brother-in-law, Darren Smyth, 42, from Beech Road, Maltby, and Brian Olive, 56, from Buttermere Close, Doncaster, who were sentenced to three years and four months each; and former housing officer Andrew Marsh, 28, from Sheffield, who was jailed for two years and eight months. Cranswick's 44-year-old sister, Clare Reid, married to Smyth, was handed a nine-month sentence, suspended for 18 months, and ordered to carry out 150 hours of unpaid work after admitting two counts of false accounting. HMRC Exchequer Secretary, David Gauke said: "This sentence shows that those who try to commit fraud need to think again - HMRC will find you and the courts will punish you. The additional £917m we have invested in HMRC will see more cases like this successfully prosecuted, sending a clear and powerful message." **Our Tax Disputes professionals are available to give you information and legal advice. To contact one of our specialist Lawyers please [click here](https://taxdisputes.co.uk/2011/08/2011/08/2011/07/legal-case-assessment/) or call 02071830529.** --- # HMRC accused of leniency on Corporate Tax Avoiders by PAC Source: https://taxdisputes.co.uk/2011/12/hmrc-accused-of-leniency-on-corporate-tax-avoiders-public-accounts-committee-report-pac-mps-report-on-hmrc/ The Commons Public Accounts Committee publishes its 61st Report of the Session which, on the basis of evidence from the Cabinet Office and HM Revenue and Customs (HMRC), examined tax disputes. [Report](http://www.publications.parliament.uk/pa/cm201012/cmselect/cmpubacc/1531/153102.htm)[: HM Revenue and Customs 2010-11 Accounts: tax disputes](http://www.publications.parliament.uk/pa/cm201012/cmselect/cmpubacc/1531/153102.htm) The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, said: "This report is a damning indictment of HMRC and the way its senior officials handle tax disputes with large corporations. We uncovered both specific and systemic failures which must be addressed. There is more than £25 billion outstanding in unresolved tax bills and it is essential that there should be proper accountability to Parliament for the settlements reached by HMRC. Having looked at the two cases in the public domain, we are concerned that many millions of pounds may be lost to the public purse. It is extremely disappointing that senior HMRC officials were not prepared to cooperate with our inquiry in a spirit of openness. We accept that there is a need for confidentiality to protect individual taxpayers, but this must not be used as a cloak to protect the Department from scrutiny. It is absurd that we had to rely on the media and the actions of a whistleblower to find out about the details of individual settlements. Parliament and the public have legitimate concerns that large companies are being treated more favourably than ordinary taxpayers, whether they be small businesses or hard-working families. The Department's working practices must be seen by the taxpaying public to be absolutely impartial. The impression being given at the moment is quite the opposite, of far too cosy a relationship between HMRC and large companies. In several cases, HMRC chose to depart from its normal governance procedures. It is extraordinary that the same officials who negotiated deals also approved them. In one instance, a mistake led to a potential £20 million of interest on a tax liability not being collected. Parliament and the public must be assured that settlements do not short-change the Exchequer." Margaret Hodge was speaking as the committee published its 61st Report of this Session which, on the basis of evidence from the Cabinet Secretary and HM Revenue & Customs (the Department), examined tax disputes. At 31 March 2011 HM Revenue & Customs (the Department) was seeking to resolve tax issues valued at over £25 billion with large companies, some of which included disputes over outstanding tax. The Department must collect as much outstanding tax as possible and be held properly to account for how it resolves tax disputes. We have serious concerns about how the Department handled some cases involving large settlements, where governance arrangements were bypassed or overlooked until it was too late. In some cases the same officials negotiated and approved the settlements, which is clearly unacceptable. Investigation of these specific cases has led to serious concern about systemic issues which must be addressed with the utmost urgency. There needs to be proper separation between the negotiation of tax settlements and the authorization of such settlements. And the Department must address issues of accountability so that Parliament and the public can be satisfied that best value is secured. The Department has made matters worse by trying to avoid scrutiny of these settlements and has consistently failed to give straight answers to our questions about specific cases, which has severely hampered our ability to hold it to account for the settlements reached. The Department has insisted on keeping confidential the details of specific settlements with large companies, even where there have been legitimate concerns about the handling of cases. Details of some cases only reached the public domain because the press secured the details. We recognise the general intention of the legislation is to keep taxpayers' details confidential, but there is a provision which allows the Commissioners to authorise disclosure in certain circumstances. Furthermore, HMRC has a clear duty to assist Parliament in its work to establish value for money and detailed information can be necessary if Parliament is to properly meet its obligations. Given the public interest in these very large settlements, it is not unreasonable that they should be subject to more specific scrutiny. As it stands, the Department’s decision to withhold details from us reduces transparency and makes it impossible for Parliament to hold Commissioners to account. This situation is entirely unacceptable. We discovered that the Department's governance processes for large settlements were not applied consistently. In one case, a mistake was not picked up until too late because the Department failed to follow its own governance procedures. The C&AG told us that this resulted in a loss of up to £8 million in interest forgone. We have since received evidence from a whistleblower that the total value of interest payable in respect of this particular settlement could be as high as £20 million. Our understanding of how this case was settled is inhibited by the imprecise, inconsistent and potentially misleading answers given to us by senior departmental officials, including the Permanent Secretary for Tax. In particular, his evidence to the Treasury Select Committee on his relationship with Goldman Sachs is less than clear given his evidence to us that he facilitated a settlement with the company over their tax dispute. We expect far greater candour from public officials involved in administering such an important area of government, especially when there is a question about whether HMRC acted within the law and within its protocols. We are concerned that whistleblowers using the provisions of the Public Interest Disclosure Act 1998 face threats of dismissal for providing important and relevant information. The Department accepts that its governance arrangements have not provided sufficient assurance and that independent scrutiny of large settlements is needed. It has appointed two new Commissioners with tax expertise, and plans to introduce a new assessor role to permit independent review of large settlements before they are finalised. The Cabinet Secretary assured us that proposals would be submitted to the Public Accounts Committee by Christmas. We welcome these measures, but they will not by themselves guarantee proper accountability. In future, the Department needs to ensure it follows its own governance procedures and checks without exception. In particular, it needs to make sure that in all cases there is a clear separation between the roles of those negotiating and those signing off settlements. We saw little evidence of a culture of personal accountability within the Department. We were told that one individual was held accountable for the mistake which led to a loss of the interest due to the Department. However, those at the top of the Department also need to take responsibility for how the overall system has been designed and operated, since that is the context in which mistakes have occurred. We have serious concerns that large companies are treated more favourably by the Department than other taxpayers. We were told by the Cabinet Secretary that the relationship management approach adopted for large companies had been very successful in terms of tax collection. But for the public to have confidence in this approach, the Department's working practices must be seen to be absolutely impartial. The Department has left itself open to suspicion that its relationships with large companies are too cosy. We are also concerned that large companies appear to receive preferential treatment compared to small businesses and individuals – for example, in settling the totals due at less than the sum claimed by HMRC and in the time they are allowed to pay their tax liabilities without incurring interest charges. In order to maintain public confidence, the Department must ensure it avoids any perception of undue leniency in its dealings with large companies and must be seen to treat every taxpayer equally before the law. We welcome the Comptroller and Auditor General's proposal to conduct further work to consider the reasonableness of the settlements reached in the specific cases where normal governance processes were not followed, and to report on whether proper legal advice was secured in a timely manner and that HMRC complied with its own published procedures and protocols. The Department has agreed to co-operate fully with this inquiry and with any subsequent hearings we hold. **Our Tax Disputes professionals are available to give you information and legal advice. To contact one of our specialist Lawyers please [click here](https://taxdisputes.co.uk/2011/08/2011/08/2011/07/legal-case-assessment/) or call 02071830529.** --- # HMRC responds to Public Accounts Committee report into tax disputes Source: https://taxdisputes.co.uk/2011/12/hmrc-responds-to-public-accounts-committee-report-into-tax-disputes/ HM Revenue & Customs (HMRC) has responded to the report of the Public Accounts Committee (PAC) into tax disputes. An HMRC spokesman said: HMRC rejects the conclusion of the PAC that there are systemic failures in the management of tax disputes. The report is based on partial information, inaccurate opinion and some misunderstanding of facts. HMRC’s internal processes are robust and this was confirmed by a recent review by the National Audit Office (NAO) of large business settlements. HMRC agrees that public confidence in processes is important and, as HMRC has already informed the PAC, HMRC propose to make further improvements to governance and to increase transparency about the work with large business. HMRC also welcome the further review that the NAO is to carry out as an opportunity to confirm this and clear up the concerns about foregone millions. **Our Tax Disputes professionals are available to give information and advice. To contact one of our specialist Lawyers please [click here](https://taxdisputes.co.uk/2011/08/2011/08/2011/07/legal-case-assessment/) or call 02071830529.**   --- # Was the Public Accounts Committee’s report on HMRC “inaccurate”? Source: https://taxdisputes.co.uk/2011/12/was-the-public-accounts-committees-report-on-hmrc-inaccurate/ Following the publication of a report by the Public Accounts Committee, criticising the operations of HM Revenue and Customs, the latter hit back with allegations that the report was "inaccurate". Full Fact assesses the claims made by both sides. “There is more than £25 billion outstanding in unresolved tax bills and it is essential that there should be proper accountability to Parliament for the settlements reached by HMRC.” **[Margaret Hodge MP](https://old.parliament.uk/business/committees/committees-a-z/commons-select/public-accounts-committee/news/hmrc-tax-disputes-report/) – Chair, Public Accounts Committee, 20 December 2011** “HMRC rejects the conclusion of the PAC that there are systemic failures in the management of tax disputes. The report is based on partial information, inaccurate opinion and some misunderstanding of facts” **[HM Revenue and Customs](http://www.hmrc.gov.uk/press/index.htm), 20 December 2011** Today a row erupted between the Public Accounts Committee (PAC) and HM Revenue and Customs (HMRC) over issues of outstanding taxes. The controversy followed the publication of a PAC report in which it cited potentially £25.5 billion of tax at stake from over 2,700 issues between HMRC and the “biggest companies”. The potential costs were prominently reported in the media: **[The Times:](http://www.thetimes.co.uk/tto/news/politics/article3263428.ece)** “Taxman taken to task over uncollected £25bn debts” **[Daily Mirror:](http://www.mirror.co.uk/news/politics/2011/12/20/tax-chief-signed-off-cosy-deals-with-big-firms-and-failed-to-collect-25billion-of-revenue-115875-23648120/)** “BRITAIN’s top taxman was today attacked for failing to collect £25billion of revenue and letting big companies off paying their bills in full.” **[The Sun:](http://www.thesun.co.uk/sol/homepage/news/politics/4009690/Firms-25bn-tax-let-offs.html)** “Firms’ £25bn tax let-offs” Given the widespread coverage of the issue, Full Fact decided to investigate the source of the dispute. ## Analysis Given the large amount of coverage of the dispute, readers might be led into believing some of the headline figures have just been 'revealed' by the Public Accounts Committee investigation. In fact, the figure of £25 billion was published back in July this year, and[reported by the Financial Times.](https://web.archive.org/web/20130825023935/http://www.ft.com:80/cms/s/0/e899c1ac-a98d-11e0-a04a-00144feabdc0.html) The figures for unresolved tax disputes emanate from a report by the Comptroller Auditor General from the National Audit Office (NAO), which examines the accounts of HMRC. Referring to the resolution of tax disputes, the report states: “At 31 March 2011, the Department was investigating over 2,700 issues with the largest companies, with potential tax at stake of £25.5 billion.” It is worth noting at this stage that the NAO's figures are based on financial years up to 2010-11, and hence the figure of £25.5 billion reported today is already eight months out of date, and could be higher or lower in reality. The first point of clarity provided by the document is what is meant by “biggest companies” when commentators have described the supposed beneficiaries of the unresolved issues. The figures concern, specifically, the 770 largest companies who are dealt with by the HMRC 'Large Business Service'. Since the value of each company's 'issue' with HMRC varied considerably, the NAO provided a breakdown of the unresolved issues: ![](http://fullfact.org/sites/fullfact.org/files/styles/large/public/Value%20of%20open%20issues%20for%20LBS.png) The chart above verifies a total estimated value of the outstanding issues of £25,516 million as at 31 March 2011, down from an estimated £33,429 million as at 31 March 2010. As the notes to the chart note, this is not necessarily a representation of the number of new disputes each year, but the total outstanding. Hence, some issues could carry over multiple financial years. So far, so good for the Public Accounts Committee's appraisal. However, the HMRC provided Full Fact with details of why they disputed the PAC's claims. In a statement, a HMRC spokesperson said: "We explained to the Committee and again in a letter to the Committee Chair in November that this figure [£25.5 billion] is a ballpark estimate of maximum potential tax liabilities, before a full investigation of the specific facts has taken place, and before applying any reliefs or allowances that would normally be due. It is not actual tax either owed or unpaid. In many cases, when HMRC has looked at the full facts it becomes clear that there is no further liability at all. Tax under consideration is an administrative tool to help us to focus our resources on cases where potential tax liabilities appear to be greatest. It is not tax owed." The NAO's notes also seem to support HMRC's concerns. They make clear that the taxes involved in the issues are estimates “before any consideration of the facts has taken place and before any reliefs or allowances are applied.” Crucially, they state: “it does not represent tax owed or unpaid”. HMRC were unable to provide specific examples of what may constitute 'reliefs' or 'allowances'. However, there is extensive [Government information](http://www.hmrc.gov.uk/ct/forms-rates/claims/index.htm)on the possible means of claiming these, such as Capital Allowances which allow companies to claim on new assets acquired. Full Fact contacted the Committee for a direct response to the caveats pointed out by the HMRC, but they were unable to comment ahead of a formal response by the Treasury. **Conclusion** A closer look at the figures behind today's headlines reveals a number of caveats ill-reported by elements of the media. The NAO statistics make explicit that the estimates for outstanding tax issues do not take account of, beyond case-specific issues, any due reliefs or allowances to companies involved in the disputes. Hence, in some cases, the eventual tax repayment could be far lower that the estimates imply. This poses a significant problem for newspapers who simplified the issue in their reports. The Times and the Mirror refer to "debts" and "uncollected tax" in their reports, terms which fail to capture the reality of the disputes between HMRC and the companies involved. Nevertheless, questions remain regarding the arguments employed by both the PAC and HMRC. Margaret Hodge's statement in the press release from the PAC fails to acknowledge the caveats of the available data, and the PAC report itself provides only a source link to the NAO while failing to emphasise the nature of the estimate. Meanwhile the HMRC's dismissal of the PAC's report as being based on "partial information", "inaccurate opinion" and "misunderstanding of the facts" is not satisfactorily explained by the dispute over this figure alone. While the background to the £25.5 billion figure is more clear, it remains to be seen what other details the HMRC takes exception to. **Our Tax Disputes professionals are available to give information and advice. To contact one of our specialist Lawyers please [click here](https://taxdisputes.co.uk/2011/08/2011/08/2011/07/legal-case-assessment/) or call 02071830529.** --- # Hard-up businesses leave HMRC hanging for £650m Source: https://taxdisputes.co.uk/2011/06/hard-up-businesses-leave-hmrc-hanging-for-650m/ More than two-thirds of the total tax bill that HM Revenue & Customs has deferred for enterprise and the self-employed under ‘Time to Pay’ agreements is yet to be paid as the businesses initially agreed. According to official figures, of the £970m owed to HMRC under the scheme, only £320m is scheduled to be paid, meaning no arrangements are in place for the remaining £650m. Taken with evidence that some customers are on their fourth deferral, the data indicate a significant number of firms “will be unable to pay their liabilities when they fall due.” Released to parliament, the figures also raise concern about how the Business Payment Support Service is running the scheme, insolvency body R3 added. Its president Frances Coulson said: “Time to Pay should be used as breathing space for businesses undergoing a time of temporary difficulty. “However, if a business is on their third or fourth referral that should act as a warning sign; it indicates that there are underlying problems with the business’ cash flow. It should make HMRC question the financial viability of that business.” Tax officials have already said that firms which try to defer paying tax more than once will face “additional questions” about what steps they are taking to settle their debts before a second deferral is approved. And in November last year, the Revenue’s terms of agreement were described as “increasingly restrictive,” with deferrals being handed out for three months, down from six months previously. It is these repeat customers of Time to Pay who R3 says are the most vulnerable, and the most potentially damaging to other companies, particularly the smallest of suppliers. Mr Coulson said: “Should the businesses who have had multiple Time to Pay arrangements fail, not only will the government be left out of pocket, but a considerable number of businesses would be left exposed. “Businesses should be properly assessed at the outset to ensure that they are using the scheme appropriately and not as a long-term credit facility.” Since Time to Pay launched, in November 2008, HMRC has approved 28,800 arrangements to defer a total of £7.37bn in tax, of which £6.31bn has already been paid. --- # Taxman targets Wimbledon Source: https://taxdisputes.co.uk/2011/06/taxman-targets-sporting-events/ Inspectors from Her Majesty’s Revenue and Customs will also be heading down to south London over the next few weeks. This is because they will be clamping down on people who rent out flats and houses for up to £15,000 a week to tennis fans and stars - but fail to declare the income. Knight Frank says that five bedroom houses in Wimbledon are renting for between £8,000 and £15,000 a week this year. Some local residents are also renting out their drives for car parking, which this year is on offer for between £10 and £30 per car. Trading standards officers will be looking for illegal traders and HMRC will be looking for people who have received money from them. **Our Tax Disputes professionals are available to give information and advice for businesses that have received letters from HMRC targeting their business. To contact one of our specialist VAT Lawyers please [click here](../2011/08/2011/07/legal-case-assessment/) or call 02071830529.** --- # HMRC sets its sights on VAT rule-breakers Source: https://taxdisputes.co.uk/2011/06/hmrc-sets-its-sights-on-vat-rule-breakers/ SPALDING-based chartered accountancy firm Moore Thompson is warning that HM Revenue & Customs (HMRC) has announced it is to target individuals and businesses who are trading above the VAT threshold but have not registered for VAT in a new drive against rule-breakers. The campaign will be launched in the summer, following discussions with interested parties to help HMRC design the campaign. The VAT threshold is currently £73,000 turnover on a rolling annual basis. Announcing the initiative, Mike Wells, HMRC’s director of risk and intelligence, said: “Our aim is to get as much input as possible into our future campaigns so that the views and experience of people and organisations outside the department play a fuller part in what we design for customers.” Mark Hildred, managing partner at Moore Thompson, said, “Previous HMRC campaigns have targeted offshore investments, medical professionals and people working in the plumbing industry. “The department says its campaigns focus on areas where it has identified significant underpayment and that they provide straightforward opportunities for customers to put their records in order on the best possible terms, followed by swift action targeting those who choose not to take up those opportunities”. HMRC says it has raised more than £500 million from voluntary disclosures and a further £100 million so far from follow-up activity. Meanwhile, the first of a series of new HMRC task forces to tackle tax dodgers will focus on the restaurant trade, targeting businesses in London over the coming weeks. The specialist teams will carry out concentrated compliance activity in specific high risk trade sectors and locations across the UK. --- # Knew or should have known… A review of MTIC or Carousel fraud cases Source: https://taxdisputes.co.uk/2011/06/knew-or-ought-to-have-known-a-review-of-mtic-or-carousel-fraud-cases/ The English Courts and Tribunals have held that the right of a taxable person to deduct input VAT in respect of certain transactions cannot be affected by the fact that, in the chain of supply of which those transactions form part, without that taxable person knowing or having any means of knowing, another prior or subsequent transaction is vitiated by VAT fraud. This decision was extended by the ECJ in the case of Kittel, where it was held that: > *“where it is ascertained, having regard to objective factors, that the supply is to a taxable person who knew or should have known that, by his purchase, he was participating in a transaction connected with fraudulent evasion of value added tax, it is for the national court to refuse that taxable person entitlement to the right to deduct”.* This principle has been upheld in the European Court of Human Rights. ## Means of knowledge The question of whether a person has “means of knowing” that VAT fraud is involved in a chain of transaction in which he is involved was considered in detail in the case of Dragon Futures. The tribunal concluded: > *“(1)     The taxable person must be judged by both the level of actual knowledge and the actions taken, or not taken, to acquire knowledge at the time of entry into the commitment that gives rise to the input tax. Hindsight cannot be used. There may be questions in individual cases about the time of entry into the commitment. The taxpoint of a transaction may depend on how the transaction is carried out (for example, where payment precedes delivery).* > > * (2)     The taxable person must make a proportionate response to information actually known that indicates fraud. That knowledge is not restricted to the immediate context of the supplier or purchaser of relevant goods to or from the taxable person. It includes knowledge of fraud “in the market” for the goods in question, as well as knowledge in the public domain or otherwise actually known of fraud by a specific trader. It includes information about all known counterparties in the web of transactions of which the contract forms part, and counterparties that can be identified on proportionate enquiry made within the limits imposed by market confidentiality.* > > * (3)     The taxable person must take proportionate steps to use all means reasonably available to increase actual knowledge. For example, in these appeals, the tribunal saw the use of: checks on the validity of value added tax registration numbers; checks on customs stamps on goods going through a customs inspection; checks with and about individual suppliers and customers, including checks with national registration institutions; checks with credit agencies and inspection agencies, including checks on the IMEI numbers of telephones; use of appropriate terms of contract. Where an initial enquiry gives rise to information suggesting the need for further enquiry, the test is reapplied to assess the need for that further enquiry. What is proportionate and reasonable is a matter of fact, and involves balancing actual cost and the opportunity cost of personal effort against risk.* > > * (4)     The taxable person, in making these checks, does not have to act to a higher standard of proof than that applied to the underlying claim. If disputed facts are determined by reference to the balance of probabilities, then that is also the standard by which the steps taken by a taxable person should be judged. A taxable person cannot be expected to take steps to ensure a transaction is clear of fraud beyond all reasonable doubt. That would be disproportionate. If, on what the taxable person knows after taking into account all actual knowledge and having made all proportionate enquiries, the better view is that there is probably no fraud connected with the transaction, then the taxable person has met the required standard.* > > * (5)     Whether the steps taken by a taxable person to avoid being connected with fraud are proportionate in an individual case must be a question of fact taking all the circumstances into account. There can be no presumption that because there is fraud in a chain of transactions then that fraud is known, or should have been known, to all others in that chain.* > > * (6)     Finally, the concern requiring investigation is with fraud on the public revenue through the value added tax system, not with other forms of fraud such as fraud on a foreign trader.”* > > In short, the question to be asked is: > > * “Has the taxable person, at the time of entering a transaction involving payment of value added tax by or to that person, and taking into account the actual knowledge of the taxable person at that time (including knowledge acquired from any enquiry or investigation), taken all proportionate steps available to it to ensure that, on the balance of probabilities, no aspect of the transaction is connected with any other party involved in, or any other transaction involving, fraud on the public revenue through the value added tax system?”* This question can be further divided in to four essential elements. The answer to each of these must be yes, for HMRC's case to succeed: (i)    Is there a VAT loss? (ii)   If so, did this loss result from a fraudulent evasion? (iii)   If so, were the transactions the subject of the appeal connected with that evasion? (iv)   If so, should the appellant have known that its purchases were connected with a fraudulent evasion of VAT? In the case of Our Communications, the tribunal held that the appellant had: > * “taken all available proportionate steps to ensure on the balance of probabilities that there was no connection with persons or transactions involved in VAT fraud”. * The appellant was no doubt assisted by its assurance officer's agreement that there was little more which appellant could have done to verify the validity of the transactions in question. In addition, the tribunal agreed that it was difficult, if not impossible, for the appellant to verify the validity of distance links in the chain: > “[the appellant] is not HMRC's insurer as to the payment of VAT by someone far away in the chain. Otherwise why would joint and several liability provisions be needed? OCL only needs to act reasonably and proportionately in considering the integrity of the chain. It has done so and we so find.” ## Input tax on transactions indirectly connected with fraudulent transactions In the case of  Just Fabulous, the High Court was required to consider a development of MTIC fraud, known as contra-trading. Since HMRC were able to refuse an input tax claim on the part of an exporter who was knowingly involved in MTIC fraud, the exporter would buy further goods from another EU member state, which he would then sell to a “new trader” in the UK. Thus the exporter would offset his input tax claim against the VAT due on the domestic sale. The “new trader” would, it was argued, then be entitled to recover input tax on his purchase on the basis that that transaction did not form part of a transaction chain which involved fraud. The High Court, however, rejected that argument, holding that HMRC were entitled to refuse to make repayment in respect of returns which were indirectly connected with fraudulent transactions. If HMRC could show that the transactions were what they claimed them to be, they would have an arguable case that a trader who, knowingly or with means of knowledge, engaged in conduct designed to conceal or avoid the consequences of discovery of a fraud should be in no better position than the perpetrator of the fraud. Similarly, in Olympia Technology, the High Court held that the tribunal's finding (that HMRC had to show that the taxable person knew (or ought to have known) of both the missing trader's fraud and also the contra-trader's involvement in that fraud) was, in the circumstances, too high a legal test. In the case where the contra-trader had himself been a dishonest co-conspirator it need not be shown that the taxable person knew or ought to have known of the missing trader's default. It was sufficient if he knew or ought to have known of the contra-trader's dishonesty. In a case where the contra-trader had not been dishonest, it was sufficient if the taxable person knew or ought to have known of the missing trader's default. Accordingly, the tribunal had misstated the legal test, and had been “wrong to water down the requirement that the taxable person must take every precaution reasonably required”. The case was remitted to the tribunal, which reconsidered the case taking into account the “inherent probability” of fraud. It allowed the appeal in principle with regard to seven transactions but dismissed it with regard to eight transactions. In Blue Sphere, however, the High Court, in allowing the taxpayer's appeal, considered that the burden was on HMRC to prove that the taxpayer ought to have known that by its purchases it had been participating in transactions connected with fraudulent evasion of VAT. Further, it was not sufficient to demonstrate that the taxpayer had been involved in transactions which “might” turn out to have undesirable associations. The relevant knowledge was that the taxpayer ought to have known that by its purchases it had been participating in transactions which had been connected with the fraudulent evasion of VAT; that such transactions might be so connected was not enough. Similar considerations applied to the formulation of the case for HMRC. Their contention that the taxpayer ought to have known of the connection between its transactions and the fraudulent evasion of VAT by the defaulting traders in the “dirty” chain was not enough. HMRC had to prove that the taxpayer ought to have known that those other transactions had involved the fraudulent evasion of VAT. At the time the taxpayer had entered into the “clean” chain there had been no such “dirty” chain of which it could have known, nor had the occurrence of such “dirty” chain been inevitable in the sense of being pre-planned. The current state of jurisprudence with regard to “knowledge or means of knowledge” was summed up by Lewison J in Olympia Technology, and reproduced in Quality Export as follows: (a)     it is disproportionate and contrary to Community law to require a person who is a careful and honest trader to assume liability for the frauds of others; (b)     it is also disproportionate to hold a taxable person liable for fraudulent acts of third parties over whom he has no influence; (c)     a trader who does take every precaution that could reasonably be required of him, and does not realise that he is participating in VAT fraud, must be entitled to rely on the legality of his own transaction; (d)     a person who knew or should have known that by his purchase he was taking part in a transaction connected with the fraudulent evasion of VAT is to be treated in the same way as a person who fraudulently exercises the right to deduct; (e)     it is not contrary to Community law to require a supplier to take every step that could reasonably be required of him to satisfy himself that the transaction which he is effecting does not result in his participation in tax evasion; (f)     likewise a taxable person can be expected to act with all due diligence and care; and (g)     whether a taxable person knew or should have known that he was participating in a transaction connected with the fraudulent evasion of VAT must be determined having regard to objective facts or factors. ## The Court of Appeal decision in Mobilx and Kittel The appeal to the Court of Appeal drew together two questions which had been raised following the decision of the ECJ in Kittel, namely: (a)     what did the Court mean when it said that input tax could be denied where the taxable person “should have known” that, by his purchase, he was participating in a transaction connected with the fraudulent evasion of VAT? and (b)     is it sufficient that the taxpayer knew or should have known that it was more likely than not that his purchase was connected to fraud or must it be established that he knew or should have known that the transactions in which he was involved were connected to fraud? In relation to (a), the Court considered that Kittel was a development of the “means of knowledge” principle in Optigen*:* > *“If a taxpayer has the means at his disposal of knowing that by his purchase he is participating in a transaction connected with fraudulent evasion of VAT he loses his right to deduct, not as a penalty for negligence, but because the objective criteria for the scope of that right are not met. It profits nothing to contend that, in domestic law, complicity in fraud denotes a more culpable state of mind than carelessness, in the light of the principle in Kittel. A trader who fails to deploy means of knowledge available to him does not satisfy the objective criteria which must be met before his right to deduct arises…A trader who decides to participate in a transaction connected to fraudulent evasion, despite knowledge of that connection, is making an informed choice; he knows where he stands and knows before he enters into the transaction that if found out, he will not be entitled to deduct input tax. The extension of that principle to a taxable person who has the means of knowledge but chooses not to deploy it, similarly, does not infringe that principle [of legal certainty]. If he has the means of knowledge available and chooses not to deploy it he knows that, if found out, he will not be entitled to deduct. If he chooses to ignore obvious inferences from the facts and circumstances in which he has been trading, he will not be entitled to deduct.”* In relation to (b), the Court held that it was insufficient for HMRC to demonstrate that there was a risk of a fraudulent connection: > *“If HMRC was right and it was sufficient to show that the trader should have known that he was running a risk that his purchase was connected with fraud, the principle of legal certainty would, in my view, be infringed. A trader who knows or could have known no more than that there was a risk of fraud will find it difficult to gauge the extent of the risk; nor will he be able to foresee whether the circumstances are such that it will be asserted against him that the risk of fraud was so great that he should not have entered into the transaction. In short, he will not be in a position to know before he enters into the transaction that, if he does so, he will not be entitled to deduct input VAT. The principle of legal certainty will be infringed…It must be remembered that the approach of the court in Kittel was to enlarge the category of participants. A trader who should have known that he was running the risk that by his purchase he might be taking part in a transaction connected with fraudulent evasion of VAT, cannot be regarded as a participant in that fraud. The highest it could be put is that he was running the risk that he might be a participant. That is not the approach of the Court in Kittel, nor is it the language it used. In those circumstances, I am of the view that it must be established that the trader knew or should have known that by his purchase he was taking part in such a transaction”.* However, it would appear that a point arises where the risk of involvement in a fraudulent transaction becomes so high as to be a virtual certainty: > *“The true principle to be derived from Kittel does not extend to circumstances in which a taxable person should have known that by his purchase it was more likely than not that his transaction was connected with fraudulent evasion. But a trader may be regarded as a participant where he should have known that the only reasonable explanation for the circumstances in which his purchase took place was that it was a transaction connected with such fraudulent evasion.”* **Have you been made part of a tax inquiry? Call us today for an immediate assessment of your tax matter. ** --- # eBay reports traders to HMRC in tax crackdown Source: https://taxdisputes.co.uk/2012/05/ebay-reports-traders-to-hmrc-in-tax-crackdown/ Trading site eBay Inc confirmed over the weekend that it is handing over the names and full contact details of large numbers of traders to comply with an end of May deadline set by HMRC. Online resellers have until 14 June to own up to any money they owe after the taxman wrote to 32,000 traders it has in its sights earlier this month. Those who come forward now with voluntary disclosures will pay a reduced penalty on the tax they haven’t paid. The campaign is part of HMRC’s strategy to collect an additional £4 billion for the Treasury before next April. **Our Tax Disputes professionals are available to give information and advice. To contact one of our specialist Lawyers please [click here](https://taxdisputes.co.uk/2011/08/2011/08/2011/07/legal-case-assessment/) or call 02071830529.** --- # HMRC Employee arrested on alleged misconduct in public office Source: https://taxdisputes.co.uk/2012/05/hmrc-employee-arrested-on-alleged-misconduct-in-public-office/ An employee of HM Revenue and Customs was arrested today by detectives investigating corrupt payments to public officials. The 50-year-old man was held on suspicion of misconduct in a public office by officers from Operation Elveden. Scotland Yard said a 43-year-old woman was also arrested at the address in north west London. She was held on suspicion of aiding and abetting misconduct in a public office and money-laundering offences. The pair were arrested at their home at 6am and are being questioned at a central London police station. Police said today's operation was sparked by information supplied by News Corporation's management standards committee (MSC), which was set up in the wake of the phone-hacking scandal that led to the closure of the News of the World last July. The MSC is carrying out internal investigations relating to Rupert Murdoch's remaining UK papers - the Sun, The Times and the Sunday Times - and is working closely with the detectives investigating alleged phone hacking and corrupt payments to police and other public officials. Scotland Yard said in a statement: "Today's arrests are the result of information provided to police by News Corporation's management standards committee. "They relate to suspected payments to a public official and are not about seeking journalists to reveal confidential sources in relation to information that has been obtained legitimately." A total of 29 people have now been arrested since last July as part of Operation Elveden, which is linked to the Metropolitan Police's continuing phone-hacking investigation Operation Weeting. **Our Tax Disputes professionals are available to give information and advice. To contact one of our specialist Lawyers please [click here](https://taxdisputes.co.uk/2011/08/2011/08/2011/07/legal-case-assessment/) or call 02071830529.** --- # Plumber found guilty of cheating the revenue Source: https://taxdisputes.co.uk/2012/05/plumber-found-guilty-of-cheating-the-revenue/ A Plumber has been found guilty of tax evasion totalling some £112,000 over a 14-year period. Mr Peter Mack, 59, of Ringwood set up a freelance plumbing business in 1997, but never registered his earning with HM Revenue & Customs. Enquiries made by HMRC found Mack had evaded approximately £88,000 in income tax and VAT plus interest, pushing the total up to £112,000. He was arrested at his home and admitted committing £40,000 of fraud at Southampton Crown Court on 2 April. He was handed a four-month jail term, suspended for 12 months. He must also pay £1,800 costs and undertake 100 hours of community service. Mr Mack had recently paid £40,000 to HMRC, which will attempt to recover the remaining money via civil proceedings. John Cooper, assistant director of criminal investigation at HMRC, said: "After leaving full-time employment in 1997 it would appear that Mack decided to set-up alone and flout the law. He didn't register for self-assessment, and paid no income tax or VAT. This gave him an unfair and illegal advantage over his law abiding business competitors and robbed the exchequer of vital revenue." The verdict follows HMRC investigations targeting plumbers, electricians and gas fitters who failed to take advantage of the Plumbers Tax Safe Plan (PTSP) amnesty offered last year, which afforded them the opportunity to put their tax affairs in order. Those who have come forward already paid over £4m in outstanding tax. HMRC is continuing to pursue those who have not yet declared their correct tax position. Mike Wells, HMRC's director of risk and intelligence services, said: "We want people targeted by any HMRC campaign to come forward and use the opportunity to put the record straight and pay any tax due on the best possible terms. It really is better for people who owe tax to come to HMRC, before we come and find you." **Our Tax Disputes professionals are available to give information and advice. To contact one of our specialist Lawyers please [click here](https://taxdisputes.co.uk/2011/08/2011/08/2011/07/legal-case-assessment/) or call 02071830529.** --- # Fuel duty fraud Source: https://taxdisputes.co.uk/2011/06/fuel-duty-oils-fraud/ A man has been jailed for taking part in a fuel duty and money laundering scam worth £10 million. HM Revenue & Customs (HMRC) reports that Londoner Nigel Barratt was sentenced to 28 months in jail after he was involved in a scheme that laundered low duty fuels to remove the chemical marker. The fuel was then sold on as legitimate diesel, with the profits being channelled through a number of bank accounts and cheque cashing companies. Mr Barratt also received a Serious Crime Prevention Order stopping him from trading in fuels in the future. Mike O' Grady, assistant director of criminal investigation at HMRC, said: "[Laundered fuel] undercuts honest businesses and has devastating effects on the environment when the toxic by-products of the laundering process are dumped in the countryside, costing tens of thousands of pounds in clean up costs." Mr Barratt was part of a six person crime gang whose other members have also been detained. --- # HMRC Target 40,000 Firms in VAT Crackdown Source: https://taxdisputes.co.uk/2011/07/hmrc-target-40000-firms-in-vat-crackdown/ As part of a campaign at VAT rule-breakers, HM Revenue & Customs (HMRC) will be writing to over 40,000 individuals and businesses whom they suspect of trading above the VAT threshold of £73,000 turnover and who have not registered for VAT. Under the terms of the letters, those who have not registered for VAT can come forward any time up to 30 September to tell HMRC that they want to take part. If they make a full disclosure, most face a low penalty rate of 10 per cent on VAT that has been paid late. They will also be invited to disclose any other tax arrears. Where they have to pay a penalty on undeclared tax other than VAT, this will be lower than the customary penalty of up to 100 per cent charged to those who fall outside the opportunity. After 30 September, using information pulled together from different sources, HMRC intend to investigate those who have not come forward. Substantial penalties or even criminal prosecution could follow. To use the VAT Initiative people and businesses must: - Register with HMRC by 30 September to “notify” that they plan to make a voluntary VAT disclosure; - Tell HMRC about VAT due and make arrangements to pay it, as well as any penalties due, by 31 December. **Our Tax Disputes professionals are available to give information and advice for businesses that wish to register for VAT and/or make an organised disclosure to HMRC. To contact one of our specialist VAT Lawyers please [click here](https://taxdisputes.co.uk/legal-case-assessment/) or call 0845 8622 529.** --- # £5.7m VAT Fraud Case: Judgment in Crotek v HMRC Source: https://taxdisputes.co.uk/2011/12/vat-fraud-shafqat-dad-judgment-crotek-v-hmrc/ *Crotek Limited, Crotek Systems Limited v The Commissioners for Her Majesty's Revenue and Customs* - *HMRC succeeded in proving actual knowledge of fraud by the owner of Crotek and linked companies.* VAT MTIC FRAUD – input tax – denial of right to deduct on grounds that the Appellant's owner knew about fraudulent evasion of VAT – contrived fraudulent transactions found to have been organised in conjunction with owner's other companies - pattern of fraud - valid refusal by HMRC of right to deduct due to actual knowledge of fraud. ## Key Facts From this Missing Trader Intra-Community Fraud Finding of the UK First-Tier Tax Tribunal Decision Number: TC 01672 Appellant: Crotek Limited Crotek Systems Limited Respondent: The Commissioners for Her Majesty's Revenue & Customs Chairmen / Special Commissioners: Guy BRANNAN Key Companies mentioned in Judgment: [Crotek Limited](https://vlex.co.uk/vid/crotek-ltd-and-another-806015877); [Crotek Systems Limited](https://www.5pb.co.uk/print/pdf/node/70); [European Telecom Plc](https://www.bloomberg.com/profile/company/ETE:LN); Goldex Services Limited, Goldex International Limited, Cellular Consultants Limited Date Of Decision: 16/12/2011 Main Category: VAT - INPUT TAX Main Subcategory: Other Notes: VALUE ADDED TAX – input tax – denial of right to deduct on grounds that the Appellants knew or should have known that the transactions were connected to the fraudulent evasion of VAT – whether Appellant “knew or should have known” of connection to fraud – yes – valid refusal of right to deduct – appeal dismissed - [knowledge of fraud](https://library.croneri.co.uk/cio-index/wkuk_cio_idx_00007720) Decision(s) to Download: TC01672 A1.pdf | TC01672 A2.pdf [Crotek Ltd & Anor v Revenue & Customs | [2011] UKFTT 836 (TC) | First-tier Tribunal (Tax) | Judgment | Law | CaseMine](https://www.casemine.com/judgement/uk/5b2898042c94e06b9e19ef2a) ### [2011] UKFTT 836 (TC) ### TC 01672 ### Appeal number: LON/2006/0789 and LON/2006/0790 ***VALUE ADDED TAX – input tax – denial of right to deduct on grounds that the Appellants knew or should have known that the transactions were connected  to  the  fraudulent  evasion  of  VAT  –  whether Appellant “knew or should have known” of connection to fraud – yes – valid refusal of right to deduct – appeal dismissed*** ### FIRST-TIER TRIBUNAL TAX ### CROTEK LIMITED CROTEK SYSTEMS LIMITED **Appellants** **- and -** ### THE COMMISSIONERS FOR HER MAJESTY’S REVENUE AND CUSTOMS   **Respondents** **TRIBUNAL: JUDGE GUY BRANNAN** **ELIZBETH BRIDGE (MEMBER)** **Sitting in public at 45 Bedford Square, London WC1 on 4, 5, 6, 9, 10, 12, 13, 16, 17, 18,** **19 May 2011** **Ariyeh Kramer, Solicitor, Warner Pollins, for the Appellants** **Michael Parroy QC, Jennifer Goldring and James Bewley, Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents** # DECISION ## Introduction 1.  Crotek Limited (“CL”) and Crotek Systems Limited (“CSL”) (collectively “the Appellants”) appeal against five decision letters of the Respondents (“HMRC”) denying the Appellants the right to deduct input tax totalling £5,690,347.25 in respect of 34 transactions concerning the purchase of mobile telephones between February 2006 and May 2006. 2.  Of those five decision letters, two relate to CL and concern six transactions. The remaining three decision letters relate to CSL and concern 28 transactions. In addition, input tax was denied in respect of nine transactions by a decision letter dated 29 August 2006 and the decision in respect of those nine transactions has not been appealed. 3.  There are, therefore, 34 transactions which form the subject matter of this appeal. The total amount of input tax denied in respect of those 34 transactions is £5,690,347.25. 4.  HMRC denied the Appellants' right to deduct input tax on the basis that the Appellants' transactions were connected to the fraudulent evasion of Value Added Tax (“VAT”) and that each Appellant knew or should have known that its transactions were connected to such fraudulent evasion. ## The decisions under appeal ### The first Appellant 5.  The first decision in relation to CL is contained in a letter from HMRC dated 13 July 2006. This letter informed CL that input tax totalling £605,010 in respect of three transactions falling within the VAT period 04/06 had been denied. 6.  The second decision letter, dated 29 August 2006, notified CL that its claim to deduct input tax in respect of three transactions falling within the VAT period 04/06 in the amount of £396,760 had been denied. ### The second Appellant 7.  As noted above four decision letters related to CSL. The first decision letter was dated 13 July 2006 and notified CSL that input tax totalling £1,687,542.50 had been denied in respect of 10 transactions falling within VAT periods 02/06, 03/06 and 04/06. 8.  The second decision letter was dated 28 July 2006 and notified CSL that input tax, totalling £1,738,415, in respect of a further 10 transactions falling within the VAT periods 02/06 and 03/06 had been denied. 9.  The third decision letter was dated 4 August 2006 and notified CSL that input tax, totalling £239,120, in respect of one transaction falling within the VAT period 02/06 had been denied. 10.  The fourth decision letter was dated 8 March 2007 and notified CSL that input tax, totalling £1,023,499.75, in respect of seven transactions falling within the VAT period 05/06 had been denied. 11.  As noted above, another decision letter dated 29 August 2006 was not appealed. This decision letter notified CSL that input tax, totalling £1,843,087.75, in respect of nine transactions falling within the VAT period 04/06 had been denied. The evidence put forward by HMRC included these nine transactions as part of the factual background to the 34 transactions under appeal. 12.  The Appellants appealed against all the decision letters (except that contained in the letter dated 29 August 2006) referred to above. ## MTIC Transactions – Background 13.  HMRC contend that all the transactions entered into by the Appellants, on which they based their claims to deduct input tax, form part of what is described as “Missing Trader Intra-Community” (“MTIC”) fraud. The “classic way” in which the fraud works was described by Christopher Clarke J in Red 12 Trading Ltd v HMRC [2009] EWCH 2563 as follows (at paragraph 2): > “2  ….Trader A imports goods, commonly computer chips and mobile telephones, into the United Kingdom from the European Union (“EU”). Such an importation does not require the importer to pay any VAT on the goods. A then sells the goods to B, charging VAT on the transaction. B pays the VAT to A, for which A is bound to account to HMRC. There are then a series of sales from B to C to E (or more). These sales are accounted for in the ordinary way. Thus C will pay B an amount which includes VAT. B will account to HMRC for the VAT it has received from C, but will claim to deduct (as an input tax) the output tax that A has charged to B. The same will happen, mutatis mutandis, as between C and D. The company at the end of the chain – E – will then export the goods to a purchaser in the EU. Exports are zero-rated for tax purposes, so trader E will receive no VAT. He will have paid input tax but because the goods have been exported he is entitled to claim it back from HMRC. The chains in question may be quite long. The deals giving rise to them may be effected within a single day. Often none of the traders themselves take delivery of the goods which are held by freight forwarders.” > > > > > > “5.  A jargon has developed to describe the participants in the fraud. The importer is known as “the defaulter”. The intermediate traders between the defaulter and the exporter are known as “buffers” because they serve to hide the link between the importer and the exporter, and are often numbered “buffer 1, buffer 2 etc. The company which exports the goods is known as “the broker”. 14.  For simplicity, but without thereby prejudging the issue, we shall adopt the same terminology of “defaulter (s)” (sometimes also known as “missing traders”), “buffers” and “brokers”. References to HMRC in this decision also include its predecessor, HM Customs and Excise. 15.  Some MTIC appeals involve a variation on the typical transaction, described above by Christopher Clarke J, known as contra-trading. These appeals, however, do not involve contra-trading. Issues in dispute 16.  During the hearing of this appeal, Mr Kramer, representing the Appellants, accepted that the Appellants' transactions were all connected with the fraudulent evasion of VAT. He also accepted that HMRC had sustained a tax loss in the transaction chains of which the Appellants' transactions formed part. 17.  The issue in dispute, therefore, was whether the Appellants, through their “controlling minds”, knew or should have known that their transactions were connected with the fraudulent evasion of VAT. It was accepted that Mr Safdar Dad (“Mr Dad”) was the controlling mind of each Appellant for these purposes. ## The evidence ### Documentary evidence 18.  We were provided with 41 files of witness statements and supporting exhibits. ### Witness evidence 19.  Witness statements from the following witnesses were admitted as evidence. These witnesses did not give oral evidence and their witness statements were accepted and were not challenged by the Appellants. The witnesses were: - (1)  Andrew Paul Monk – an HMRC officer allocated responsibility for the defaulting trader XS Enterprise Systems Limited (“XS Enterprises”). - (2)  Terrence Mendes – an HMRC officer allocated responsibility for the defaulting traders FX Drona Limited (“FX Drona”) and Ultimate Security Agency Limited (“Ultimate”). Mr Mendes submitted separate witness statements for each defaulting trader. - (3)  Sheila Edmead -an HMRC officer allocated responsibility for the defaulting trader Stella Communications UK Limited (“Stella”). - (4)  Peter Allen Cameron-Watson – an HMRC officer allocated responsibility for the defaulting trader Oracle (UK) Limited (“Oracle”). - (5)  Damien Mario Parsons – an HMRC officer allocated responsibility for the defaulting trader Puwar Business Co-Operation (UK) Limited (“Puwar”). - (6)  Claire Sharkey – an HMRC officer allocated responsibility for a trader called Adworksuk.com Limited (“Adworks”). - (7)  Mathew Charles Bycroft – an HMRC officer allocated responsibility for the defaulting trader Midwest Communications Limited (“Midwest”). - (8)  Robert James David Lamb – an HMRC officer allocated responsibility for the defaulting trader Roble Comm Limited (“Roble”). - (9)  James Smallbone – an HMRC officer allocated responsibility for the defaulting trader Red Rose Consultancy Limited (“Red Rose”). - (10)  Gordon Murray Fyffe – an HMRC officer allocated responsibility for the defaulting trader Bullfinch Systems Limited (“Bullfinch”). - (11)  Kyle Angus Martyn – an HMRC officer allocated responsibility for Goldex International Plc (“Goldex”). 20.  The following witnesses were called by HMRC. They produced witness statements which were admitted to evidence and gave oral evidence. The witnesses were as follows: - (1)  Nigel Saunders – an HMRC officer allocated responsibility for the Appellants. Mr Saunders produced three witness statements. The third witness statement related to evidence obtained from the Paris server of the First Curacao International Bank (“FCIB”). The admission of the evidence contained in the third witness statement and its supporting exhibits was disputed by the Appellants. For reasons given later in this decision, we decided to admit the evidence. - (2)  Roderick Guy Stone – a senior HMRC officer who gave background evidence in relation to MTIC fraud. - (3)  Susan Elizabeth Hirons – an HMRC officer allocated responsibility for the defaulting trader Zoom Products Limited (“Zoom”). - (4)  Alan John Ruler – an HMRC officer who gave evidence in relation to the trader Urban Spice Buyer Limited (“Urban “). - (5)  David Young – an HMRC officer who gave evidence in relation to data derived from the FCIB Paris server. As with the third witness statement of Mr Saunders, the same dispute arose as to whether this evidence should be admitted. For the reasons given later in this decision, we decided to admit the evidence. - (6)  John Fletcher – a Director in KPMG LLP (“KPMG”) who gave expert evidence in relation to the grey market in mobile telephone handset distribution in 2006. 21.  The Appellants called Mr Dad to give evidence. Mr Dad was a director of both Appellants. Mr Dad produced two witness statements, which were admitted into evidence, and gave oral evidence. ## Credibility of witness evidence 22.  We wish to make some initial comments about the credibility of the witnesses who gave evidence before us. 23.  We considered the witnesses called by HMRC to be credible witnesses. 24.  In relation to the evidence given by Mr Ruler concerning Urban, this evidence was mainly hearsay evidence. We express our reservations as regards the weight to be placed on this evidence later in this decision. However, in expressing those reservations we make no criticism of Mr Ruler's credibility. On the contrary, in our view, Mr Ruler was a credible and truthful witness. 25.  In our view, Mr Dad was not a credible witness. As explained below, Mr Dad was frequently evasive in cross-examination and often failed to give direct answers to questions which were asked of him or gave answers were simply not credible. There was no doubt in our minds that important parts of Mr Dad's evidence were untruthful, as we explain more fully below. We therefore treated Mr Dad's evidence with considerable circumspection. ## Applications to admit and exclude evidence 26.  In the course of this hearing there were two applications by the Appellants to exclude evidence put forward by HMRC (the evidence of Mr Fletcher and Mr Stone). In addition, there was one application to admit new evidence made by HMRC in respect of the FCIB evidence of Mr Saunders and Mr Young derived from the “Paris server” 27.  A Directions hearing in relation to these appeals was held on 11 April 2011 (before Judge Brannan) in order to deal with any preliminary issues between the parties prior to the substantive hearing of the appeals and because of uncertainty concerning legal representation of the Appellants. Objections to the admission of evidence should have been made at the Directions hearing. The Appellants did not appear and were not represented at the hearing. As far as we are aware, no explanation was given for their failure to attend. HMRC attended the hearing. HMRC stood over their application to admit the new FCIB evidence of Mr Saunders and Mr Young derived from the “Paris server” until the substantive hearing because the Appellants had failed to appear. 28.  One of the main purposes of an interlocutory hearing is, inter alia, to avoid appeal timetables being disrupted by the making of applications that could conveniently have been dealt with at an interlocutory stage. Whilst the admission or exclusion of evidence is subject to the basic overriding principle in the Tribunal Rules that matters must be dealt with fairly and justly, the failure of a party to attend interlocutory proceedings without good reason is a matter that can be weighed in the overall balance by the Tribunal in the application of that overriding principle. ## The transactions 29.  The 34 transactions and (associated deal chains) which form the subject matter of these appeals and the nine un-appealed transactions covered by the decision letter of 29 August 2006 are set out in Appendix 1 to this decision. This information was derived from the witness evidence admitted on behalf of HMRC and was not in dispute between the parties. ## The law 30.  There was no dispute between the parties regarding the applicable legal principles, which we set out below. We have applied these principles in reaching our decision. 31.  The legal right to a deduction for input tax is enshrined in Articles 167 and 168 of Council Directive 2006/112/EC of 28 November 2006 and in sections 24, 25 and 26 of the Value Added Tax Act 1994 . 32.  There is no legal right to a deduction for input tax, however, where fraud is involved. There is now extensive case law on the subject both before the European Court of Justice and our domestic courts. The position was conveniently summarised by Lewison J in the recent decision of the Upper Tribunal in Brayfal Ltd v HMRC [2011] UKUT B6 (TCC) as follows: > “While Brayfal's appeal has been making its way through the system, the law has been considered by the courts on a number of occasions. It finds its latest authoritative pronouncement in the decision of the *Court of Appeal in Mobilx Ltd v HMRC [2010] EWCA Civ 517* . This decision was handed down on 12 May 2010, a couple of months after the revised decision of the FTT. That case examined the ramifications of the decision of the ECJ in Axel Kittel v Belgium ; Belgium v Recolta Recycling Joined Cases C-439/04 and C-440/04 [2006] ECR 1–6161 (“ Kittel ”). What the Court of Appeal decided was: > > > > > > > A taxable person who knows or should have known that the transaction which he is undertaking is connected with fraudulent evasion of VAT is to be regarded as a participant and fails to meet the objective criteria which determine the scope of the right to deduct. (§ 43) > > > > > > If a taxpayer has the means at his disposal of knowing that by his purchase he is participating in a transaction connected with fraudulent evasion of VAT he loses his right to deduct, not as a penalty for negligence, but because the objective criteria for the scope of that right are not met. (§ 52) > > > > > > The principle does not extend to circumstances in which a taxable person should have known that by his purchase it was more likely than not that his transaction was connected with fraudulent evasion. But a trader may be regarded as a participant where he should have known that the only reasonable explanation for the circumstances in which his purchase took place was that it was a transaction connected with such fraudulent evasion. (§ 60) > > > > > > The test is simple and should not be over-refined. It embraces not only those who know of the connection but those who “should have known”. Thus it includes those who should have known from the circumstances which surround their transactions that they were connected to fraudulent evasion. If a trader should have known that the only reasonable explanation for the transaction in which he was involved was that it was connected with fraud and if it turns out that the transaction was connected with fraudulent evasion of VAT then he should have known of that fact. (§ 59) > > > > > > If HMRC wishes to assert that a trader's state of knowledge was such that his purchase is outwith the scope of the right to deduct it must prove that assertion. (§ 81) > > > > > > In answering the factual question, Tribunals should not unduly focus on the question whether a trader has acted with due diligence. Even if a trader has asked appropriate questions, he is not entitled to ignore the circumstances in which his transactions take place if the only reasonable explanation for them is that his transactions have been or will be connected to fraud. The danger in focusing on the question of due diligence is that it may deflect a Tribunal from asking the essential question posed in Kittel , namely, whether the trader should have known that by his purchase he was taking part in a transaction connected with fraudulent evasion of VAT. The circumstances may well establish that he was. (§ 82) > > > > > > I should also record that it was common ground that these principles should be applied in the light of the circumstances prevailing at the date of the taxable person's own transactions: *C-354/03 Optigen Ltd v Customs and Excise Commissioners [2006] ECR I-483* . ” 33.  We respectfully adopt Lewison J's summary of the law as a correct statement of the current position. Both parties accepted that this Tribunal was bound by the Court of Appeal's decision in Mobilx . 34.  We would also draw attention to the comments of Moses LJ in Mobilx in relation to questions of evidence, where he said (at page 1459): > The questions posed in *BSG* …by the tribunal were important questions which may often need to be asked in relation to the issue of the trader's state of knowledge. I can do no better than repeat the words of Christopher Clarke J in Red 12 Trading Ltd v Revenue and Customs Comrs [2009] EWHC 2563 (Ch) at [109]–[111], [2010] STC 589 at [109]–[111]: > > > > > > > ‘[109]  Examining individual transactions on their merits does not, however, require them to be regarded in isolation without regard to their attendant circumstances and context. Nor does it require the tribunal to ignore compelling similarities between one transaction and another or preclude the drawing of inferences, where appropriate, from a pattern of transactions of which the individual transaction in question forms part, as to its true nature e.g. that it is part of a fraudulent scheme. The character of an individual transaction may be discerned from material other than the bare facts of the transaction itself, including circumstantial and “similar fact” evidence. That is not to alter its character by reference to earlier or later transactions but to discern it.’ > > > > > > [110]  To look only at the purchase in respect of which input tax was sought to be deducted would be wholly artificial. A sale of 1,000 mobile telephones may be entirely regular, or entirely regular so far as the taxpayer is (or ought to be) aware. If so, the fact that there is fraud somewhere else in the chain cannot disentitle the taxpayer to a return of input tax. The same transaction may be viewed differently if it is the fourth in line of a chain of transactions all of which have identical percentage mark ups, made by a trader who has practically no capital as part of a huge and unexplained turnover with no left over stock, and mirrored by over 40 other similar chains in all of which the taxpayer has participated and in each of which there has been a defaulting trader. A tribunal could legitimately think it unlikely that the fact that all 46 of the transactions in issue can be traced to tax losses to HMRC is a result of innocent coincidence. Similarly, three suspicious involvements may pale into insignificance if the trader has been obviously honest in thousands. > > > > > > [111]  Further in determining what it was that the taxpayer knew or ought to have known the tribunal is entitled to look at the totality of the deals effected by the taxpayer (and their characteristics), and at what the taxpayer did or omitted to do, and what it could have done, together with the surrounding circumstances in respect of all of them.’” 35.  It is worth adding that the standard of proof is the normal civil standard of proof i.e. the balance of probabilities. ## The Appellants: background ## Crotek Systems Limited 36.  CSL was incorporated as a limited company in August 2004. The company's registered address was in High Wycombe, Buckinghamshire. 37.  In the periods relevant to these appeals, CSL had one director: Mr Safdar Dad. The company secretary was Frieda Dad, the wife of Mr Dad's brother Mr Shafqat Dad. Mr Shafqat Dad had previously been a director of CSL but resigned on 24 August 2005. He had also been a company secretary of CSL but resigned when his wife took over the position on 17 June 2005. 38.  Mr Dad stated that he purchased CSL from his brother. Nonetheless, his brother continued to hold the one share in CSL until on or around 29 August 2006, according to the annual return declaration signed by Mr Dad. However, a company report on CSL dated 11 January 2007 stated that Frieda Dad owned 50 £1 ordinary shares, a further 49 £1 ordinary shares were owned by Mr Safdar Dad and that Shafqat Dad owned 1 £1 ordinary share. Mr Dad stated that this constituted an “oversight”. Nonetheless, from the documentary evidence it seemed to us more likely than not that CSL was owned by Shafqat Dad until on or around 29 August 2006. It was also clear that the company's issued share capital never exceeded £100. 39.  CSL applied to be registered for VAT by submitting Form VAT 1 on 15 September 2004. It was Shafqat Dad who was responsible for the VAT registration process. It was stated that the company would be making pharmaceutical supplies and that the estimated value of taxable supplies in the following 12 months would be £100,000. Box 25 relating to anticipated sales and purchases with other EC member states was left blank. CSL indicated that it was likely to be in a VAT repayment position. ## Crotek Limited 40.  CL was incorporated as a limited company on 16 July 2003. The company's name was Jenny's Limited and this was changed to Crotek Limited on 23 June 2005. CL shared the same registered address as CSL in High Wycombe, Buckinghamshire. 41.  For the periods material to these appeals, there were two directors: Mr Safdar Dad and his sister-in-law Frieda Dad. Mr Dad's brother, Mr Shafqat Dad, had previously been CL's sole director but resigned as a director on 17 June 2005 when his brother was appointed as a director. 42.  The shareholdings in CL were unclear. The annual return dated 7 August 2006 indicated that “F Dad” (presumably Frieda Dad) had transferred 99 ordinary shares, although the name of the transferee was not stated. The return also stated that “S Dad” had transferred one ordinary share and gave Mr Dad's address in High Wycombe. 43.  The annual return dated 13 August 2007 shows that Mr Dad and Frieda Dad each owned 50 £1 ordinary shares of the company's £100 issued share capital. Mr Dad stated that he had bought the company from his brother. At any rate, it was clear that the company's issued ordinary share capital never exceeded £100. 44.  Mr Dad completed Form VAT 1 on 1 August 2005, applying for VAT registration. The Form stated that the company would be making supplies of “retail electronics”. It also stated that the first taxable supply had been made on 1 July 2005. The annual turnover was anticipated to be £125,000. Box 25 on Form VAT 1, relating to the value of goods anticipated to be brought or sold with other EC member states, was left blank. The Form indicated that CL was likely to be in a VAT repayment position – this would have been an unlikely outcome if CL was really engaged in the trade of retail electronics. Mr Safdar Dad 45.  Mr Dad was a director of both Appellant companies at all times material to these appeals. As already noted, it was accepted by the parties that Mr Dad was the controlling mind of both companies. 46.  After leaving school in June 1987, Mr Dad undertook an apprenticeship in electronic engineering. In 1994 he took a position with international electronics wholesaler called Globalsource, the principal trading activity of which was importing and exporting electronic computer chips. Mr Dad left Globalsource and between 1996 and 2000 continued to work in the electronic products sector, specialising in export sales. 47.  In 2000, Mr Dad changed his career direction and became a financial adviser for an estate agency called Connells. Connells supported Mr Dad in obtaining the necessary qualifications. 48.  From 2002, Mr Dad was a self-employed mortgage consultant. His only retail experience was in running a small newspaper kiosk. Commencement of the Appellants' businesses and early contact with HMRC ## Crotek Systems Limited 49.  In 2004, Mr Dad decided to set up a high street mortgage business. Together with a Mr Stephen Biggs, Mr Dad, through a company called Pebble Rose Limited, bought a shop at 14 High Street, Aylesbury in November 2004. The acquisition price was approximately £230,000 and was financed by a mortgage (which, Mr Dad stated, had a high loan to value ratio). 50.  According to Mr Dad's evidence, the local planning authorities required that the ground floor of the shop should be used for retail purposes and only the upper floor could be used for the mortgage business. 51.  Mr Dad's evidence was that in order to utilise the downstairs retail area, he decided to sublet the space to CSL and retail mobile phones to the general public. He explained that, at that stage, his intention was to use CSL for the sale of mobile phones, while retaining CL as a more general supplier of other electronic devices. However, we note that Mr Dad was not a director and most probably was not a shareholder of CL at that time. 52.  Mr Nigel Saunders, the HMRC officer responsible for both Appellants, visited CSL's premises (CL was not at this stage registered for VAT) on 7 December 2004 and met Mr Dad. Mr Dad confirmed that CSL would not be making pharmaceutical supplies but would be making retail and wholesale supplies of mobile phones. 53.  On the question of the statements in CSL's application for registration for VAT as regards the intention to make pharmaceutical supplies, Mr Dad in his witness statement said: > “CSL was initially intended to trade in pharmaceuticals however the plans never took off once we realised the pharmaceutical trade required licensing and testing of products and considerable red tape all at considerable costs.” 54.  In cross-examination, however, Mr Dad appeared to contradict himself: > “Q: If I have understood this, and tell me if I have this wrong, you knew nothing about the fact that this company was incorporated as a pharmaceutical supplies company at the time? > > > > > > A: That is correct.” 55.  We concluded that Mr Dad was less than frank about this understanding of the significance of the trade category under which CSL had originally been registered for VAT. 56.  At their meeting on 7 December 2004, Mr Dad told Mr Saunders that the supplies of mobile telephones would be made under a franchise agreement with a company called Mobizone Limited, a subsidiary of European Telecom Plc (“European Telecom”). Mr Shafqat Dad had been an employee of European Telecom, working as their financial controller for two years. Mr Dad also told Mr Saunders that he had no experience of the mobile telephone industry. 57.  Mr Saunders asked Mr Dad why he had opened a freight forwarder account and was informed that he had been advised to do so by European Telecom. 58.  As noted above, on Form VAT 1 Mr Shafqat Dad had indicated that CSL would be a repayment trader. On 21 January 2005, Mr Saunders wrote to CSL noting that the business would normally pay VAT to HMRC and informing CSL that he was arranging for its VAT returns to be switched from monthly returns (which were normal for a repayment trader) to a three monthly cycle. On 24 January 2005, Mr Dad sent an e-mail to a colleague of Mr Saunders, Mr Owen Lloyd, stating that his business would be in a repayment position every month and asked to remain on monthly returns. Mr Lloyd replied on 24 January asking that CSL set out why it would be in a repayment position and asking for evidence to support that claim. Mr Dad (i.e. Mr Safdar Dad) replied on 25 January 2005 stating: > “… We have relationships with many countries from Australia to the USA. Please find enclosed a list of five pages of companies to whom we will be supplying. We will be buying in the UK and exporting to these overseas companies. > > > > > > We understand that monthly returns are for companies who receive regular repayments from HMC&E [HMRC]. This will apply in our case as we will be exporting every month and therefore will be in a repayment situation for the foreseeable future and beyond. We do not foresee our business normally paying VAT to HMC&E due to our exports.” 59.  Mr Dad's letter was dated approximately one month before CSL's first wholesale mobile phone deal. In cross-examination Mr Dad was asked for details of the “relationships” with the companies to which he referred in his letter. Mr Dad accepted that he had not at that time concluded any deals with the companies referred to in the letter. He also accepted that these were companies to whom he “hoped” to make supplies. He conceded that he did not have specific relationships with any of the businesses referred to in the list. He said that he may have engaged in some “exploratory undertakings” with these companies. 60.  On 2 February 2005 Mr Lloyd (together with a colleague) visited CSL to consider Mr Dad's request in his letter dated 25 January 2005 that CSL should remain on monthly returns. Mr Dad provided a list purporting to be a list of potential foreign customers together with copies of enquiries from other potential customers outside the UK. A check of the www.NextGSM.com website on 3 February 2005 indicated that the list of traders had been copied from its database as the companies appeared in the same order. The enquiries that Mr Dad provided contained mainly greetings and request for quotes, although one asked about a mobile telephone advertised on IPT. Com for sale. Following the meeting, Mr Lloyd wrote to CSL on 4 February 2005 confirming that the company could remain on monthly VAT returns. 61.  In our view, it was clear that Mr Dad did not have relationships with these companies and that the letter of 25 January 2005 was deliberately misleading. We found Mr Dad's explanation unconvincing and evasive. That letter was plainly intended to justify the retention of monthly returns and the letter contained misleading information. It was clear that there were no existing relationships with these companies and, indeed, Mr Dad was unable to point to any subsequent transactions concluded by CSL with these companies. Mr Saunders's evidence, which was not challenged, was that, of the companies on the list, very few if any were supplied by either CSL or CL. ## Crotek Limited 62.  As noted above, CL applied for VAT registration on 1 August 2005 stating that its business activity was “retail electronics”. 63.  Mr Saunders (together with a colleague) visited CL's premises (the same as those of CSL) on 2 September 2005 and asked Mr Dad about the new business. Mr Dad informed him that he was intending to supply Sony PlayStations, handheld consoles and other handheld electronic devices and that he would be retailing and wholesaling them from the shop premises. At the time there were no customers and no suppliers. The new business would be financed from the profits from CSL. Mr Dad was not certain about the amount of capital required for the new business but thought it was between £10,000 and £20,000. Mr Saunders said that he was not satisfied that at that time there was a business that could be registered or a clear intent to trade. He pointed out that the statement made on the VAT application that a taxable supply had been made on 1 July 2005 was not correct. 64.  At a further visit by Mr Saunders to CL's premises on 13 September 2005, Mr Dad confirmed that the main business activity of CL would be the retail and wholesale of gaming devices such as PSP, Nintendo and software. Mr Dad said that initially he would only deal in Nintendo goods and that, when supplied, the goods would be held at a freight forwarder's premises. Mr Dad produced a letter from Nintendo dated 8 September 2005 setting out terms of trade. The letter was unusual because, although it was addressed to Mr Dad, there was no personalised salutation and the letter was unsigned. Mr Saunders thought this was strange because the letter was setting out possible terms of trade. In cross-examination Mr Saunders conceded that he had not contacted Nintendo to ascertain whether the letter was genuine. In cross-examination Mr Dad accepted that he had not reached an agreement with Nintendo. 65.  CL's Form VAT 1 stated that CL had made its first supply on 1 July 2005, but no paperwork was ever produced to substantiate this claim and, as noted, Mr Saunders pointed out to Mr Dad that the statement was incorrect. At the meeting on 13 September 2005, Mr Dad then produced paperwork to show that CL had made a wholesale phone sale to Starup Trading in Hong Kong on 6 September 2005. The transaction was for £286,806.80. This exceeded the compulsory registration threshold and accordingly HMRC were obliged to register CL for VAT. 66.  In our view, CL's Form VAT 1 was misleading. The description of CL's business that was given was “retail electronics”, but just over a month later CL was undertaking a significant wholesale transaction in mobile phones with Starup Trading (transaction which forced HMRC to register CL). It is, in our view, significant that this transaction came immediately after Mr Saunders had raised objections to the registration of the company. We infer that the reason for the transaction was, as HMRC allege, to force Mr Saunders to register CL. Moreover, the statement that CL had made its first supply on 1 July 2005 was untrue. Documentation to substantiate the existence of this transaction was never produced and it appears that Mr Dad made no attempt to justify the existence of this transaction. 67.  At their meeting on 13 September 2005, Mr Saunders asked Mr Dad why a separate registration was needed if CL was to sell mobile phones as well as CSL. Mr Dad replied that he wanted to keep separate accounting for the two companies. In practice, as Mr Dad noted in his witness statement, CL was used to sell mobile phones if that accounting system happened to be open on his computer: > “… the rigid distinction between the sales activities of the two companies became a little blurred.” 68.  As Mr Saunders noted in his witness statement, CSL and CL seemed to be used interchangeably. 69.  Finally, in relation to the meeting of 13 September 2005, Mr Saunders reminded Mr Dad of the problems caused by MTIC fraud and he was again issued with HMRC Notices 726 and 700/52. ## Mr Dad's alleged general awareness of MTIC fraud 70.  Mr Saunders' s evidence was that Mr Dad had been told about MTIC fraud or had had the fraud brought to his attention during visits from HMRC officers on 7 September 2004, 17 January 2005, 17 May 2005, 13 June 2005, 13 September 2005 and 23 January 2006. 71.  Mr Saunders also gave evidence to the effect that a number of joint and several liability warning letters were hand-delivered by him to CSL, at a meeting on 23 January 2006, drawing attention to tax losses in deal chains for various VAT periods. These letters explained that if the Appellant knew or had reasonable grounds to suspect that VAT would go unpaid the joint and several liability measure could be applied. 72.  The letters identified those deals which had been traced back to defaulting traders. Importantly, the letters noted that the trader should be able to establish, from its records, which supplier had supplied it with the relevant goods and suggested that the trader may wish to consider what appropriate action was needed to ensure that VAT did not go unpaid in respect of any future transactions. 73.  The letter in relation to the period 04/05 was dated 23 January 2006 i.e. shortly before the first transactions to which these appeals relate. That letter notified CSL that of the seven transactions selected for verification in that period all the transactions commenced with defaulting traders and resulted in a loss of revenue exceeding £648,000. In some of those transactions CSL played the role of broker and in others that of a buffer trader. 74.  The letters in respect of the other periods were similar. In respect of the period 05/05, CSL was warned, also by a letter dated 23rd of January 2006 that four out of five transactions selected for verification commenced with defaulting traders, resulting in a loss of revenue exceeding £200,000. 75.  The letter in respect of period 06/05 was also dated 23 January 2006. This explained that one transaction out of six transactions selected for verification commenced with a defaulting trader and resulted in a loss of revenue exceeding £70,000. 76.  A letter, also dated 23 January 2006, notified CSL that in respect of period 08/05 one transaction out of the four transactions selected for verification commenced with a defaulting trader and resulted in a loss of revenue exceeding £84,000. 77.  A final letter dated 23 January 2006 in respect of the period 09/05 notified CSL that, out of five transactions selected for verification, two commenced with defaulting traders and resulted in a loss of revenue exceeding £118,000. 78.  After these letters had been sent to CSL, a letter was received from solicitors acting for CSL and CL dated 7 February 2006. The letter referred to the joint and several warning letters and stated that their client had “considered that information carefully.” 79.  CSL was also sent a joint and several liability warning letter in respect of period 10/05 on 25 January 2006 i.e. shortly before the first deal for the periods which form the subject matter of these appeals. The letter notified CSL that of the two transactions examined both commenced with a defaulting trader resulting in a loss of revenue exceeding £145,450. 80.  Finally, a further joint and several liability warning letter was sent to CSL on 1 March 2006 in respect of the period 11/05 noting that of the four transactions selected for verification, one commenced with a defaulting trader resulting in a loss of revenue exceeding £78,000. 81.  As we shall see later, Mr Dad continued to deal with some of the same suppliers who had supplied him in respect of deals which were the subject matter of these joint and several liability warning letters. 82.  On 8 December 2004 CSL was sent a letter from Rod Stone of HMRC's Redhill office advising of the difficulties faced by HMRC in respect of MTIC fraud and advising that the verification of the VAT status of new customers and suppliers should be cleared through the Redhill office. A similar letter was sent on 21 September 2005. This letter was sent to large numbers of traders in the mobile phone and computer component sectors and is often referred to as the “Redhill letter”. HMRC's Notice 726 (Joint and Several Liability) was enclosed with those letters as a matter of course. Mr Dad acknowledged receiving the letter from Redhill dated 8 December 2004. 83.  Notice 726 was also issued to Mr Dad, as noted above, on 17 May 2005. Notice 726 was also re-issued to Mr Dad on 13 September 2005. 84.  So-called “veto letters” were sent by HMRC to CSL notifying the Appellant that certain companies in the same trade sector as the Appellant had been deregistered. The letters were dated 15 March 2005, 22 April 2005, 8 August 2005, 9 August 2005, 6 September 2005 (two letters), 24 November 2005, 7 December 2005, 12 December 2005, 5 January 2006, 11 January 2006, 12 January 2006 25 January 2006, 6 February 2006, 9 February 2006, 16 February 2006, 28 February 2006, 16 March 2006, 21 March 2006, 30 March 2006, 3 April 2006, and 20 April 2006. The letters were in standard form and the first letter of 15 March 2005 from Mr Rob Stone (who sent the Redhill letter of 8 December 2004, referred to above) at HMRC's Redhill office is typical: > “For the attention of the Directors > > > > > > CROTEK SYSTEMS LTD… > > > > > > Dear Sir/Madam > > > > > > You are a trader who deals in the buying and selling of Mobile Phones, Computer Processing Units or Other Goods from the European Community and from within the United Kingdom. As part of the care and management of Value Added Tax we should bring to your attention that a Company called ADF Enterprises Ltd, VAT Registration Number: 847163806 Which Was Registered for Value Added Tax has been deregistered with effect from 01/12/04. > > > > > > Any input tax claimed in relation to transactions involving this company, which purported to have taken place after the effective date of cancellation of its registration, may fall to be verified. If you have any queries relating to this letter please contact Mr T Mendes [telephone number supplied] > > > > > > Yours faithfully > > > > > > Mr R Stone > > > > > > Tax Operations Manager > > > > > > Redhill VAT Office” 85.  The veto letters exhibited to Mr Saunders's witness statement were sent by one of three different HMRC officers. The last 10 letters were sent by a Mr P R Birchfield who was described in the letter as belonging to the “South MTIC Division.” 86.  Mr Saunders's statement that the veto letters would have repeatedly brought the issue of MTIC fraud the attention of CSL was challenged by Mr Kramer on behalf of the Appellants. Mr Kramer pointed out that the veto letters did not, on their face, refer to fraud. Mr Saunders accepted that the letters did not refer to fraud. However in re-examination Mr Saunders stated that clearing VAT numbers through the Redhill office was something that every dealer requested to do (and it was not disputed that CSL had received a “Redhill letter”). 87.  We also note that the first veto letter was sent by Mr Stone (the same person who sent the “Redhill letter” to CSL on 8 December 2004 which had clearly explained the difficulties faced by HMRC in relation to MTIC fraud). Moreover, the final 10 letters in the sequence of veto letters were plainly sent by a member of the “South MTIC Division”. It was, therefore, clear to us that although these veto letters did not explicitly use the word “fraud” they were, by clear implication, dealing with deregistration in the context of MTIC fraud rather than deregistration for a more routine reason (e.g. cessation of trade). 88.  We also note that CL received a “Redhill letter” dated 21 September 2005 in essentially the same terms as a letter sent to CSL on 8 December 2004. Moreover, on 22 December 2005, Mr Saunders wrote to Mr Dad in respect of CSL noting that Mr Dad had “not been contacting Redhill in order to verify the VAT details of traders registered in other member states.” Mr Saunders asked Mr Dad to ensure that all EU VAT registration details were “verified via Redhill.” 89.  We concluded that Mr Dad was well aware of the risks of MTIC fraud in his trade sector before he entered into the first of the transactions which are the subject of the present appeals. ## Expert evidence on the grey market ## Application to exclude Mr Fletcher's evidence 90.  Expert evidence was given by Mr John Fletcher, a director in KPMG LLP's London office, in relation to mobile phone handset distribution in the authorised and grey markets in 2006. 91.  Mr Kramer applied to exclude Mr Fletcher's evidence on the following basis: - (1)  Mr Fletcher's career history (as set out in his witness statement) did not qualify him as an expert in the grey market in respect of mobile telephones. - (2)  There was no body of expertise on the mobile telephone grey market. - (3)  The existence or characteristics of the grey market in respect of mobile telephones was not an issue for determination by the Tribunal since it was not referred to in the decision letters under appeal or in HMRC's Statement of Case. 92.  Mr Kramer relied on the judgment of Evans-Lombe J in Liverpool Roman Catholic Archdiocesan Trust v Goldberg [2001] All ER (D) 75 and in particular on paragraph 7: > “The authorities show that to qualify as expert evidence within section 3, the party seeking to call the evidence must satisfy the Court of the existence of a body of expertise governed by recognised standards or rules of conduct capable of influencing the Court's decision on any of the issues which it has to decide and that the witness to be called has a sufficient familiarity with and knowledge of the expertise in question to render his opinion potentially of value in resolving any of those issues.” 93.  Mr Parroy submitted that the admissibility of evidence was governed by Rule 15 (2) of The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (“the Tribunal Rules “) which provides: > “The Tribunal may— > > > > > > (a)  admit evidence whether or not the evidence would be admissible in a civil trial in the United Kingdom; or > > > > > > (b)  exclude evidence that would otherwise be admissible where— > > > > > > (i)  the evidence was not provided within the time allowed by a direction or a practice direction; > > > > > > (ii)  the evidence was otherwise provided in a manner that did not comply with a direction or a practice direction; or > > > > > > (iii)  it would otherwise be unfair to admit the evidence. ” 94.  In Mr Parroy's submission the Tribunal was not bound by the CPR and that it was a matter for the Tribunal to determine what evidence should be admitted. Guidance could be obtained from the authorities. However, the Goldberg case relied on by Mr Kramer was primarily an authority relevant to determining whether an expert witness was truly independent and this point was not in issue in the present case. Mr Parroy cited the decision of the *South Australian Supreme Court in R v Bonython (1984) 38 SASR 45* (referred to in *Phipson On Evidence* (17th edition) as the “classic statement as to the test of admissibility” in respect of competency of expert evidence) where King CJ said that there were two questions for the judge to decide: > “The first is whether the subject matter of the opinion falls within the class of subjects upon which expert testimony is permissible. This… may be divided into two parts: (a) whether the subject matter of the opinion is such that a person without instruction or experience in the area of knowledge of human experience would be able to form a sound judgement on the matter without the assistance of witnesses possessing special knowledge or experience in the area, and (b) whether the subject matter of the opinion forms part of the body of knowledge or experience which is sufficiently organised or recognised to be accepted as a reliable body of knowledge or experience, a special acquaintance with which by the witness would render his opinion of assistance to the court. The second question is whether the witness has acquired by study or experience sufficient knowledge of the subject to render his opinion of value in resolving the issues before the court.” 95.  Mr Parroy also drew attention to a passage in *Phipson* . After quoting the above passage from Bonython , *Phipson* at paragraph 33 – 62 says: > “In some cases, the reliability of the evidence might be relevant to whether the conditions of admissibility are met. However, in itself reliability goes to weight. There is no requirement as to admissibility that the evidence must be seen to be reliable because the methods used are sufficiently explained to be tested in cross-examination and so to be verifiable or falsifiable.” 96.  Secondly, Mr Parroy submitted that the objection to Mr Fletcher's evidence should have been taken at a much earlier stage and should not be left until the hearing of the appeal. The fact that Mr Kramer had only recently been instructed was irrelevant because Mr Fletcher's witness statement had been in the Appellants' hands for over a year. 97.  As regards Mr Fletcher's expertise, Mr Parroy referred to paragraph 1.2 of Mr Fletcher's witness statement which read as follows: > “I have been employed by the parent company of several Servers Providers (“SPs”) and Mobile Network Operators (“MMOs”), in addition to my recent work as a consultant. My operational and advisory experience has provided me with a detailed understanding of MNOs and the role they play in the mobile handset distribution segment. > > > > > > My work has involved the examination of distribution channels for handsets in numerous markets in Western and Central Europe, the Middle East, and Asia. This work has looked at the structure of distribution networks, consumer preferences and the use of handset subsidy to stimulate demand. As part of this work, I have met with Original Equipment Manufacturers (“OEMs”), distributors and retailers in several countries to discuss local market conditions. I have direct experience from markets in the Middle East (Iran, Lebanon, Oman and the UAE) of handsets being purchased on the international grey market and imported into these markets. > > > > > > I have been involved in the design and performance of audits, reviewing the effectiveness of controls designed to minimise the risk of phones sold with handset subsidy being reconfigured (i.e. unlocked) to allow them to be used on any suitable GSM network. This work involved visiting retailers, interviewing their staff, and performing checks on the effectiveness of their controls and the accuracy of their documentation. I have undertaken work of this nature in the UK, France and Germany. > > > > > > I have advised Dial-A-Phone and the UK's largest mobile handset direct sales operator on the strategy of its business development. Specifically this work considered the client's response to the changing mix of prepaid and postpaid (“contract”) customers and the likely impact that this would have on its revenue, a significant proportion of which was derived from commissions paid by MNOs to connect new customers. > > > > > > My experience has also provided me with first-hand insight into the varying international consumer preferences for handsets, features and formats.” 98.  Therefore, in Mr Parroy's submission the question was essentially one of weight. As he put it if ordinary people would be assisted by evidence from someone who is more knowledgeable the evidence is primer facie admissible if the witness has sufficient experience. He submitted that Mr Fletcher clearly had sufficient experience. Moreover, the distribution of mobile telephones in the authorised and grey market was an area in which most lay people did not have sufficient expertise to be able to form an independent view without assistance. [Rule 15](https://uk.westlaw.com/Document/IB88CCF40FF0811DDA0C59144AFA83D26/View/FullText.html?originationContext=document&transitionType=DocumentItem&ppcid=bc3d77dedc974cee96159cf99ac0237a&contextData=(sc.DocLink)) entitled the Tribunal to admit the evidence and, after cross-examination, to decide what weight should be given to it. 99.  We decided that Mr Fletcher's evidence should be admitted. We considered that Mr Fletcher was suitably qualified by his experience to assist the Tribunal in an area where specialist expertise would, in our view, be of benefit to the Tribunal. As regards the issue whether evidence in relation to the grey market had been pleaded in the Statement of Case, we considered that HMRC had plainly pleaded that the Appellants' transactions “were artificially contrived and fraudulent nature as opposed to being genuine commercial transactions taking place within a competitive market”. It is true that the Statement of Case does not particularise evidence relating to the grey market in mobile phones. But we do not think that a Statement of Case must particularise every item of evidence that is being put forward to support the main thrust of the Respondents' case. Moreover, the Appellants had had Mr Fletcher's witness statement for a considerable time and it was obvious that HMRC were intending to rely on this evidence to support their basic proposition that the Appellants knew or ought to have known that their transactions were connected with the fraudulent evasion of VAT. Applying the overriding principle of dealing with cases fairly and justly, as we are required to do by the Tribunal Rules , we did not consider that the Appellants could claim to have been unfairly or unjustly prejudiced. For that reason, we decided that the evidence of Mr Fletcher should be admitted. We also accepted Mr Parroy's submission that the weight to be attached to expert evidence was a matter for the Tribunal. 100.  As we have noted above, the application to exclude Mr Fletcher's evidence should have been made at the PTR on 11 April 2011. Indeed, it should have been made very much earlier than that. Mr Kramer brought to our attention the Goldberg case (the earlier decision of Neuberger J), where the question of admissibility of expert evidence was held over to be determined by the trial judge. We consider that the issues raised in that case were different from those in the present appeal and do not derive much assistance from that decision, save as mentioned below. We were conscious that a late application to exclude expert evidence can mean that the party seeking to adduce the evidence is denied the opportunity to bring forward alternative suitable expert evidence. This is hardly fair or just. In such circumstances, we consider that it is fairer to admit the evidence and leave it to the Tribunal to decide the weight that should be attached to it. This approach commended itself to Neuberger J in earlier proceedings in the Goldberg case. ## Mr Fletcher's evidence 101.  As noted above, Mr Fletcher appeared as an expert witness called by HMRC. 102.  Mr Fletcher set out in the appendices to his first witness statement (his second witness statement made certain relatively minor amendments to his first witness statement) the documents which he had relied upon in preparing his witness statement. These documents included the deal documentation for the 43 deals (i.e. the appealed transactions and the un-appealed transactions), the Appellants' Notice of Appeal, HMRC's Statement of Case, the second witness statement of Mr Dad and the Appellants' VAT returns for the relevant periods. Mr Fletcher had not independently verified this documentation. 103.  His evidence was that the Appellants appeared to be trading primarily as mobile handset distributors. The mobile handset distribution industry consisted of a white market and a grey market. The grey market resulted from opportunities to profit from the failure of the white market fully to meet the needs of certain market participants. 104.  It was common ground that the Appellants' transactions were not part of the white market. The white market in mobile telephone handsets comprised of two types of trading: first, trading directly between OEMs and MNOs and, secondly, trading directly between OEMs and Authorised Distributors (“ADs”). 105.  The two main types of market failures in the white market which gave rise to grey market opportunities were as follows. 106.  Firstly there were price-related market failures. Nokia's policy at the time was to set identical prices for its wholesale customers in all geographical markets. In its European market Nokia priced its handsets in Euros and converted those prices to sterling for the UK market, using exchange rates which were reviewed and set monthly. In contrast, other OEMs (including Sony Ericsson) did not employ the same consistent pricing policy and this gave rise to international “arbitrage” i.e. buying handsets in countries where prices were lower and then exporting them to those countries where prices were higher. 107.  In some markets such as the UK, MNOs subsidise handset prices. This gave rise to “box-breaking” where handsets were bought at a subsidised price in one country, then unlocked (i.e. reconfigured) and sold on in a country where the subsidy was lower.. 108.  The second main white market failure was volume related. Sometimes shortages arose when MNOs and large retailers underestimated demand for handsets and the OEMs were unable to supply additional handsets on a timely basis. Excess stock could arise when distributors overestimated demand or purchased surplus stock in order to receive additional volume discounts from OEMs. This stock was then “dumped” onto international markets to minimise costs. 109.  Not all grey market trading opportunities were profitable and not all traders could address all opportunities. Mr Fletcher gave the example of arbitrage which had low margins but low barriers to entry. Box-breaking, on the other hand, required significant resources but could earn greater margins. 110.  There were four main grey market opportunities, as follows. 111.  First, box-breaking, as described above. Mr Fletcher did not consider that the Appellants were involved in box-breaking and, indeed, there was no evidence to this effect. 112.  Secondly, there were some indications that the Appellants could be involved in arbitrage trading. In particular the Appellants held stock for minimal periods. Arbitrage traders would usually have distribution lines put in place to avoid the risk of orders falling through and creating unintended ownership of stock. This often resulted in “back-to-back” deals. In addition, arbitrage traders would seek to repeat transactions with their customers for as long as a pricing differential was maintained. Therefore a stable, but short distribution relationship to enable multiple, similar shipments for the same customer from the same source was required. 113.  In Mr Fletcher's opinion these two positive indicators were insufficient evidence that the Appellants were engaged in rational and profitable arbitrage trading. The Appellants' transactions displayed a number of characteristics, which he described as negative indicators, that were not consistent with participation in the arbitrage market. These negative indicators were as follows: - (a)  the homogenous international pricing policy of Nokia precluded the Appellants from pursuing arbitrage opportunities. A large number of the Appellants' transactions (86% by quantity) involved Nokia handsets. The Appellants' margins exceeded the profits likely to be achieved by currency fluctuations. There was no explanation why these margins were available to the Appellant in respect of trades in Nokia handsets. In cross-examination, Mr Fletcher accepted that Nokia might sell handsets to distributors at different prices depending on the level of volume discounts achieved. Nonetheless, its volume discounting policy was applied consistently throughout the European market. - (b)  The Appellants traded two types of Nokia handset within six months of the first release to the public. It could have been that these handsets experienced supply restrictions in the early weeks of release so that the Appellants were profiting from an asymmetry of supply. However, this was unlikely to be the case in respect of one of the handsets in question (Nokia 9300i). he Appellants' market share for this handset in February, March and April 2006. Whilst it was possible that the other Nokia handset (N80) was affected by supply restriction, the other five models and the other Nokia handsets involved in the 43 deals subject to the appeals were not sold within the first six months of their release so that it was unlikely that an arbitrage opportunity existed because of supply restrictions. - (c)  The Appellants did not source stock from OEMs or ADs. Traders failing to source stock from OEMs or ADs were unlikely to be making profits by arbitrage due to the smaller margins possible in longer supply chains. In Mr Fletcher's opinion the Appellants' deal changes were too long to maintain profitability at reasonable levels for all companies in the chains. Given that the Appellants were not purchasing from an AD the Appellants must have known that there were at least three middlemen (their supplier, the Appellants and the Appellants' customer) in the chain adding to the cost of the handset when sold to an end consumer. None of the Appellants' UK suppliers in respect of the deals under appeal were ADs. None of the appellants customers were end users. - (d)  The Appellants were trading too high a volume of specific handsets when compared to the total volume of those handsets sold through non-OEM sourced distribution channels in Europe. Given the highly fragmented and “national” nature of the handset distribution market, it was in Mr Fletcher's opinion unusual for the European (plus UAE) market share of any one distributor company to exceed 5%. In that context, Mr Fletcher found it surprising that the Appellants' market share (based on GfK data) in respect of the periods under appeal exceeded 5% on 19 occasions, representing 99% (by volume) of handsets in the 43 (which included the nine un-appealed deals) deals in question. Only in respect of one handset (Nokia N 80) was the Appellants' market share plausible and therefore consistent with rational grey market trading. Volumes of three handsets sold on four occasions by the Appellants during the periods in question were extremely unlikely: sales of the Nokia 9500 and Nokia 9300i in April, and sales of the Nokia 9500 and Samsung i 300 in May represented 370%, 284%, 199% and 367% respectively of the total distributor market for Europe and the UAE. In addition, the Appellants also dealt in more handsets than the total European market share for three models. In April 2006 the Appellants' Nokia 9500 handset sales were 133%, and their Nokia 9300i sales were 102% of the total European (plus the UAE) retail market. In May 2006 their Samsung i300 sales were 132% of the total European (plus UAE) retail market. In other words, the Appellants were claiming that their sales of three of the nine handsets sold in the 43 deals in question represented more sales than were required to satisfy customer demand in all of Europe and the UAE during the relevant months. - (e)  The level of detail on the Appellants' purchase orders and invoices was inadequate and lacked the specifications necessary to ensure successful and profitable arbitrage trading. It was vital that the handset model and variant (e.g. colour) and the regions covered in the warranty (e.g. Europe) as well as the inclusion of the charger, battery, CD and manual should be specified. Failure to specify the handset could leave a trader with the cost of adapting the handset for additional languages, or inserting new software CDs or sourcing an instruction manual in the appropriate language. In none of the 43 deals was the colour of the handsets specified on the purchase order and invoices. In only six of the transactions were the geographic specification identified. In none of the deals was the PC software, the language of the manuals and software, the type of charger (two or three pin), the existence of (and the regions covered by) the warranty, specified. Mr Fletcher noted that for the 36 deals involving Nokia handsets where inspection reports recorded warranty information, 23 deals did not record the region of the warranty. In Mr Fletcher's opinion this detail appeared insufficient to give confidence that the warranty was appropriate for a customer in Europe. Four inspection reports showed the region of the warranty as “European and African”. Mr Fletcher was unaware of the existence of such a warranty. In his opinion Nokia would cover these territories by providing either a European limited warranty or a Middle Eastern and African limited warranty. 114.  Mr Fletcher considered that there was no evidence that he had seen (although under cross-examination he conceded that he had not seen all the evidence relating to these appeals) to suggest that the Appellants were exploiting a grey market opportunity in volume shortages. This market opportunity had high barriers to entry, requiring strong relationships with MNOs and the ability to supply stock on an urgent basis. There was no evidence that the Appellants had strong relationships with MNOs. Satisfying a volume shortage required access to the specific type of handset required to address the market opportunity. The descriptions of the handsets traded in would be very specific, very different from the generic detail shown on purchase orders and invoices in the Appellants' deals. In addition, a trader was highly unlikely to be able to compete in relation to volume shortages without its own stock (or rapid access to the exact stock required) due to the rapid response expectations of its customers. Finally, the extraordinary volume of specific handsets dealt in by the Appellants was a negative indicator. For these reasons, Mr Fletcher considered that the Appellants were not exploiting a grey market opportunity in relation to volume shortages. 115.  Finally, as regards “dumping”, this was a practice usually initiated by an AD. It involved the speculative ownership of stock and was usually loss-making. Dumping usually involved single transactions where stock was sold in regions with an anticipated additional demand. Mr Fletcher considered that it was extremely unlikely that the Appellants were exploiting this grey market opportunity as the Appellants did not speculatively purchase stock, but bought and sold it on the same day. In addition, the enormous market share that the Appellants appeared to have achieved also suggested that the Appellants were not engaged in dumping. 116.  Mr Fletcher considered that the presence of these negative indicators was overwhelming and, accordingly, he concluded that the Appellants' transactions in February, March, April and May 2006 were extremely unlikely to be part of the profitable arbitrage market or any other type of grey market opportunity. 117.  In cross-examination Mr Kramer queried, in relation to estimations of market share, why Mr Fletcher had used data from GfK rather than information from his contacts at Nokia. GfK Retail and Technology was described by Mr Fletcher as the world's leading market research for tracking point-of-sale data in technical consumer goods and entertainment media markets. Mr Fletcher added that he was not sure that Nokia would have supplied the necessary information and in any event he already had the information from GfK. The approach suggested by Mr Kramer would also have entailed Mr Fletcher approaching other manufacturers to obtain their data. It seemed to us that Mr Fletcher was entitled to use an independent source of information such as GfK. Mr Fletcher said that he had not sought to undertake an audit of the information provided by GfK but was satisfied with the quality of that information for the purposes of this report and his analysis. 118.  Mr Kramer questioned Mr Fletcher's statement that the grey market in large corporate sales would not be open to the Appellants. He asked Mr Fletcher whether an independent retailer might maximise its profits by independently buying airtime from a network and, separately, buy handsets for the best price available. Mr Fletcher did not disagree with the hypothesis in theory but did not consider this to be realistic in practice. The vast majority of handsets in the UK were sold by providing a network handset and airtime for the same network. Moreover, the Appellant did not have the resources (e.g. personnel and account management) necessary to sell phones to large corporate customers. He was unaware of any large corporate customer buying its handsets independently from its airtime. Mr Fletcher accepted that he had not seen all the evidence in these appeals and in particular had only seen Mr Dad's second witness statement but he had examined all the deals currently before the Tribunal. 119.  Also in cross-examination, Mr Kramer questioned Mr Fletcher about an article from “Mobile News” dating from 2009 which indicated that Carphone Warehouse may have “dumped” 67,000 mobile phones. Mr Kramer asked Mr Fletcher why he had not referred to this article in his report. Mr Fletcher explained that in his report he had made specific reference to grey market dumping by MNOs and ADs. He regretted that he had not included in the definition specialist multiple outlet retailers, such as Carphone Warehouse, but he thought it was clear from the diagram contained in his second witness statement that he was also referring to such specialist multiples. Moreover, the “Mobile News” article relating to Carphone Warehouse concerned 2009, whereas Mr Fletcher's report related to 2006. 120.  On the question of generic product descriptions in purchase orders and invoices, Mr Kramer put it to Mr Fletcher that if there was mutual trust between the customer and supplier it was not beyond the bounds of possibility that there would be no need for comprehensive descriptions, accepting that it might be foolhardy business practice. Mr Fletcher agreed. It was not something that he would recommend but it was possible. 121.  Mr Fletcher accepted that the man in the street would not know about the existence of GfK, but he would expect someone involved in the trading of mobile phones to be aware of market research available from that company. 122.  Mr Kramer put it to Mr Fletcher that because he had not reviewed all the evidence before the tribunal he did not have adequate information to express his opinion on whether the Appellants were exploiting a grey market opportunity in relation to volume shortages. Mr Fletcher disagreed and considered that he had sufficient information to reach an opinion as an expert. 123.  Mr Fletcher seemed to us a reliable and knowledgeable witness. We accept his evidence. Our conclusion is that the Appellants' transactions did not form part of legitimate grey market trading in mobile telephones. We accept Mr Fletcher's conclusions and his reasons in this regard. We also considered that the information considered by Mr Fletcher was sufficient to allow him reasonably to reach his conclusions. ## Deal 25 – purchase from Datakey 124.  On 17 May 2006, CSL purchased 2910 Nokia 8800 mobile phones from Datakey Products Limited (“Datakey”) for a total price (including VAT) of £1,248,026.25 (Deal 25). CSL made a payment of £1,244,607 annotated “full 1321”, obviously referring to the invoice number. Although it appears that CSL were attempting to pay in full, the payment was insufficient. Later that day a further payment of £3,419.25 was made by CSL to Datakey and annotated “Balance inv 1321”. 125.  Datakey had brought the same quantity of Nokia 8800 mobile phones from Bluewire Connections Limited (“Bluewire”) on the same day for £1,244,607. 126.  CSL, therefore, had originally paid Datakey the exact amount which Datakey owed to its supplier, Bluewire. HMRC submitted that the chances of CSL inadvertently paying its supplier the exact sum that the supplier had paid its own supplier for the goods was infinitely small. It indicated that CSL must have had detailed knowledge of the overall deal chain i.e. more knowledge than any legitimate trader would have. Mr Parroy suggested that Mr Dad had made a mistake: he had paid Datakey not the amount that he was supposed to have paid them but the amount the Datakey was supposed to be paying Bluewire. A balancing payment was then paid by CSL to Datakey to pay Datakey's mark-up. This was, in Mr Parroy's submission, wholly inconsistent with Mr Dad's evidence that he was only aware of his own contracts. He should have known whom he was buying from and whom he was selling to, and the amounts paid to and by, respectively, his immediate supplier and customer. He appeared to know more. 127.  In cross-examination, Mr Parroy put the following questions to Mr Dad: > “Q Did you know how much Bluewire were paid by Datakey? > > > > > > A How was I supposed to know? And the answer to that question is no…. > > > > > > Q [Mr Parroy shows Mr Dad the documents relating to the payments and the invoices] How has that happened? > > > > > > A I suspect it may have been a typographical error. > > > > > > Q A typo? > > > > > > A Yes > > > > > > Q…. £1,244,607 is what Bluewire are invoicing your supplier, Datakey. And that is precisely the same figure, to the penny, which you pay Datakey. Can you explain that for us? > > > > > > A Yes, I paid Datakey. I didn't pay Bluewire so I fail to see the connection here, or the relevance. > > > > > > [Mr Parroy explains the sequence of payments again to Mr Dad] > > > > > > Q If what you have told us has a word of truth about it, there is no way that you can know what Bluewire are owed by Datakey. Are we agreed? > > > > > > A That is correct. > > > > > > Q So, you explain to this Tribunal, please, how it comes to be that you pay Datakey exactly what Datakey owes Bluewire? > > > > > > A There could be 101 valid reasons. > > > > > > Q Give me one? > > > > > > A trying to think back five or six years ago, working in many busy environments; is it possible that Datakey originally sent the incorrect invoice amount to Crotek Systems? > > > > > > Q Can you show me any paperwork in your possession that has £1,244,607 as being what you owe Datakey? > > > > > > A Can we go through the deal paperwork in the files? > > > > > > Q You are looking at the deal paperwork that you produced to Customs. > > > > > > A No, sorry, I am looking at an invoice and I am looking at a transaction report. The deal paperwork would have been Crotek Systems' paperwork. > > > > > > Q You are looking at it. > > > > > > A I suspect this is just a genuine error. > > > > > > Q Explain to me, please, “a genuine error”? You are paying the exact price that Datakey owe Bluewire, not something close to it? > > > > > > A No doubt – > > > > > > Q But down to the penny accurate? > > > > > > A No doubt Datakey may have sent the incorrect invoice, at that time. > > > > > > Q We have the invoice, we have just looked at it…. > > > > > > A This could be the subsequent one, prior. > > > > > > Q If you look at page 431… Narrative: “full 1321”. What is the invoice number on page 416? > > > > > > A Does this tell us that it's a first copies [sic] – sorry, a first amendment, second amendment? > > > > > > Q It doesn't say anything about amendments at all. It just says its invoice number 1321? > > > > > > A And first amendments, second amendment. > > > > > > Q What first amendment, second amendment? > > > > > > A Did they invoice Crotek Systems incorrectly? > > > > > > Q Mr Dad, this is your case. This is an issue that is raised by Mr Saunders in his statement. Have you any paperwork to show this Tribunal that explains how you apparently know the price that Datakey have paid to Bluewire? > > > > > > A The bundles were prepared by HMRC. The bundles arrived at – to my solicitors. Please do correct me if I'm wrong. > > > > > > Q 2009? > > > > > > A No. > > > > > > Q That is when Mr Saunders's statement with its exhibits was served on you. 128.  We consider that the payment by CSL to Datakey of the exact amount owed by Datakey to Bluewire is important and revealing. It clearly demonstrates that Mr Dad knew more about the transaction chain than he claimed. Mr Dad claimed only to know about the transactions with his immediate supplier and his customer. In our view, this was plainly untrue. It was highly improbable that Mr Dad could have arranged a payment to Datakey in the exact amount owed by Datakey to Bluewire without having more extensive knowledge of the deal chain. Mr Dad's responses under cross-examination were, in our view, evasive and untruthful. We do not accept the suggestion that there were different original documents. No evidence was produced to substantiate the suggestion and, indeed, the documents produced in evidence make it improbable that there were other invoices. We consider that this is an important piece of evidence which, when viewed in the context of the evidence as a whole, indicates that the Appellants had actual knowledge that their transactions were connected to the fraudulent evasion of VAT. ## Trading patterns and trading behaviour of the Appellants Deals traced back to defaulting traders 129.  All of the 34 deals under appeal in the periods 02/06, 03/06, 04/06 and 05/06 traced back along the relevant deal chains to defaulting traders. The Appellant was the broker in each of these deal chains. Nine deals covered by the un-appealed decision of 29 August 2006 also traced back to defaulting traders. 130.  As can be seen from Appendix 1 to this decision, there are 11 different defaulting traders in the deal chains. It was accepted by the Appellants that all the deals under appeal traced back to the fraudulent evasion of VAT by the defaulting traders. Mr Saunders (as well of the responsible HMRC officers for the traders concerned) gave evidence in relation to the defaulting traders. Mr Saunders's evidence (and that of the other officers – except on certain points described below, Ms Hirons) was not challenged. The defaulting traders and the amounts of unpaid VAT owing to HMRC are as follows. > (a) Bullfinch Systems Limited (“Bullfinch”) > > > > > > Bullfinch was the defaulting trader in three deals under appeal (and one deal covered by the un-appealed decision of 29 August 2006). Bullfinch was deregistered with effect from 13 May 2006 owing £51,613,591.16. This sum is still outstanding. > > > > > > (b) FX Drona Limited (“FX Drona”) > > > > > > FX Drona was the defaulting trader in one appealed deal. FX Drona was deregistered with effect from 6 April 2006 and the sum of £33,529,656.85 is still outstanding to HMRC. > > > > > > (c) Mid West Communications Limited (“Mid West”) > > > > > > Mid West was the defaulting trader in six deals (and five deals covered by the un-appealed decision of 29 August 2006). Mid West was deregistered with effect from 3 May 2006 and continues to owe HMRC £58,931,430.83. > > > > > > (d) Oracle UK Limited (“Oracle”) > > > > > > Oracle was the defaulting trader in one appealed deal (and three un-appealed deals covered by the decision of 29 August 2006). Oracle was deregistered with effect from 7 April 2006 and continues to owe HMRC £28,861,738.05. > > > > > > (e) Puwar Limited (“Puwar”) > > > > > > Puwar was the defaulting trader in one appealed deal. Puwar was deregistered with effect from 16 February 2006 and continues to owe HMRC £74,253,091.19. > > > > > > (f) Red Rose Consultancy Limited (“Red Rose”) > > > > > > Red Rose was the defaulting trader in one appealed deal. Red Rose was deregistered with effect from 4 March 2006 and continues to owe HMRC £3,686,051. > > > > > > (g) Roble Comm Limited (“Roble Comm”) > > > > > > Roble Comm was the defaulting trader into appealed deals and was deregistered with effect from 24 March 2006 and continues to HMRC £25,195,599. > > > > > > (h) Stella Communications UK Limited (“Stella”) > > > > > > Stella was the defaulting trader in for appealed deals. Stella was deregistered with effect from 31 March 2006 and continues to owe HMRC £10,409,242. > > > > > > (i) Ultimate Security Agency Limited (“Ultimate”) > > > > > > Ultimate was the defaulting trader in five appealed deals. Ultimate was deregistered with effect from 24 February 2006 and continues to owe HMRC £63,101,478. > > > > > > (j) XS Enterprise Systems Limited (“XS Enterprise”) > > > > > > XS Enterprise was the defaulting trader in seven appealed deals. XS Enterprise was deregistered with effect from the 20 May 2006 and continues to owe HMRC in excess of £45million. > > > > > > (h) Zoom Products Limited (“Zoom”) > > > > > > Zoom was the defaulting trader in three appealed deals. Zoom was deregistered with effect from 15 March 2006 and continues to owe HMRC £74,596,848. 131.  As noted above, the Appellants did not challenge the fact that the above amounts of VAT were tax losses arising from fraudulent evasion. 132.  The HMRC officers who were allocated responsibility for the above defaulting traders gave witness statement evidence which (with the exception of Susan Hirons, the officer responsible for Zoom) was not challenged. 133.  In relation to Zoom, Ms Hirons was cross-examined on three main points. 134.  First, it was put to her that HMRC could have issued a regulation 25 notice earlier than they did. Ms Hirons disagreed with this because she did not have sufficient information in her possession to issue such a notice before 13 March 2006. 135.  Secondly, Mr Kramer questioned Ms Hirons about a meeting on 13 March 2006 when Ms Hirons, together with a colleague, visited Zoom's offices. She met Mr Khera, a director of Zoom, and an employee called Mr Steven Singh. Mr Khera indicated that Zoom's books and records had been taken to his accountant on 10 March 2006 (notwithstanding that HMRC by a letter dated 2 March 2006 had requested Zoom's books and records be made available at the visit). Ms Hirons asked Mr Singh if there were any records on the premises. Mr Singh produced a laptop computer and identified at least 218 transactions that had taken place during the whole of February 2006 and the first seven days of March 2006. He estimated the gross value of his transactions to be £250 million. Although requested to do so, Mr Singh could not print off or save this data to disk. 136.  Mr Kramer suggested to Ms Hirons that she could have asked Mr Khera and Mr Singh to hand over the laptop computer using HMRC's powers under Schedule 11 to the Value Added Tax Act 1994 . Ms Hirons replied that she was just visiting officer. She asked for the books and records and if they were offered to her she could uplift them. She did not consider that she could remove the computer. 137.  Finally, Ms Hirons was cross-examined in relation to the basis on which the assessment against Zoom was made. Ms Hirons explained that the assessment figure was made up of two parts. First, the assessment was calculated on the basis of the output tax as declared by Zoom on its VAT returns and, secondly, from the figures in respect of transactions which Zoom declared as zero rated dispatches to the EU. Mr Kramer suggested to Ms Hirons that the figures in respect of goods exported could be correct i.e. that the goods were genuinely exported. Ms Hirons replied that she had seen no evidence from Zoom to support such zero rating and to support Zoom's repayment return. Zoom had not queried the assessment. 138.  We were satisfied on the basis of Ms Hirons's evidence that the regulation 25 notice was issued on a timely basis. It was clear Ms Hirons did not have sufficient factual evidence to issue the notice at an earlier date. Furthermore, we were satisfied that Ms Hirons genuinely did not consider that she had power to remove the laptop computer. On the issue of whether the assessment against Zoom overstated its VAT liabilities, we could see no evidence that Zoom had exported goods to the EU to support the figures used in their VAT return. On that basis, we conclude that, for the purposes of these appeals, the assessment against Zoom (and consequently the outstanding tax) was and remains valid. ## Buffer deals 139.  Exhibited to Mr Saunders's witness statement were details of deals in which CL and CSL acted as buffer traders. There were 103 deals in which CL acted as a buffer trader. CSL acted as a buffer trader in 77 deals. Mr Saunders's evidence was that all these transactions traced back to defaulting traders and fraudulent tax losses. 140.  The mark-ups achieved by CSL and CL in these buffer deals were normally 50 pence per unit regardless of the stock specification or quantity. 141.  In cross-examination, Mr Kramer challenged the view of Mr Saunders, that the high incidence of buffer deals which could be traced back to fraudulent defaulting traders could not be pure chance. Mr Saunders conceded that a high proportion (“vast”) of mobile phone transactions in the grey market traced back to tax losses. Mr Kramer therefore suggested that, on that basis, the high incidence of the Appellants' buffer deals being traced back to tax losses could have occurred by chance. Mr Saunders disagreed. 142.  Reviewing the exhibits to Mr Saunders's witness statement dealing with the Appellants' buffer deals, we noted that out of the 103 deals where CL acted as a buffer, 63 deals featured one of the 11 defaulting traders appearing in the deal chains in respect of the transactions which form the subject of these appeals (and which we have listed above). Ultimate features in 22 deals, Oracle in 20 deals, Puwar in 10 deals, Zoom in six deals, FX Drona in three deals, Bullfinch in one deal and Mid West in one deal. 143.  In respect of the 77 deals in which CSL acted as a buffer, 71 deals also feature one of the 11 defaulting traders appearing in the deal chains which form the subject of these appeals. FX Drona features in 20 deals, Roble Comm in 16 deals, Bullfinch in 13 deals, Zoom in eight deals, Ultimate in seven deals, Stella in four deals, XS Enterprise in two deals and Red Rose in one deal. 144.  In our view, the very high proportion of buffer deals involving the Appellants which traced back to fraudulent tax losses was unlikely to be the product of coincidence or chance. In addition, the fact that the Appellants consistently made the same mark-up, regardless of the quantity or specification of mobile phones involved, also suggests that their buffer transactions were contrived. It is hard to understand or credit how it could be possible that the same mark-up was repeatedly achieved in such a large number of deals which were supposedly made at arm's length in a vibrant commercial market. We do not believe that these deals were concluded on a genuine arm's-length basis and consider that they indicate, as part of the overall factual matrix, that the Appellants were knowingly involved in contrived transactions. ## Chronological rotation of defaulting traders 145.  At the hearing, HMRC produced a schedule showing both the deals and the defaulting traders appearing in each deal in chronological order. The deals included the deals covered by the un-appealed decision of 29 August 2006. Broadly speaking, the schedule showed that the defaulting traders appeared by rotation for a few deals and were then replaced by other defaulting traders. Thus, Puwar was the defaulting traders for the first (chronological) deal and was then replaced by Ultimate for the next five deals. Zoom took part in the next deal, with Red Rose appearing for the following deal and Zoom then participated in the next two deals. Roble Comm took part in the next two deals but was replaced by Stella for the next four deals. FX Drona then took part in one deal, followed by Oracle for the next four deals, Bullfinch for the next four deals, Mid West for the next 11 deals and XS Enterprise for the final seven deals. 146.  This chronology was not challenged. 147.  HMRC submitted that this indicated that the deal chains were contrived. We agree, but note that this chronology does not, by itself, indicate that the Appellants were or ought to have been aware that their transactions forming part of these deal chains were connected to the fraudulent evasion of VAT. ## Profit margins and mark-ups 148.  The profit margins and mark-ups in the deal chains relating to the present appeals require some examination. 149.  First, an unusual feature of the deal chains involved in these appeals is the consistency of the mark-ups made by the Appellants' supplier. The mark-ups for the the deals are set out in Appendix 2. Mr Dad's evidence was that he did not know what his supplier paid for the goods which were eventually bought by one of the Appellants (see above in relation to Deal 25 involving Datakey). We concluded as a result of the documentation relating to Deal 25 that this was likely to be untrue. 150.  Accepting, however, for the sake of argument that this was true, it leads to a curious result. Looking at the 34 deals under appeal and the nine deals included in the un-appealed decision of 29 August 2006 (43 deals in total), the Appellants' immediate supplier makes a mark-up of either 50 pence (in 28 deals) or £1 (in 15 deals). Elsewhere in the deal chains different mark-ups of 10 pence, 25 pence and 75 pence are often made by other participants in those chains. It is hard to credit how the Appellants, if they were negotiating with their suppliers on an arm's length basis, always inadvertently agreed on a price with its supplier which left that supplier with a mark-up of either 50 pence or £1 in every case. Although not conclusive by itself, we consider that this evidence forms part of the overall factual matrix which indicates that the Appellants knew that its transactions were contrived and were connected to the fraudulent evasion of VAT. 151.  Secondly, the profit margins made by the Appellants appear remarkably consistent. Mr Saunders gave evidence in relation to the Appellants' profit margins in the form of tables attached to his witness statement. In short, in five of CL's six deals (all in April 2006 – Deals CL 1 to 6) its profit margin was 6%. In the remaining deal, CL's profit margin was 5.9%. For three of the deals the EU customer was Balsim SARL (“Balsim”) and for the other three the EU customer was URTB SARL (” URTB”). 152.  As regards CSL, its deals in February 2006, with one exception, showed remarkably consistent profit margins. The exception was Deal 21 which showed a profit margin of 4%. However, the other deals (Deals 1, 2, 11, 12, 13 and 14) all returned a profit margin of 9%. 153.  CSL's deals in March 2006, with two exceptions, showed consistent profit margins. The two exceptions were Deals 3 and 15 which showed profit margins of 4%. Of the other deals, Deals 19 and 20 showed profit margins of 8.7%, Deals 4, 5 and 18 showed profit margins of 8.8% and Deals 6, 16 and 17 profit margins of 8.9%. 154.  CSL's deals in April 2006, with one exception, showed consistent profit margins. The exception was Deal 29 which returned a profit margin of 8%. Deals 7, 8, 10, 33, 36 and 37 showed profit margins of 5.9%, Deals 8, 31, 32 and 34 showed profit margins of 6% and two deals (Deal 30 and 35) showed profit margins of 6.1%. 155.  CSL's deals in May 2006 also showed consistent profit margins. Deals 24 and 27 showed a profit margin of 3.9%, Deals 22, 23, 26 and 28 showed a profit margin of 4% and Deal 25 showed a profit margin of 4.1%. 156.  It is hard to understand how, in an open market with parties dealing at arm's length, such consistency of profit margins could so regularly be achieved and why the average profit margin differed each month. We considered that this consistency of profit margins indicated that the Appellants' transactions were contrived rather than the product of genuine open market trading. 157.  Thirdly, it is not clear why CL's and CSL's customers bought goods from the Appellants, which charged a significant mark-up, when they could have bought the goods more cheaply from other participants in the deal chain. Even allowing for the additional cost of exporting the goods there seems no logical reason why, in an open, rational and competitive market, the Appellants' customers would not have sourced their goods from a cheaper source of supply – particularly when most of the participants in the deal chains advertised on internet-based trading platforms such as IPT. Mr Dad, in his second witness statement, addresses issue and emphasised that it was the “personal relationship that seals the deal as to who is supplied the product and who is not… It is simply who we like, when you like them and how you deal with them.” However, it his earlier witness statement Mr Dad in the course of explaining why he used TSP to carry out due diligence, noted: ” I rarely had personal contact with my business partners and it was helpful to know that someone had visited them on my behalf ….” When cross-examined on this issue Mr Dad's replies were unconvincing. He said: > “We sell stock to Handel [CSL's customer in Deal 2]. I am sure if they could have got it cheaper elsewhere they would have done, but at that time no doubt we were offering them stock, what would have seemed competitive, and the true value of the stock for the market for these particular commodities at that time.” ## Trading patterns 158.  Mr Dad accepted in cross-examination that trading in an open and competitive market should be a random process i.e. there should be no pattern as to whom he bought from and to whom he sold. However, in the 43 deals (including the un-appealed deals in relation to the decision letter of 29 August 2006) CL and CSL had only eight suppliers and six customers. Mr Dad's reply was, in our view, evasive. He said: > “I – well it has just been brought to my attention, so I don't know what to say really.” ## Position of Appellants in deal chains 159.  In all the 43 deal chains (with one exception Deal 36 – one of the un-appealed deals) set out in Appendix 1, the Appellants are the fifth UK company in the deal chain. The defaulting trader is the first UK company and is followed by three UK buffer companies before one of the Appellants enters the chain as the broker. 160.  In our view, this pattern gives rise for the clear inference that the deal chains were organised or contrived. It is very difficult to envisage circumstances in genuine open market trading where such a pattern would arise so consistently over so many transactions. ## Evidence of negotiation 161.  The Appellants produced no evidence of negotiation in respect of any of the 43 transactions which were the subject of the decision letters referred to earlier on this decision. Nor was any evidence of negotiation produced in respect of any of the buffer transactions in which the Appellants participated. 162.  Whilst it is to be expected that many of the transactions were concluded over the telephone, by MSN Messenger or by e-mail it seems odd to us that no evidence of negotiation (e.g. telephone records, copies of e-mails or manuscript notes in day books) were produced. It is not, of course, for the Appellants to prove that they had no knowledge that their transactions were connected to VAT fraud. Nonetheless, the absence of any documentary evidence of negotiation is one factor, in the overall factual matrix, of which we can take account. ## Appellants' turnover 163.  The turnover of both CSL and CL grew rapidly. Mr Saunders's evidence, which was not challenged, was that in the first calendar year for CSL its turnover exceeded £41 million (the year to 31 December 2005) and its turnover for the first four months of the year to 31 December 2006 produced a turnover in excess of £78 million. The value of taxable supplies forecast on Form VAT 1 for the 12 months after registration was £100,000. CL achieved a turnover of £89 million from 8 September 2005 to 30 April 2006 – approximately 8 months. This was to be contrasted with the forecast on Form VAT 1of a 12 month turnover of £125,000. Mr Dad had no previous experience in trading mobile phones. The share capital of the Appellants was minimal, according to the audited accounts of CL for the year ended 31 July 2006 and for CSL for the year ended 31 August 2006. 164.  Mr Stone's evidence was that there was a rapid increase in the volume of exports of mobile phones from the UK in the months following the decision of the European Court of Justice (“ECJ”) in Bond House Systems Limited (C-483/03) on 12 January 2006 . In that case the ECJ rejected HMRC's argument that carousel MTIC trading was not a genuine economic activity. For example, CSL's turnover in February 2006 was more than double its turnover in January 2006 and its turnover in March 2006 (slightly more than £40 million) was more than double its February 2006 turnover. Mr Parroy submitted that there was a clear correlation between the sudden increase in turnover of the Appellants and the decision of the ECJ in the Bond House case and the announcement by the UK government on 26 January 2006 of its intention to apply for a derogation permitting a reverse charge on mobile phones. This increase in mobile phone trading by the Appellants was not the result of genuine commercial market conditions such as a doubling of consumer demand. Rather it was an attempt by those involved to use an opportunity for fraud before changed legislation prevented them Mr Kramer argued that the increase in certainty following the Bond House decision led to greater commercial activity and this was a perfectly legitimate result. ## Due diligence 165.  In his witness statement, Mr Dad stated that he had not had the requirement to undertake due diligence checks explained to him by HMRC. Mr Dad said: > “19.  During this period, I was generally aware from various media sources that there were some irregularities within the mobile phone industry which seems to indicate that fraud was taking place. However, in the light of the measures I was taking and the regular and stringent checks being made upon both my companies by HM Revenue and Customs, I was confident that my trades were legitimate and that I was not, even inadvertently, involved in the general fraud that I had read about. I was never directed to undertake due diligence checks, nor was I directed as to their content. I knew about the Joint & Several Liability leaflet, but its significance [was] not fully understood. HMRC and its Officers never explained the leaflet to me and I was never invited to a training seminar. I was asked at regular visits by HMRC Officers what checks had been carried out and ad hoc copies of the details of my checks were supplied as and when requested by HMRC. HMRC had not indicated to me that I had been involved in any chains of transactions that had led to VAT losses at some point in the chain. > > > > > > 20.  I would like to point out that during all my years in business, both as an engineering salesman and financial adviser, checks on sellers such as creditworthiness checks and so on, were a natural part of conducting business for me. Furthermore, the sale of mortgages requires a degree of fiduciary care that is designed to protect both the mortgage or and the mortgagee. This was a daily routine requirement for me and I brought this level of care to my business of selling mobile phones from the outset. I now set out below the kinds of ‘due diligence checks’ I undertook on all the companies that I traded with.” 166.  In the light of the evidence of Mr Saunders, summarised above under the heading “Mr Dad's alleged general awareness of MTIC fraud”, Mr Dad's assertion that he was never directed to make you diligence checks and did not understand the Joint & Several liability Notice is difficult to understand. We consider that Mr Dad was fully aware of his responsibilities to conduct due diligence of his trading partners. 167.  Mr Dad stated that he only traded with a company after he had received stamped confirmation from HMRC that the company's VAT number was valid at the time he commenced opening trade accounts. He submitted written requests to HMRC's office at Redhill. In those instances where HMRC informed him that VAT registration was invalid, he did not develop trading relationship with those companies. 168.  Mr Dad's evidence was that he put together “due diligence packs” for each customer and supplier prior to dealing with them – he described these as his own “internal” due diligence. These packs included passport details, home addresses for key personnel, proof of address of the company, letters of introduction, copies of their VAT certificate, certificate of incorporation, bank account details, trade references, Companies House records and annual accounts for the most recent period. 169.  Mr Dad said that he requested these details in order to enable him to judge the liquidity and credit worthiness of the supplier or customer. He felt qualified to undertake this task due to his previous training as a financial adviser. 170.  Mr Dad said that he reviewed his due diligence checks on a six monthly basis and updated them as necessary. Because of cost and his growing familiarity with his suppliers and customers, he did not find it was cost-effective to carry out due diligence checks for every transaction, although he always checked the ‘Europa’ website for confirmation of VAT number of validity. The due diligence he had conducted in respect of his trading partners, in his view, showed them to the best of his knowledge to be legitimate business entities. 171.  Mr Dad noted that when a credit check was conducted, he looked only for a poor rating or a warning not to trade. As none of his customers was offered credit terms, he did not regard a credit check as a particularly significant check. If a company was relatively new and he was unable to obtain a satisfactory credit check, as long as the other checks carried out were positive, he felt able to trade with that company. 172.  Mr Dad stated that he required his suppliers to complete a “suppliers' compliance” form in respect of every purchase which the Appellants made. On this form, the supplier confirmed that the goods were not being sold at a lower price than purchased; that reasonable due diligence checks had been carried out with all their own suppliers and that there was no reason to believe that VAT had not been paid on the goods; that VAT would be declared to HMRC; that the stock existed; that no third-party payments of any kind would be entered into; and that the certificates of incorporation, VAT registration and a company introduction and letterhead had been obtained. 173.  In relation to the transactions to which these appeals related, Mr Dad said that he did not know who supplied his supplier or to whom his customers sold. Therefore, his due diligence was conducted only on those parties with whom he had direct contact. In addition, Mr Dad said that he carried out due diligence checks on the freight forwarders that he used for all the transactions relevant to these appeals (AFI Logistics Limited). 174.  In addition to the above measures, Mr Dad engaged in independent firm, “The Security People” (“TSP”) to carry out checks on his trading partners – he described TSB's reports as “external” due diligence. TSP was an independent company the key personnel of which were, according to Mr Dad, all former Metropolitan Police or HM Customs & Excise officers. Typically, a TSP report would cost approximately £300. A check could be done within 24 hours, at a higher cost, or at seven days' notice, which was Mr Dad's usual requirement. In practice, notwithstanding Mr Dad's statement, it appeared that typically TSP reports took longer to compile than seven days. 175.  Mr Dad's evidence was that TSP would visit his customer or supplier, interview the directors, photograph premises and collect directors' identification, utility bills from directors' home addresses, utility bills from trading addresses, company letterheads, suppliers' declarations, company VAT certificates and company incorporation certificates. TSP would also obtain a Companies House verification report and electoral roll report. Mr Dad considered that through the interviews conducted and the questions asked, TSP were able to inform him as to whether the companies he was trading with appeared to be legitimate businesses. Mr Dad found the TSP reports especially useful because he rarely had personal contact with his trading partners and it was helpful to know that someone had visited them on his behalf to examine their business practices. Mr Dad said that he engaged TSB to carry out an investigation once he knew a business was going to be a regular supplier or customer. 176.  As regards TSP reports, a number of the reports were produced after rather than before the Appellants entered into deals with relevant trading partner. Mr Dad stated in his first witness statement: > “I have never dealt with the company without first carrying out a due diligence check. Because my due diligence checks are regularly updated, I do not retain records of the earlier checks, but keep only the latest information on the company as this will be the only relevant information for deciding whether to conduct the next deal with it or not. At no stage did the Commissioner request or direct or even recommend me either in writing or verbally that I should retain the out of date due diligence checks even after an update had been obtained.” 177.  Mr Dad maintained, under cross-examination, that the TSP reports produced in the bundles for the appeals were simply the latest copies of these reports and that there would have been earlier reports. He said that the reports for each trading partner would have been continuously updated. However, Mr Dad and his advisers did not produce any earlier reports. It seemed odd to us that TSP reports, which were relevant to the Appellants' state of knowledge at the time when they entered into particular deals would not have been retained or produced, and that, if Mr Dad were to be believed, only later reports had been produced by the Appellants. We did not regard Mr Dad's assertion, which was challenged in cross-examination, to be credible. Moreover, Mr Saunders's notebook contained notes of a visit which he and a colleague paid to CSL's offices on 13 June 2005. The notebook states: > “Explained need to keep all records for six years including due diligence checks. Discussed due diligence checks.” We therefore did not accept Mr Dad's contention that he had not been asked by HMRC to retain due diligence records. ## Due diligence on SLC Handelsmaaschappiij BV (“Handel”) 178.  In cross-examination it was put to Mr Dad that, in fact, he had not carried out any due diligence on one of CSL's customers, Handel, with which CSL entered into five transactions. In his witness statement Mr Dad said that he was unable to carry out due diligence on this customer “due to cash flow problems at the time”. Mr Parroy pointed out to Mr Dad that, using information from CSL's VAT return for February 2006, CSL appeared to have made a profit of approximately £400,000 and in March 2006 had made a profit of approximately £700,000. In April 2006, according to its VAT returns, CSL made a profit of approximately £800,000. Mr Dad maintained that because the returns were repayment returns the business had little available cash at the time, although he conceded that a profit was being made. In our view, that does not explain why due diligence was not carried out in respect of the initial deals (e.g. Deal 11 on 27 February 2006 and Deal 15 on 6 March 2006). Accordingly, although Mr Dad's cash flow explanation may be plausible as regards later deals, it is not credible as regards earlier deals. ## Due diligence on DGB Sarl (“DGB”) 179.  DGB was CSL's customer in nine appealed deals and five un-appealed deals. The first deal was Deal 21 on 9 February 2006. The last deal was Deal 24 on 17 May 2006. 180.  The TSP report for DGB, produced as an exhibit to Mr Dad's witness statement, was dated 15 June 2006, four weeks after the last deal. 181.  Mr Dad maintained that this was simply the most recent TSP report available and that there would have been earlier reports, but he was unable to produce an earlier one. He stated that the reports were continuously updated. We did not find this credible for the reasons given above. 182.  The TSP report on DGB noted that the company had an FCIB account. It noted that DGB's suppliers were based in the UK but its customers were based in “Europe”. The report noted, under the heading “Risk Assessment” (which was apparently based on a Dun & Bradstreet report) that there was: “Insufficient information to offer a credit opinion. Represents high level of risk.” Mr Dad stated that all his European sales were on a “carriage, insurance paid 100% on landing” basis. He described the risk assessment as “subjective”. 183.  In his witness statement, Mr Dad stated that he was not concerned about the credit check for DGB as he was not extending credit to them and the goods were not to be released until payment was received. However, according to Mr Saunders's unchallenged evidence, the goods were shipped to DGB in France by CSL's freight forwarder before payment was received. For example, in Deal 21 CSL sold to DGB a quantity of 2800 Nokia 8800 handsets for £1,421,000. The goods were shipped by AF1 to Paris on 9 February 2006 and CSL was not paid until 17th February 2006. As Mr Saunders pointed out it was important when shipping goods to a customer in a different country to establish the creditworthiness of that customer because the expenses incurred in exporting, and reimporting the goods would fall on CSL if the customer was unable to pay. ## Due diligence on URTB Sarl (“URTB”) 184.  URTB was CSL's customer in (in chronological order) Deal 14, 11, 4, 19, 6, 8, 22, 26 and 27. The first deal took place on 20 February 2006 and the last deal took place on 18 May 2006. URTB was CL's customer in Deals CL 5, CL 6 and CL 2. The first deal involving CL took place on 24 April 2006 and the final deal took place on the following day, 25 April 2006. In total, therefore, CSL and CL undertook 12 deals with URTB in the relevant periods. 185.  The TSP report in respect of URTB exhibited to Mr Dad's witness statement was dated 30 May 2006 i.e. approximately 2 weeks after CSL's last deal with URTB. Notwithstanding that date, the report refers to the VAT number of URTB being cleared with HMRC's Redhill office on 19 June 2006. It appears, therefore, that the report was completed significantly later than 30 May 2006. Therefore all the mobile phone transactions with URTB which are subject to these appeals were undertaken more than four weeks before this due diligence check had been finalised. 186.  Mr Dad confirmed that he would have read the report but noted that he would only have given it a “cursory glance.” 187.  The report indicated that the directors of URTB, a company with a French trading address, were based in Spain. The fixed line telephone was a French number but the principal contact numbers were Spanish mobile telephone numbers. Under the heading “Products dealt in” the TSP report stated “mobile phones”. In relation to the question “How do you determine the market value of the goods?” The answer was “Not provided”. The same answer was given to the question “What checks do you undertake on your suppliers?” The answer to the question “Where are your suppliers based?” was left blank. 188.  The TSP report asked two further questions: “Have you made third-party payments in the past?” and “Do you currently make third-party payments, if Yes what percentage of transactions? The answer to both questions was “Not provided”. 189.  One of the two trade references provided for URTB was Goldex International – a company controlled by Mr Dad's brother, Mr Shaftaq Dad. 190.  The report indicated that the officers of URTB were based in a “furnished building with numerous offices to let. Small office within building suitable for one person.” 191.  In reply to a question: “Do the company directors/managers possess an adequate awareness of the industry they are trading in?” the report stated: “Difficult to ascertain having not been able to meet the director and also concern that company secretary has not met the director.” In relation to the question: “Does the company have a track record of trading in this industry or related sectors?” the report stated: > “The Director resides in Spain and it is difficult to establish what his role as in the company except as Director. The Second Director is Mr Neyer Uzman who is also referred to as the Trade Manager. He also resides in Spain. The company Secretary was Linda Bouraoud who states she has the company secretary and also refers to herself as the sole trader. She stated that she has not ever [sic] met the director however in front of the investigator signed paperwork on his behalf as if she was the director. It is not clear whether she has the right to sign on behalf of the director but the fact she signed her name as the director could well be an issue of concern. It has not been possible to acquire a utility bill from the director's home address despite several requests. Also of note is a piece of paper that was signed by Linda as if she was a director, is a self-declaration by Mr S David [the director] that he resides [at an address in Marbella] Spain. This document has no validity as it was signed by the trader purporting to be the Director and it would have been of importance to get a person of professional standing to attest the director's address.” 192.  Mr Parroy questioned Mr Dad about the statements and asked whether he was concerned. Mr Dad replied that it was common in organisations for documents to be signed “pp”. As regards the signature on the self-declaration, Mr Parroy suggested this was tantamount to an observation of forgery. Mr Dad replied that he could not comment “on someone else's comments.” Mr Dad denied that the TSP reports were mere “window dressing”. Mr Dad suggested that the report would have been just an update and further suggested that the previous copy might have been more favourable. He was, however, unable to produce an earlier report. ## Due diligence on Balsim International (“Balsim”) 193.  Balsim was CSL's customer in six deals (including un-appealed deals). The first deal was 14 March 2006 and the last deal was 17 May 2006. Balsim was CL's customer in three deals. The first deal took place on 18 April 2006 and the last deal took place on 26 April 2006. 194.  The TSP report was dated 15 June 2006. Notwithstanding this date, the report refers to a Redhill clearance on 27 June 2006, indicating that the report was not completed until that date at the earliest, six weeks after the last deal. 195.  The report gives details of the home address of the director, but no details for the secretary or bank, save in respect of FCIB. There are no details in relation to accountants, auditors or solicitors and no financial details. In relation to the question: “What checks do you undertake on your suppliers?” the report states: “None.” Notwithstanding this answer (and apparently unaware of the contradiction), in response to the question: “Does the company appear to have a professional approach in dealing with suppliers and customers?” the report stated: “The company appears to have a very professional approach towards customers and suppliers.” The report also stated: “This company has only been trading since January 2006 so does not have a strong track record in this sector.” Mr Dad, in cross-examination, suggested that the answer “None” in relation to checks on suppliers, may have been a typo. He said he would have spoken to TSP if he had any issues or concerns. In relation to the fact that the company had only been trading since January 2006, Mr Dad stated that he could not comment on someone else's comments. 196.  The TSP report also included a credit report which indicated, on the basis of a Dun & Bradstreet credit rating that Balsim's credit constituted a significant level of risk. In response, under cross-examination, Mr Dad commented simply that: “Credit reports are subjective.” 197.  Remarkably, the trade references provided by Balsim, notwithstanding that the report was commissioned by CSL, were to be given by “Crotek Systems” and “Goldex International” (the company run by Mr Dad's brother). When asked about this in cross-examination, Mr Dad suggested that the page may have been put in the bundle by error. Mr Parroy reminded Mr Dad that these were the exhibits to his own witness statement. Mr Dad replied that the bundle had only been provided to the Appellants in the week prior to the hearing. However, Mr Kramer confirmed that these were indeed the exhibits to Mr Dad's witness statement. ## Due diligence on Calltel Telecom Limited (also trading as Callmate) (“Calltel”) 198.  The Appellants carried out due diligence checks on Calltel. Mr Dad carried out checks in June/July 2005, although there was no evidence of third-party references having been taken up. 199.  Calltel supplied CSL in Deals 12 and 14 on 20 February 2006. The TSP report is dated 14 March 2006 at refers to Redhill checks made on 28 March 2006. Therefore, the TSP report post-dated the relevant deals by five weeks. ## Due diligence on Cellular 1 Communications Limited (“Cellular”) 200.  Cellular was a supplier to CSL in Deals 21 (9 February 2006) and 13 (22 February 2006). No TSP report was prepared for the supplier. However, the due diligence checks carried out by the Appellants included seeing its financial statements for the year ended 30 April 2004. The balance sheet of Cellular indicated that it had a balance sheet deficit of £9640. Mr Saunders's unchallenged evidence was that tax losses had been traced for every deal chain in which CSL bought from this supplier for the periods in question. ## Due diligence on Mobile Heaven Limited (“Mobile Heaven”) 201.  Mobile Heaven supplied CSL in Deal 1 (22nd of February 2006), Deal 3 (2 March 2006), Deal 6 (21 March 2006), Deal 7 (6 April 2006) and Deal 27 (18 May 2006). Mobile Heaven supplied CL in Deal CL 1 (21 April 2006). 202.  The due diligence carried out by the Appellants on Mobile Heaven in August 2005 included obtaining their financial statements. The balance sheet for the year ended 30 June 2003 showed a balance sheet surplus of £28,990. The balance sheet for Mobile Heaven to the year ended 30 June 2004 included in the TSP report dated 27 March 2006 showed a balance sheet surplus of £118,382. 203.  On 23rd of January 2006 HMRC had advised CSL of a tax loss in a deal chain in which it had previously bought from Mobile Heaven in the period 08/05. However, there was no evidence of more up-to-date due diligence having been carried out before CSL again dealt with Mobile Heaven in February, March and April 2006. 204.  As noted above, the TSP report is dated 27 March 2006 but it contains a reference to a Companies House verification report dated 20 April 2006. This indicates that the TSP report was not available until after all the transactions (except Deal 27) in which Mobile Heaven supplied CSL had been concluded i.e. Deals 1, 3, 6 and 7. 205.  Mr Saunders's evidence, which was unchallenged, was that on 18 May 2006 (Deal 27) CSL purchased mobile telephones from Mobile Heaven for £723,520 plus VAT. These handsets were sold on the same day to URTB for £752,080. However, CSL did not pay Mobile Heaven until 16 June 2006 – almost one month later. On 21 April 2006 CL purchased handsets from Mobile Heaven (Deal CL 1) for £1,002,400 plus VAT. The handsets were sold by CL to Balsim on the same day for £1,062,600. CL did not pay Mobile Heaven for these mobile phones until 28 April 2006. Mr Saunders pointed out that no consideration appeared to have been given as to how –or why -Mobile Heaven could or would extend such generous credit facilities. Tax losses have been traced in every deal chain where CSL and CL bought from Mobile Heaven for the periods in question. ## Inter Communications Limited (“Inter”) 206.  Inter supplied CSL in Deal 2 (23 February 2006) and Deal 29 (18 May 2006). Inter also supplied CL in Deal CL 2 (25 April 2006) and Deal CL 3 (26 April 2006). 207.  As part of the Appellants' due diligence on Inter an abbreviated balance sheet was obtained showing a surplus of £6871 for the year ended 31 March 2004. 208.  HMRC advised CSL by letter on 23 January 2006 that purchases from this supplier had been traced back to tax losses in the deal chain for the period 06/05. 209.  The Appellants obtained a TSP report dated March 2006, but the contents of the report indicated that the report could not have been made available before 21 April 2006. The report was therefore produced after Deal 2. 210.  Tax losses have been traced in every deal chain where CSL and CL bought from this supplier for the periods in question. ## Due diligence on Datakey 211.  Datakey supplied CSL in Deals 16 (14 March 2006), Deal 17 (14 March 2006), Deal 18 (20 March 2006), Deal 19 (20 March 2006 or 23 March 2006), Deal 20 (27 March 2006), Deal 22 (16 May 2006), Deal 23 (16 May 2006) and Deal 25 (17 May 2006). Datakey also supplied CSL in 8 un-appealed deals between 4 April 2006 and 27 April 2006. Datakey also supplied CL in in Deal CL 5 (24 April 2006). 212.  A TSP report on Datakey was dated 11 April 2006, and the contents of the report indicates that it was not completed until 21 April 2006. The TSP report indicated that Datakey's profit and loss account for the year ended 31 December 2004 showed a trading loss and a balance sheet deficit. The company had no credit rating and at 7 October 2005, under the heading “Credit Rating”, is shown as “not trading”. 213.  Tax losses have been traced in every deal chain where CSL and CL bought from Datakey in the periods in question. ## Due diligence on Technology Plus limited (“Technology Plus”) 214.  Technology Plus supplied CSL in Deal 26 (18 May 2006). It supplied CL in Deal CL 4 (18 April 2006) and Deal CL 6 (24 April 2006). 215.  The TSP report on Technology Plus was dated 16 May 2006, although the report refers to a VAT registration verification carried out on 30 May 2006. It therefore appears that the report was not available until 30 May 2006. 216.  In response to the question from TSB: “What checks do you undertake on stock?” the reply was: “Confirm with freighter if stock is physical.” In response to the question: “Are goods insured?” the reply was: “Now and then.” 217.  The company credit rating suggested credit should be limited to £9,000 and suggested further enquiry was needed. 218.  Tax losses have been traced in every deal chain where CSL and CL bought from the supplier for the periods in question. ## AR Communications Limited (“AR”) 219.  AR supplied CSL in Deal 11 (27 February 2006), Deal 4 (7 March 2006), Deal 5 (21 March 2006), Deal 8 (7 April 2006), Deal 9 (11 April 2006), Deal 10 (26 April 2006) and Deal 24 (17 May 2006). 220.  The TSP report was dated 28 March 2006, but parts of the report are dated 4 April 2006, suggesting that the report was not available before that date. The report, therefore, post-dated Deals 4, 5 and 11. 221.  On 17 May 2006 (Deal 24) CSL purchased handsets from AR for £745,500 plus VAT. These handsets were removed from the UK by CSL before payment had been made. There was no evidence indicating how or why this credit was made available to CSL. 222.  A joint and several liability warning letter dated 1 March 2006 in respect of a supply from this trader in period 11/05 had been sent to CSL. ## Due diligence and warning letters 223.  As described above, CSL received warning letters from HMRC dated 23 January 2006 that a number of its transactions in VAT periods in 2005 traced back to tax losses. Those letters noted that CSL would be able to establish from its records the identity of its supplier in the relevant transactions. 224.  In the case of three of those suppliers (Mobile Heaven, Inter Communications and AR) CSL undertook further transactions with those companies in which they supplied CSL with mobile phones in February 2006 and subsequently. Those transactions are included in the deals currently under appeal. 225.  It was apparent from the evidence that the deals in February 2006 (and some in March 2006) with these suppliers (e.g. Deals 1, 2, 3, 4 and 11) were undertaken without any significant recent updating of the due diligence on these companies. 226.  Mr Dad, in cross-examination, stated that he would have followed all the due diligence procedures referred to in HMRC Notice 726 (a point which, in our view, contradicted his claim in his witness statement not to have been advised by HMRC to carry out due diligence). There was no evidence that any earlier due diligence checks had been updated before CSL recommenced dealing with these three suppliers in February and March 2006. Moreover, given the warnings contained in HMRC's letters 23rd of January 2006 CSL could simply have refused to deal with these particular suppliers. 227.  In our view, this indicated that Mr Dad took a cavalier attitude to the warnings received on 23 January 2006. He seems not to have cared whether he dealt with suppliers whose earlier transactions have been traced back to VAT losses and his claim that he had been “livid” when he received HMRC's warning letters of 23 January 2006 was contradicted by his failure to take appropriate action. ## IMEI Numbers 228.  There was a dispute concerning whether the Appellants had kept IMEI numbers. 229.  In his first witness statement Mr Dad noted that it was alleged against him that he had not kept IMEI numbers and that he therefore had failed to take prudent precautions against involvement in carousel fraud. He stated as follows: > “First, as far as I am aware, it has not been alleged that I have been involved in carousel fraud. Secondly, it is not clear whether the allegation that I did not “keep” such numbers is meant to mean that I have not made any such records or that I have not retain such records. I have carried out IMEI number checks since September 2006. I initially retained the IMEI numbers on paper, though not electronically. However, although I offered those records to HMRC, they would not look at them unless they were electronic. > > > > > > Paper records were made at the time of the inspection and I did not consider the duplication of transferring them to electronic media as a prudent use of my resources. I checked the IMEI listed on paper on a random basis against a sample quality of each batch of phones purchased. I would check the IMEI numbers against a net-checker, the address of which is www.numberingplans.com. Once this was completed and the IMEI numbers were confirmed as valid, I did not keep a check of these records as I was happy that my stock was as described on my paperwork. At the time of these transactions, I had not been directed to check and retain IMEI numbers. I was only required to record IMEI numbers after the periods which are the subject of this appeal and have of course done so.” 230.  This statement was not challenged in cross-examination. 231.  In his first witness statement Mr Saunders recorded a visit which he and a colleague paid to CSL's offices on 13 June 2005. Mr Saunders's notebook contains the following entry: > “Mr Dad… Stressed that whilst phones are not scanned, records of phones traded are recorded on sales and purchase orders, but IMEI numbers are not recorded.” 232.  Mr Saunders visited CSL's premises, with another colleague, on 22 July 2005. His notebook records: > “I asked Mr Dad whether IMEI numbers were now being recorded and he said no. I asked how any returns could be verified to show that Crotek had supplied them and how he could be satisfied without IMEI numbers… That the goods were not stolen. Mr Dad could not be sure. Mr Dad will talk to the inspection team he uses to see if IMEI numbers can be made available.” 233.  In his first witness statement Mr Saunders states: > “… [A]t the time of the transactions subject to this appeal neither CL nor CSL recorded IMEI numbers of mobile phones being traded.” 234.  This statement and the above extracts from Mr Saunders's notebooks were not challenged in cross-examination. 235.  In answer to a question from the Tribunal, Mr Saunders stated that to the best of his knowledge the Appellants had not recorded IMEI numbers prior to the issuance of a notice of direction. The notice of direction was in September 2006. Mr Saunders explained that HMRC had been given no IMEI numbers for any of the deals at issue in these appeals. 236.  In our view, on the basis of the evidence contained in Mr Saunders's notebooks, we consider that the Appellants did not record IMEI numbers of mobile phones before September 2006, despite being advised by Mr Saunders to do so. 237.  As noted above, Mr Dad in his witness statement stated that he had “… carried out IMEI number checks since September 2006.” This information was only recorded, however, after HMRC had directed the Appellants to record this information. ## Conclusions on due diligence 238.  It was plain to us that the due diligence comprised in the TSP reports in respect of the Appellants' customers referred to above was inadequate. In addition, many of the TSP reports were received after the Appellants had commenced dealing with the companies concerned. Moreover, insofar as the reports highlighted concerns, Mr Dad appeared not to have taken any account of the issues raised. Moreover, Mr Dad failed to record IMEI numbers prior to September 2006 with the result that he could not be certain that the mobile telephones with which he was dealing had not been stolen or the subject of carousel fraud. We found Mr Dad's replies in cross-examination to be evasive. He consistently failed to engage with the questions he was asked. ## Urban Spice Buyer Limited (“Urban”) 239.  CL bought mobile telephones worth £2,135,625 from Urban on 29 June 2006 in a transaction which is not subject to these appeals. 240.  A TSP report on Urban commissioned by CSL was dated 12 July 2006, although a report on electoral roll information contained in the main report was dated 25 July 2006, indicating that the main report was not, in fact, finalised until that date. At any rate, it was clear that CL dealt with Urban before carrying out any external due diligence checks. 241.  Mr Alan Ruler, an HMRC officer, gave evidence in relation to visits he paid to Urban. 242.  Mr Ruler's first visit to Urban was on 24 April 2006 and he interviewed the director, Mr Rahman. Urban's business involved the introduction of restaurants to suppliers of food produce, restaurant furniture, china, cutlery etc. In return for introducing restaurants to suppliers, Urban would charge a “membership fee”. 243.  Urban's offer to sell telephones to a customer gave rise to an enquiry by the customer to HMRC's Redhill offices to check Urban's VAT registration. It was this enquiry that alerted HMRC to Urban's possible involvement in what Mr Ruler described as “MTIC activity” and prompted Mr Ruler's visit. 244.  Mr Ruler discussed MTIC activity with Mr Rahman and, inter-alia, issued Notice 726 on Joint and Several liability. He discussed unsolicited approaches from traders wishing to do “large value deals”, of which Mr Rahman said he had had none. Mr Ruler also explained that if Mr Rahman was asked to make a “third party” payment this should be taken as an indication that the VAT would not be paid to HMRC. 245.  Mr Ruler also explained how VAT registrations could be hijacked and the function of HMRC's Redhill office, which was to be used to confirm whether or not customers and suppliers were VAT registered. Mr Rahman asked that his VAT registration number should be “blocked” at Redhill so that others could not verify it without his authority. 246.  Mr Ruler was asked to visit Urban again in August 2006 because its VAT status had been verified by a “known” MTIC trader. 247.  He explained that his restaurant supply business was struggling and that his wife had suggested that they should engage in some mobile phone deals. They therefore logged onto a mobile phone trading website (IPT) and found a customer: Crotek Limited. He said he had two other customers: Adworks Limited and Ancillary Engineering Limited. 248.  Mr Rahman was asked by Mr Ruler how he had found his supplier, Advertising South Limited. He said that “luckily” his customer, CL had introduced him to the supplier. Mr Ruler asked why his customer was effectively increasing the price he would have to pay by introducing a further business into the supply chain. Mr Rahman said he had never thought of that. Mr Ruler also asked if Mr Rahman thought that Urban had been introduced into the supply chain or “put there” for a specific reason – Mr Rahman did not respond. 249.  Mr Ruler noted that Mr Rahman knew about the IPT website, IMEI numbers (distinctive mobile telephone serial numbers) and the due diligence checks that a normal business would carry out. 250.  Mr Rahman confirmed that he had done some deals. When Mr Ruler asked how this could happen when part of the due diligence checks should have been to check the VAT status the business through Redhill, Mr Rahman replied that CL had told him “not to worry about that.” Mr Rahman said that he had done 12 deals amounting to approximately £20 million sales in two days. 251.  Mr Rahman told Mr Ruler that he had exchanged business details with both CL and Advertising South (VAT certificates, certificates of incorporation, directors' IDE and utility bills). Mr Rahman had also checked if the businesses were genuine through a credit reference company called Creditsafe. 252.  Mr Rahman confirmed to Mr Ruler that he was paid by his customer before he had to pay for the goods from his supplier. He said that CL had asked for £10 million credit to which Mr Rahman had agreed. He, in turn, was given £10 million credit by Advertising South Limited. There were no written credit agreements and no security. 253.  Mr Rahman confirmed that there was no insurance and there were no stock inspection reports. He also considered that the reservation of title provisions in the invoices did not apply to this kind of business. He was asked whether it appeared that CL appeared to be controlling the deals but he did not respond. He agreed that £20 million's worth of deals in two days appeared too good to be true. 254.  Mr Rahman appeared to be shaken when Mr Ruler informed him that he would contact him again if his enquiries revealed a tax loss within his supply chain. Mr Rahman asked if his VAT number could continue to be “blocked” at Redhill. Mr Ruler informed him that the number could be blocked, but this action was meaningless if he did not make Redhill checks or took no notice of the results. 255.  Finally, Mr Ruler asked whether or not Mr Rahman was thinking of entering into any further deals and Mr Rahman replied that he was not. 256.  In his second witness statement, Mr Dad stated as follows: > “ Urban Spice Buyer This is… a matter of which I have only just been made aware and had no previous knowledge of although obviously the allegation against me is that I did have previous knowledge of this and I was fully aware of the situation. All I can say is that I vehemently deny that this is the case; I am and was totally unaware of Urban Spice. I did not set up any deal, nor tell them that I would make introductions or anything else. I am very concerned about the allegations made by the Respondents which I take personal offence to and it is my intention if at all possible to obtain and produce evidence in this regard. I have spoken to the Director of Urban Spice who denies the comments attributed to him and states they are a distortion of his words.” 257.  In cross-examination, Mr Ruler accepted that Mr Rahman's story was “fishy” and that he was suspicious about a trader who had told him that he was not going to have any dealings with MTIC activities and yet suddenly became involved in MTIC trading, finding a customer which then introduced him to a supplier. 258.  Mr Dad was cross-examined about his statement and said, “I am and was totally unaware of Urban Spice.” Mr Parroy suggested this was a clear and definitive statement and directed Mr Dad to the Statement of Truth at the end of his witness statement and to his signature. He asked Mr Dad > “Q No doubt you would have looked carefully at this matter before you put your name to that statement? > > > > > > A The statement states what it states. > > > > > > Q Is it true? > > > > > > A It states what it states. > > > > > > Q Is it true? > > > > > > A At [sic] what I would have been aware of at the time. > > > > > > Q The allegation being made is effectively that you were setting up Urban Spice to use them as one of the buffers in the deals, isn't it? > > > > > > A That is not correct.” 259.  Mr Ruler's evidence in relation to what Mr Rahman said to him was hearsay. Whilst admissible, the real issue concerning hearsay evidence is the weight that should be attached to it by this Tribunal. In this connection, Mr Rahman did not appear before us to give evidence. It was not possible for Mr Kramer to test the evidence concerning Mr Rahman's statements in cross-examination. Certainly, it seemed to us that the statements attributed to Mr Rahman seemed strange. We consider that Mr Ruler was a truthful witness. Nonetheless, it was difficult for us to evaluate the truthfulness of Mr Rahman. 260.  On the other hand, when questioned about his statement that he was unaware of Urban Spice, Mr Dad was plainly evasive. It was plain from the TSP report and the unchallenged fact that CL had entered into a transaction with Urban in June 2006 that the statement in Mr Dad's witness statement that he was ‘unaware of Urban Spice’ was incorrect. 261.  On balance, because the story attributed to Mr Rahman seemed strange and unlikely, accepting (as we did) that Mr Ruler was a truthful witness, and because it was not possible for his story to be probed in cross-examination by the Appellants, it seemed to us fair to give very little weight to Mr Ruler's evidence. Moreover, in reaching this conclusion, we have borne in mind that we were given no explanation as to whether efforts have been made to call Mr Rahman as a witness so that we could have heard his evidence directly rather than second-hand. 262.  On the other hand, Mr Dad was plainly evasive when his statement that he was unaware of Urban was challenged. 263.  Our conclusion on this issue was that it was impossible to establish whether Mr Rahman's allegation that, in effect, CL had arranged the deal was, on the balance of probabilities, true. However we considered Mr Dad's responses in cross-examination further undermined his credibility. ## Adworks.Com (“Adworks”) 264.  Mr Saunders gave evidence about a meeting with Mr Dad at CSL's premises on 13 June 2005. Mr Saunders questioned Mr Dad about one of his suppliers, Adworks. He pointed out to Mr Dad that payments to Adworks appeared to have been made after the goods in question had moved to Mr Dad's customer, Future Communications Limited (“Future”). 265.  Mr Saunders also noted (having been alerted by Claire Sharkey, an HMRC officer responsible for Adworks) that the paperwork for CSL invoice 3934 dated 27 April 2005 included a purchase order from Adworks addressed to its supplier, Apex UK Distribution Limited, asking for stock (mobile telephone handsets) to be delivered to CSL's customer, Future. The delivery note was dated 27 April 2005 and part payment for the goods in the sum of £600,780 was made by CSL on 10 May 2005. When Mr Saunders asked Mr Dad about this delivery request, Mr Dad saw nothing untoward in this. He also seemed unconcerned about the possibility that his supplier might cut out CSL in in future deals. Mr Dad replied that he was happy to trust Future based on the checks he had made. 266.  Mr Saunders also asked Mr Dad whether he considered it reasonable that he had been able to get, and Adworks had been able to offer, credit of £4 million. Mr Dad said that he saw nothing out of the ordinary in being able to obtain a credit line from Adworks of £4 million. 267.  Mr Dad, in his second witness statement on which he was not cross-examined, said he did not know precisely why Adworks agreed to give him such a large amount of credit. Mr Dad noted that he was a licensed Financial Services Adviser. He speculated that if he did not discharge an obligation to Adworks they could bankrupt him and he would be unable to work as a Financial Services Adviser. He considered that this gave Adworks some comfort and thought it unlikely that they would undertake further checks on him. He was not going to look a gift horse in the mouth. He said he was extremely concerned and felt the severity of the responsibility upon him in the event that things went wrong and he was unable to repay £4 million. 268.  The due diligence checks on Adworks showed that it had only three issued £1 shares and no credit enquiries were made of this supplier. Information from the Companies Register stated that the last accounts of Adworks were made up to 30 November 2003 and showed that the company was dormant. The business classification of the company was “advertising.” 269.  Ms Sharkey noted that, following the 07/05 period, Adworks became involved in broker deals that were subject to extended verification resulting in denials of input tax in the sum of £8,869,705. Adworks then returned to buffer deals before going into liquidation. Ms Sharkey's evidence was not challenged. 270.  In cross-examination, Mr Saunders accepted that it was normal for suppliers and customers to trust each other and undertake transactions without investigating matters. However, he considered that a credit line of £4 million was “a little beyond the normal trust.” 271.  The transactions with Adworks were not the subject of these appeals. However, the fact that CSL arranged for its supplier's supplier to deliver directly to CSL's customer is very strange. In our view, this indicated that this transaction was not a genuine transaction in the open market, leading to the conclusion that the transaction was contrived. Goldex Services Limited (“Goldex”), Goldex International Limited (“GIP”) and Mr Shafqat Dad 272.  As explained above, Mr Shafqat Dad was Mr Dad's brother. He was originally a director of both Appellants, but resigned as a director of CSL in June 2005 and of CL in August 2005. Also, as noted above, it appears that Mr Shafqat Dad continued to hold shares in CSL until 29 August 2006. 273.  HMRC alleged that Mr Shafqat Dad had previously been involved in dealing in mobile telephone handsets and that he had set up two businesses which moved away from their original stated business activity to become wholesalers of mobile telephones. HMRC invited us to draw parallels with the behaviour of the Appellants. 274.  Mr Saunders gave evidence, which was unchallenged as to the essential facts (although Mr Dad's knowledge of these facts was disputed). 275.  In July 1999 Mr Shafqat Dad applied to register a company, Cellular Consultants Limited (“Cellular”) for VAT. In the application, its trade classification was described as “consultancy services to the cellular industry.” Having been registered for VAT, Cellular commenced wholesale trading in mobile phones. 276.  Mr Shafqat Dad applied to register a second company for VAT, Goldex, in November 2004. In the application for registration its business was described as follows: > “We are a subsidiary of Goldex International Plc and will be providing legal, accounting, Treasury and admin services.” 277.  No trade was declared by Goldex until it commenced wholesale mobile phone trading in the September 2005 VAT period. 278.  By a decision letter dated 13 March 2009, HMRC denied Goldex's claim for repayment of input tax. Goldex was dissolved on 5 May 2009, but was, we understand, subsequently restored to the Companies Register in order to litigate its appeal. A further input tax denial letter was dated 30 March 2009. 279.  In addition to Goldex, Mr Shafqat Dad was also a director of Goldex International Plc (“GIP”). GIP was also involved in the wholesaling of mobile phones. In April and May 2007 HMRC denied input tax in relation to repayment claims submitted by GIP. These decisions were subsequently appealed. 280.  The evidence of Mr Martin, the HMRC officer allocated responsibility for GIP, was that there were similarities between the deal chains involving the Appellants and those involving Goldex and GIP. The evidence of Mr Martin was not challenged. 281.  In respect of CSL's Deal 19 (23 March 2006), CSL bought from Datakey and sold to URTB. The full deal chain was as follows: Stella sold to Deepend which sold to Bluewire which sold to Datakey which sold to CSL which sold to URTB. On 22 March 2006, Goldex was involved in an identical deal chain, as follows: Stella sold to Deepend which sold to Bluewire which sold to Datakey which sold to Goldex which sold to URTB. 282.  Secondly, in CSL's Deal 8 (7 April 2006) the deal chain was as follows: Bulfinch sold to Wireless Warehouse which sold to AE Resources which sold to AR Communications which sold to CSL which sold to URTB. GIP's deal chain (5 May 2006) was identical, save that GIP occupied CSL's position in the deal chain. 283.  Finally, CSL's Deal 27 (18 May 2006) involved XS Enterprise Systems which sold to Deepend, which sold to IT Players which sold to Mobile Heaven which sold to CSL which sold to URTB. GIP's transaction chain (15 May 2006) was identical save that GIP took the place of CSL. 284.  In each transaction chain the immediate supplier of CSL, Goldex and GIP made a mark-up of £.50. 285.  In his second witness statement Mr Dad said: > “There is a specific allegation with regards the fact that my brother formed this company and then removed himself from the company. I actually find it difficult to respond to this as I am not aware of all the actions of my brother. I simply, as I have already stated, purchased this company from my brother who had no actual involvement in the business.” 286.  Our conclusion on this evidence was that it was clear that Goldex and GIP were operating in conjunction with CSL. We did not find Mr Dad's statement that he was unaware of his brother's activities to be credible. It was simply too much of a coincidence that the deal chains, which were close together in time, should be identical. We regard this as further evidence that the Appellants' transactions were contrived. ## FCIB evidence ## Mr Stone's evidence relating to FCIB 287.  Mr Stone, a senior HMRC officer with responsibility for dealing with MTIC fraud, gave background evidence in relation to MTIC fraud. In the course of his evidence he commented on offshore banking arrangements with FCIB. 288.  In his witness statement Mr Stone noted that between 2005 and 2006 many EU suppliers, defaulting traders, buffers, brokers, contra brokers, and overseas customers in the computer and mobile phone sector whose transactions were connected with MTIC fraud opened offshore bank accounts. He noted that some traders claimed that this was because UK banks were closing their accounts. This was first reported in a mobile phone trade publication called *Mobile News* on 21 October 2005. 289.  The most popular offshore bank was FCIB. On 5 September 2006, the Dutch and local authorities visited FCIB as part of an investigation into alleged money-laundering by the bank in relation to alleged VAT fraud by clients of the bank. 290.  In a press release dated 11 October 2006 by the banking authority in the Netherlands Antilles, it was announced that as a result of several criminal investigations in relation to alleged VAT fraud involving a large number of customers, and subsequent attachments on funds, FCIB was no longer able to process payments. A number of other banks terminated their relationships with FCIB and the banking authority in the Netherlands Antilles decided to revoke FCIB's banking licence with effect from 9 October 2006. 291.  In cross-examination, Mr Stone was asked whether an uninitiated party joining the industry could assume that FCIB was an entirely legitimate, substantial and significant financial institution. He replied: “FCIB is a registered bank, yes.” 292.  Mr Stone also accepted that there was a significant concern within the mobile phone industry that traders' bank accounts might be closed with extremely short notice, leaving them without banking facilities. ## Opening the Appellants' FCIB accounts 293.  On a visit to CSL on 17 May 2005 Mr Saunders asked Mr Dad what bank accounts CSL held. Mr Dad said that CSL held two bank accounts: the first account was with Bank of Scotland and the second account was with FCIB. Mr Saunders asked Mr Dad why it was necessary to have an account with a bank in the Netherlands Antilles. Mr Dad replied that FCIB had been advertised on the IPT website as a fast payment processor. 294.  In his second witness statement dated 11 March 2009 Mr Dad stated: > “… [I]t was impossible and remains extremely difficult for traders to open accounts with any bank which I understand from having read some websites and spoken to people has been caused by the actions of the Respondents in this appeal. > > > > > > Therefore the only bank that could provide services and was willing to provide services was FCIB whom I understood to be a well-regarded and substantive Dutch bank. It further had the infrastructure to provide very efficient service for all customers which is why I banked with them. > > > > > > I further understand that the problems that have arisen with FCIB have also been caused by the direct actions of the Respondents and although the Respondents directly or indirectly have made allegations for some three years against FCIB nothing has been proven to date. > > > > > > To explain we used to have banking with the Bank of Scotland a mainland UK regulated bank. Unfortunately our accountants were concerned that our accounts would be closed I believe through the direct and/or indirect actions of HMRC on the basis of information that I have been told both by the bank and other third parties none of whom were prepared to make a statement about this. The actions of HMRC were to close down accounts as that was a way and manner of using the Respondents' term obstructing and interrupting “the fraud”. I in line with numerous other traders were [sic] left unable to open bank accounts other than with an overseas bank. I consider FCIB can be fairly described as less favourable an option compared to a UK bank however we were denied the option of operating a UK account by the actions of HMRC.” 295.  There was, however, no suggestion at the meeting on 17 May 2005 between Mr Saunders and Mr Dad that the FCIB account had been opened because HMRC were threatening or attempting to close CSL's Bank of Scotland account. 296.  In addition, Mr Dad confirmed in cross-examination that he had opened an account for CL with Bank of Scotland (Reading branch) on or around 1 September 2005. Mr Dad also confirmed that CSL had an account with bank of Scotland in February 2005 when it undertook its first transaction in mobile telephones. Mr Dad also confirmed that the application for an FCIB account was made on 17 February 2005. Mr Dad also confirmed that the CSL account with the Bank of Scotland was closed in December 2005. He recalled receiving a letter from Bank of Scotland informing him that banking facilities would be withdrawn within 30 days. 297.  Earlier, in cross-examination, Mr Dad confirmed that CSL's application for an account with FCIB had preceded the first deal by approximately 8 days at which time CSL had banking facilities in place with Bank of Scotland. He said that a letter from Bank of Scotland stating that CSL's banking facilities were going to be withdrawn was received “soon thereafter.” Mr Parroy asked Mr Dad: > “Q Had the Bank of Scotland told you, before you made this application [the application to open an FCIB account], that their banking facilities were to be withdrawn? > > > > > > A The letter would have been received soon thereafter [sic] the first few transactions.” 298.  Subsequently, Mr Dad said that he could not recall, after six years, the precise sequence of events. 299.  As regards advice from his accountants expressing concern that the Appellants' accounts with UK banks would be closed, Mr Dad was unable to produce a copy of any such advice and could not remember whether it was written or an oral discussion. 300.  We did not consider Mr Dad's claim, that he had opened an FCIB account because of concern expressed by his accountants that his existing accounts would be closed, to be credible. Apart from his statement, Mr Dad produced no evidence to this effect. CSL's Bank of Scotland account remained open until early December 2005. The application to open an FCIB account was made in February 2005. Mr Dad's comments made to Mr Saunders on 17 May 2005 contained no suggestion that the FCIB account had been opened to safeguard against the closure of the Bank of Scotland account. ## Objection to the admission of evidence relating to the FCIB Paris server 301.  Mr Saunders in his second witness statement gave evidence in relation to information derived from FCIB. The information contained in that statement was derived from what was called the Dutch server containing a database relating to FCIB. 302.  At the PTR on 11 April 2011 the Tribunal was asked by HMRC to consider the status and future direction of the appeals. This was caused by the difficulties HMRC were experiencing in contacting the Appellants' legal representatives. On 24 December 2011 HMRC had discovered in the course of another appeal that Mr Kramer, who is representing the Appellants before the Tribunal, was leaving his (then) firm. On 3 February 2011 HMRC wrote to Mr Kramer's previous firm enclosing an application to update HMRC's witness statements. Mr Kramer's previous firm advised HMRC that they were no longer instructed and suggested that HMRC should contact Mr Kramer's new firm. However, the new firm also indicated that they were not instructed to act for the Appellants. 303.  On 14 February 2011, HMRC wrote to the Appellants advising them that HMRC was applying to the Tribunal for a Directions hearing to consider the status and direction of the appeals. 304.  On the same date HMRC applied to the Tribunal requesting an urgent Directions hearing due to the Appellants' lack of representation. The Tribunal notified the Appellants of the date of the Directions hearing. 305.  The Appellants did not appear and were not represented at the Directions hearing on 11 April 2011. In the circumstances, HMRC stood over until the main hearing their application to admit the third witness statement of Mr Saunders and the witness statement of David Young (together with exhibits) in relation to the Appellants' transactions with FCIB. These witness statements were based on new information available from what was called the Paris server in relation to FCIB and which had become available more recently than the information from the Dutch server. 306.  On 2 May 2011, the Appellants' current solicitors notified the Tribunal that they were instructed to act on behalf of the Appellants. This letter stated that it included an application in relation to the appeal, but through a clerical error the correct application was not enclosed. 307.  At the hearing of these appeals HMRC applied to admit the third witness statement of Mr Saunders and the witness statement of Mr Young. Mr Kramer, on behalf of the Appellants objected. The witness statements and exhibits comprised one lever arch file, although part of that file comprised formal legal documentation (e.g. incorporation documents of companies) rather than printouts of records from FCIB accounts. 308.  At the outset of the hearing, it was agreed that HMRC would proceed to open their case and that Mr Saunders would give evidence in chief in relation to the information derived from the Dutch server and that Mr Kramer would then be given time to absorb the FCIB material. One and a half days were set aside to allow Mr Kramer to study the material (it appears Mr Kramer mislaid the lever arch file containing the new evidence with which he had previously been provided, thus preventing him from studying the material until that time). 309.  After studying the new material, Mr Kramer maintained his objection to its admission. 310.  Mr Parroy argued that the new evidence was both relevant and probative. It had recently become available. Until December 2010 (or the late autumn of 2010) the French authorities had not allowed access to the Paris server evidence for use in civil cases. The French authorities had previously limited access to the Paris server material to use in criminal cases. Mr Saunders gave evidence to the effect that he was not allowed to access the information on the Paris server until he had been trained in its use. He received that training on 1 February 2011. 311.  Mr Parroy submitted that the money movements contained in the new evidence would be material which the Appellants would have to argue Mr Dad knew nothing about. If not, they were money movements in which he was directly involved, and the material fell within his personal knowledge. 312.  Mr Parroy submitted that the Paris server material was needed to correct and complete information derived from the Dutch server. We had heard evidence from Mr Saunders that the information on the Paris server was more reliable than that contained on the Dutch server. 313.  Mr Kramer drew attention to a statement in Mr Saunders's witness statement to the effect that the Paris server was made available to HMRC on 27 September 2010. Therefore, HMRC had had access to the Paris server for approximately 8 months. In considering the balance of prejudice, the Appellants would not be able to test the raw data and would not have time to investigate the evidence without an adjournment. Mr Kramer therefore requested that the application to admit the evidence should be denied. 314.  Mr Parroy insisted that the information on the Paris server was not available to be used until December 2010 because of the need to test the integrity of the process. As a result, the data wasn't actually fully available until the start of 2011. Also, once it became known that the Paris server information was available, HMRC were under a duty to examine the Paris server material to ensure that the material derived from the Dutch server was correct and to make available the information from the Paris server. It would not be possible, without major technological problems and without disclosing information which was not relevant to these Appellants, to provide an “image” of the Paris server. The material bank statements contained in the exhibits was the raw material contained in the FCIB file. The various companies concerned in the new evidence were, in fact, not new and were referred to in evidence that had already been admitted. 315.  We decided that the new material relating to the Paris server should be admitted. The material was plainly relevant and material. We considered that there were valid reasons for the late production of the evidence and accepted Mr Parroy's submissions in this respect. We agreed with Mr Parroy's submission that the prejudice to the Appellants was limited. We also denied Mr Kramer's application for a further adjournment to consider the evidence. 316.  In short, Mr Saunders's third witness statement relating to the Paris server made certain relatively minor corrections to the information contained on the Dutch server. In addition, however, the new evidence disclosed loans to CSL from a sub- account of a company called Padani Developments (“Padani”) which we set out later in this decision. ## The Dutch server information 317.  Based on the information derived from the Dutch server, Mr Saunders's evidence was based on a sample of the deals in respect of this appeal. The samples included at least one deal for each appealed VAT period and at least one sale to each EU customer as well as all defaulters. The deals sampled were (in chronological order) as follows: Deals 21, 1, 11, 3, 16 (and 17), 18, 20, 30, 32, 10, 22, and 28 and CL 4. 318.  Mr Saunders commenced his analysis from the account of either CSL or CL, tracing the receipt of the money where possible from the EU customer of either CSL or CL and then tracing along the deal chain to their suppliers in the UK. Mr Saunders also traced the payment backwards from the EU customer in order to identify money movements beyond the UK deal chain. Mr Saunders compared the amounts appearing in the trading accounts of the Appellants with the date and value of the invoices identified in the deal chain spread sheets. He then traced the monies paid and received by CSL and CL through the recipient and the payer of the funds. Where there were no known payments or invoices, he had had to use his judgement to identify the relevant onward payment. It was not always possible to identify sums of money which exactly matched those shown on the invoices. 319.  Essentially, the analysis performed by Mr Saunders showed payments moving from the Appellants' EU customers to the Appellants. The Appellants paid their suppliers and the payment moved along the deal chain until, significantly, the defaulting trader paid a company called Elvissa International Holdings (“Elvissa”). Elvissa received a payment from the defaulting trader in every deal that Mr Saunders examined. In a significant number of deals it was possible to trace payment from Elvissa to a company called Amex FHU (“Amex”). Amex, in a number of deals, provided the funds for the Appellants' EU customer to make their purchase. In a number of cases funds were received by Elvissa from the defaulting trader and payments were made by Amex to the Appellants' customer but it was not possible to trace with certainty the payment from Elvissa to Amex. It appeared that Elvissa was the financier of the deal chains. 320.  Mr Saunders exhibited information received from the Polish authorities in relation to Amex. This information stated: > “Company is not existing [sic] – Mr R Jarkiewicz is missing trader in Carousel fraud. At present he is hijacker – he use [sic] VAT numbers which belongs to legal taxpayers.” 321.  Further information received from the Polish authorities stated: is > “Mr Robert Jarkiewicz – the owner of the AMEX FHU was deregistered from VIES on the 30/09/2005 until now he has not renewed the registration. A warrant is out for the owner Mr Robert Jarkiewicz's arrest for swindling bank credits and for economic crimes. As the Polish Prosecutor informed us he is staying at [sic] the UK territory but we do not [know] exactly where.” 322.  Elvissa is registered in the British Virgin Islands with a mailing address in Israel. 323.  The forms opening CSL's FCIB account show that approval for the opening of the account was given on 3 March 2005. The secretary and quoted director was Mr Dad. Mr Shafqat Dad and Mr Safdar Dad were stated to be the beneficial owners. 324.  The forms opening CL's FCIB account show that approval for the account was given on 12 April 2006. The signatory was given as Mr Dad. The directors were stated to be Mr Dad and Frieda Dad, who were also said to be the beneficial owners. ## Information from the Paris server 325.  Besides correcting some aspects of the payment chains in respect of information available from the Dutch server, Mr Saunders's evidence in relation to information from the Paris server drew attention to a loan of £100,000 and a further loan of £17,500 that CSL received from a sub-account with FCIB of an entity called Padani. Mr Saunders had previously been unaware of the existence of these loans and had seen no documentation in respect of them. 326.  Information received by HMRC from the Spanish authorities stated that Padani, a company incorporated in Spain, was a missing trader. 327.  The FCIB account number for Padani was 202082 with subaccounts 202082 – 02, designated as Amber Communications Management Limited (“Amber”), and 202082 – 03, designated Seaside Mediteranea Limited (“Seaside”). The signatory for those accounts was Maria Teresa Jimenez Suarez. 328.  The loan to CSL was paid from the account designated Seaside and was made on 6 December 2005. A further loan to CSL in the amount of £17,500 was made from the same account on 7 December 2005. The funds in that account were provided by a company called Juleo Limited (“Juleo”). Juleo's FCIB account number was 201744 and the signatory was a Michael Touitou, a French passport holder resident in Israel. Michael Touitou was also the signatory of Elvissa and its sub-account designated as Helvissa International Holdings Limited. Elvissa, as noted above, was the recipient of funds from the defaulting traders in all the deals sampled by Mr Saunders. Although the account was opened in the name of Elvissa, the sub-account was designated Helvissa (although Helvissa was the same company as Elvissa). 329.  Although a different passport and mother's maiden name were given for Michael Touitou in respect of Juleo and Elvissa in FCIB's records, the date of birth is the same and they shared the same notary. The signatures of Michael Touitou signing for Juleo and for Elvissa appeared very similar. 330.  A search by HMRC revealed a company in the name of Seaside Mediterranea SL, of which the director was Michael Touitou. 331.  Mr Saunders identified the UK incorporated company called Amber Communications Management Limited. This company had been denied input tax by HMRC on the grounds of knowledge/means of knowledge of fraud and had appealed HMRC's decision. ## Mr Young's evidence – Paris server 332.  Mr David Young was an intelligence analyst with HMRC. When asked to do so by an HMRC Department, he would analyse information to establish facts from that data. He had been trained to use the FCIB Paris server and confirmed that he had received this training in May 2010, at which time the information on the Paris server was available to be used in criminal proceedings. 333.  Mr Young received e-mails from Mr Saunders on 16 March and 22 March 2011 containing deal sheets for Deals 16 and 17, Deal 18, Deal 22 and Deal CL 4. 334.  Mr Young was asked to compare the deal sheets with the information recently acquired from the Paris server. The comparison was used to produce a payment chain relating to the transactions shown on the deal sheets. Each payment chain was displayed as a chart showing the payment chain and the signatory or all signatories associated to those accounts. 335.  In compiling his analysis, Mr Young used proprietary HMRC software called iBridge. This software carried out searches of the FCIB Paris data to identify accounts and payments that matched details in the deal sheets. 336.  Mr Young created four charts illustrating the movement of money and mobile telephones in the above deal chains. 337.  Three of those charts showed money moving from Elvissa's sub-account (“Helvissa”) to Amex and from Amex to CSL's EU customer. CSL paid the money to its supplier and the money then proceeded up the UK deal chain as far as the defaulter. The defaulting trader then transferred the money to the Helvissa sub-account. 338.  The fourth chart showed that the money transfers began chronologically with CSL (Deal 18) on the 22 March 2006 nineteen hours before it received the funds from Balsim on 23 March 2006. In that period the funds moved from company to company through the links of the UK deal chain, passing from the defaulting trader, Stella, to the Helvissa sub-account which then paid Amex. Amex paid Balsim and nineteen hours after the initial transfer from CSL, Balsim paid CSL and the money had moved in a complete circuit. 339.  A feature of the Paris server information was that Mr Young was able to identify the time of each payment. In Deal CL 4 £1,121,850 is paid out of the Helvissa sub-account at 15.30 on 24 April 2006 and £1,229,343.75 is paid back to the same sub-account at 16.45 on the same day. The funds passed through seven other FCIB bank accounts in that time. 340.  In addition, Mr Young looked for all IP addresses used by signatories to the accounts around the time the payments were made, where these were available. This provided the dates and times that an FCIB account signatory logged in. It also provided the IP address they were using when they logged in. Mr Young then identified which IP address was being used at the time of the payment or within 3 min prior to the payment being made (to account for the FCIB server refresh). The FCIB data did not hold details of IP address logins prior to 29 April 2006. 341.  Mr Young explained that the IP address was effectively the gateway or router that someone had used to access the Internet. 342.  In Deal 7 it was apparent that URTB (CSL's customer) was using the same IP account as Amex and Elvissa. In other words, those three companies were using the same IP address to access FCIB online accounts at the time they were making their payments. Cross-examination of Mr Saunders and Mr Young on FCIB evidence 343.  Mr Kramer cross-examined Mr Saunders, asking him whether he could vouch for the integrity of the information that came from the Dutch server. Mr Saunders replied that he had no direct knowledge as to the method by which the information was seized, stored, packaged and interrogated. 344.  Mr Kramer suggested to Mr Saunders that moving money around a payment chain was a difficult logistical exercise to have been used in a fraud. Mr Saunders did not agree that the payment chain was particularly complex. 345.  In cross-examination, Mr Young noted that from the information available on the Paris server it was not possible to ascertain the purpose of any payment. 346.  Mr Kramer questioned Mr Young about a payment of 2,080,000 from Helvissa to Amex in relation to Deal 18. He suggested that it might have nothing to do with the other money transfers in the payment chain because it was of an entirely different amount. Mr Young acknowledged that the payment was of a different amount but explained that it was shown on the chart because the analytical software he used could see the account balances before and after the payments were made. The software could establish that in order for Amex to make the next payment in the chain to Balsim, Amex had to have received the funds from Helvissa. There were not enough funds in the Amex account to have made the next payment without the incoming funds from Helvissa. 347.  In response to Mr Kramer's question about iBridge, Mr Young confirmed that the charts he had produced using it were effectively taken straight from the Paris server data. iBridge automatically converted the information into a chart. ## Cross-examination of Mr Dad on FCIB evidence 348.  Mr Dad denied any knowledge of the loan of £100,000 on 6 December 2005 and of £17,500 on 7 December 2005 from Padani's FCIB sub-account in the name of Seaside. He stated that he had not seen the loan entries before. He was asked where the £100,000 loan came from and replied that he did not know. He was asked: > “Q I take it you noticed? You couldn't fail to miss £100,000 coming into your bank account, could you? > > > > > > A However, I believe this is the server's printout, it is not, as opposed to the banking information I had available when I was operating the account? And it is our main account so… > > > > > > Q £100,000 to the penny comes into the account. You couldn't fail to notice, could you, the arrival of £100,000? > > > > > > A No, you could not. > > > > > > Q And, needless to say, like any careful businessmen, Mr Dad, you would check your bank statements and the transactions in your bank extremely carefully? > > > > > > A Yes > > > > > > Q You didn't have an overdraft facility with FCIB, did you? > > > > > > A No > > > > > > Q So you need to know the balances in your account among other things to know if you can afford to do a deal, can you do this trade… can you pay the rent, all the basics. Where did the £100,000 come from? > > > > > > A Like I said, I do not know. > > > > > > Q It's not just the £100,000, is it? Because if we go back to page 253, 7 December 05, £17,500 comes in. Where does it come from? > > > > > > A I don't know. 349.  When Mr Parroy pointed out that £117,500 had come into CSL's FCIB account from Seaside, Mr Dad said: “This information does not look correct.” Later, Mr Parroy asked Mr Dad: > “Q So you are getting paid money which has originated with a man whose account has put £100,000 into your account. Now you are not trying to tell us that that's mere coincidence, are you? > > > > > > A Like I said, this is the first this was brought to my attention. I had no loans from any other business. Our accounts were fully audited. Bank statements were provided to Nigel [Mr Saunders] on a monthly basis with printouts of all large transactions. This information is just fully disputed. > > > > > > Q If it is true, and you knew about it, it means that you have had a loan from somebody who is absolutely at the heart of this fraud, doesn't it? > > > > > > A Like I said, this is the first it was brought to my attention obviously at the start of this Tribunal. > > > > > > Q But if it is true and you knew about it what I said is wholly correct, isn't it? > > > > > > A It is not true and I didn't know about it.” 350.  In our view, Mr Dad's replies were unconvincing. He was, in our view, plainly uncomfortable whilst he was being questioned about the loans from the Padani sub-account and we did not consider his evidence to be credible. ## Our conclusions on FCIB evidence 351.  As already discussed, we did not consider Mr Dad's evidence that he had opened an FCIB account because he was concerned that his existing UK bank accounts would be closed was credible. 352.  The evidence concerning the Dutch server clearly indicated that the transaction chains were being financed by Elvissa (via Amex) and we considered it more probable than not that the money in the transaction chain flowed round in a circle. There was, however, no indication from the Dutch server evidence that the Appellants were aware of this circular flow of funds or of the existence of Elvissa or Amex. The evidence did, in our view, establish that the deal chains were contrived. 353.  The Paris server evidence changed the picture in respect of the Appellants' knowledge. The two loans to CSL's FCIB account of £100,000 and £17,500 from the Padani sub-account in the name of Seaside, plainly connected CSL to Mr Michael Touitou and to Elvissa. Mr Young's evidence made the circular flow of funds even clearer and the use of the same IP addresses supported the conclusion that the transaction chain was contrived. 354.  The loans from the Padani sub-account to CSL connected CSL (and Mr Dad), in Mr Parroy's words, to those who were at the heart of this fraud. ## Submissions of the parties ## Submissions of HMRC 355.  Mr Parroy's primary submission was that the evidence clearly established that, through the knowledge of Mr Dad, the Appellants knew that their transactions were connected with the fraudulent evasion of VAT. His secondary submission was that the Appellants ought to have known that their transactions were connected to the fraudulent evasion of VAT. 356.  In summary, Mr Parroy submitted in support of his primary submission: - (a)  the Appellants were set up under false trade categories and then traded in mobile phones; - (b)  the VAT applications for the Appellants were misleading; - (c)  Mr Dad was aware of fraud in the mobile phone industry; - (d)  Mr Dad's brother, Shafqat Dad, participated in the trading of the Appellants and coordinated this trading with Goldex and GIP; - (e)  Mr Dad lied about his knowledge of the original purpose of CSL; - (f)  Mr Dad's account of why an account with FCIB was established was untrue; - (g)  the trading patterns of the companies indicated that the deals were fraudulent:– all deals led back to defaulting traders– buffer deals ended up with defaulting traders– the Appellants and Goldex and GIP dealt with the same suppliers and customers frequently in identical chains– the defaulting traders were used chronologically– the profit margins on the buffer deals were consistent– profits from broking deals always substantially exceeded profits made by buffers. The major profits from these broker deals went to the Appellants.– The volume of trade of the Appellants increased rapidly following the Bond House decision– the Appellants failed to obtain proper due diligence on suppliers/customers prior to dealing and when due diligence was obtained scant regard as was paid to it– failure to specify in deal documentation the precise nature of mobile telephones being traded (i.e. language, model software, keypad etc)– all the deals where Mr Saunders traced the flow of funds involved Amex. The person operating this company was sought by the Polish authorities for fraud and operated fraudulently– all deals involved European stock with two pin plugs. No credible explanation was given as to why such goods would ever have been imported into the UK in huge numbers– the Appellants failed to obtain IMEI numbers– none of the Appellants' suppliers was either a manufacturer or an authorised distributor and the deal chains never led to a consumer– arbitrage was unlikely according to Mr Fletcher's evidence, particularly with Nokia handsets– if the Appellants were “innocent dupes” inserted into fraudulent chains, how were they manoeuvred so that they always bought from and sold to those participating in the fraud? - (h)  The Appellants were connected to those involved in the control of the fraud as indicated in– Deal 25: payment by CSL of the precise sum due by Datakey to its own supplier Bluewire– Loans from the Padani sub-account of £117,500 to CSL was derived from Michael Touitou who played a prominent role in financing the fraud– Urban Spice Buyer: the evidence of Mr Ruler showed that the Appellants were actively promoting and organising fraudulent dealing. Mr Dad denied being aware of Urban but had obtained a TSP due diligence report on the company - (i)  the Appellants continued to trade with companies whom they knew (HMRC warning letters of 23 January 2006) had supplied goods in transaction chains tainted by fraud - (j)  Mr Dad was evasive and untruthful on important issues. 357.  In support of his secondary submission that the Appellants ought to have been aware that their transactions were connected with fraudulent evasion of VAT, Mr Parroy's submissions, in addition to those listed above, can be summarised as follows: - (a)  there was only a very limited grey market (the evidence of Mr Fletcher) - (b)  market research showed that the available market was smaller than the alleged sales by the Appellants (the evidence of Mr Fletcher) - (c)  there was no basis for the level of profits achieved by the Appellants– the Appellants achieve huge turnovers shortly after being established– no value was added by the Appellants– the major percentage of profits were received by the Appellants– profits were consistently earned without the company sustaining losses or being left with unsold stock– profits were earned despite the lack of experience of Mr Dad in mobile phone dealing– the Appellants earned profits despite the lack of capital available to them– the Appellants were apparently able to obtain massive credit without formal credit agreements or assets/trading history to support the applications– the Appellants have been unable to point to any transactions which were not tainted by fraud 358.  In response to Mr Kramer's opening submission that HMRC should have prevented or have done more to prevent the Appellants from being parties to fraudulent deal chains, Mr Parroy submitted that HMRC were constrained in what they could say about other traders because of statutory taxpayer confidentiality. Moreover, the question with whom a company trades was the responsibility of that company. Mr Parroy cited the judgment of Floyd J in Mobilx Limited v HMRC [2009] EWHC 133 (Ch) at paragraph 87 where the learned judge said: > “It is true, as the Tribunal accepted, that the directors took comfort from the actions of HMRC. But the company has to exercise independent judgment, not delegate its judgment to HMRC. I agree entirely with the Tribunal when it said that “there must come a time when a trader, told that every one of his purchases followed a tainted chain, is compelled to recognise that without a significant change in his trading methods every one of his future purchases is more likely than not also to follow a tainted chain”. The trader is not entitled, when that point has been reached, to wait the HMRC to tell him to cease to trade. Moreover, as the Notice [726] explained, HMRC's advice is not intended to create a shield for fraud.” 359.  Moreover, the Appellants chose to remain in the business of wholesaling mobile phones knowing that the sector was rife with fraud. The Appellants did not take adequate steps to protect themselves from fraudulent dealings and were regularly warned by HMRC of the dangers inherent in the trade that they pursued. 360.  Mr Parroy drew particular attention to the approach of Christopher Clarke J (approved by Moses LJ in the *Court of Appeal in Mobilx [2010] EWCA Civ 517* ) in Red 12 Trading Limited v HMRC [2009] EWHC 2563 (Ch) at paragraph 110: > “Examining individual transactions on their merits does not, however, require them to be regarded in isolation without regard to their attendant circumstances and context. Nor does it require the tribunal to ignore compelling similarities between one transaction and another or preclude the drawing of inferences, where appropriate, from a pattern of transactions of which the individual transaction in question forms part, as to its true nature e.g. that it is part of a fraudulent scheme. The character of an individual transaction may be discerned from material other than the bare facts of the transaction itself, including circumstantial and “similar fact” evidence. That is not to alter its character by reference to earlier or later transactions but to discern it. > > > > > > To look only at the purchase in respect of which input tax was sought to be deducted would be wholly artificial. A sale of 1,000 mobile telephones may be entirely regular, or entirely regular so far as the taxpayer is (or ought to be) aware. If so, the fact that there is fraud somewhere else in the chain cannot disentitle the taxpayer to a return of input tax. The same transaction may be viewed differently if it is the fourth in line of a chain of transactions all of which have identical percentage mark ups, made by a trader who has practically no capital as part of a huge and unexplained turnover with no left over stock, and mirrored by over 40 other similar chains in all of which the taxpayer has participated and in each of which there has been a defaulting trader. A tribunal could legitimately think it unlikely that the fact that all 46 of the transactions in issue can be traced to tax losses to HMRC is a result of innocent coincidence. Similarly, three suspicious involvements may pale into insignificance if the trader has been obviously honest in thousands. > > > > > > Further in determining what it was that the taxpayer knew or ought to have known the tribunal is entitled to look at the totality of the deals effected by the taxpayer (and their characteristics), and at what the taxpayer did or omitted to do, and what it could have done, together with the surrounding circumstances in respect of all of them.” 361.  Mr Parroy submitted that these words of Christopher Clarke J were particularly apposite in the present case. 362.  Accordingly, Mr Parroy submitted that the Appellants either knew or ought to have known that their transactions which formed the subject of these appeals were connected with a fraudulent evasion of VAT and that, therefore, the appeals should be dismissed. ## Submissions for the Appellants 363.  Mr Kramer submitted that the appeals had to be determined by reference to the Appellants' knowledge at the time they entered into the relevant transactions. Mr Kramer emphasised that the Appellants had limited resources with which to conduct investigations. They voluntarily produced the information and documents that HMRC requested. By contrast, however, HMRC had much greater resources with which to conduct investigations. 364.  Mr Kramer submitted that HMRC were under an obligation to undertake adequate investigations and to be certain of the information in relation to matters placed before the Tribunal. HMRC had greater investigative tools available than the taxpayer. Mr Kramer cited Calltell Telecom Limited Opto Telelinks (Europe) Limited v HMRC 20266 at paragraphs 11 – 17. At paragraphs 14 – 16 the Tribunal (Colin Bishopp (Chairman) and Cyril Shaw FCA) made the following observations: > “The adverse effects on a business of the withholding of substantial amounts of input tax credit are obvious, and a decision to withhold should, correspondingly, be based on proper enquiry and sound evidence rather than on supposition. So much, we imagine, is uncontroversial, but there are nevertheless limits to the extent of the burden which can be imposed on the Commissioners, on which some guidance was offered by Lightman J in *R (UK Tradecorp Ltd) v Customs and Excise Commissioners [2005] STC 138* when, at [18], he said: > > > > > > > “The commissioners are under a duty to conduct a reasonable and proportionate investigation into the validity of claims for a refund and repayment and a duty to act proportionately both in respect of the investigation and in dealing with the taxable person's claims generally. See R (on the application of Deluni Mobile Ltd) v Customs and Excise Comrs [2004] EWHC 1030 (Admin) . The duty to investigate is applicable both to the claim to the refund and repayment and to the question whether there is a right to set-off (or indeed a claim for a further payment from the taxable person). The duty embraces an obligation to keep all investigations under review. The commissioners are entitled to take a reasonable time to investigate claims prior to authorising deductions and repayments and what is a reasonable time within which to complete an investigation must depend on the particular facts: *Strangewood [1987] STC 502* at 505. The availability and proper exercise of the commissioners' powers of investigation are essential to maintain the fiscal neutrality of VAT and prevent refunds being made to parties not entitled to them. The postponement of repayment of input tax pending the outcome of the investigation is, as a matter of principle and subject to questions of proportionality, entirely compatible with the Sixth Directive. Whilst the burden of proof is upon the taxable person to establish that the investigation of his unadmitted and unadjudicated claim and the failure to make a part or interim payment is unreasonable or disproportionate, the burden is on the commissioners to justify non-payment of it once the claim is admitted or established and the period of investigation of any cross-claim.” The question whether the Commissioners' investigations were adequate is, we think, more properly dealt with in the context of the evidence adduced at the hearing and the conclusions which can be legitimately drawn from it, rather than by way of general observations, but that question does have some additional bearing on the extent of the duty of disclosure of documents. It is inevitable that, unless traders in the Appellants' position are conspirators in a fraud, they will not have access to the documents and information which the Commissioners are in a position to secure, and elementary natural justice demands that the Commissioners should be open and generous in determining the scope of the disclosure of documents which they offer, regardless of any direction by the tribunal. Certainly all those documents on which they relied, directly or indirectly, in reaching a decision to withhold a claimed input tax credit should be volunteered. It is in our view clear that it is not sufficient in a case of this kind for them to limit disclosure to the bare minimum required by rule 20(1) of the Value Added Tax Tribunals Rules 1986 (SI 1986/590) as amended, namely to those documents they wish to produce at the hearing. Commonly, the tribunal will be asked to make a direction in accordance with rule 20(3) for additional, specific, disclosure, but an appellant seeking such a direction will, often, be hampered in that he will not know the nature of the documents which are available and which he should endeavour to have included in the direction.” 365.  Mr Kramer noted that a number of HMRC witnesses have been trained in how to give evidence. He described them as “professional witnesses”. He contrasted this with Mr Dad, who had no experience of giving evidence before a Tribunal. He explained that Mr Dad's evidence was, in his words, confused and stressed. 366.  As regards the FCIB evidence, Mr Kramer drew attention to the evidence of Mr Stone who accepted that, to the external world, FCIB was a legitimate bank. Mr Kramer also submitted that the FCIB evidence in respect of the Paris server, according to Mr Young, had become available to HMRC in the middle of 2010 and not more recently as Mr Parroy had submitted. Mr Kramer noted, however, that HMRC were only given permission in September 2010 to allow FCIB evidence to be used in civil cases. Mr Kramer submitted that no weight should be given to the Paris server evidence and that its late introduction should be taken as an indication of the manner in which HMRC had dealt with the provision of information and placing of evidence before the Tribunal. 367.  Mr Kramer drew attention to the fact that neither Mr Saunders nor Mr Young could vouch for the integrity of the FCIB Paris server data. Mr Kramer submitted that the position was that the Tribunal had evidence placed before it in respect of which it did not know the source and which had not been available for testing. 368.  Referring to the evidence of Mr Saunders and Mr Young, Mr Kramer noted that although the diagrams attached to their evidence indicated that money went round in a circle it did not indicate the money coming out of the circle. The Tribunal had not been told where the money went. There was no evidence that the Appellants received the money. In Mr Kramer's submission this was a significant indicator that the Appellants were not parties to the fraud. 369.  Mr Kramer referred to the evidence of Mr Monk in relation to XS Enterprise Systems Limited, where it took a maximum of 48 hours to deregister the company for VAT. A Regulation 25 letter had been issue the previous day. Mr Kramer submitted that Regulation 25 notices and the registration were tools that were available to HMRC to enable fraud be prevented. 370.  Mr Bycroft gave evidence concerning the criminal convictions of one of the directors of the defaulting trader Midwest Communications. Information about criminal convictions was not available to the Appellants and they had no tools to investigate such matters, unlike HMRC. 371.  Mr Kramer drew attention to the evidence of Ms Hirons. She stated that she did not uplift a computer belonging to the defaulting trader Zoom Products because she did not have authority to do so. Mr Kramer drew her attention to HMRC's powers under the [Value Added Tax Act 1994](https://uk.westlaw.com/Document/I5FD6C571E42311DAA7CF8F68F6EE57AB/View/FullText.html?originationContext=document&transitionType=DocumentItem&ppcid=bc3d77dedc974cee96159cf99ac0237a&contextData=(sc.DocLink)) . He suggested that the Tribunal should consider the manner in which evidence was given by HMRC officers and ask whether they were genuinely trying to assist the Tribunal to their maximum ability. 372.  As regards Mr Fletcher's evidence, Mr Kramer queried whether Mr Fletcher had real experience of start-up companies. He also submitted that Mr Fletcher had used selective quotations from articles to indicate that there was no legitimate grey market. Mr Kramer also queried Mr Fletcher's evidence concerning Nokia pricing. He noted that Mr Fletcher had indicated that he had a direct relationship with Nokia but had relied on third-party information with regards to Nokia's sales. Mr Kramer noted that Mr Fletcher had conceded that there was a significant grey market in Samsung handsets. 373.  Mr Kramer drew attention to Mr Fletcher's statement that he has seen no evidence that the Appellants were involved in the retailing of airtime and his subsequent admission that he had not seen all the evidence in the appeals. In Mr Kramer's submission this demonstrated that Mr Fletcher was a partisan witness rather than a dispassionate expert. 374.  Mr Kramer noted, however, that Mr Fletcher had accepted that mobile telephones with two pin chargers could be used anywhere in the world. Mr Fletcher had also accepted that the only way to undertake grey market trading was by back-to-back deals. 375.  Mr Kramer also drew attention to Mr Stone's evidence that for external purposes the FTI was a legitimate organisation. Therefore, when the FTI discussed trading and advertised traders on their trading board, there was no reason for the Appellants to question their commercial credentials. It was not legitimate, some six years later and with the benefit of hindsight, to suggest that the Appellants should have asked more questions. 376.  As regards the Appellants opening bank accounts with FCIB, Mr Kramer noted that Mr Stone had indicated that rumours had been circulating in the market that UK banks were closing the bank accounts of mobile phone traders. According to Mr Kramer, this was something that was being reported by the FTI. It was, therefore, something that the Appellants could legitimately consider and it was therefore appropriate and legitimate of the Appellants to have decided to open an account with FCIB. 377.  Mr Kramer noted that in the evidence of Mr Stone and Mr Saunders it was accepted that “veto letters” simply stated that a trader had been deregistered (unless it was a case of a hijacked registration) and gave no reason for the deregistration. In Mr Kramer's submission these letters would not have put the Appellants on notice. 378.  Mr Kramer also noted that Mr Stone had accepted that an exporter would have needed to generate greater profits than a domestic trader e.g. a buffer, because an exporter would be incurring significant transport costs and would also have to finance the carrying cost of the VAT prior to its repayment. On the question of why the Appellants' customers did not purchase the goods from a trader higher in the deal chains than the Appellants, Mr Kramer submitted that this was because not every trader had the financial muscle, resource and ability to export and finance the VAT repayment. 379.  Mr Kramer drew attention to Mr Stone's agreement (“Potentially, yes.”) that the increase in trading following the Bond House decision could have related to the increased certainty resulting from that decision. 380.  In relation to Mr Saunders's evidence, Mr Kramer submitted that in a number of instances Mr Saunders appeared not to be attempting to be helpful to the tribunal e.g. Mr Saunders had not wanted to accept that he knew that European Telecom was listed on the stock exchange and was a significant company. 381.  Mr Kramer also submitted that Mr Saunders had accepted that it was normal for there to be trust between the customer and supplier, even if it was ill-advised. Mr Kramer made a submission in the context of the £4 million credit that had been extended to CSL by Adworks. Mr Kramer noted that Mr Dad had not been cross-examined on his evidence in relation to why Adworks advanced £4 million of credit to CSL. 382.  Mr Kramer submitted that it was legitimate for the Appellants to carry out Europa checks on its trading partners rather than request a Redhill check. Mr Kramer noted that at no time had the Appellants been informed that Redhill was providing a service of anything other than checking VAT numbers. 383.  As regards the letter from Nintendo, although Mr Saunders suggested that the letter was fraudulent, he had indicated that he saw no reason to investigate it. 384.  The Appellants had used TSP to assist in due diligence. It was accepted that TSP was a legitimate organisation. 385.  Mr Kramer invited this Tribunal to treat Mr Ruler's evidence in relation to Urban with extreme caution. He suggested that Mr Ruler was less than open in his evidence to the Tribunal. Moreover, no attempt had been made to require Mr Rahman to give evidence before the Tribunal so that his evidence could be heard directly and cross-examined. 386.  In response to Mr Parroy's submission that it could not be coincidence that all of the trades in which the Appellants were involved led back to a tax loss, Mr Kramer submitted that the Appellants had not been told that the whole industry was fraudulent. The Appellants had not been told this and it was appropriate for them to rely on the information that was available. 387.  As regards the registration of the Appellants for VAT, it had to be accepted that when a new businesses started it could not know with certainty exactly where the business will go. Mr Dad had indicated that he was going to undertake both retail and wholesale trading but when wholesale trading was more successful than retail trading. It was entirely sensible for him to invest resources and effort into wholesale trading. 388.  Mr Kramer acknowledged that the Appellants' paperwork was not always up-to-date but submitted that this was common with small family companies. Mr Kramer submitted that the fact that Mr Dad has stated that one of the Appellants was going to enter into pharmaceutical trading but ended up trading in mobile phones should be disregarded. It was not being suggested by HMRC that Mr Dad was surreptitiously trading in mobile phones — he was open with HMRC about his trades. ## Our decision 389.  The Appellants accepted that all their transactions in respect of the periods under appeal were connected to the fraudulent evasion of VAT. The evidence of those HMRC officers who had responsibility for each of the defaulting traders was not challenged on this issue. It was also accepted that HMRC had incurred a tax loss through the fraudulent evasion of VAT by the defaulting traders in respect of each relevant deal chain. 390.  We have concluded that the Appellants knew that their transactions under appeal were connected with the fraudulent evasion of VAT. We further conclude, in the alternative, that the Appellants should have known that their transactions were connected with the fraudulent evasion of VAT. 391.  We have reached these conclusions having considered all the evidence and the submissions of the parties. The burden of proof lies on HMRC. We have applied the civil standard of proof, ie the balance of probabilities in reaching our conclusions. 392.  Our reasons for reaching these conclusions are set out below. We should emphasise that the conclusions are based on the evidence considered as a whole rather than on any individual item of evidence. Some factors were, in our view, more compelling than others. Some aspects of the evidence were not conclusive by themselves but when viewed in the context of the evidence of the whole, supported our conclusion that the Appellants had actual knowledge that their transactions were connected with fraud. 393.  For convenience, in the course of this decision we have indicated our views on particular issues or aspects of the evidence. In the following paragraphs we draw these strands together in order to explain our conclusions. 394.  In reaching our conclusions we have borne in mind the words of Christopher Clarke J (at paragraph 110) in Red 12 Trading cited above and, whilst appreciating that every case must be judged on its own facts, agree with counsel for HMRC that they are particularly appropriate in this case: > “To look only at the purchase in respect of which input tax was sought to be deducted would be wholly artificial. A sale of 1,000 mobile telephones may be entirely regular, or entirely regular so far as the taxpayer is (or ought to be) aware. If so, the fact that there is fraud somewhere else in the chain cannot disentitle the taxpayer to a return of input tax. The same transaction may be viewed differently if it is the fourth in line of a chain of transactions all of which have identical percentage mark ups, made by a trader who has practically no capital as part of a huge and unexplained turnover with no left over stock, and mirrored by over 40 other similar chains in all of which the taxpayer has participated and in each of which there has been a defaulting trader. A tribunal could legitimately think it unlikely that the fact that all 46 of the transactions in issue can be traced to tax losses to HMRC is a result of innocent coincidence. Similarly, three suspicious involvements may pale into insignificance if the trader has been obviously honest in thousands.” ## Actual knowledge of the Appellants 395.  We base our conclusion that the Appellants knew that their transactions were connected with the fraudulent evasion of VAT on the following reasons. 396.  As we have indicated at various places in this decision, we did not find Mr Dad to be a credible witness. We have no doubt that on a number of occasions his evidence was untruthful. During cross-examination he was repeatedly evasive and refused to engage directly with the questions being asked of him. We considered his evidence to be unreliable. 397.  We consider that the incorrect trade descriptions given in respect of both CSL (pharmaceutical supplies) and CL (retail electronics) were intentionally misleading. We also note, in relation to CSL, that Mr Dad contradicted himself in relation to his knowledge that CSL had originally been registered with the purpose of making pharmaceutical supplies (see paragraphs 52 – 55). 398.  Moreover, CSL's application to remain on monthly repayments, particularly the description of CSL's trading relationships attached to the letter of 25 January 2005, was, in our view, deliberately misleading. It indicated deliberate planning for an export trade. 399.  In respect of CL's application for registration, there was a false statement that a supply had been made on 1 July 2005. 400.  Mr Dad was fully aware of the risks of MTIC fraud. It was explained to him on numerous visits by HMRC officers in visits to his premises and in letters written to him by HMRC (see paragraphs 70 – 89). 401.  Mr Fletcher's evidence, which we accepted, made it clear that the Appellants' transactions were not part of the legitimate grey market. The Appellants failed to sufficiently specify the goods in which they were dealing in their invoices and purchase orders. Moreover, Nokia's homogenous pricing policy effectively ruled out arbitrage trading. In addition, the Appellants traded unrealisticly high volumes of the mobile handsets in question. We concluded that the Appellants, as dealers in mobile phone handsets, were more likely than not to have known of these factors. 402.  Deal 25 involving Datakey was, in our view, a telling piece of evidence. It revealed that Mr Dad knew the price paid by and therefore the mark-up made by his immediate supplier. There seemed to be, in our view, no credible alternative explanation for the issue of the first payment. Certainly we did not consider Mr Dad's explanation to be remotely credible. It showed that Mr Dad knew more than he claimed and, in our view, was a significant indicator that Mr Dad was aware that the dealings of the Appellants were connected with the fraudulent evasion of VAT. 403.  The trading patterns and trading behaviour of the Appellants clearly indicated that the transactions subject to this appeal were contrived. In our view, these transactions manifested few features in common with legitimate trading transactions. - (1)  All the deals of the Appellants in the periods under appeal traced back to 11 defaulting traders. - (2)  The buffer deals in which the Appellants participated contained significant features which indicated contrivance. Mr Saunders's evidence was that all the buffer deals in which the Appellants featured traced back to defaulting traders. In 63 of the 103 deals where CL acted as a buffer trader the deal chains featured one of the 11 defaulting traders appearing in the transactions which form the subject matter of these appeals (paragraph 137). In respect of the 77 deals where CSL acted as a buffer trader 71 deals also featured one of the 11 defaulting traders appearing in the deal chains in respect of these appeals. Moreover, in our view, the fact that the Appellants' buffer deals all or mainly traced back to defaulting traders and the fact that in a high proportion of the buffer deals the same defaulting traders as those in the Appellants' broker deals are involved could not be mere coincidence but indicated the Appellants' awareness of the overall scheme to defraud HMRC. (See paragraphs 139 – 144). - (3)  The mark-ups made by the Appellants' suppliers showed a remarkable degree of consistency. Mr Dad's evidence was that he was unaware of his supplier's mark-ups. This was, in our view, shown to be untrue in relation to Deal 25 involving Datakey. However, the degree of consistency of the mark-ups made by the Appellants' suppliers, when considered in the context of the evidence as a whole, strongly indicates that the Appellants knew that their transactions were contrived. It is hard to understand how the Appellants, if they were dealing in genuine commercial transactions at arm's length, could unknowingly agree to buy goods from suppliers at a price which so consistently left the supplier with the same profit margin. (Paragraphs 149 – 150) - (4)  The Appellants' profit margins were remarkably consistent. Again, it is hard to understand how such consistency could be achieved in an open market with parties dealing at arm's length. (Paragraphs 151 – 156). - (5)  The chronological rotation of defaulting traders was an indication that the deal chains were contrived, although this does not by itself indicate actual knowledge of the Appellants that their transactions were connected with fraudulent evasion of VAT. Nonetheless, the rotation of defaulting traders is part of the overall factual background relating to the underlying VAT fraud. (Paragraphs 145 – 147) - (6)  There was no reason why the Appellants' customers should purchase the goods from the Appellants (thereby incurring an additional mark-up) rather than sourcing the goods from traders lower down the deal chain. The evidence was that all the traders in the deal chain advertised on the same internet trading platforms. The trades took place within a very short timescale. There was no sensible reason why the customers would not seek, if trading in a rational and open market, to shorten the deal chains. We were unconvinced by Mr Dad's explanation. (Paragraph 157) - (7)  The Appellants always occupied the same position in the deal chains (i.e. the fifth UK company in the deal chain). This occurred in every one of the 43 deal chains (including the un-appealed deals). It is hard to see how this could arise otherwise than by virtue of the fact that the deal chains were contrived. (Paragraphs 159 – 160) - (8)  There was no evidence of negotiation of any of the deals which were the subject of these appeals (or, for that matter, in respect of the un-appealed deals). (Paragraph 161 – 162) - (9)  The rapid and huge increase in turnover of both the Appellants was highly suspicious. The Appellants had very little capital and Mr Dad had no previous experience of wholesale trading in mobile phones. The actual turnover achieved by the Appellants contrasted markedly with the estimated turnover stated in the Appellants' application for registration for VAT. (Paragraph 163–164) 404.  As regards due diligence, many of the TSP reports were produced after the Appellants had commenced trading with the companies concerned. In some cases, the reports were produced after all the trades, in the relevant period with a particular company, had been concluded. We did not find Mr Dad's explanation, that these reports were merely the latest version of earlier reports, to be credible. These were the reports exhibited to Mr Dad's witness statement. It was obviously important to produce a report which indicated the Appellants' state of knowledge at the time the transactions were concluded. If there had been earlier reports they would surely have been exhibited to Mr Dad's witness statement. 405.  In addition, there was no credible evidence that Mr Dad took heed of warnings or matters of concern arising from these reports. For example, in relation to URTB, there were a number of matters which should have given rise to serious concern (including the wrongful signature by the company secretary of the director's self-certification) but which left Mr Dad untroubled. 406.  After receiving the warning letters issued by HMRC on 23 January 2006, alerting the Appellants to the fact that earlier transactions had been traced back to VAT fraud, Mr Dad continued to deal with three suppliers (Mobile Heaven, Inter Communications and AR) in February and March 2006 without any apparent updating of existing due diligence. (Paragraph 223 – 227) 407.  Furthermore, the Appellants did not begin to record IMEI numbers (a reference number unique to each mobile handset) until September 2006 and only then because HMRC had directed the Appellants to do so. Mr Dad had previously been advised to record this information to ensure, for example, that the goods had not been stolen. (Paragraphs 228 – 237) 408.  In relation to Adworks, the evidence showed that in April 2005, before the transactions in respect of the present appeals were concluded, CSL had permitted the supplier of its immediate supplier to deliver stock directly to CSL's customer. By this action CSL risked being cut out of future deals. This strongly suggested that CSL was involved in trade which was not founded on legitimate commercial principles. (Paragraph 264–271) 409.  We considered that CSL operated in conjunction with Goldex and GIP, resulting in a further clear indication that CSL was aware that its transactions were contrived. The similarities in the deal chains and the mark-ups made by the immediate suppliers of Goldex, GIP and CSL were not, in our view, matters of coincidence. We did not find Mr Dad's statement that he was unaware of his brother's activities to be credible. 410.  In relation to the FCIB evidence, we did not accept Mr Dad's evidence about his reasons for opening an account for CSL with FCIB (i.e. that he was concerned that his account with Bank of Scotland would be closed). We did not consider the reason he gave to be credible. (Paragraph 293–300) 411.  The evidence of the Dutch FCIB server clearly indicated the circular nature of the deal chains and the fact that the deal chains were contrived. 412.  The evidence in respect of the Paris FCIB server of loans from the Padani sub-account to CSL plainly connected CSL (and Mr Dad) to those persons operating the VAT fraud. This evidence, therefore, simply added further confirmation that the Appellants knew that their transactions were connected to the fraudulent evasion of VAT. 413.  The admission and the provenance of the Paris FCIB server evidence were disputed. We should make it clear, however, that we would have reached the same conclusion even if the evidence in respect of the Paris FCIB server had not been admitted. In our view, the cumulative evidence (disregarding the evidence from the Paris FCIB server) was overwhelming and plainly showed that the Appellants had actual knowledge that their transactions were connected with fraud. ## Means of knowledge 414.  Having concluded that the Appellants had actual knowledge that their transactions were connected with the fraudulent evasion of VAT, it is strictly unnecessary for us to decide whether they ought to have known that their transactions were so connected. However, for completeness and alternatively, we consider that the Appellants ought to have known that their transactions were connected with the fraudulent evasion of VAT. 415.  In reaching this conclusion, we rely on the reasons referred to above under the heading *“Actual knowledge of the Appellants.”* 416.  In addition, in reaching our conclusion under this heading, we rely on the fact that the Appellants were, in every transaction under appeal, able to sell their stock and make profits without being left with any unsold stock or having defective stock returned. They never had to split a purchased batch and sell sub batches to different customers at different times. They never merged purchased batches into larger consignments. They were able to grow their business at speed to enormous volume without adding any value to the goods by manipulation or skill. Very simply, the adage ‘too good to be true’, ought to have warned them that fraud was the mechanism underlying their success. 417.  The Appellants were able to obtain large amounts of credit even though they had a short trading history, limited capital and no credit agreements in place. (Paragraph 266 – 270) 418.  Finally, all the transactions under appeal involved handsets with two pin chargers. There was no obvious reason why such goods would be imported into the UK and traded between UK traders. ## Conclusion 419.  For the reasons given above, we dismiss these appeals. ## Costs 420.  The Tribunal has already directed that Rule 29 Value Added Tax Tribunals Rules 1986 shall apply to these appeals and HMRC have indicated that if the appeals were dismissed they would seeking their costs. Accordingly, we direct that the Appellants pay the reasonable costs of HMRC, the amount to be assessed by a costs judge, if not agreed. 421.  This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 . The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice. --- # Duty Free Boarding Card Scam Source: https://taxdisputes.co.uk/2011/07/duty-free-boarding-card-scam/ A Cardiff man, who used fake international boarding cards (when actually travelling on domestic flights) to buy duty free cigarettes has been jailed for 12 months. The scam resulted in an evasion estimated at £70,000 in excise duty. HMRC investigators discovered that for over five years Simon Evans, used false boarding cards to purchase duty free goods at Bristol Airport. He would then use his legitimate boarding card to fly to Plymouth Airport from where he and the goods would return to Cardiff by train. Last month at Bristol Crown Court Evans pleaded guilty to smuggling duty free goods on 52 occasions and to using fraudulent boarding passes. His co-conspirator David Hatton, 21 and also from Cardiff, received a non-custodial sentence in March. HMRC investigators arrested both men on 7 October 2009 at Plymouth Airport as they disembarked a flight from Bristol. Examination of their baggage revealed 6,600 duty free cigarettes which had been bought at Bristol Airport. The men had travelled on an internal EU flight, so were not entitled to purchase duty free cigarettes. Confiscation proceedings are ongoing. **Our Tax Disputes professionals are able to give specialist legal information and advice in this area of law. To contact one of our Solicitors or Barristers please [click here](https://taxdisputes.co.uk/legal-case-assessment/) or call 02071830529.** --- # HMRC adopt collaboration strategy Source: https://taxdisputes.co.uk/2011/07/hmrc-collaborative-litigation-strategy-adr/ HM Revenue & Customs have recently revised their settlement and litigation strategy, encompassing a non-confrontational strategy with collaboration with the service user whenever possible. Where this strategy fails, HMRC will continue to pursue litigation. This strategy is an effort to reduce dispute between service users and the HMRC. It is an ideal time to negotiate your Tax affairs with the HMRC. Have your received a letter from HMRC encouraging you to disclose your tax affairs? Our team at Tax Disputes are aware that collaboration is a two way process and are equipped with the skills to ensure that the best possible result is obtained for our clients. To contact one of our Tax specialist Lawyers please [click here](https://taxdisputes.co.uk/legal-case-assessment/) or call us on 02071830529. --- # Fast food establishments to be targeted for VAT Source: https://taxdisputes.co.uk/2011/07/fast-food-establishments-to-be-targeted-for-vat/ HMRC have launched a drive against fast food establishments as a [part of their effort](https://taxdisputes.co.uk/2011/06/hmrc-sets-its-sights-on-vat-rule-breakers/) to recover unpaid VAT. HMRC claims that it has evidence that certain fast food establishments are submitting false tax records. To curtail this, the revenue department has put together a task force which will target such evaders. This is after a similar task force targeted the restaurant trade in London. Three similar taskforces have been launched by HMRC since May 2011 and further nine taskforces are planned to target similar trades.  These taskforces have been funded by the £900 million promised by the government to tackle tax related infringements. HMRC have recently adopted a [collaborative strategy ](https://taxdisputes.co.uk/2011/07/hmrc-collaborative-litigation-strategy-adr/)encouraging a non-confrontational approach to any possible dispute. **Our Tax Disputes professionals are available to give information and advice for businesses that have received letters from HMRC targeting your business. To contact one of our specialist VAT Lawyers please [click here](https://taxdisputes.co.uk/legal-case-assessment/) or call 02071830529.** --- # HMRC to launch raids on the counterfeit alcohol trade Source: https://taxdisputes.co.uk/2011/08/hmrc-to-launch-raids-on-the-counterfeit-alcohol-trade/ HMRC are launching raids on shops suspected of selling bootleg and counterfeit alcohol. This decision comes after the success of  HMRC's pilot raids on several premises, owned mainly by foreign nationals, selling non duty paid alcohol or cigarettes, resulting in revocation of licenses. The above raids have also been initiated by the recent explosion at an illegal distillery in Lincolnshire, which killed five men and left another seriously injured. This highlighted the extent of the problem faced by revenue. **Our Tax Disputes professionals are available to give information and advice for businesses that have received letters from HMRC targeting their business. To contact one of our specialist VAT Lawyers please [click here](../2011/07/legal-case-assessment/) or call 02071830529.**     --- # HMRC to make online VAT filing compulsory Source: https://taxdisputes.co.uk/2011/08/hmrc-to-make-online-vat-filling-compulsory/ Registered businesses which have a turnover of £100,000.00 or below will soon be required to file VAT returns on-line.  This is a part of a four year plan to roll out a complete web based tax filing system. It is estimated that this step will save HMRC close to £235 million, reducing running costs by 25 percent. The Audit office estimates HMRC's running costs to be around £3.6 billion and the four year plan will reduce this cost by around £1.6 billion. It is our view that on one hand on-line tax submissions will ease the filing process in many ways but on the other hand some businesses may not prefer it due to data protection issues. Therefore, on-line filing should be provided as an option alongside the paper based system. **Our Tax Disputes professionals are available to give information and advice for businesses that intend to file taxes on-line. To contact one of our specialist VAT Lawyers please [click here](../2011/08/2011/07/legal-case-assessment/) or call 02071830529.** --- # HMRC Attack Offshore – Liechtenstein LDF Source: https://taxdisputes.co.uk/2011/08/hmrc-attack-offshore-accounts-liechtenstein-disclosure-facility-ldf/ HMRC Specialist Investigations Office is maintaining a sustained attack on UK taxpayers holding offshore accounts. Offshore account holders are especially at risk as HMRC continue to review banking material obtained via means such as Memoranda of Understanding with offshore centres. There is a unique proactive solution to regularise all your tax affairs which is available to those whom have an account in Liechtenstein. Under the Liechtenstein Disclosure Facility (LDF)  self-disclosure of tax irregularities arrangement all tax liabilities connected with offshore bank accounts and structures held anywhere in the world may be settled on favourable terms. Essenitally provided a Liechtenstein connection is established the LDF can be used as an umbrella for the disclosure of any tax liability connected with an overseas asset. Overseas assets do not need to be transferred to Liechtenstein to qualify. The benefits of the LDF special arrangement: - A guaranteed immunity from prosecution for tax related offences; - Ability to have initial "no names” discussions with HMRC, prior to making a disclosure; - Tax liability limited to 10 years as opposed to the normal 20 year rule; - There is no time limitation for the recovery of undisclosed Inheritance Tax liabilities. Under the LDF, Inheritance Tax will also be limited to 10 years, which is a significant concession in relation to inherited wealth; - A simplified composite rate of tax (the CRO) which, if used in the right circumstances, can reduce liabilities even further; - There is no ‘name and shaming’; - There is an efficient disclosure process with no obligation to meet HMRC; and - The LDF is likely to run until 31 March 2015. We’ve helped a large number of clients with a range of issues and close matters with HMRC successfully and quickly. Our team of Tax Lawyers have years of experience dealing with disclosures and negotiations. We offer competitive and flexible fee arrangements. **Our Tax Disputes professionals are available to give information and advice. To contact one of our specialist Lawyers please [click here](https://taxdisputes.co.uk/2011/08/2011/08/2011/07/legal-case-assessment/) or call 02071830529.** --- # Further convictions in £17m missing trader fraud Source: https://taxdisputes.co.uk/2011/09/further-convictions-in-17m-missing-trader-fraud/ Further convictions have been secured by HMRC against an organised crime gang who conspired to steal £17m of taxpayer’s money in a ‘missing trader’ VAT fraud. Criminal investigators from HM Revenue & Customs (HMRC) investigated the multi million pound fraud, centred on the mobile phone industry, in an investigation beginning in 2006. VAT reclaims were made to take a further £5m from the taxpayer but these were stopped from being paid. Papers recovered during searches showed the gang were planning an additional £300m of VAT fraud from the public purse. The gang used the proceeds to buy UK and Spanish properties worth over £1m each and performance cars including a Rolls Royce Phantom for £250,000 and a Ferrari for £165,000. Approximately £8 million of assets have been restrained and confiscation proceedings are underway to reclaim the proceeds of crime under the Proceeds of Crime Act. Background: In its simplest form this type of fraud involves obtaining a VAT registration number in the UK for the purposes of purchasing VAT-free goods from another EU Member State, selling them at a VAT-inclusive price in the UK and then going missing or defaulting without paying the VAT due to HMRC. This conspiracy involved the import of mobile phone accessories and electronic media including memory and SIM cards, from the EU. Once imported, the goods would be sold on a number of times along a contrived supply chain and then they would be exported back to the EU. The exporter would then claim a VAT credit from HMRC for the VAT paid on the purchase of the goods. Those convicted were: * Gurjit Singh, (DOB 15.04.64), of 157 Monmouth Drive, Sutton Coldfield, West Midlands, was sentenced to two years in prison. Singh laundered the criminal proceeds of the fraud. * Shabir Anwar Ahmed, (DOB 25.12.58), of 90 Hamilton Avenue, Glasgow, Scotland, was sentenced to four years in prison and was disqualified from being a company director for four years. Ahmed was a director of Morganrise Ltd, set up as a sham business to assist in the fraud. * Muhammad Al-Numairy Raza, (DOB 17.06.74), of 70 Hanworth Road, Feltham, Middlesex, was sentenced to two and a half years in prison and was disqualified from being a company director for four years. Raza was a director of K&M Supplies Ltd, set up as a sham business to assist in the fraud. * Bharat Muriji Odedra, (DOB 14.07.76), 37 Manaton Crescent, Middlesex, was sentenced to two and a half years in prison and was disqualified from being a company director for four years. Odedra was a director of Synergy Services Ltd, set up as a sham business to assist in the fraud. * Karnail Singh Samra, (DOB 08.01.52), of Pendower, Endwood Drive, Sutton Coldfield, West Midlands, was sentenced to 18 months for money laundering contrary to the Proceeds of Crime Act 2002. He received an additional 12 months (to run consecutively) for 26 separate counts of Contempt of Court, by failing to declare and removing cash of £225,000, from the UK jurisdiction to India. This was in breach of a Proceeds of Crime Order placed on him at the time of his arrest in 2007. Samra laundered more than £800,000 of criminal proceeds through bank accounts in the UK, India and Spain. He is the father of Harbinder Singh Samra, one of the principal fraudsters previously sentenced to five years and nine months in jail. * Mandish Singh Hayre, (DOB 07.04.55), of 2 Marling Croft, Solihull, West Midlands, was sentenced to 15 months for money laundering contrary to the Proceeds of Crime Act 2002. Hayre laundered more than £600,000 of criminal proceeds through bank accounts in the UK and abroad. He is the father of Ardip Singh Hayre, one of the principal fraudsters previously sentenced to two years and ten months in prison. * Diljan Saggar, also known as Jon Soni, (DOB 14.11.64), of Tamberlane, Stoke Park Avenue, Farnham Royal, Slough, Berkshire, was sentenced to two years and three months on charges of conspiracy to cheat the public revenue. He was disqualified from being a company director for four years. Saggar was a director of The Working Group Ltd, the sole suppler of mobile phone products – which never actually existed. He used this company to create contrived trading chains to fraudulently claim VAT repayments from HMRC. * Cameron Charles Thurston, (DOB 2.11.75), a dual South African/British national of Redhill, Surrey, was sentenced to a three year community order. He was disqualified from being a company director for four years. Thurston was a Director of Synergy Services Ltd, Harrow, North London, a company that acted as an importer and broker in the fraud. * Harbinder Singh Samra, (DOB 10.10.70), a 40 year old man of Pendower, Endwood Drive, Sutton Coldfield, West Midlands, was sentenced to four and a half years in prison. He received an additional one year and three months (to run consecutively) for 113 separate counts of Contempt of Court, by failing to declare and spending hidden assets of £750,000. This was in breach of a Proceeds of Crime Order placed on him at the time of his arrest in 2006. He was disqualified from being a company director for five years. Samra was one of the principal players in the fraud and was shot four times during the conspiracy while getting into his Rolls Royce Phantom outside The Hardwick public house in Walsall, West Midlands. He was a Director of Goldfree Ltd of Birmingham, the exporter within this fraud. He used this company to defraud HMRC, and introduced Hayre, then 23 years old, to the criminal organisation, inviting him along to share the ‘profits’ of the fraud. * Ardip Singh Hayre, (DOB 23.06.83), a 27 year old man of 55 Lovelace Avenue, Solihull, West Midlands, was sentenced to two years and ten months in prison. He was disqualified from being a company director for four years. Hayre was a principal player in the fraud. He was a Director of Goldfree Ltd of Birmingham, the exporter within this fraud. He used this company to defraud HMRC, alongside Samra. * Terence Thomas Broad, (DOB 17.02.45), of 359 Bemersley Road, Brown Edge, Staffordshire, was sentenced to one year and four months in prison. He was disqualified from being a company director for four years. Broad, along with co-defendant Crowther ran the logistics and freight side of the organisation. They used their premises to convince HMRC that goods were being inspected by them, when in fact there were no goods at all. * Russell Crowther, (DOB 27.09.62), of Betws Lodge, Tan-y-Gopa Road, Abergele, Conwy, North Wales, was sentenced to two years and three months in prison. He was disqualified from being a company director for four years. Crowther, along with co-defendant Broad ran the logistics and freight side of the organisation. They used their premises to convince HMRC that goods were being inspected by them, when in fact there were no goods at all. * Syed Faraz Hussain, (DOB 29.12.81), of Seal Point, Comeraugh Close, Woking, Surrey, was sentenced to two years and ten months in prison. He was disqualified from being a company director for four years. Hussain was the guiding mind behind several other companies within this fraud. **Our Tax Disputes professionals are available to give information and advice. To contact one of our specialist Lawyers please [click here](https://taxdisputes.co.uk/2011/08/2011/08/2011/07/legal-case-assessment/) or call 02071830529.** --- # Barristers arrested in MTIC VAT fraud probe Source: https://taxdisputes.co.uk/2011/09/barristers-arrested-in-mtic-vat-fraud-probe/ Two barristers have been arrested over amongst other things an alleged large-scale VAT fraud. They are under investigation by Her Majesty's Revenue and Customs for an alleged tax fraud, while a third lawyer faces questioning by tax inspectors in the next few days. Tax inspectors from HMRC arrested and interviewed the two barristers on Saturday morning. They are allegedly being investigated in relation to a type of VAT scam known as missing trader intra-community (MTIC) or carousel fraud. HMRC confirmed that two barristers had been arrested, and another would be questioned over alleged VAT fraud. MTIC fraud involves high-value goods being imported VAT-free from EU countries, and then sold at VAT inclusive prices in the UK through a chain of contrived transactions, and then finally exported. The tax loss occurs when the VAT charged on the initial sale of the goods in the UK is not paid to HMRC because one of the sellers in the chain disappears. But the final purchaser can still reclaim the VAT from the Government as the goods are exported. **Our Tax Disputes professionals are available to give information and advice. To contact one of our specialist Lawyers please [click here](https://taxdisputes.co.uk/2011/08/2011/08/2011/07/legal-case-assessment/) or call 02071830529.**   --- # Case Study: Taxpayer successfully appeals HMRC’s Penalty for late payment of PAYE Source: https://taxdisputes.co.uk/2013/08/taxpayer-appeals-hmrc-tax-tribunal-late-payment-of-paye-penalties/ *The First-tier Tribunal’s (“FTT”) recent decision in CED Ltd v Her Majesty Revenue & Customs (“HMRC”) raises a significant argument for those having to meet pay-as-you-earn (“PAYE”) tax liabilities without fear of late payment penalties.* ## What are HMRC PAYE Late Payment Penalties? The payment of PAYE tax to HMRC now falls on the 19th day of each month. On 6 April 2010, HMRC introduced new penalties for the late payment of PAYE tax. These PAYE late payment penalties apply to all employers and contractors and are determined by the number of defaults (i.e. late payments) in a given tax year. The first default is exempt from a penalty if it is the only late payment in the tax year. However if there are further defaults by the taxpayer, then this gives rise to a penalty: - When there are 2, 3 or 4 defaults in a tax year the penalty is 1% of the total of the defaults (including the first default); - When there are 5, 6 or 7 defaults the penalty is 2% of the total of the defaults; - When there are 8, 9 or 10 defaults the penalty is 3% of the total amount of the defaults; and - For 11 or more defaults the penalty is 4% of the total defaults. In addition, any amounts that have gone unpaid for more than six months after the penalty date is liable to a penalty of 5%, and if the PAYE payment has gone unpaid for 12 months a further penalty of 5% also applies. ## Appealing against HMRC PAYE Penalties Paragraph 14 of Schedule 56, Finance Act 2009, gives a taxpayer the right to appeal against a HMRC decision that a penalty is payable due to a late payment of tax. Furthermore, Paragraph 15 of Schedule 56, Finance Act 2009, provides that on such an appeal the FTT may affirm or cancel HMRC’s decision. In* CED Ltd* v *HMRC* the question for determination by the FTT was whether HMRC had properly charged CED Ltd penalties for late payment at 3% (amounting to £22,735) on the basis that CED Ltd had failed to make PAYE payments to HMRC on time and without reasonable excuse. In particular, this case turned on a dispute about the dates on which PAYE cheques were received by HMRC, Mr Richard Davis (CED Ltd’s financial director and company secretary), who had been responsible for making CED Ltd’s tax payments to HMRC for 20 years, argued that “*CED had always paid PAYE by cheque, with each payment sent by first class post to HMRC*”. On the facts, the FTT was satisfied by CED Ltd’s evidence about their postal arrangements and was not convinced that the “*processing date*” stamped by HMRC necessarily represented the actual date of receipt. The more general point, however, concerned the question of whether it is reasonable to rely on the postal service to deliver a first class letter the next day. In this case, the FTT had regard to the fact that the taxpayer had regularly posted the tax payments on the day before the due date (or earlier if the due date fell at the weekend). The UK postal service does not, of course, give an absolute guarantee that letters will be delivered the next day but the FTT felt that it was reasonable to rely on the assumption that they would be so delivered, the FTT stated that: > “*The critical question is whether the letters containing the PAYE cheques were posted on time. A person can, we think, reasonably expect that a letter posted first class on Day 1 will reach its destination on Day 2. The [General Post Office’s] published aim is to deliver 93% of first class mail on the following day. Thus, CED would, unless something exceptional had occurred, have a reasonable excuse for late payment were the letter to be delivered later*.” ## PAYE Penalty Appeals before the Tax Tribunal Therefore, this case illustrates that if a taxpayer’s compliance record and cash flow history are good and if it can demonstrate that tax payments were sent by first class post at least one working day before the payment due date (i.e. 19th of each month) then despite the fact that the FTT’s decision are not binding it will have a good chance of succeeding in its appeal. We have recently had success against HMRC in assisting clients facing PAYE penalties and have managed to reduce these penalties. If you have received a penalty and wish your case to be reviewed [get in touch with one of our HMRC tax dispute specialist lawyers via our contact form](https://taxdisputes.co.uk/legal-case-assessment/). --- # MTIC VAT Fraudster Ordered to Pay £13 million Source: https://taxdisputes.co.uk/2013/10/mtic-vat-fraudster-ordered-to-pay-13-million/ *A London man has been ordered to pay £13 million to HM Revenue and Customs ("HMRC") or face a further 10 years in prison. Mr Sandeep Singh Dosanjh was the leader of a criminal gang who cheated the taxpayer out of £38 million through a series of bogus companies involved in carbon credit fraud, a form of [Missing Trader Intra-Community Fraud ("MTIC")](https://taxdisputes.co.uk/carousel-mtic-fraud-missing-trader-intra-community-fraud-kittel/).* ## Carbon Credit: Missing Trader Intra-Community Fraud (MTIC) The criminal gang made millions running a series of bogus companies trading fraudulently in EU which involved stealing VAT through a complex MTIC fraud over a period of six months from January 2009. Emissions allowances or ‘carbon credits’ are issued by governments under various schemes designed to cut carbon emissions by businesses within the European Economic Area.  Most emissions allowances are taxed at standard-rate VAT in UK to UK transactions and VAT free when purchased from outside the UK by a UK based company. The opportunity for MTIC fraud arises when standard-rated goods or services can effectively be traded VAT free between EU Member States and then sold on to another UK company. In carbon trading, the fraudster could create a company and buy carbon credits on one of the carbon trading exchanges. The fraudster sells the carbon credit to another trader, or company, charges the counter-party VAT and disappears without paying VAT to HMRC. The buyer reclaims the VAT, leaving the taxpayer out of pocket. ## Fighting Against MTIC Fraud HMRC's investigation found that the fraud was committed under various bogus companies importing carbon credits free of VAT into the UK.  The criminal gang then sold the credits on, charging VAT by bogus companies importing the carbon credits into the UK.  They then sold the credits on, charging VAT which was never paid to HMRC, and then dissolved the importing companies. We understand that the credits were then sold on again between further companies before finally being sold on to legitimate companies. The VAT charged (believed to be in the region of hundreds of millions of pounds) by the “missing trader”  was then shared between the criminal gang. Robert Alder, HMRC Criminal Investigations, said: “This was a complex and lengthy financial investigation requiring enquires to be made with overseas authorities. This shows that HMRC is committed to not just bring criminals to justice, but also to ensure that we recover the money stolen from the taxpayer by criminals and return it to the Exchequer.” MTIC fraud can be very complex involving a number of companies across the EU, however our [expert tax solicitors and barristers](https://taxdisputes.co.uk/) can assist you in managing HMRC's investigation by providing comprehensive legal advice. --- # Tax Rebate Fraudsters Arrested Attempting to Steal £0.5m Source: https://taxdisputes.co.uk/2013/08/hmrc-fraudsters-arrested-in-false-tax-rebates-tax-refund-scam/ HMRC investigators worked closely in cooperation with their Italian counterparts to identify and arrest five men in the United Kingdom. These men were subsequently charged with cheating the revenue by obtaining personal data with the intention to steal large sums of false tax rebates also known as tax refunds. The men were arrested in London, at Stansted airport, together with simultaneous searches being carried out across London, Chatham, and Italy. The suspects have been released on bail, pending further enquiries into whether they attempted to defraud the tax payer. Andrew Sackey, Assistant Director, Criminal Investigation for HMRC, said: > *“These arrests clearly demonstrate that we can, and will, apprehend those suspected of attempting to cheat UK taxpayers by defrauding HMRC, with international assistance if necessary"* ## What are Tax Rebates or Tax Refunds? A tax rebate is a tax refund where the taxpayers’ tax liability is less than the taxes owed to HMRC. Taxpayers can often get a tax refund if the tax they owe is less than the sum of the total amount of the withholding taxes and estimated taxes they paid, plus the refundable tax credits that they claim. ## What are Tax Rebates through the Self-Assessment Scheme? If you have overpaid tax in the current financial year, you can claim your tax back or leave the overpayment in your self-assessment account to be set off against future tax losses. Taxpayers can ask HMRC to make a refund to themselves, their agent or nominee (since 6 April 2012 you can no longer make repayments to charity for any year). This can be done under the self-assessment scheme through the HMRC website. ## How does the Tax Rebate Scam Work? The scam is designed to illegally obtain personal data from third parties in order to steal large sums of overpaid tax through the self-assessment scheme. Fraudsters often steal valuable information such as national insurance numbers, addresses, passports numbers and most importantly credit or debit card numbers, expiry dates and CSV numbers and use this information to steal large amounts of tax rebates. --- # Parking Penalty Fines: VAT Taxable Supply or Contractual Damages? Source: https://taxdisputes.co.uk/2013/09/hmrc-value-added-tax-parking-penalty-fines-vat-taxable-supply-contractual-damages/ *In the recent case of Vehicle Control Services Limited v HM Revenue & Customs [2013] the Court of Appeal considered whether Vehicle Control Services Limited were liable to pay VAT on parking penalty charges. The Court of **Appeal overruled the decision of the Upper Tier Tax Tribunal and found that parking penalty fees are not a taxable supply (therefore not subject to VAT) but constituted damages in respect of breach of contract between the appellant and the motorist. **This article sets out the facts of the case and the implications of the Court Appeal’s Decision.* ## Value Added Tax or Damages for Breach of Contract? In this case the appellant provided parking control services to landowners. The appellant  put up warning signs on the land for unauthorised use. Where there is unauthorised parking, the appellant would charge the infringing motorist a penalty fee. The appellant retained the charges. The warning signs display the various parking rules and warn of applicable charges relating to unauthorised parking.  The signs also contain the wording:* "You are entering into a contractual agreement. Do not park in this area unless you fully understand and agree to the above contractual terms."* The appellant was assessed by Her Majesty's Revenue and Customs (HMRC) for output VAT on the basis that such charges constituted taxable supplies.  The appellant appealed against the assessment arguing that the penalty charges did not constitutes taxable supplies, but were rather compensation fees for breach of contract.  Alternatively, the appellant argued that, if the payments were not in respect of breach of contract, they should be seen as compensation for trespassing. The appellant lost in the First Tier Tax Tribunal as well as in the Upper Tier Tax Tribunal. Both tax Tribunals held that the charges were consideration for a supply of services, and hence were subject to VAT. The appellant appealed to the Court of Appeal (Civil Division). ## Value Added Tax Act 1994: What is a Taxable Supply? Value added tax (VAT) is a form of taxation in the United Kingdom. The purpose of VAT is to generate tax revenues similar to the corporate income tax or income tax. The main charging statute relating to value added tax (VAT) is the Value Added Tax Act 1994 (VATA 1994). VAT is *‘charged on any supply of goods or services made in the United Kingdom where it is a taxable supply made by a taxable person in the course or furtherance of any business carried on by him’* (VATA 1994, s 4(1)). VAT will be charged on the ‘value of the supply’ (VATA 1994, s 2(1)).* *‘Business’ includes any trade, profession or vocation (VATA 1994, s 94). A taxable person is a person who makes or intends to make taxable supplies and who is or is required to be registered under the Act (VATA 1994, s 3(1)). ## Court of Appeal’s Decision: Taxable Supply or Damages? The Court of Appeal allowed *Vehicle Control Services Limited's *appeal and ruled that the penalty fees charged did not relate to any supply of goods or services, but constituted damages for breach of contract, which did not attract VAT. On the issue of trespassing, HMRC argued that the appellant did not have such rights in respect of the land so as to give it any action in respect of trespassing. However, the court held that the contract between the appellant and the landowner gave the appellant the right to eject trespassers by towing their vehicles. The decision by the Court of Appeal finds that such parking penalty charges constitute a taxable supply within the interpretation of section 4(1) of the VATA 1994.  The Court' of Appeal's decision was borne from a finding that a contract had been established between the appellant and each motorist holding a permit. The penalty fee charges that the appellant collected therefore did not directly flow from the service agreement with the land owner, but constituted damages between the appellant and each relevant motorist. This demonstrates that the Courts are to apply a strict interpretation of section 4(1) of VATA 1994, preferring to reinforce contractual remedies instead of imposing VAT charges on parking penalty fines. --- # Tax Tribunal Considers Actor’s Accommodation Expenses Source: https://taxdisputes.co.uk/2013/10/tax-tribunal-considers-actors-accommodation-expenses/ *In the recent case of [Healy v HMRC [2013]](http://www.tribunals.gov.uk/financeandtax/Documents/decisions/hmrc-v-tim-healy.pdf) the First Tier Tax Tribunal ("FTT") allowed Mr Tim Healy (probably best known for playing Dennis Patterson in the television series Auf Wiedersehen) a deduction from his professional income for renting a flat during a long running production where he was performing. HM Revenue and Customs ("HMRC") appealed to the Upper Tier Tax Tribunal on the basis that the FTT wrongfully applied the 'wholly and exclusively test' under section 34 of the Income Tax (Trading and Other Income) Act 2005 ("ITTOIA").* [![tax disputes with hmrc solicitors](https://taxdisputes.co.uk/wp-content/uploads/2013/10/tim-healy-taxdisputes-lexlaw.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2013/10/tim-healy-taxdisputes-lexlaw.jpg) ## Factual Issues: Accommodation Expenses An actor, Mr Tim Healy, appeared in the musical Billy Elliot for nine months. On 15 April 2005, Mr Healy entered into a tenancy agreement to rent a flat just over a mile from the theatre, for a  fixed term of 52 weeks, at a rent of £875 per week. Mr Healy claimed a total of £32,503 for accommodation expenses. Mr Healy's expenditure covered the 36 week period in which Mr Healy was performing. ## Legal Dispute: Income Tax (Trading and Other Income) Act 2005 Section 34 of the ITTOIA states that in calculating the profits of a trade, no deductions is allowed for expenses not incurred 'wholly and exclusively for the purposes of the trade', or any losses not connected with or arising out of the trade. Section 34(2) states that were an expense is incurred for more than one purpose, the law does not prohibit for a deduction for any identifiable part which is wholly or exclusively for the purpose of trade. Mr Healy argued that deduction from his professional trading income as an actor, namely the costs of renting a flat close to the theatre is tax deductible under section 34 of ITTOIA. HMRC argued against this by stating that Mr Healy's expenditure served both business and private purposes, and therefore cannot be deductible because the expenditure has a dual purpose. The FTT found that the sole purpose of renting the flat was 'wholly and exclusively in connection with his profession as an actor'. The FTT was influenced by the fact that Mr Healy had chosen to live in Cheshire and did not consider moving to London, but found it necessary so long as he is appearing in Billy Elliot. ## Decision of Upper Tier Tax Tribunal The Upper Tier Tax Tribunal stated that the FTT did not apply the right test under section 34 of ITTOIA. The Upper Tier Tax Tribunal confirmed that the FTT should have considered whether there was a dual purpose for Mr Healy renting the flat and consideration should have been provided as to whether the effect of renting the flat, namely to keep warm and provide a shelter, as merely incidental to the business purpose. The Upper Tier Tax Tribunal concluded that the FTT failed to apply the 'wholly and  exclusively test properly and in doing so made an error of law'.  The Upper Tier Tax Tribunal stated that it is necessary to establish a subjective basis as to what was in Mr Healy's mind when he decided to enter into the tenancy agreement.  As Mr Healy was not present before the Upper Tier Tax Tribunal, this issue was not properly explored and the matter was remitted to the FTT. ## The Implications of Healy v HMRC The decision by the Upper Tier Tax Tribunal suggests that Mr Healy's expenditure was "wholly and exclusively" for business purposes, even though it is inevitable that such accommodation will also provide warmth and shelter. However, the Upper Tier Tax Tribunal stated that the FTT should have ascertained whether there was a dual purpose for entering into the agreement for the flat in London. This is surprising considering that the Upper Tax Tribunal Judge stated 'I do not find that there was a duality of purpose'. The Upper Tier Tax Tribunal stated that Mr Healy's ‘subjective purpose’ was nothing more than to provide himself with the equivalent of hotel accommodation. However, considering Mr Healy did not provide evidence at the hearing, it is hard to envisage how the Upper Tier Tax Tribunal reached this conclusion. Also this suggestion is inconsistent with the House of Lords decision in the well-known case of *Mallalieu v Drummond* [1983], where the majority of the House of Lords held that Miss Mallalieu’s need for warmth and decency was a subjective element, and therefore the whole of the expenditure was disallowed on the grounds of duality of purpose. Full Judgment: [THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS v TIM HEALY [2013] UKUT 0337 (TCC)](https://assets.publishing.service.gov.uk/media/5765155aed915d622c00002d/hmrc-v-tim-healy.pdf) --- # HMRC Launch New ‘Alternative Dispute Resolution’ Scheme for Resolving Tax Disputes Source: https://taxdisputes.co.uk/2013/09/alternative-dispute-resolution-hmrc-launch-new-scheme-for-resolving-tax-disputes/ *HMRC have launched a new scheme encouraging small businesses and individuals to resolve their tax* disputes with HMRC by a process they term 'Alternative Dispute Resolution' (ADR).* *The purported ADR scheme is intended to reduce the number of tax tribunal hearings against HMRC. In this article we both outline and evaluate the scheme.* * ## Resolving HMRC Tax Disputes: ADR for Small Businesses and Individuals  The new scheme uses independent HMRC facilitators to resolve disputes between HMRC and customers, whether or not an appealable tax decision has been made or an assessment has been carried out by HMRC.  The facilitators are HMRC members of staff who have been trained in ADR techniques and have not been involved in the dispute. This is highly unusual as usually a facilitator in ADR is independent and certainly not an employee of one of the parties to the ADR. This scheme covers both Value Added Tax (VAT) and direct taxes disputes. The ADR process is open to all customers nationwide whose tax affairs are handled by HMRC's Local Compliance Small and Medium Size Enterprises (SME), Local Compliance Individuals and Public Bodies Business Units.  HMRC say that entering into the ADR scheme will not affect the taxpayer’s existing review and appeal rights. ## Application Process: ADR to resolve HMRC Tax Disputes If parties want to resolve their disputes with HMRC through the ADR scheme, an application form must be filled out online and submitted to HMRC. The application will be considered and the applicant should hear back from HMRC within 30 days of submitting the application. Applicants will then receive a copy of the ADR Memorandum of Understanding and a Code of Conduct that they will be expected to comply with. If an applicant does not comply with the memorandum or the Code of Conduct, their dispute may be removed from the ADR scheme. The following tax disputes are considered to be suitable under the new ADR scheme: - Facts which are capable of further clarification; - Disputes that may benefit from obtaining more suitable evidence; - Fact and/or technical matters in which there is legitimate scope for any party to obtain a better understanding of the other's arguments; and - Issues which are capable of further mediation and settlement by agreement within the framework of the Litigation and Settlements Strategy (LSS) ## Will the ADR Scheme Reduce HMRC Tax Disputes? HMRC claim that the facilitators are "independent" but they are in fact from HMRC and there is a possibility that decisions could be biased and very clearly a perception of bias exists. In addition, by completing an ADR application form businesses and individuals may think they have launched an appeal against HMRC, when in actual fact the appeal process is separate from the ADR scheme. Time limits for launching tribunal appeals are very strict and often as little as 30 days. As a result, there is a risk that in practice taxpayers that engage in the ADR process may unwittingly become time barred in bring a tax tribunal claim against HMRC. In an event, taxpayers should always seek legal advice before entering into the ADR scheme to ensure that all options are considered in order to protect the taxpayer’s full rights and remedies. One suitable alternative to ADR is launching a complaint to the the Adjudicator’s Office who are a fair and unbiased referee which is not on HMRC’s payroll. --- # ‘Booze Brothers’ Jailed Over £6.4m Alcohol Duty Tax Fraud Source: https://taxdisputes.co.uk/2013/11/two-brothers-jailed-over-6-4m-alcohol-duty-tax-fraud/ *[HM Revenue and Customs (HMRC)](http://www.hmrc.gov.uk/) have investigated and captured two brothers from Scunthorpe, Inderjit & Amandeep Mangher, who attempted to dodge £6.4 million in excise duty by selling tax-free wine, beer and spirits intended for export. The brothers were jailed after HMRC officers found large quantities of illicit alcohol, including beer, wine and spirits at a off licence shop and garage that the brothers owned.* [![Image](https://taxdisputes.co.uk/wp-content/uploads/2013/11/Image-300x172.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2013/11/Image.jpg) ## HMRC's Investigation: Alcohol Duty Tax Fraud It has been [reported](http://www.dailymail.co.uk/news/article-2486793/The-booze-brothers-Pair-dodged-paying-6-4m-tax-MILLION-pints-beer-213-000-bottles-spirits.html) that HMRC undertook a covert surveillance operation which led officers to a unit at Trentside Industrial Park, North Lincolnshire.  HMRC's investigators found that the gang had attempted to disguise their illegal activities by concealing some of the genuine labels on the back of the bottles of vodka and whiskey with counterfeit ones. The operation also uncovered 2,000 litres of top brand vodka on which no duty had been paid. The alcohol was exempt from tax as it was due to be shipped out of the UK, but the brothers managed to get hold of it instead. Rather than export it, the brothers sold it to various outlets as well as members of the public and took the profits for themselves. ## Criminal Conviction for Alcohol Duty Tax Fraud We understand that the two brothers were originally arrested in October 2010 and later charged with tax fraud. Inderjit Singh Mangher was sentenced to four years in prison and his brother Amandeep Singh Mangher was jailed for 27 months. Jo Tyler, HMRC Assistant Director of Criminal Investigations said: > “This was alcohol duty fraud on a major scale, with huge quantities of wine, beer and spirits intended for export being diverted back into the UK. We are committed to protecting public finances from attacks by criminals and will not stand by and let these crooks rip off the law abiding public." ## Need Expert Tax Advice? If you have been subject to a tax duty investigation by HMRC our [expert tax solicitors and barristers ](https://taxdisputes.co.uk/)can assist you in managing HMRC's investigation by providing comprehensive legal advice and robust responses to the investigators. --- # Tax Evasion: HMRC Granted Access to Information on Debit & Credit Card Payments Source: https://taxdisputes.co.uk/2013/09/tax-evasion-hmrc-granted-access-to-information-on-debit-credit-card-payments/ *HMRC have been granted new legal powers which allow them to access information on credit and debit card payments **from card processing companies. This will allow HMRC to discover the number and value of payment transactions completed by specific businesses or traders.  The Revenue have said that these far-reaching new powers are needed in order to limit tax evasion by businesses and traders. * [![Tax Dipsutes Solicitors HMRC Credit Card Data Snooping Watching Mining](https://taxdisputes.co.uk/wp-content/uploads/2013/09/credit-cards-300x225.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2013/09/credit-cards.jpg) ## Finance Act 2013: HMRC Granted New Powers to Tackle Tax Evasion HMRC's new powers were introduced under the Finance Act 2013, which made amendments to schedule 23 of the Finance Act 2011. The Finance Act 2013 came into force on 1 September 2013. Under the new rules information on card payments to UK firms and traders will be made available to HMRC for the first time. This has been achieved by adding 'merchant acquirers' as a category of data-holders under schedule 23 of the Finance Act 2011. This allows HMRC to issue a notice to companies that process card payments requiring them to provide data of card payments on specific businesses and traders. Paragraph 1(3) of Schedule 23 of the Finance Act 2011 specifies the relevant data that HMRC can require companies who process card payments. This  information includes credit and debit card sales made by retailers, the retailers' name, address, VAT number and bank account details. However, no personal data identifying the card owners or card numbers is allowed to be obtained. By accessing this data HMRC will carry out compliance checks that are more accurately targeted on the areas of highest risk. ## HMRC's Crackdown on Tax Evasion The Government has given HMRC nearly £1 billion to tackle tax fraud and tax evasion. The shake-up means HMRC can now access valuable data about specific businesses which include restaurants, cafes, shops, garages, hotels (ie businesses that usually deal with cash or card instead of bank transfers).  HMRC estimate that accessing this information could reduce tax fraud and tax evasion by over £50 million per year. Exchequer Secretary to the Treasury, David Gauke stated the following: > “Tax evasion costs taxpayers £9 billion a year. While the majority of traders are honest, they may find themselves undercut by the minority who seek to lower prices by cheating the tax system." We understand that HMRC are launching their second stage of an evasion publicity campaign this week. This campaign works alongside existing compliance activities to raise awareness among those breaking tax rules. This clearly demonstrates that HMRC are fighting hard to tackle tax evasion, specifically targeting businesses and traders. --- # HMRC Policy to “Name and Shame” Deliberate Tax Defaulters (Including Individuals) Source: https://taxdisputes.co.uk/2013/11/hmrc-name-and-shame-deliberate-tax-defaulters/ *As part of the government's crackdown on tax evasion, the names and details of deliberate tax defaulters are now being published by HM Revenue and Customs ("HMRC").  **The purpose of this is to act as a deterrent to those who have received penalties for either making deliberate errors in their tax returns or deliberately failing to comply with their tax obligations.  HMRC may publish this information under Section 94 Finance Act 2009, which came into force on 1 April 2010. Although these powers were granted in 2010, HMRC are only now beginning to use them in earnest.* [![HMRC_logo-W(2)](https://taxdisputes.co.uk/wp-content/uploads/2013/11/HMRC_logo-W2-300x108.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2013/11/HMRC_logo-W2.jpg) ## Section 94 Finance Act 2009 Under section 94(1) of the Finance Act 2009, HMRC may publish information about any person if a) in consequence of an investigation conducted by the Commissioners, one or more relevant tax penalties is found to have been incurred by the individual, and b) the potential lost revenue in relation to the penalty (or the aggregate of the potential lost revenue in relation to each of the penalties) exceeds £25,000. A relevant tax penalty includes a deliberate inaccuracy in a tax return or document for a tax period beginning on or after 1 April 2010, a failure to comply with certain obligations (such as the obligation to notify HMRC of a VAT liability) or excise wrongdoing that occurred on or after 1 April 2010. ## What Information Can Be Published? Under section 94(1) of the Finance Act 2009 information published by HMRC may contain the following: - the person’s name (including any trading name) - the person’s address (or registered office) - the nature of any business carried on by the person - the amount of the penalty or penalties and the potential lost revenue in relation to the penalty (or the aggregate of the potential lost revenue in relation to each of the penalties) - the periods or times to which the inaccuracy, failure or action giving rise to the penalty (or any of the penalties) relates - any such other information as the Commissioners consider it appropriate to publish in order to make clear the person’s identity. ## HMRC's Crackdown on Tax Evasion: "Name and Shame" Campaign Whilst the notion of publishing personal information about the small minority who try to evade their tax responsibilities may act as a deterrence, there is a real danger that the scheme "names and shames" individuals and businesses. However, Jennie Granger, HMRC's Director General for Enforcement and Compliance has stated: > "Publishing taxpayers' names is not something we do lightly. Publishing their names lets the community know we are tackling this and encourages others to get back on track." ## Section 94 (6) Finance Act 2009: Safeguards for Individuals Under section 94 (6) of the Finance Act 2009, individuals can prevent HMRC from publishing this personal information. Before publishing any information, HMRC must inform the person that they are considering doing so, and provide that person with a reasonable opportunity to make representations about whether such information should be published. Details are published only once all appeal routes are exhausted and details must be published within 12 months of the tax penalty becoming final. HMRC are under a legal obligation to ensure that the information is not published for longer than 12 months. The current list of deliberate tax defaulters can be found on the [HMRC webpage.](http://www.hmrc.gov.uk/defaulters/defaulters-list.pdf) ## Need Expert Tax Advice? Our [expert tax solicitors and barristers](https://taxdisputes.co.uk/) can assist by providing comprehensive legal advice. --- # How one family were brought to their knees by the taxman Source: https://taxdisputes.co.uk/2012/12/how-one-family-were-brought-to-their-knees-by-the-taxman/ ## Businessman tells how his life was destroyed after being wrongly accused of fraud by HMRC. ![How one family were brought to their knees by the taxman](http://i.telegraph.co.uk/multimedia/archive/02415/hone_2415776b.jpg) Left to right: Pam and Pat Owen; Richard and Heather Mills; Bill and Rikki Owen; Ricki and Francis Hone Photo: Geoff Pugh By Alasdair Palmer, [The Telegraph](http://www.telegraph.co.uk/finance/financial-crime/9716421/How-one-family-were-brought-to-their-knees-by-the-taxman.html) Rick Hone will never forget the morning of February 5, 2009. “I was in the car when I got a phone call from the office. The voice at the other end of the line was hysterical. I couldn’t really understand what was happening. I just knew I needed to get back to base immediately. When he returned to Abbey Forwarding in Woolwich, London, the drinks warehousing business of which he had been a director for five years, he was shocked by what he saw. ”There were about 20 officers from HMRC [Her Majesty’s Revenue and Customs, the tax authorities],” he remembers. “Some of them were already changing the locks on the doors. Others were going through the company’s documents and computers, packing them up to take them away.” One officer came up to Mr Hone and told him: “You owe over £5million in taxes. You can’t pay it. The company will be closed down to protect the creditors.” He introduced a woman whom he said had been appointed liquidator by HMRC to liquidate Abbey Forwarding. “She told me that I had just been sacked, along with half the other staff,” Mr Hone remembers. “She would sack the rest in four to six weeks time: for the moment, she needed their help in winding down the company.”* The woman was Louise Brittain (correct). She now works for Deloitte, charges around £750 an hour, and is described as very tough and experienced. In 2010, she was ranked 17th in Accountancy Age’s list of the industry’s top 100 power players. She has said that she works out “the pinch point for the fraudster in advance. It could be their family or a house they’re particularly emotionally attached to.” Having identified it, she goes for it. Mr Hone’s 'pinch point’ was his business. He and his fellow directors, Richard Mills and brothers Pat and William Owen, whose father had started the company in 1971, didn’t know what to do. “We were looking at financial ruin. Louise Brittain told us our personal bank accounts had all been frozen. We had been ejected from our own company. Thirty-two people had lost their jobs. We didn’t even know where we would get money to live on.” The action by HMRC had come out the blue. “Our business, systems and accounts had been given a very thorough going-over by a man from HMRC only a month prior to the liquidation order,” Mr Hone recalls. “We had a letter back from him which gave no hint that we were suspected of fraud. In fact he said our accounts were in order.” I have seen that letter. It identifies a failure to keep some records according to approved protocols, but also states that “no inaccuracies were identified.” So what had persuaded HMRC that Abbey Forwarding was “at the centre of a large, multinational, multimillion pound fraud”? It had a turnover of several million pounds a year on the business of storing and arranging the transport of beer, wines and spirits. The taxes on alcohol are a large part of the retail price, and a great deal of money can be made by avoiding them. But why, having been through Abbey’s books and not identified anything which indicated fraud, did HMRC think the company was engaged in avoiding taxes? The details of HMRC’s case changed several times: its essence was that its directors had systematically aided and abetted the evasion of the duty on the drink they stored and transported. But it was based on suspicion, assertion and the conviction of its officers that fraud was being perpetrated, rather than hard evidence. “It was a nightmare, everything that we had built up over years of hard work was destroyed in an instant,” says Mr Hone. “And the worst thing was, we couldn’t even appeal against HMRC’s order to liquidate Abbey because of its assessment that we owed £5 million.” When the liquidator takes over a company, and the employees are sacked, the directors all become ex-directors. They have no standing in the company - legally, they no longer have any relationship with it. So, in law, they cannot appeal a judgment affecting the company. The person who can appeal is the liquidator. But the liquidator, although appointed by a judge, is selected by HMRC. That Catch-22 situation looks very unfair to the ordinary citizen, who can be crushed beneath the juggernaut of a huge state agency, without most of the usual checks and balances to ensure that it is not misusing its power. Mere suspicion by HMRC officials that fraud is occurring can be enough to ruin a business. HMRC can apply to a judge at an “ex-parte” hearing: one at which the company it wants to liquidate is not represented, and so cannot defend itself. That is what happened in the case of Abbey Forwarding. The judge admitted he did not have time to go through in detail the evidence that allegedly proved their involvement in “large-scale fraud”. He was persuaded that “these gentlemen are fraudsters.... there must be a risk, if they are given even a chink of light, of moving assets, removing computers, shedding documents. [But if] a liquidator can go in, properly armed in terms of numbers of people, none of this will be possible.” The judge agreed to the appointment of a liquidator. But in fact, “these gentlemen” were not fraudsters, and HMRC’s “evidence” turned out to be spurious. The judge who granted the liquidation order could not have known that at the time because he was not given the opportunity to test that evidence. And what happened subsequently shows the dangers of granting liquidation orders on the word of HMRC alone. Eighteen months later, a different judge was given the opportunity to assess HMRC’s evidence in detail. Ms Brittain, as liquidator, decided to sue the former directors for “malfeasance”: they had failed in their duty to operate the company honestly. Judge Lewison was given the task of assessing whether or not HMRC’s claims about Abbey’s former directors were true. He found that they were false. Ms Brittain had, for example, alleged that on 301 occasions, HMRC had stopped lorries recorded as having picked up cans of beer from Abbey’s warehouse -- but each one of those lorries had, when stopped, been empty. This showed that Abbey was part of a conspiracy to sell the alcohol without paying the duty owed on it. But Judge Lewison discovered that, in fact, there were only three occasions when HMRC stoppped empty lorries from Abbey. As the judge pointed out, HMRC and Ms Brittain had exaggerated “by a factor of a hundred”. How such an allegation came to be made was, as Judge Lewison dryly observed, “unexplained”. But, whatever the explanation, HMRC presented sworn evidence to the court that was untrue. Furthermore, on each of those three occasions, there was an innocent explanation. Judge Lewison was astonished when one HMRC employee admitted that he had no evidence that Abbey had been involved in fraud, but maintained that he had no proof that it was not involved in criminal activity -- which, as the judge pointed out, is not grounds in law for liquidating the company. In July 2010, he found that there was not a single item that proved that anyone at Abbey had been involved in any conspiracy to defraud HMRC, or indeed any fraud, and he dismissed the action against Mr Hone and the Owen brothers. It was an enormous vindication for them. In the 18 months since Ms Brittain had taken over their company in order to liquidate it, their lives had been total misery. “I came very close to suicide”, Mr Hone told me. “It just seemed so hopeless. Every possible way of proving my innocence, of getting my business and my life back, was blocked. The strain on our family was terrible. My son felt he couldn’t go to university: he had to start earning. My mother’s pension was tied up in the business. The legal bills were huge. We had to mortgage everything, and borrow as much money as we could.” Mr Hone, from Chiselhurst, Kent, who has been married for 26 years, said: “The liquidator took possession of my mobile and called every single person in my address book, including my mother and godson, and asked them how much money I owed them.” HMRC and their lawyers were ruthless. Two months before Judge Lewison reached his decision, they sent a letter reminding the directors that they were “bound to lose all of their assets and are all likely to go bankrupt”, and that there would be actions against their “family members who have profited unduly from Abbey”. It warned them that they could only “avoid complete ruination” by admitting their guilt and settling the case. ”We knew we were innocent,” stresses Mr Hone. “We were never going to give in, not even if they took everything from us.” And despite Judge Lewison’s ruling, they came very close to doing precisely that. Not only did HMRC maintain they had been right to close the company, they increased the amount owed to £7million. Ms Brittain, the only individual with legal standing to appeal HMRC’s assessment, refused to appeal it. HMRC’s strategy seemed to be to wear down Mr Hone and his fellow directors by attrition: there were further hearings, costs mounted. Backed by the state, HMRC had infinite funds. They knew that their opponents had very limited resources. But they did not give in. They won a series of rulings against the prevaricating tactics of HMRC. On August 4, 2011, five days before their appeal against HMRC’s assessment and tactics was finally to be heard in court, HMRC withdrew their claim that Abbey’s ex-directors owed £7 million in taxes and duties. In a highly unusual step, Ms Brittain stepped down as liquidator. A new liquidator has been appointed on the recommendation of Mr Hone’s lawyer. He is still awaiting delivery of the relevant documents. Last week, Mr Hone and the Owen brothers were in court again, suing the liquidator and HMRC for damages for having wrongly frozen their personal bank accounts. After that, they hope to launch a case against HMRC for the loss caused by the liquidation of their company, which amounts to millions of pounds in legal and other fees. What happened to Abbey Forwarding is not an isolated case. Lawyers who specialise in liquidation proceedings note that HMRC frequently use ex-parte hearings to obtain liquidation orders against companies they suspect of fraud. Of course, many are guilty as charged. But some are not. There has been disquiet for some years in legal circles at the extent of HMRC’s power. Geraint Jones, QC, a barrister who has been involved in many high-profile tax cases, notes that, as it stands, the law allows HMRC to be “judge, jury and executioner” in its own case. But there are no plans to limit that power; HMRC argues it needs the power in order “to catch the bad guys”. HMRC will not comment on individual cases, but they insist there are sufficient checks and balances because they have to apply to a judge for a liquidation order. “We only use ex-parte applications in the most serious cases to deal with the risk of assets derived from fraudulent activity being hidden, or company books and records being destroyed,” said an HMRC spokesman. “We set out to the Court why we think this approach is the right one. The granting of a provisional liquidation order is then a matter for the court alone.” To which, Mr Hone responds: “When a judge was able to test HMRC’s evidence properly he found it was all rubbish. If there had been a proper test at the ex-parte hearing the liquidation order would never have been granted in the first place.” In his view, HMRC’s ability to liquidate companies without robust evaluation of its evidence takes on a sinister quality. He thinks himself lucky not to have been flattened by the power of HMRC; others may not be so fortunate.   --- # MTIC Fraud: VAT Fraudster Ordered to Pay £14 million Source: https://taxdisputes.co.uk/2013/09/mtic-fraud-vat-fraudster-ordered-to-payback-14-million/ *Nasir Khan, who was convicted **in 2011 for his role in a Value Added Tax (VAT) fraud, **has now been ordered by the Crown Court to pay back £14 million within nine months or face extended jail time.  Mr Khan **was once shortlisted for the Bank of England's Young Entrepreneur of the Year award. Mr Khan was also married to the Footballers' Wives actress Laila Rouass.* ## Missing Trader Intra Community VAT Fraud Nasir Khan was the owner of The Accessory People PLC, an apparently successful business dealing in mobile phone accessories. Around 2001, The Accessory People PLC began fraudulent wholesale trade in mobile phones across the EU boosting turnover from £13 million in 2002 to £219 million in 2003. HMRC have stated that Nasir Khan and his criminal gang were involved in one of the UK's largest VAT “missing trader” fraud over a period of two years between June 2001 and July 2003. VAT fraud is also known as the [missing trader intra community (“MITC”) or carousel fraud](https://taxdisputes.co.uk/carousel-mtic-fraud-missing-trader-intra-community-fraud-kittel/), whereby fraudulent businesses interpose themselves in a supply chain trading in high value low bulk goods within the EU in order to obtain, and disappear with, large amounts of VAT on the transactions. The main trade products targeted are usually grey market mobile phones and computer chips, which are either old model stock, or excessive production sold into the grey market by the manufacturers. Such products have a small volume and high value. MTIC fraudsters have recently moved onto other products such as console games, hotel toiletries, alcoholic and Red Bull drinks. MITC fraud exploits the single market rules that were introduced within the EU in 1992. The fraudster must obtain a VAT registration number to enable him to purchase goods VAT free from another EU member state then sell these goods in the UK to other VAT registered businesses, at VAT inclusive prices. These businesses pay the VAT to the fraudster who goes missing without accounting to HMRC for outstanding VAT. On sentencing Nasir Khan in 2011, His Honour Judge Loraine-Smith stated the following: > “The levels of profits were too great for you to resist. You had tried to paint yourself as a generous provider to charities and as a role model – in truth, you were nothing of the kind. You were close to the heart of the fraud and benefited greatly from it.” ## VAT Fraud: Capture and Seizure of Goods HMRC's lengthy investigation into Nasir Khan and his criminal organisation led to a series of coordinated arrests across the UK and resulted in the seizure of over half a million documents by tax authorities across various jurisdictions.  HMRC were successful in obtaining offshore bank accounts which identified how money has been transferred from UK and EU into bank accounts in Hong Kong, Pakistan and Dubai. Robert Alder, Assistant Director of Criminal Investigation for HMRC, said: > “Nasir Khan enjoyed the lifestyle of an international playboy, investing the proceeds of his crimes in a portfolio of luxury rental apartments in London, Marbella and Gibraltar. He kept a yacht and a fleet of luxury cars, including a Bentley, Ferrari, Lamborghini, Porsche and over a dozen Mercedes with personalised number plates. They have all been retained”. HMRC are now targeting alcohol and cash-and-carry businesses that are suspected of engaging in MTIC fraud or carousel fraud. These businesses often have high revenue, low profit margin and fast turnover of stock which make MITC fraud attractive to fraudsters. --- # Evading Import Tax worth £2m Source: https://taxdisputes.co.uk/2012/12/evading-import-tax-worth-2m/ The Old Bailey sentenced a garlic smuggler for six years after evading £2million duty, which is the longest sentence given for evading customs duty. Murugasan Natrajan imported garlic into the UK from his business Perfect Imports & Exports in Southall, West London. However customs officers raided Mr Natrajan's premises after noticing that he had suddenly stopped importing garlic and the importation of ginger had increased. After carrying out further investigations, HMRC  noticed that the temperature in containers that were used to import the 'supposed' ginger was perfect temperature for garlic and unsuitable for ginger. After raiding Mr Natrajan's premises, officers discovered over 100 containers were identified where there were strong belief that the contents had been either understated or wrongly described. In addition to seizing computer records from Mr Natrajan's premises, officers also seized £150,000 in cash from Mr Natrajan's home. The reason why Mr Natrajan declared that ginger was imported instead of garlic was due to the fact that garlic attracts 9.6% duty whereas ginger does not. There is duty on garlic to provide protection for garlic growers in the EU. Ginger is rarely grown in the EU and therefore non-EU imports for ginger do not attract any duty. Mr Natrajan was convicted in his absence after he failed to surrender to bail. HHJ Worsley described the scam as "sophisticated, persistent and prolonged" and went on to say that "these rules are designed to protect legitimate businesses from unfair competition". This case is a clear indication that HMRC are cracking down on Importers to ensure that they are making the correct declarations in the shipping records and that the correct duty is being paid on imported vegetables. Furthermore, in imposing a lengthy prison sentence, the courts have showed that they take duty evasion very seriously. It should be noted that the duty on vegetables can be a complex minefield to get your head around. Even HMRC have on occasion incorrectly classified and imposed or failed to impose duty on vegetables, which includes wrongly classifying frozen garlic as tax-free in 2005 which led to a long running legal row with the European Commission. Although it has been said before, it is clear that sufficient knowledge and experience is needed when dealing with duty on imported goods both within the EU and outside the EU.   --- # Case Study: Successful Appeal on Disclosure to HMRC (demanded under Schedule 36 Information Notice) Source: https://taxdisputes.co.uk/2013/12/disclosure-to-hmrc-implications-of-schedule-36-information-notice/ *In the case of [Kevin Betts v HMRC  [2013] UKFTT 430](http://www.bailii.org/uk/cases/UKFTT/TC/2013/TC02824.html), the First-Tier Tribunal (Tax Chambers) ("FTT") allowed Mr Betts appeal against a schedule 36 information notice issued by HM Revenue and Customs ("HMRC"). The dispute arose when HMRC requested detailed financial information from Mr Betts in order to verify his tax position stated on his tax return. The FTT upheld Mr Betts appeal ruling that HMRC did not have proper "reason to suspect".* [![Tax Tribunal UK HMRC Appeal Lawyer Tax Disputes Solicitor Barrister London](https://taxdisputes.co.uk/wp-content/uploads/2013/12/TAXcolour.gif)](https://taxdisputes.co.uk/wp-content/uploads/2013/12/TAXcolour.gif) ## Facts: Betts v HMRC at Tax Tribunal In this case HMRC assessed Mr Betts for the tax year ending 5 April 2009. Mr Bett's tax return showed that he was a non- UK resident  for tax purposes. Mr Betts stated that he emigrated from the UK in March 2008. Mr Betts informed HMRC that he had put his car and home on the market. Moreover, he rented out his home, rather than selling it, due to the poor property market. Mr Betts also received an £808,000 dividend from his company in the UK. In order to verify Mr Betts tax position, HMRC requested bank, building society and credit statements. However, Mr Betts refused to provide these documents to HMRC. In light of this,  HMRC issued Mr Betts with a schedule 36 information notice, pursuant to paragraph 1, schedule 36, Finance Act 2008 to obtain these documents. HMRC believed that Mr Betts dividend from his UK company would be chargeable at a higher rate of tax if he was a UK-resident. Under paragraph 29, schedule 36, Finance Act 2008, Mr Betts appealed against HMRC's notice. ## The Law:  Paragraph 1, Schedule 36, Finance Act 2008 Under paragraph 1, schedule 36, Finance Act 2008, HMRC may issue a notice requiring a taxpayer to provide information or to produce a document if that information or document is reasonably required to assess the taxpayer's tax position. The taxpayer must comply with this request within the time specified in the notice. However, if a taxpayer has made a tax return for the relevant tax period, HMRC may not issue the notice unless any of four conditions (A-D) are satisfied (paragraph 21, schedule 36, Finance Act 2008).  In summary, these conditions are: - **A**: a notice of enquiry has been given in respect of the return, or (b) a claim or election made by the person in relation to the chargeable period in respect of the tax. - **B**: an officer of Revenue and Customs has reason to suspect that an amount that ought to have been assessed to relevant tax for the chargeable period may not have been assessed. - **C**: the notice is given for the purpose of obtaining any information or document for the purpose of checking that person's VAT position. - **D**: the notice is given for the purpose of obtaining any information or document that is required for the purpose of checking the person's position as regards any deductions or repayments referred to in paragraph 64(2) (PAYE etc) ## First Tier Tax Tribunal Decision At the hearing, HMRC abandoned their reliance on condition A accepting that the tax enquiry had been not validly opened. Alternatively, HMRC relied on condition B and argued that the bank statements were needed as HMRC had reason to suspect that amount  that ought to have been assessed may not have been assessed. The FTT rejected this argument and  allowed the appeal on the basis that condition B was not satisfied. The FTT was influenced by HMRC's proposal that they required the bank statements in order to find out whether Mr Betts was indeed a UK resident for relevant tax period. The FTT held that this approach was wrong and that the position is rather that condition B must be satisfied in order for these documents to be validly sought from Mr Betts. The FTT concluded: > "..condition B was in our judgment clearly not met.  HMRC'S case was that they sought additional information on the basis that the additional information may, when added to the information already held by HMRC, give the “reason to suspect.” This demonstrates that in order to satisfy condition B, HMRC must demonstrate a real and genuine belief (and provide evidence of) the fact that the amount that ought to have been assessed may not have been assessed. However, the FTT did not specify whether this test is a subjective, objective or mixed subjective and objective. Had the FTT addressed this issue, it would have brought clarity and certainty to what is meant by " reason to suspect". Full Judgment: [KEVIN BETTS V HM REVENUE & CUSTOMS  [2013] UKFTT 430 (TC)](http://www.bailii.org/uk/cases/UKFTT/TC/2013/TC02824.html) --- # UK Tax Tribunal Rules on ‘Abusive’ Process Devised to Avoid VAT Source: https://taxdisputes.co.uk/2013/09/uk-ftt-tax-tribunal-rules-on-abusive-process-devised-to-avoid-vat/ *In the recent case of [Julian Massey and Beryl Massey T/A Hilden Park Partnership v HMRC [2013]](http://www.financeandtaxtribunals.gov.uk/judgmentfiles/j7308/TC02787.pdf) the First-tier Tax Tribunal (FTT) ruled that a process to avoid paying Value Added Tax ("VAT") on suppliers of sporting service was 'abusive'. The Tribunal held that these services would have attracted VAT and that the doctrine of abuse of rights should apply in order to prevent tax avoidance. ** The Tribunal found that the appellants wrongfully avoided paying VAT by claiming that two companies were purportedly non-profit entities**.    * ## Facts of the Case: Julian Massey and Beryl Massey T/A Hilden Park Partnership v HMRC [2013] The case concerns two appellants, Hilden Park Partnership (HPP) and Hilden Park LLP (LLP) who were in partnership together and owned a golf course in Kent. In the early 1990s, Mr Julian Massey purchased a plot land with the view to developing a golf course. He entered into a partnership with a company known as Borg Developments Limited.  In 2001, after receiving tax advice, HPP let the golf course to two non-profit companies, namely Hilden Park Members Limited (HPML) and Hilden Park Visitors Limited (HPVL). Both companies were limited by guarantee and both had two directors. The appellants which traded as Leisure Management Limited agreed to provide services to HPML and HPVL, with particular emphasis on operating common areas and collecting green fees as agents for the companies. The fees for this service amounted to £40,000 per year. The annual rent for the golf course, which was payable by the companies to the appellants, amounted to £364,250 which was 50% of the companies combined turnover. HMRC assessed the appellants for VAT on the basis that their business structure constituted an abuse of process and the company should not be tax exempt. The appellants disagreed with HMRC's assessment and appealed to the FTT. The  appellants’ case in this regard is that the arrangements entered into fall a long way short of what could fairly be described as abuse. The appellant argued that HMRC had published guidance stating that it was possible to adopt a structure with a non-profit making company and therefore their business structure should fall within the tax exemption. ## UK FTT's Decision: VAT Tax Evasion The Tribunal dismissed the appeal, under the Halifax principle, namely that the business structure carried out abusive tax advantages and therefore should not be exempt from VAT. The Tribunal stated that the law explicitly provides that some supplies of sporting services will be exempt and others will be taxable. The Tribunal confirmed that as a general rule, the right for an individual to play golf or use health facilities will amount to a taxable supply. However, where that right is conferred to an individual by “an eligible body”, the supply is exempt from VAT. The Tribunal stated: > "There would be an abusive tax advantage if the appellants received covert profits from a company which made supplies which were treated as exempt on the basis that it was non-profit making. It would be abusive because the legislation only intended exemption to apply to truly non-profit making taxpayers." In this case the business arrangement had meant that the company was not truly a non-profit organisation. The Tribunal went one step further and stated that, under certain circumstances, there can be abuse of process even if the structure used by appellants and was itself abusive. ## Conclusion: Abuse of Process & VAT Evasion This decision clearly illustrates that only truly non-profit organisation can be exempt from VAT. The burden of proof is on the taxpayer to establish a *prima facie* case, which HMRC would have to successfully challenge. In any event, this case demonstrates that if companies wish to fall under a tax exemption, proper investigation of the company's affairs, structure and business arrangements must be carried out to ensure that there is no abuse of process. --- # £7M Gold Smuggler Source: https://taxdisputes.co.uk/2012/12/7m-gold-smuggler/ Chaudhary Ali, aged 50, of West London has been jailed for 9 years after being convicted of evading £7 million VAT for smuggling gold into the UK. The gold was sourced  in Dubai and Ali would send two couriers to Dubai, to purchase the gold and would arrange to meet them in Frankfurt. Ali would then swap cases with the couriers and carry the gold into the UK. Goods traded between EU countries are not subject to VAT and as such Ali made it appear that the gold was sourced from Frankfurt. Ali would pass through the EU entry channel at UK arrivals and carry paperwork with him stating that he was a legitimate VAT registered jeweler in the event that he would be stopped by customs. An international HMRC investigation unravelled Chauhary Ali's scam and he was subsequently convicted at Kingston Crown Court after being found guilty of of cheating the Public Revenue contrary to Common Law. Andrew Sackey, Assistant Director, Criminal Investigation for HMRC, said:“Chaudry Ali was a 24-carat criminal. He systematically evaded millions of pounds of VAT in the hope of lining his pockets. Our officers worked tirelessly to catch him, and today’s sentence is the result of that hard work.” HMRC are now considering taking confiscation action.   --- # Tax crackdown to target middle class Source: https://taxdisputes.co.uk/2013/01/tax-crackdown-to-target-middle-class/ Middle class workers will be targeted in a new crackdown on tax evasion promised by the chief prosecutor of England and Wales.  The crackdown on tax evasion is aimed at sending a “clear message” to consultants who push dishonest schemes and the professionals who invest in them, the Director of Public Prosecutions (DPP) has said. The Crown Prosecution Service (CPS) will dramatically ramp up the number of tax evasion cases it takes on – with a view to prosecution – over the next two years, Keir Starmer, the DPP, has said. The CPS will increase by 500% the number of tax files it handles, to 1,500 a year by 2014-15. This compares with 200 tax convictions the CPS secured in 2010 – its current conviction rate for tax cases stands at 86 per cent. > “There have been some cases involving lawyers, some involving tax consultants, and plumbers,” Mr Starmer said in an interview. “Within the ramped-up volume, it’s intended that we will select cases to send a clear message as to the breadth of our coverage.” His comments come amid wider scrutiny of the tax affairs of household names, both corporate and celebrities, as the prolonged financial downturn causes aggressive but legal tax avoidance to attract widespread criticism, as Starbucks found to its cost last month. Multinational companies are also being investigated over £1bn of UK taxes that may have been avoided by transferring profits earned in Britain to their parent companies or to lower tax jurisdictions, it is disclosed today. The issue has seen foreign giants including Amazon, Facebook and Google face increased scrutiny by HMRC’s Large Business Service over how much they contribute to the UK economy despite generating large revenues. An accounting method, known as transfer pricing, can involve a parent company charging its regional divisions in the UK a royalty fee for its brand name and corporate marketing benefits, with the payments being transferred directly to the head office abroad. In other firms, the brand name, trademarks or research and development services are registered not in the UK, but in another country with lower tax rates such Luxembourg or Ireland. This has the effect of magnifying profits in the lower tax jurisdiction and minimising them in the UK. The £1bn under investigation represents a 47% increase in transfer pricing investigations over the last 12 months. A review of the transfer pricing system is already being conducted. Meanwhile, Goldman Sachs became the latest multinational company to attract negative headlines: last week it backtracked on proposals to delay awarding bonuses to its UK bankers until the next fiscal year in order to benefit from a cut in the top rate of tax. Mr Starmer will publicly relay the CPS’s new approach in a speech on Tuesday. He is expected to dispel the idea of tax evasion as a victimless crime, stressing that tax cheats cost each household the equivalent of £533 a year. The CPS’s tougher stance matches that of HM Revenue & Customs – which investigates cases before referring criminal files to the CPS – as both organisations try to rein in the £14bn a year that the economy loses from tax evasion. HMRC’s prosecution office was merged into the CPS in 2010. “This represents a significant policy shift. Historically the Revenue has been a reluctant prosecutor, preferring to concentrate on tax collection and bringing deterrent prosecutions only in the most blatant cases,” said Jonathan Fisher QC, a barrister who specialises in tax cases. In targeting those who invest in schemes or do not declare their full income, Mr Starmer has chosen what could be labelled low-hanging fruit. Middle-class cases are easier to prosecute and less costly whilst they also attract a lot of publicity, hence achieving deterrence. It is carousel fraud that haemorrhages the most money from the economy, estimated at £6bn a year, making it the biggest single source of tax evasion. Organised criminals operating across borders are often behind such scams, making them difficult to prosecute.   --- # HMRC Propose Changes to UK Tax Rules for Limited Liability Partnerships Source: https://taxdisputes.co.uk/2013/10/hmrc-propose-changes-to-tax-rules-for-limited-liability-partnerships/ *HM Revenue and Customs ("HMRC")  have published a new consultation paper, named ['Partnerships: A Review of Two Aspects of the Tax Rules'](https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/200503/130520_Pships_Condoc_FinalVersion.pdf). This consultation paper introduces changes to partnership rules which are aimed to reduce the scope for tax avoidance through the use of Limited Liability Partnerships ("LLP").  It is expected that the new legislation will come into effect on 6 April 2014. * [![llp hmrc tax avoidance tax dispute solicitors](https://taxdisputes.co.uk/wp-content/uploads/2013/10/hmrc-llp-tax-avoidance-lexlaw-solicitors1-1024x351.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2013/10/hmrc-llp-tax-avoidance-lexlaw-solicitors1.jpg) ## Current Tax Rules for LLPs In the UK,  LLPs are governed by the Limited Liability Partnership Act 2000. The LLP is a unique entity as it combines limited liability for its members with the tax treatment of a traditional partnership. Under the current rules, each LLP partner (also known as a member) are taxed individually just like he/she is a sole owner of the business. This means that members of LLPs are taxed as if they are self-employed and are responsible for his or her own tax bills. HMRC are concerned that businesses are using the LLP structure to disguised employment relationships in order to receive more favourable tax treatment. The self-employed status allows the LLP to be taxed favourably on what is, effectively, employment income. Therefore, the LLP member (as well the employer) will not pay National Insurance Contributions. David Gauke, exchequer secretary to the treasury, has stated: > "There is currently an unintended inconsistency in the way that LLPs and general partnerships are treated that means that some LLPs are able to avoid their employment tax obligations" ## New Proposals: Salaried Member Arrangements As currently drafted, the proposals get rid of the automatic presumption of self-employment for LLP member and replace it with two tests intended to establish whether the members are actually “salaried partners” and so liable to PAYE, namely employers’ and employees’ national insurance contributions. The consultation proposes that: - where the LLP is carried on as a partnership by two or more members, the individual would be regarded as an employee of that partnership; or - the member suffers no significant economic risk in the event that the LLP makes a loss or is wound up and should have other rights, such as a variable profit share and an entitlement to a share of any surplus assets on a winding up. ## The Exploitation of Profit/loss Allocations by LLPs Under the current tax scheme, members of LLP's are taxed in accordance with the profits which the partnership generates and in accordance with the partnership agreement. This could allow LLPs to gain tax advantages through the allocations of profits and losses, namely the allocation of profits to a company. Accordingly, LLP structures are being used for tax avoidance purposes, including the allocation of a disproportionate amount of profits to partners who pay tax at a lower tax rate. Moreover, LLPs may allocate profits to company partners to exploit the difference between corporation and income tax rates. In response, HMRC has proposed that the profits allocated to LLP members will be re-allocated to members who fall within the income tax charge and there certain claims for tax loss relief will be refused. ## Conclusion: Implications of Changes to Tax Rules for LLPs The Government believes that the proposed changes to the way LLP members are taxed will yield £300 million within two years, primarily from large professional services firms. However, the proposed changes are likely to reduce the attractiveness of the LLP as a form of business structure which may skew the figures in future years. When these proposals come into force, LLP's which are caught by the proposed legislation will need to review their business structures and tax methods to decide what changes (if any) are needed as a result of the new legislation. --- # Jurisdictional Limitations of the First-tier Tribunal (Tax) Source: https://taxdisputes.co.uk/2013/02/jurisdictional-limitations-of-the-first-tier-tribunal-tax/ The ongoing development of the First-tier tax Tribunal and the limitations of its jurisdiction have been unclear for those wishing to appeal against their tax assessments and in particular appeals against VAT assessments. The First-tier Tribunal, which was created in 2008 under the auspices of the Tribunal, Courts and Enforcement Act 2007 is still considered to be in it's infant stages and therefore, unsurprisingly the parameters/effects of its jurisdiction are yet to be completely determined. ## The First-tier Tribunal's limitations A prime example of the limitations of the First-tier Tribunal's jurisdiction is set out in the recent case of *HMRC v Abdul Noor [2013] UKUT 071* . In this case the Upper Tribunal decided that the First-tier Tribunal does not have jurisdiction to consider a claim based on legitimate expectation. This case was an appeal in relation to a legitimate expectation to deduct input tax for VAT purposes. The Upper-tier Tribunal's decision was based on the following: 1. The Upper Tribunal confirmed that the First-tier Tribunal does not have any general supervisory jurisdiction (This had already been explored in the case of *HMRC v Hok Ltd [2012] UKUT 363*) 2. The Upper Tribunal stated that Parliament to not intend to allow the First-tier Tribunal to consider legitimate expectation cases due to the fact that it would extend the function of the  purpose of the tribunal 3. That the First-tier Tribunal has jurisdiction over contract claims (i.e that a claim was in accordance with the VAT legislation and an agreement made by HMRC under is statutory powers) which then followed that it cannot also have jurisdiction over legitimate expectation claim which is a public law principle by its nature. ## Confusion in relation to legitimate expectation Since 2009 there had been confusion in relation to claims based on legitimate expectation in VAT appeals. The confusion was caused by the High Court ruling in *Oxfam v HMRC [2010]* where Sales J explained that a claim for legitimate expectation could be brought at the tribunal. However, Sales J followed that up by stating that it would be advisable for taxpayers to issue a claim for Judicial Review as well as appeal to the tribunal to protect themselves. Although the decision in Noor has clarified matters, many claims lodged at the tribunal had to be stayed pending the decision of the Noor case. Those who were not prudent enough to  lodge a protective claim in the High Court may lose their right of challenge altogether due to the time limits to lodge Judicial Review claims. ## Establishing the jurisdiction of the First-tier Tribunal It should be noted that a point was made that as a matter of principle the First-tier Tribunal is not barred from considering public law principles, and this is supported by provisions in the Value Added Tax Act 1994. However, the extent of its consideration and the circumstances in which it can consider public law matters are limited. --- # HMRC / DVLA collaborate to prevent VAT evasion on Vehicles imported into UK Source: https://taxdisputes.co.uk/2013/04/hmrc-collaborate-with-dvla-to-prevent-vat-evasion-on-vehicles/ HMRC have joined forces with the DVLA in an attempt to stop businesses who bring vehicles in to the UK evading VAT. ## The "NOVA" System The new "NOVA" system will now enable the DVLA to check if a VAT registered business has notified HMRC  when the business brings vehicles in the UK, before they register the vehicle. The NOVA system will replace the old manual checking system in which HMRC claim cost the exchequer £110 million per year of VAT fraud resulting from vehicles being brought in to the UK. ## When to notify HMRC The rules stipulate that a VAT registered business should notify HMRC of all land vehicles that are brought in to the UK permanently within 14 days of the vehicle arriving in the UK. These vehicles include cars, racing cars, motorcycles, tractors, mopeds, fork lift trucks, golf buggies, bulldozers and even in some instances children's motorcycles.  In other words all vehicles that have an engine or a cylinder capacity of 49cc or more should be notified to HMRC before the vehicle is registered with the DVLA. ## When to pay the VAT As to when the VAT should be accounted for depends on where the vehicle is purchased from. If the vehicle is purchased from within the EU then the VAT must be accounted for in the next VAT return. If the vehicle is purchased outside of the EU, the VAT (along with any other duties) must be accounted for at the time the vehicle is imported in to the UK. We anticipate that the DVLA will refuse to register some vehicles on the basis that HMRC have not been notified of the vehicle and that the VAT has not been accounted for. In addition we anticipate that HMRC will raise VAT assessments in relation to the unpaid VAT which may include penalties (which is currently £5 per day for each day that the notification is late). If you have received a VAT assessment in relation to vehicles being brought in to the UK, please contact us immediately so that our specialist legal advisers can assist you in relation to any VAT liability and penalties arising from the assessment. Our tax dispute lawyers will be able to advise you on whether there are prospects for appealing HMRC's decision to the First-tier (tax) Tribunal along with considering other dispute resolution methods available to you. --- # Margaret Hodge MP: UK Tobacco Companies Fuelling Black Market Trade Source: https://taxdisputes.co.uk/2013/10/margaret-hodge-mp-uk-tobacco-companies-fuelling-black-market-trade/ *The Public Accounts Committee have accused Britain's tobacco industry of fuelling black market trade by oversupplying their products to high risk european countries such as Spain, Netherlands, and Luxembourg. Margaret Hodge, chairwoman of the committee, has also accused HM Revenue and Customs  ("HMRC") of  "turning a blind eye" to the fact that UK manufacturers are oversupplying european nations with tobacco products and that these products often find their way back to the UK on the black market.* [![](https://taxdisputes.co.uk/wp-content/uploads/2013/10/cigs_1471868b-300x183.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2013/10/cigs_1471868b.jpg) ## Failings to Crackdown on Tobacco Black Market Trade We understand that 20 per cent of tobacco consumed in Britain is illegal, costing the treasury 1.9 billion a year. Figures stated that 9% of cigarettes and 38% of hand-rolling tobacco sold in the UK come from black market trading.  British tobacco companies are accused of over-supplying european countries with their products and therefore not doing enough to counter tobacco smuggling within the UK. Margaret Hodge has accused HMRC of not being assertive with these manufacturers, as so far it has not fined a single company. However, figures show there were "only" 265 prosecutions for tobacco smuggling in 2012/13. Margaret Hodge said: > "The department [HMRC] has also failed to challenge properly those UK tobacco manufacturers who do not do enough to tackle avoidance of UK tax by supplying more of their products to European countries than the legitimate market." HMRC did plan to launch a new project to combat manufactures for over-supplying tobacco products to high-risk. However, the scheme had to be abandoned because of “legal concerns” and was described as "very optimistic". However, in the last two years alone nearly 3.6billion illicit cigarettes and over 1,000 tonnes of rolling tobacco have been seized resulting in 432 prosecutions. HMRC spokesman has stated that tobacco smuggling gangs are constantly "adapting to the huge downward pressure HMRC puts them under" and that this pressure has caused "the long-term decline of this illegal trade." ## PAC Recommendations: Investment & Crackdown on Black Market Tobacco Trade The committee's findings state that more needs to be done by HMRC and other public authorities to tackle and eliminate black market trading. One way of achieving this is objective by publicising prosecutions to deter current and potential offenders. The government have now stated that they are going to reinvest nearly £1 billion in HMRC to fight against tax evasion, fraud and avoidance, with specific emphasis on black market tobacco trading. --- # Retailer jailed for evading import duty and VAT Source: https://taxdisputes.co.uk/2013/07/retailer-jailed-for-evading-import-duty-and-vat/ The owner of Quality Foods, Mr Puis Sedani (“Mr Sendani”), 51, has admitted to evading £580,000 worth of [import duty ](https://taxdisputes.co.uk/hmrc-duty-evasion-fraud/)and [VAT](https://taxdisputes.co.uk/vat-evasion/) on tobacco products. Despite two previous warnings from HM Revenue & Customs (“HMRC”) for selling illegal tobacco and alcohol in January 2011 and December 2011, HMRC officers still later uncovered in November 2012, 447 kilos of chewing tobacco and 2,520 cigarettes at his cash and carry store in Southall. Mr Sendani was sentenced for two years and four months imprisonment at the Central Criminal Court, Old Bailey on 22 July 2013 and ordered to pay £278,196 by 5 August 2013 or face a further three years in jail. Quality Foods’ Limited company LB Enterprise recently reported a 79.9% rise in pre-tax profits to £1.38 million, whilst company sales have increased by 63.2% to £19.3 million. John Pointing speaking on behalf of HMRC stated that “Sedani was given two warnings, but persisted in selling non-duty paid goods. We cannot allow people to consider themselves above the law, and we will not hesitate to take formal action against those who do so”. --- # HMRC’s campaign for unpaid tax from second property owners Source: https://taxdisputes.co.uk/2013/07/hmrcs-campaign-for-unpaid-tax-from-second-property-owners/ Those who have made a profit on the sale of a property but have not paid HM Revenue & Customs ("HMRC") the right amount of tax have only seven more days to self report. HMRC's Property Sales Campaign was announced in June 2013 as an amnesty type opportunity for those who have recently sold or disposed of properties in the UK or abroad, which are not their permanent residence, to fully declare to HMRC any unpaid Capital Gains Tax (“CGT”) on any sales. [![CGT, Tax Disputes Solicitors, Capital Gains Tax](https://taxdisputes.co.uk/wp-content/uploads/2013/07/Capital-Gains-Tax1.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2013/07/Capital-Gains-Tax1.jpg) The campaign is aimed at those who have second homes in the UK or holiday homes abroad and allows people to voluntarily come forward with the prospect of benefiting from favourable terms. An exemption usually applies from CGT on property sales which have been used as the main family residence (Private Residence Relief). However, the sale of a second home e.g. a holiday home or a property bought as an investment and rented out either in the UK or overseas may be subject to CGT. HMRC has given taxpayers until 9 August 2013 to inform them about any unpaid tax on such property sales and until 6 September 2013 to pay any tax that is due. A disclosure under the HMRC campaign can significantly reduce the amount of penalties due and avoid the possibility of criminal investigations. Taxpayers that fall within the terms of this disclosure should seek legal advice as soon as possible with a view to making a disclosure prior to the deadline. After the 6 September 2013, HMRC is set to take a hard-hitting approach to tax evaders, with a more analytical look at the tax affairs of people who have sold properties which are not their main home and severe penalties or criminal prosecution could follow. HMRC report that the campaign has so far generated £547 million from voluntary disclosures and almost £140 million from HMRC’s on-going investigative work. --- # Tax Tribunal Rules Against HMRC’s Assessment on Consultancy Fee Source: https://taxdisputes.co.uk/2013/10/tax-tribunal-rules-against-hmrc-assessment-on-consultancy-fee/ *In [Maureen Hepburn v HM Revenue and Customs ](http://www.bailii.org/cgi-bin/markup.cgi?doc=/uk/cases/UKFTT/TC/2013/TC02837.html&query=Maureen+and+Hepburn+and+v+and+HMRC&method=boolean)("HMRC") (2013) the First-Tier Tax Tribunal ("FTT") ruled in favour of a taxpayer's appeal in relation to consultancy fee paid to a company which was not incorporated at the time. The taxpayer appealed against HMRC's tax assessment that the consultancy fee should form part of trading income, rather than corporation tax.  **The FTT's decision was largely influenced by the fact that the fee was intended to be paid to the company (not to an individual) and that the time of incorporation was not itself a material factor.   * ## Facts of the Case & Issues in Dispute Miss Hepburn owed 80% of Envireneer Limited and was the managing director. At a board meeting on 10 December 2004, the directors decided that Envireneer could benefit from Miss Hepburn business expertise and development advice. Envireneer Limited therefore decided to appoint Miss Hepburn as a consultant to help development business strategy, on condition that Miss Hepburn would do so through a separate company which would shortly be incorporated. A consultancy agreement was drawn up on 10 October 2005. At that time, a new company had not been incorporated and the consultancy agreement provided for a company to be incorporated "once it has been determined if there are fees chargeable". Miss Hepburn began providing a consultancy service and an invoice for the sum of  £2.385 million was raised by Torglenn Limited. ## HMRC's Tax Assessment: Trading Income HMRC's contention was that section 5 of the Income Tax (Trading and other Income) Act 2005 provides that income tax is charged on the '*profits of a trade, profession or vocation'*. Section 8 provides that a person is liable for such tax is the person receiving or entitled to the profits.  HMRC raised two tax assessments stating that the fee should form part of Miss Hepburn's trading income. The combined tax claimed under these two assessments was approximately £1.2 million. Miss Hepburn appealed to the tribunal against HMRC's assessment stating that the fee should not form part of her trading profits, but should be subject to corporation tax liabilities. ## FTT’s Decision: Corporation Tax The FTT allowed the appeal and held that despite the obvious timing deficiencies, the intentions of the relevant parties matched the reality of the arrangement.  The tribunal stated: > "We cannot accept  HMRC's view that the fee should be treated as the trading income of Miss Hepburn. That seems to us to ignore the reality of the arrangements... the substance and commercial effect of the arrangements was that Miss Hepburn would never be entitled to payment of the fee.  She was to incorporate a company.  It was within her power to do so and she eventually did so." Furthermore, the FTT considered it relevant that Miss Hepburn at no point had any real commercial risk arising out of the arrangement and held that Miss Hepburn would not be required to recognise the fees as trading income. ## Outcome of FTT's Decision The decision of the FTT demonstrates that the tribunal was heavily influenced by a) the intention of the parties when entering into a consultancy agreement b) that the arrangement was entered into for a genuine commercial purpose, not for the purposes of tax avoidance. The tribunal was persuaded to consider the scope and intention of the consultancy agreement and decided that Miss Hepburn was never entitled to payment of the consultancy fee. The case demonstrates that HMRC assessments are capable of challenge if a well-considered legal argument is put forward by [expert tax solicitors and barristers](https://taxdisputes.co.uk/). --- # HMRC report 8% increase in Inheritance Tax Receipts (2012-2013) Source: https://taxdisputes.co.uk/2013/07/hmrc-report-increase-in-inheritance-tax-receipts/ *HM Revenue & Customs (“HMRC”) today published their Inheritance Tax (“IHT”) report for 2010-2011. IHT is levied on the value of a person’s estate at the time of their death and is charged at 40% above the tax-free threshold, which is £325,000 for 2013-2014.* The IHT tax statistics are published by HMRC at the end of July annually and contain a historical time series of data for estates that require a grant of representation (an obligatory for the people who are distributing the assets of the deceased and it gives them the legal right to deal with the respective estate). A grant of representation is not usually needed for low value assets (worth less than £5,000). However, if the estate’s assets are worth over £325,000 then the necessary IHT has to be paid to HMRC, although this threshold is doubled for married couples. HMRC announced last year that the “nil-rate band” of £325,000 is due to increase to £329,000 in 2015-2016. In reviewing the report, the IHT taken by HMRC (“receipts”)  in 2012-2013 was around £3.147 billion and represents an 8% rise from 2011-2012. HMRC claim that this increase was in part a consequence of the freeze in the “nil-rate band”, which has been held at £325,000 since April 2009 and in part a result of falling property prices. HMRC forecasts that receipts are likely to be £3.3 billion in 2013-2014. The report also shows that the average net capital value of tax paying estates is £906,000 compared to £245,000 for all estates requiring a grant of representation. One of the largest differences uncovered in the report was in the amount of securities held by these estates, in 2010-2011 taxpaying estates held an average of £255,000 compared to an average of £32,000 for all estates requiring a grant of representation. Furthermore, the report illustrates that the share of securities in the under 45s age group is higher when compared to the 45-60, 65-74, 75-80 and 85 and over age groups. However, this would be expected as the older age groups begin to realise assets in order to fund retirement as age at death increases. IHT is also due on assets with certain trusts at each ten year anniversary, the report shows that this amount decreased from just under £800 million to £600 million. These amounts were based on the assets net chargeable value and are increasingly reflecting a growing proportion of estates with a net chargeable value of more than £1 million. HMRC have stated that there are inevitable delays in settling the values of estates and obtaining payment of the IHT due. However, over 90% of IHT is paid in the year of death or the year following. **Need Legal Advice?** [Inheritance Tax and Probate Specialist Solicitors](https://lexlaw.co.uk/practice-areas/probate-solicitor-london/) --- # House of Lords Economic Affairs Committee report UK corporate tax regime needs reform Source: https://taxdisputes.co.uk/2013/08/the-house-of-lords-economic-affairs-committee-report-that-the-uk-corporate-tax-regime-is-not-working-and-needs-reform/ *A cross-party group of MPs and peers on the Economic Affairs Committee (“the Peers”) have found that the UK’s corporate tax system as it currently stands “is not working and urgently needs reform”. *[The Economic Affairs Committee published its First Report on ](http://www.publications.parliament.uk/pa/ld201314/ldselect/ldeconaf/48/4802.htm)[Tackling corporate tax avoidance in a global economy: is a new approach needed?](http://www.publications.parliament.uk/pa/ld201314/ldselect/ldeconaf/48/4802.htm) [![House of Lords Economic Affairs select Committee Tax Disputes](https://taxdisputes.co.uk/wp-content/uploads/2013/08/2701203040_5212928a841.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2013/08/2701203040_5212928a841.jpg) The Committee has made it clear that the UK faces a serious problem of avoidance of corporation tax. The committee explained that this was in part due to the complexity of the UK tax regime, but mainly because the international tax regime gives companies opportunities to shift profits between countries in ways that reduce their liabilities in the UK. > *The Peers said that tax avoidance by multinational companies was too easily carried out and “this damages the economy and undermines trust in the tax system”. Maintaining public confidence whilst adhering to HM Revenue & Customs ("HMRC") taxpayer confidentiality has proved to be a tough balance for HMRC to negotiate.* Lord MacGregor, the chairman of the Committee said: > “there is a sense that corporation tax is voluntary for some multinationals that operate globally, while small UK-based businesses go by the book and have to pay. That brings the tax system into disrepute and loses much needed revenue”. The report highlighted the move by Starbucks Coffee Company to volunteer to make extra payments to HMRC after facing criticism as a primary example and urged the UK Government to continue to work with international organisations in a bid to bring about successful reforms.  However, the committee was concerned that HMRC “may not assertive enough in these negotiations” and their “duty of confidentiality to taxpayers limits their scope for parliamentary oversight of HMRC’s dealings with multinational companies”. The Committee supports the case for fundamental reform of the UK’s international corporate tax framework currently being pursued in the Organisation for Economic Co-operation and Development.  However, the Committee said that although a unitary tax system (an alternative to the current practice where taxable profits are divided between countries using a formula) was attractive in theory, there would be difficulty in reaching an international agreement. The Committee has instead specifically proposed that a joint committee of MPs and peers could take evidence in private to avoid claims by HMRC that it could not be held to account over individual deals because of the confidentiality of companies’ tax negotiations. This new proposal would require HMRC to give the new committee private access to the details of individual settlements with multinational companies “so as to provide effective parliamentary oversight of HMRC while maintaining taxpayer confidentiality”. Furthermore, the committee urged HMRC to end its practice of using staff seconded from leading accountancy firms to help design taxes. The report added that HMRC need staff of sufficient quality to take on corporate tax advisors and should be better equipped to do this in future. --- # HMRC & CPS Prosecute Shisha Tobacco Smuggling Gang Source: https://taxdisputes.co.uk/2013/10/hmrc-prosecute-shisha-tobacco-smuggling-gang/ *Six tobacco smugglers have been sentenced at the Old Bailey after being involved in illegal importation of shisha tobacco into the United Kingdom.  The arrests came after HM Revenue & Customers  ("HMRC") amounted their biggest ever investigation into contraband shisha tobacco. The operation began in April 2013 after the Border Force Offices at Tilbury docks discovered 2.2 tonnes of shisha consignment from Dubai.  * [![](https://taxdisputes.co.uk/wp-content/uploads/2013/10/shish-tobacco-300x148.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2013/10/shish-tobacco.jpg) ## HMRC's Investigation: Importation of  Shisha Tobacco Two brothers, Mahfouz Chowdhury and Sayyeduz Chowdhury both from London, were the masterminds behind the operation which involved the transportation of 5.8 tonnes of shisha tobacco into the UK. The operation caused a excise duty loss of more than £0.5 million as the 2,200 packages had false labels which when removed, revealed the true contents to be shisha tobacco. The consignments were destined for various shisha cafes across the UK. When the criminal gang were arrested the authorities discovered large amounts of photographs of tobacco, and hundreds of text messages to other gangs involved in illegal smuggling and transportation of tobacco. HMRC's Assistant Director of Criminal Investigation, John Pointing stated: > “ ...the gang looked to flood London streets with illegal shisha and pocket the taxes due. We are investing more time and resources than ever in tackling the threat posed to the UK economy by tobacco smuggling and will not cease in our efforts to stamp out this trade." The investigation also uncovered that the two brothers had set up four previous importations from the United Arab Emirates over the previous six months, each one described as Arabian incense. ## Tobacco Smuggling into the United Kingdom The two brothers were sentenced by Judge Gerald Gordon for a period of two years. Two other members of the gang were sentenced for 12 weeks in prison, suspended for two years, and ordered to carry out 150 hours of community service.  A further two men will be sentenced on Friday 1 November 2013. These investigations and arrests demonstrates that the police and HMRC are cracking down on tax evasion, with specific emphasis on smuggling tobacco and the evasion of duty tax. If you are concerned about an investigation by HMRC alleging such evasion you should take [professional legal advice](https://lexlaw.co.uk/). --- # Closure Notice Blunder Prevents HMRC from Collecting Tax Source: https://taxdisputes.co.uk/2014/04/closure-notice-blunder-prevents-hmrc-from-collecting-tax/ *In the recent case of [Bristol & West PLC v HMRC [2014]](http://www.bailii.org/uk/cases/UKUT/TCC/2014/73.html) the Upper Tier Tax Tribunal ("UTT") held that a closure notice sent by HMRC to the taxpayer was valid despite HMRC’s claim that the closure notice was sent to the taxpayer by mistake. The UTT overturned the First Tier Tax Tribunal’s ("FTT") decision by stating that a valid notice had been issued. As a result, the notice was valid and HMRC were unable to collect the relevant tax which was otherwise due.* ## Factual Background: Bristol & West PLC v HMRC  On 22 November 2005, HMRC gave notice of enquiry to Bristol & West PLC (“B&W”) in relation to the tax period ending 31 March 2004. On or around 30 October 2007, Mr Howard, the HMRC officer which had conduct of B&W’s tax returns placed a document on the desk of his colleague, Mr Gill. Mr Gill was responsible for issuing closure notices to taxpayers. In accordance with Mr Howard’s instructions Mr Gill inputted information into a computer database which issued two closure notices to B&W in respect to the relevant tax periods. This would ultimately lead to the printing of B&W’s closure notices. It transpired that this was a mistake and the closure notices should not been issued. The closure notices did not show any tax charge in respect to the relevant tax periods. On the same day Mr Howard realised this error and attempted to rectify it. Mr Howard attempted to change the taxpayers address to HMRC's address so that the closure notices would come back to HMRC.  However, the closure notices were received by B&W's legal representatives on 3 November 2007. On 8 November 2007, HMRC wrote to the taxpayer’s legal representatives stating that the present position is that (albeit sent in error) the closure notices are effective. ## Closure Notices under Paragraph 32(1), Schedule 18, Finance Act 1998 Closure notices are governed by Paragraph 32(1), Schedule 10, Finance Act 1998 which provides that *"an enquiry is completed when HMRC by notice ("a Closure Notice") inform the company that they have completed their enquiry and state their conclusions." * There is no statutory form for issuing closure notices and the notice takes effect when issued. HMRC may within 30 days following the issue of the closure notice make amendments. In April 2008, have received legal advice that closure notices could be withdrawn, HMRC sought to do the same. ## FTT’s Decision: The FTT ruled that the closure notice was not effective since it was sent in error to the taxpayer. The FTT concluded that on 1st November 2007 B&W were fully aware (via email) that the closure notice has been issued in error. ## UTT’s Decision: The UTT overruled the FTT’s decision and held that the closure notice was issued when posted.The UTT was heavily influenced by HMRC’s letter to the taxpayer dated 8 November 2007 which effectively lifted the agreed suspension and so the closure notices became effective. At paragraph 63 of the judgment, Mr Justice Peter Smith stated: > “…It is clear that when one looks at the 8th November 2007 letter that HMRC via Mr Howard considered that the Closure Notices were valid in the sense that it intended for them to operate. I do not see how the letter can be given any other construction.” ## The Implications of UTT’s Decision: The decision of the UTT clearly demonstrates that closure notices issued in error are effective when the notice is posted. Despite the fact that the notice was issued in error the taxpayers were successful in persuading the UTT that the notice remains valid and therefore the relevant tax enquiry should come to an end. ** ** --- # Deferral of tax payments due to COVID-19 Source: https://taxdisputes.co.uk/2020/04/deferral-of-tax-payments-tax-lawyers/ *As a result of the financial disruption caused by COVID-19, many businesses and individuals alike are facing significant cash flow issues. As such, the Government have announced that certain VAT and income taxes may be deferred until next year, in a bid to ease this disruption. HMRC have also agreed to allow UK VAT registered businesses impacted by COVID-19 further tax deferrals under time to pay agreements.* HMRC have decided to support businesses and defer the ## When will I have to pay my VAT? On 20 March 2020 Rishi Sunak, the Chancellor of the Exchequer, [announced various financial packages ](https://www.gov.uk/government/speeches/the-chancellor-rishi-sunak-provides-an-updated-statement-on-coronavirus)aimed at alleviating the pressures caused by COVID-19. One of the measures which he implemented was the deferral of many taxes, one of them being VAT. Therefore, payments of VAT which were due to be made between 20 March 2020 and 30 June 2020 will now not need to be [made until 31 March 2021](https://www.gov.uk/guidance/deferral-of-vat-payments-due-to-coronavirus-covid-19). Importantly, you will not need to inform HMRC that you are deferring this payment. ## What does the deferral of VAT mean for my business? Essentially, if your business was paid by customers on a VAT-plus basis, you would usually pay your VAT in quarterly instalments. Therefore, by deferring payment until next year it effectively provides a temporary working capital facility for your business. ## Can I still pay my VAT on time? Yes. If you are a UK VAT registered business then there are two options available to you: - Pay VAT on time before 30 June 2020; or- Defer the payment. Importantly, following the Chancellors announcement, HMRC will not be charging any interest or tax penalties on monies deferred due to COVID-19. If you are unable to meet any of these payments due to coronavirus then you may be able to seek help from HMRC's [time to pay service.](https://www.gov.uk/difficulties-paying-hmrc) ## When is the date set for self assessment? Similarly, under the income tax Self Assessment system, payments which were meant to be made by 31 July 2020 can deferred until **31 January 2021**. It is not necessary to be self-employed to be eligible for this deferral to apply to you. The [guidance provided by HMRC](https://www.gov.uk/government/collections/financial-support-for-businesses-during-coronavirus-covid-19#support-for-businesses-through-deferring-vat-and-income-tax-payments), previously stated that you would only be eligible for this deferral if you were self-employed, this has now been clarified with HMRC stating that the deferral applies to all self-assessment taxpayers. As above, this is optional and you may still chose to pay your income tax on time and avoid the larger payments in January next year. However, if you do chose to defer the payment then you **need** to cancel any direct debit that you may have with HMRC. ## Book your Initial Consultation with our Specialist Tax Solicitors Our [specialist Tax Solicitors and Barristers](https://taxdisputes.co.uk/) deliver expert technical knowledge, strong negotiation skills and advice which can make a pronounced difference to eventual tax penalties, charges and liability.   We provide tax advice and representation against HMRC. [Get in touch ](https://taxdisputes.co.uk/contact-us/)with our expert tax solicitors and barristers so we can get you a result. We provide a quick no cost initial telephone case review to establish whether or not we can help you; just call one of our team on 02071830529. --- # ECJ asked to consider UK’s VAT Treatment of Supplies made to Unregistered Sellers Source: https://taxdisputes.co.uk/2014/05/ecj-asked-to-consider-uks-vat-treatment-of-supplies-made-to-unregistered-sellers/ *In the recent case of[ Avon Cosmetics Limited (Avon) v HMRC (LON/2004/1028)](http://www.financeandtaxtribunals.gov.uk/judgmentfiles/j7615/TC03311.pdf) the First Tier Tribunal ("FTT") considered the appellant’s claim for Value Added Tax ("VAT") relating to the repayment of a significant amount of VAT, estimated at £14 million. The FTT stated that, as this matter related to the validity of Article 11 of the Sixth Directive (implemented in Paragraph 2 of Schedule 6 of the Value Added Tax Act 1994 (“VATA 1994”)), it should be referred to the European Court of Justice (“ECJ”).* ## Facts: Avon Cosmetics Limited (Avon) v HMRC The appellant taxpayer, Avon Cosmetics Limited (Avon), sells its products to representatives who in turn make retail sales to their customers.  The Appellant's trade involves selling not only toiletries, make-up, skincare products and perfumes but numerous other items such as clothing and children's toys. The appellant has operated the business model of selling its products to various representatives (commonly known as Avon Ladies) who would sell these products to customers. The representatives are given a discount from the "brochure prices" of either 20% or 25%. The vast majority of these representatives have modest income and are not registered for VAT purposes. In accordance with VAT principles, the consequence of this is that VAT would only be charged on the consideration received from the sales to the representatives and no VAT would be charged in respect of the retail sales.  However, by way of derogation approved by the EU Council,  HMRC sought to charge VAT on the supplies made by Avon at the full open market rate. ## Legal Dispute: Sch. 2 of Para. 6 of the VAT Act 1994  Avon appealed to the FTT arguing that the treatment on valuation is incorrect because it fails to take into account the seller's costs which would have been deductible had the representatives been registered for VAT purposes. Avon raised a grievance relating to the way in which VAT can be charged, namely by selling to non-VAT registered individuals, who in turn sold to the ultimate customers.  Avon claimed that the derogation under Article 11 of the Sixth Directive (as implemented by paragraph 2 of Schedule 6 of the VATA 1994) resulted in the infringement of fundamental VAT principles. Paragraph 2 of Schedule 6 of the Value Added Tax Act 1994 states where: *" (a) the whole or part of a business carried on by a taxable person consists in  supplying to a number of persons goods to be sold, whether by them or others, by  retail, and  (b) those persons are not taxable persons, the Commissioners may by notice in writing to the taxable person direct that the value  of any such supply by him after the giving of the notice or after such later date as may  be specified in the notice shall be taken to be its open market value on a sale by retail."* ## FTT's Decision:  The FTT agreed with Avon and stated that the derogation did not achieve its objectives in a proportionate manner. The FTT said it would prefer to insert the deduction of expenses from the derogation, rather than declare it invalid. However, the FTT did not consider it had jurisdiction to effect an amendment to the derogation or to declare it invalid. Therefore, the FTT referred the question as to the validity of the derogation to the ECJ. HMRC have indicated that it would seek to appeal to the Upper Tribunal to prevent the question being referred to the ECJ. --- # HMRC Crackdown: Corporate Failure to prevent Tax Evasion Source: https://taxdisputes.co.uk/2020/04/hmrc-tax-evasion-solicitors/ *The new figures released by HMRC indicate that they are taking a harder line on businesses that fail to prevent the facilitation of tax evasion.* *[The Criminal Finances Act 2017 ](http://www.legislation.gov.uk/ukpga/2017/22/contents/enacted)("CFA") introduced a set of Corporate Criminal Offences ("CCO") where a company fails to prevent their employees, agents or other persons from facilitating tax evasion.* ## What does the Criminal Finances Act say? The CCO legislation, introduced in Part 3 of the CFA is not retrospective in nature and introduced two offences: - Failure to prevent facilitation of UK tax evasion offences (Section 45); and- Failure to prevent facilitation of foreign tax evasion offences (Section 46). As per [Part 3 of the CFA](http://www.legislation.gov.uk/ukpga/2017/22/part/3/enacted), where an employee commits an offence of tax evasion, there is strict liability for their employer. Therefore, if found guilty the employer may face an unlimited fine, their only defence being if they can prove they had reasonable prevention procedures in place. HMRC have said that: > *With potentially unlimited fines for organisations found guilty of the offences, organisations must take their responsibilities seriously and put in place reasonable procedures to stop the facilitation of tax evasion. This is not about simply increasing the number of corporate prosecutions but changing industry practice to do more to prevent tax crime happening in the first place.* ## What is a 'reasonable' measure to stop tax evasion? There is a complete defence to the offences above if an organisation: - has in place **reasonable prevention procedures** as it was reasonable in all circumstances to expect it to have, or - it was not reasonable, to expect it to have any preventative procedures in place. HMRC have released [draft guidance](https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/672231/Tackling-tax-evasion-corporate-offences.pdf) on what they deem to be reasonable procedures, it seems that a reasonable prevention measures for the CCO will follow the same 6 guiding principles of the [Bribery Act 2010](http://www.legislation.gov.uk/ukpga/2010/23/contents): - **Risk assessment - **the relevant body must assess the nature and extent of its exposure to people within the body criminally facilitating tax evasion offences.- **Proportionality of risk based preventative procedures** -** **this is assessed on the nature, scale and complexity of the relevant body's activities. HMRC recognise that the reasonableness of organisation is able to exercise over a particular person acting on its behalf and the proximity of the person to the relevant body. - **Top level commitment** - top level management of a relevant body should foster a culture in which activity intended to facilitate tax evasion is never acceptable. - **Due diligence** - the relevant body must apply due diligence procedures taking appropriate and risk based approach in order to mitigate identified risks.- **Communication (including training) - **the organisation must seek to ensure that its prevention policy and procedures are communicated, embedded and understood throughout their organisation.- **Monitoring and reviewing** - the organisation must monitor and review their procedures and update/improve where necessary. ## What are HMRC are doing to enforce this? HMRC are [actively investigating](https://taxdisputes.co.uk/hmrc-tax-investigations/) these matters which is evidenced by the [30 on-going CCO](https://www.gov.uk/government/publications/number-of-live-corporate-criminal-offences-investigations/number-of-live-corporate-criminal-offences-investigations) cases underway where organisations have failed to prevent the facilitation of tax evasion. This is notably the first time that HMRC have released these figures, following a number of Freedom of Information requests. Whilst there have not been any convictions under the CCO legislation, the number of [investigations](https://lexlaw.co.uk/hmrc-tax-investigation-penalty-advice-solicitors/) is evidence that HMRC are actively enforcing the legislation. ## Specialist City of London Corporate Criminal Offences Investigations Lawyers HMRC strongly advise that you seek to appoint independent professional advice. Our [specialist team of Tax Solicitors and Barristers](https://taxdisputes.co.uk/expert-advice/) are experts on all matters covered by the Criminal Finances Act. We can assist you by: - Reviewing your entire matter;- Providing expert advice throughout the entire investigative process; and- Representing you in correspondence, interviews and meetings with HMRC. If you need HMRC Tax Investigation advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. --- # IR35: HMRC pushes ahead with tax reforms Source: https://taxdisputes.co.uk/2020/02/ir35-hmrc-tax-reforms-investigation-advice/ *From 6 April [HMRC will tighten](https://lexlaw.co.uk/hmrc-tax-investigation-penalty-advice-solicitors/) the net on freelance workers. All medium and large private businesses will have to decide the IR35 status of their freelance workers throughout their company. * *In April 2020, HMRC will begin taxing thousands of self-employed workers at a higher rate, in a bid to cut down on a tax loophole used by some self-employed workers who operate through limited businesses.* *If you are a contractor, freelancer or self employed and you are under investigation by HMRC or suspect that you soon will be investigated, then do not delay in seeking [legal advice](https://taxdisputes.co.uk/contact-us/) from specialist HMRC tax dispute solicitors. * ## What is IR35? [HMRC introduced IR35 in 1999](https://webarchive.nationalarchives.gov.uk/20140206165106tf_/http://www.hmrc.gov.uk/ir35/seprelease.htm). The intention was to prevent individuals working in a manner which was effectively the same as employees, but under the guise of limited companies. However, these self-employed individuals do not have to pay national insurance and were paying lower income tax. [Originally, the onus was on individuals](https://taxdisputes.co.uk/hmrc-ir35/) to assess and then declare to HMRC that they fell under IR35. However, HMRC are now tightening the net on these self*-*employed workers by shifting that onus to businesses to determine the status of their contractors. HMRC claim that currently only 1 in 10 contractors, who should be paying these taxes are doing so and that these changes will bring in an additional £3.1bn in additional tax revenue between [2020 and 2024.](https://www.gov.uk/topic/business-tax/ir35) ## Will IR35 apply to my business? You should note that the changes coming in April will apply to larger companies which are in the private sector. If your business falls under any two of the following criteria you will be unaffected by the changes coming in April: - If your business has a turnover of less than £10.2m a year;- If the balance sheet shows assets less than £51m a year; or- If your business has fewer than 50 employees. ## Will IR35 affect me as a self-employed worker? Generally: if you carry out work for a fixed fee, work simultaneously for multiple clients and have control over where and who you work for, you are likely to not be affected by [IR35.](https://www.gov.uk/topic/business-tax/ir35) If you are worried [HMRC has an online tool](https://www.gov.uk/guidance/check-employment-status-for-tax) to aid in assessing if you should be classed as employed or self-employed. However, some self-employed workers argue that the tax is unjust as they will have to pay the same income tax and National Insurance contributions as full-time employees without the same benefits such as holiday pay or parental leave. ## Are there any deadlines for IR35? A 'check employment status for tax' assessment (CEST) must be undertaken by all freelancers or contractors who operate under the guise of a company by **28 March 2020. ** However, the new Chancellor of the Exchequer, Rishi Sunak, has addressed concerns about IR35 this week stating: > "I have spent time with HMRC to ensure that they are not going to be at all heavy-handed for the first year to give people time to adjust as well, which I think is an appropriate and fair thing to do" ## Expert London Tax Investigation Lawyers We can help you at every stage of any[ HMRC Investigation](https://taxdisputes.co.uk/hmrc-tax-investigations/). Our legal team has first-hand experience and [knowledge of how HMRC works](https://lexlaw.co.uk/hmrc-tax-investigation-penalty-advice-solicitors/) at every level, in particular in relation to their legal and complaints teams.  We provide the [very best representation](https://taxdisputes.co.uk/success/) in negotiations with HMRC and defending all allegations in a tax enquiry, [tax fraud investigation](https://taxdisputes.co.uk/hmrc-duty-evasion-fraud/), [criminal tax evasion](https://taxdisputes.co.uk/tax-evasion-hmrc-code-practice-9-investigations/) or similar investigation.  We have a [track record of successfully challenging HMRC](https://taxdisputes.co.uk/success/) decisions and will assist you and appoint forensic support where necessary to provide expert reports. Unlike accountant tax advisers we analyse the merits at the outset and keep them under review and we won’t have to hand over all your confidential data as lawyers have legal advice privilege unlike accountants. Our [specialist Tax Solicitors and Barristers](https://taxdisputes.co.uk) deliver expert technical knowledge, strong negotiation skills and advice which can make a pronounced difference to eventual tax penalties, charges and liability. We provide tax advice and representation against HMRC. [Get in touch ](https://taxdisputes.co.uk/contact-us/)with our expert tax solicitors and barristers so we can get you a result. We provide a quick no cost initial telephone case review to establish whether or not we can help you; just call one of our team on 02071830529. --- # HMRC’s crackdown on cryptocurrencies Source: https://taxdisputes.co.uk/2019/08/bitcoin-ethereum-taxation-advice-solicitors-london/ [Bitcoin](https://bitcoin.org/en/) Investors are likely to receive tax bills regarding their holdings as [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) begin to write to some of the largest cryptocurrency websites. ![lexlaw tax disputes solicitor london hmrc dispute financial litigation solicitors barristers lawyer middle temple](https://taxdisputes.co.uk/wp-content/uploads/2019/08/HMRC-Bitcoin-2.jpg) ## How has HMRC cracked down? [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) have [reportedly](https://www.telegraph.co.uk/investing/news/bitcoin-investors-face-tax-crackdown-hmrc-writes-major-brokers/) written to websites such as Coinbase and [Etoro](https://www.etoro.com/) to pursue information on customers who may owe [Capital Gains Tax (CGT)](https://www.gov.uk/capital-gains-tax). [CGT](https://www.gov.uk/capital-gains-tax) should be due, by law, on the profit made from the [bitcoins](https://bitcoin.org/en/). Due to the anonymous nature of the [bitcoins](http://bitcoin.org/en), it has been harder for [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) to track the tax liabilities of the [bitcoin](https://bitcoin.org/en/) holdings. The UK managing director of [Etoro](https://www.etoro.com/), Iqbal Gandham, stated that the request from [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) for information was “no surprise” with Brazil and America also taking steps to tax [bitcoin](https://bitcoin.org/en/) equities. ## What is Capital Gains Tax? When selling (or ‘disposing’) an asset [Capital Gains Tax](https://www.gov.uk/capital-gains-tax) is the tax that is applied to the profit made from the sale. The gain that has been made it taxed but not the total sum of the money you receive from the sale.    ‘Disposing’ of the asset includes: selling it, gifting it, swapping it for something else, or receiving compensation for it, i.e. an insurance payout if lost or destroyed. ## Do I need to pay tax on my cryptocurrency? Yes, however, there could be limitations to this. It is likely [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) will now discover [bitcoin](https://bitcoin.org/en/) holdings as they begin to contact the biggest cryptocurrency exchange websites. Guidance regarding taxation of cryptocurrency was updated this year stating that gains from 2018-19 should be recorded and taxes should be paid by January. It was also stated that losses should be declared also as they can be offset against capital gains.   ## I've received an assessment from HMRC Our [expert tax solicitors and barristers](https://taxdisputes.co.uk/expert-advice/) can assist you in submitting an appeal to HMRC or the Tribunal and entering into negotiations with HMRC by providing [comprehensive legal advice](https://bankruptcypetitionandannulmentlaw.co.uk/) and robust responses to the investigators. Our [tailored team ](https://bankruptcypetitionandannulmentlaw.co.uk/expert-legal-advice/)which also comprises of specialist forensic accountants can calculate what you owe and make representations on your behalf to HMRC. #### Call us on 02071830529 or complete our online contact form. --- # The spotlight shines on Disguised Remuneration Source: https://taxdisputes.co.uk/2019/03/the-spotlight-shines-on-disguised-remuneration/ ![](https://taxdisputes.co.uk/wp-content/uploads/2019/03/How-to-recognise-and-avoid-tax-avoidance-schemes-1.jpg) HMRC has published [Spotlight 49](https://www.gov.uk/guidance/disguised-remuneration-schemes-claiming-to-avoid-the-loan-charge-spotlight-49) in order to prevent the usage of disguised remuneration schemes to avoid tax liability on income, despite continued promotion of such schemes by financial advisors, tax advisors and accountants.  Previous guidance [39 ](https://www.gov.uk/guidance/disguised-remuneration-re-describing-loans-spotlight-39)and [36 ](https://www.gov.uk/guidance/disguised-remuneration-schemes-claiming-to-avoid-the-new-loan-charge-spotlight-36)state that  "*HMRC is aware of schemes that claim to avoid the 2019 loan charge on disguised remuneration. These schemes don’t work.*" ### What is Disguised Remuneration? [Disguised remuneration schemes](https://bankruptcypetitionandannulmentlaw.co.uk/solicitors-london/new-3-billion-disguised-remuneration-loan-charge-leaves-contractors-facing-bankruptcy/) are schemes that seek to avoid Income Tax and National Insurance contributions by paying users their income in the form of loans that are never repaid. However, as the loans were never intended to be repaid, they do not differ to normal income and are therefore taxable. The most common forms of disguised remuneration in recent years have been [Employee Benefit Trust](https://www.thegazette.co.uk/all-notices/content/101229)s and unregulated pension schemes known as [Employer Financed Retirement Benefit Schemes](https://www.gov.uk/expenses-and-benefits-retirement-benefit-schemes), both of which have now been identified by HMRC as Disguised Remuneration Schemes. ### The 2019 Loan Charge The 2019 loan charge, which is the charge on outstanding disguised remuneration loans, is a [government measure](https://www.gov.uk/government/publications/loan-schemes-and-the-loan-charge-an-overview/tax-avoidance-loan-schemes-and-the-loan-charge) aimed at tackling this type of income tax avoidance. Having previously been announced at Budget 2016 and was introduced in the Finance Act (No 2) 2017, the charge will apply to all loans made since 6 April 1999 if they are still outstanding on 5 April 2019. HMRC has issued a [briefing](https://www.gov.uk/government/publications/hmrc-issue-briefing-disguised-remuneration-charge-on-loans/hmrc-issue-briefing-disguised-remuneration-charge-on-loans) encouraging people to come forward and settle their tax affairs before the 2019 loan charge comes into effect on 5 April 2019. This charge will not arise on outstanding loans if the user has agreed or is progressing towards settlement with HMRC before 5 April 2019. Since the loan charge was announced, HMRC has agreed settlements on disguised remuneration schemes with employers and individuals worth more than £1 billion. Around 85% of this amount was collected from employers, with less than 15% from individuals. ### Am I liable for tax under a scheme I entered into? If the scheme you have entered into falls within the definition of a disguised remuneration scheme, an account of the tax liabilities on this income will have to be made to HMRC. Payment of any tax owing can be demanded some time after you entered into the scheme together with additional penalties. HMRC has written to individuals it knows to be involved in disguised remuneration schemes to encourage them to come forward and settle before the loan charge applies. Once HMRC is aware of the disguised remuneration scheme then an Accelerated Payment Notice may be issued for payment. Loan scheme users have a choice to: - Repay the loans that they took out;- Settle the tax due; or- Pay the loan charge on balances that are outstanding in April. ### Need Expert Tax Advice? If you have entered into a disguised remuneration scheme (or any other tax avoidance scheme), it is important you seek legal advice as soon as possible. Whether you are an employer, employee or contractor, our [expert tax solicitors and barristers](https://taxdisputes.co.uk/expert-advice/) can assist you in managing HMRC’s investigation and entering into negotiations by providing [comprehensive legal advice](https://bankruptcypetitionandannulmentlaw.co.uk/) and robust responses to the investigators. Our [tailored team ](https://bankruptcypetitionandannulmentlaw.co.uk/expert-legal-advice/)which also comprises of specialist forensic accountants can calculate what you owe and make representations on your behalf to HMRC. #### It is important to obtain legal advice before 5 April 2019. Call us on 02071830529 or complete our online contact form. --- # Tax evader’s plan up in smoke: HMRC’s clampdown on tobacco smuggling and excise duty evasion Source: https://taxdisputes.co.uk/2020/01/tobacco-smuggling-excise-duty-tax-evasion-solicitor-london-advice/ [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) are taking a hard line on those found to be in evasion of [excise duty](https://taxdisputes.co.uk/hmrc-duty-evasion-fraud/) through [smuggling](https://taxdisputes.co.uk/smuggling/). In a recent case, an individual from London Dhanji Varsani (who claimed to be jobless) was found to have shipped 6,930kg of hand-rolling tobacco worth £1.2 million in unpaid excise duty. Following an investigation by HMRC he was subsequently jailed for almost 4 years. This case is proof that HMRC are taking a hardline on smugglers. If you suspect that you or your business may be implicated in smuggling or excise duty evasion it is essential that you [seek legal advice](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) as soon as possible to avoid the criminal sanction of imprisonment and the hefty penalties levied against you. ## How was the tobacco smuggled into the UK? The tobacco was smuggled through a shipment of pocket tissues arriving Purfleet in Essex and then being further transported to a storage company in Southall, West London. Despite claiming to be jobless Dhanji Varsani, aged 56, enjoyed an expensive lifestyle which included playing at top golf courses and enjoying exotic holidays. with Matt Palmer, Assistant Director, Fraud Investigation Service, HMRC stating: > “Varsani thought he was above the law and could flout his wealth playing at top golf courses – but now he’s in the bunker. He is paying the price for denying a living for decent, hard-working retailers who don’t trade in such dodgy tobacco and have to fight against an unfair playing field. > > HMRC Spokesman ## What was the punishment for the smuggling? Varsani pleaded guilty to the fraudulent evasion of excise duty; he was sentenced on 11 January 2019 to three years and ten months in prison. ## What is Smuggling? Smuggling is importing or exporting goods illegally, usually to avoid paying duty on them. The types of smuggling that are common relate to products such as drugs, illegal alcohol or tobacco sales. ## What kinds of goods are smuggled into the UK? Current commercial smuggling trends in the UK involve mainly alcohol, cigarettes and hand-rolling tobacco, usually involving criminal organisations. The contents of freight are mis-described, understated, or concealed by purporting to be some other type of legitimate or otherwise duty paid commodity. Detections by HMRC are usually by way of intelligence which can sometimes be covert. ## How do HMRC deal with smuggling? HMRC are currently taking an aggressive approach in relation to smuggling cases and have recently been targeting those they suspect are avoiding pay duty on goods. Recent cases have shown that the courts are also taking smuggling cases seriously and have the power to hand out prison sentences in excess of 6 years imprisonment. It is therefore vital that anyone is who suspected of avoiding to pay the correct duty on goods has legal representation from the outset. ## What is excise duty? An [excise tax](https://taxdisputes.co.uk/hmrc-duty-evasion-fraud/) is a legislated indirect tax and is chargeable, in addition to any Customs Duty which may be due, on the following goods: - **Alcohol**: including beer, wine, cider, and spirits;- **Tobacco products**: including cigarettes, cigars, rolling tobacco, and chewing tobacco;- **Gambling activities**: including bingo, the National Lottery, machine games, and online games that involved the betting of money; and- **Hydrocarbon fuels:** including light fuels, heavy fuels, biofuels, and road fuels. These goods may be either of UK origin, received following an intra EU movement or imported from outside the EU. The duty falls due at the time when the goods leave any duty suspension arrangements including when: - they are released for consumption or otherwise made available for consumption (generally via the warehouse system) registered trader (REDS) or occasional importer receives them in the UK;- a vendor makes a delivery under distance selling arrangements;- missing consignments and other dutiable shortages are discovered; and- goods imported for personal use are then sold or put to commercial use. ## I deal in duty-paid excise goods If you intend to import into the UK, or arrange the importation of excise goods that are duty-paid or released for consumption, in another EU Member State for a commercial purpose, the goods will be liable to excise duty in the UK. There are [three different ways](https://www.gov.uk/government/publications/excise-notice-204b-commercial-importers-and-tax-representatives-eu-trade-in-duty-paid-excise-goods/excise-notice-204b-commercial-importers-and-tax-representatives-eu-trade-in-duty-paid-excise-goods) in which duty-paid excise goods can be imported into the UK for a commercial purpose: - the standard UK duty-paid scheme for unregistered commercial importers.- the Registered Commercial Importer scheme.- distance selling arrangements for sales to private individuals. ## Expert London Smuggling Investigation Lawyers We have experience of all manner of [smuggling](https://taxdisputes.co.uk/smuggling/) cases. Members of our team have enjoyed major successes before the Court of Appeal and at the Central Criminal Court against HMRC in duties based alcohol smuggling fraud investigations and in avoiding the potentially catastrophic effect of confiscation of assets under the Proceeds of Crime Act. If you have been approached by HMRC in connection with importing or exporting goods then you should contact us immediately so that we can liaise with HMRC on your behalf and advise you in relation to any potential inquiry and/or action brought against you. **HAS HMRC MADE YOU A PART OF A SMUGGLING ENQUIRY? We are able to provide clear advice to assist you. [Our Tax Disputes professionals](https://taxdisputes.co.uk) are available to give information and advice. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](javascript:;).** --- # GSK contractors: what HMRC’s letter means for you Source: https://taxdisputes.co.uk/2019/09/hmrc-action-against-ir35-contractors/ *Whilst the Summer Bank Holiday brought sun for many, at least 1500 contractors who provided services to GSK in the last year received intimidating letters from HMRC* ![](https://taxdisputes.co.uk/wp-content/uploads/2019/09/HMRC-IR-35-1.jpg) ## Are you a contractor falling under the IR35 scheme? It is important to read your letter carefully and seek legal advice on the same as soon as possible. The letter may simply be a warning letter and HMRC may not take any further action however HMRC is commencing [investigations](https://www.gov.uk/guidance/ir35-enquiry-by-hm-revenue-and-customs) into contractors' tax affairs and it is vital you seek advice to distinguish between the two letters and any legal requirements ordered by HMRC. ## Self-employed status In their letters, HMRC is requesting that contractors confirm their employment status i.e. prove that they are genuinely self employed. HMRC refer contractors to their [online tool](https://www.gov.uk/guidance/check-employment-status-for-tax) to check employment status for tax. It is important you seek legal advice on the working relationship between you and your company in order to assess your position. There are many factors of a working relationship that need to be considered including but not limited to: - Substitution; - Level of control; - Mutuality of obligations between the parties; and - Use of own equipment. If you are employed through an agency, you need to check your status with the end employer and not the agency. Our highly skilled employment and [tax](https://taxdisputes.co.uk/expert-advice/) teams comprising solicitors and barristers can consider your contract and assess your position in order to advise you on these technical matters. ## I’ve received a letter or penalty from HMRC It is imperative that you **do not ignore** these letters. If you are found to be within IR35 following an HMRC enquiry, HMRC will deliver an assessment and you must pay HMRC the tax and National Insurance contributions due, as well as any interest due on these amounts. If HMRC consider you did not exercise reasonable care in completing your tax returns, you may have to pay an additional [penalty](https://taxdisputes.co.uk/hmrc-penalties/). Our [expert tax solicitors and barristers](https://taxdisputes.co.uk/expert-advice/) can assist you in submitting an appeal to HMRC or the Tribunal and entering into negotiations with HMRC by providing [comprehensive legal advice](https://bankruptcypetitionandannulmentlaw.co.uk/) and robust responses to the investigators. Our [tailored team ](https://bankruptcypetitionandannulmentlaw.co.uk/expert-legal-advice/)which also comprises of specialist forensic accountants can calculate what you owe and make representations on your behalf to HMRC. #### Call us on 02071830529 or complete our online contact form. --- # HMRC steps up investigations into underreported offshore income Source: https://taxdisputes.co.uk/2019/09/underreported-offshore-assets-certificate-of-tax-position-hmrc-investigation-advice/ *Taxpayers are receiving letters from *[*HMRC*](https://www.gov.uk/government/organisations/hm-revenue-customs)* called "Certificates of Tax Position" which asks recipients to confirm that any offshore income and assets tax have been declared. UK taxpayers will receive these letters if HMRC holds information which shows that the taxpayer may have received income or gains which is taxable in the UK. * *If you are unsure as to whether to sign the declaration regarding assets held abroad, you should seek advice from [specialist tax disputes lawyers](https://taxdisputes.co.uk/) before doing so to protect your position going forward and to correspond with HMRC. Our Tax Litigators provide legally privileged & confidential [advice](https://taxdisputes.co.uk/expert-advice/) (unlike accountants and other non-legal tax advisers). Our expert tax lawyers are regulated by the *[*SRA *](https://www.sra.org.uk/home/home.page)*and *[*BSB*](https://www.barstandardsboard.org.uk/)*. * ## Why have I received a Certificate of Tax Position? You will receive a Certificate of Tax Position as HMRC will have received information through the UK's tax information exchange agreements with other countries. It is your responsibility to tell HMRC about UK tax liabilites from offshore gains or income worldwide. The Certificate of Tax Position represents your opportunity to declare to HMRC any offshore income that you may have to pay UK tax on. ## What is “offshore income”? HMRC considers offshore income as any asset which comes from a territory outside the UK. This includes: - interest from overseas bank or building society accounts;- dividends and interest from overseas companies;- rent from overseas properties; and/or- wages, benefits or royalties earned outside the UK. ## What is offshore non-compliance? This occurs where HMRC are owed tax because of tax non-compliance and this non-compliance involves an offshore matter. Offshore issues include unpaid or omitted tax on: - income arising from a source in a territory outside the UK;- assets situated or held in a territory outside the UK;- activities carried on wholly or mainly in a territory outside the UK; and- anything having effect as if it were income, assets or activities of a kind described above According to HMRC, the tax non-compliance involves an offshore transfer if it is not an offshore matter, but the income (or sale proceeds in the case of a capital gain), or any part of the income, was either received abroad or was transferred abroad before 6 April 2017. Moreover, HMRC advice that for inheritance tax, the tax non-compliance involves an offshore transfer if it is not an offshore matter, but the disposition that gives rise to the transfer of value involves a transfer of assets, and after that disposition, but on or before 5 April 2017, the assets, or any part of the assets, are transferred to a territory outside the UK. In all cases, references to the income, proceeds or assets transferred includes any assets derived from or representing the income, proceeds or assets. If non-compliance meets the above definitions, then the RTC rule applies and a failure to correct by 30 September 2018 will result in tougher FTC penalties on 1 October 2018. ## Examples of off-shore non-compliance ### Off-shore non-compliance for Income tax According to HMRC, an example could include a taxpayer receiving cash payments in the UK. They have failed to declare these cash payments and instead opened and paid these into an overseas account. They have received interest on this overseas account but not declared this to HMRC and has submitted inaccurate tax returns. Both the failure to declare cash receipts (as an offshore transfer) and the overseas bank interest (as an offshore matter) should be corrected under the RTC rule. ### Off-shore non-compliance for Income tax and capital gains tax Pursuant to HMRC’s requirements, an example could include  taxpayer owning and renting a holiday home abroad with the rental income not being declared to HMRC. The property could be sold and the profit from the sale was not declared to HMRC either. Both the failure to declare rental income (as an offshore income tax matter) and the gain from the sale (as an offshore capital gains tax matter) should be corrected under the RTC rule. ### Off-shore non-compliance for Inheritance tax There are situations where a taxpayer is domiciled in the UK at the time of their death and their heir inherits the estate which includes monies in an overseas bank account. An heir may take control of the overseas account but fail to disclose this to HMRC. The failure of an executor to disclose the overseas assets of an estate (as an oversea matter) should be corrected under the RTC, according to HMRC. ## How can you avoid higher penalties for undeclared tax liabilities? HMRC advise that you can avoid being charged the higher penalties by making a disclosure of all undeclared tax liabilities and correcting the non-compliance. We will provide expert advice tailored to your situation on whether you need to make a disclosure, and if so, the scope required for each type of disclosure. A disclosure can be made in the following ways: - using HMRC’s [digital disclosure service](https://www.gov.uk/government/publications/hm-revenue-and-customs-disclosure-service)as part of the [Worldwide Disclosure Facility](https://www.gov.uk/guidance/worldwide-disclosure-facility-make-a-disclosure) or any other service provided by HMRC as a means of correcting tax non-compliance;- telling an officer of HMRC in the course of an enquiry into your affairs or- any other method agreed with HMRC. Before you make any kind of disclosure to HMRC, it would be wise to consult our expert Offshore Tax solicitors and barristers. More information on HMRC voluntary disclosures can be found [here.](https://taxdisputes.co.uk/hmrc-voluntary-disclosure-campaigns-solicitors-london/) ## Expert City of London Offshore Tax Disclosure Lawyers If you need advice on [undeclared income](https://taxdisputes.co.uk/hmrc-tax-investigations/), voluntary disclosure, the [Worldwide Disclosure Facility](https://taxdisputes.co.uk/offshore-tax-evasion-tax-avoidance-solicitors-london/) or HMRC campaigns advice, we are available to aid you at every stage of the HMRC disclosure and negotiation process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC. Our team specialises in submitting disclosure reports and negotiating potential penalties. Our [specialist Tax Solicitors and Barristers](https://taxdisputes.co.uk/expert-advice/) deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. **Our Tax Disputes professionals are available to give information and advice in negotiating penalties with HMRC. To contact one of our specialist Tax Lawyers please [click here](https://taxdisputes.co.uk/2011/08/2011/08/2011/07/legal-case-assessment/) or call 02071830529.** --- # Negligently advised IT and NHS contractors face staggering bills from HMRC Source: https://taxdisputes.co.uk/2019/04/negligently-advised-it-and-nhs-contractors-face-staggering-bills-from-hmrc/ ![](https://taxdisputes.co.uk/wp-content/uploads/2019/04/hmrc.jpg) HMRC has been cracking down on tax avoidance schemes and introduced measures in 2017 to claw back unpaid taxes from people who have used so-called '[disguised remuneration schemes'](https://taxdisputes.co.uk/2019/03/the-spotlight-shines-on-disguised-remuneration/). HMRC has already contacted 40,000 people with loan charge demands and it expects to raise an extraordinary total of £3.2 billion in tax. Some individuals who have been involved in such schemes are now facing six figure tax bills. One family wrote to [the Guardian](https://www.theguardian.com/money/2019/feb/16/thousands-of-workers-hit-with-massive-tax-avoidance-bills), stating they had received a bill for £400,000. The individual was a 56 year old who had worked in the IT sector for years and is now potentially facing [bankruptcy](https://bankruptcypetitionandannulmentlaw.co.uk/) with no other option. Another contractor is facing a tax bill of [£200,000](https://www.bbc.co.uk/news/uk-wales-47357522) and losing her home, despite insisting she made no money from the scheme. These demands for payment enrage the people who argue that they often had little or no choice when they were working as a contractor but to enter into these schemes. An IT worker who is currently earning £50,000 a year received a bill for £300,000. He had been involved in a tax avoidance scheme 10 to 20 years ago and he claimed "all he did was follow advice". Often individuals were [misinformed](https://lexlaw.co.uk/practice-areas/professional-negligence-solicitors-london/) and sold these schemes by tax advisers and accountants who they trusted and whose advice they relied upon. It's not just the contractors in the IT field who have been affected. Many workers in the health sector employed via recruitment agencies have been attracted by promises to increase their take-home pay. A leading British medical recruitment agency, aware of the scheme and the implications, recently wrote to 30,000 locum doctors, nurses and NHS clerical staff on its books, warning that if they were enrolled in tax-avoidance schemes they will be getting a large bill from the taxman. HMRC state: “We’ve always been clear that these schemes do not work, warning against the use of tax avoidance schemes in the media and in publications such as our Spotlight series on gov.uk as early as 2009. HMRC have opened tens of thousands of inquiries into these schemes starting before 1999, making users and their representatives aware that their tax return was under investigation.” ## I have received a tax bill from HMRC If you have entered into a disguised remuneration scheme (or any other tax avoidance scheme) or you have now received a tax bill from HMRC, it is important you seek legal advice as soon as possible. Whether you are an employer, employee or contractor, our [expert tax solicitors and barristers](https://taxdisputes.co.uk/expert-advice/) can assist you in managing HMRC’s investigation and entering into negotiations by providing [comprehensive legal advice](https://bankruptcypetitionandannulmentlaw.co.uk/) and robust responses to the investigators. Our [tailored team ](https://bankruptcypetitionandannulmentlaw.co.uk/expert-legal-advice/)which also comprises of specialist forensic accountants can calculate what you owe and make representations on your behalf to HMRC. If you feel you have been negligently advised by tax advisers or accountants in relation to a tax avoidance scheme, our [professional negligence team](https://lexlaw.co.uk/practice-areas/professional-negligence-solicitors-london/) can assist. If you are unable to pay the debt or are facing a bankruptcy petition, our [insolvency solicitors ](https://bankruptcypetitionandannulmentlaw.co.uk/)can advise you on your options. #### Call us on 02071830529 or complete our online contact form. --- # HMRC to focus their efforts on taxing high net worth families Source: https://taxdisputes.co.uk/2020/03/hmrc-to-focus-their-efforts-on-taxing-high-net-worth-families/ *In April 2019 HMRC revealed the existence of a new unit which was created for the sole intention to investigate high net worth families in the UK. This new unit sits inside [Wealthy and Mid-sized Business Compliance (WMBC)](https://www.gov.uk/government/organisations/hm-revenue-customs/contact/high-net-worth-unit) and is tasked to reduce high net worth families exploiting family investment companies to avoid inheritance tax.* ## What is a Family Investment Company? Essentially, a FIC is a private limited company which is usually set up by parents as a vehicle to manage or invest their family wealth. The FIC will have unique articles that set out the rights and interests of each of the members and assign them share classes. This enables family members to have differing levels of control over company decisions and rights to receive dividends. ## What is the Family Investment Companies Unit? If a FIC has a combined asset total of more than $1 trillion, then it would be firmly in the sights of [HMRC's](https://www.gov.uk/government/organisations/hm-revenue-customs) new Unit. The Unit identified that many FICs were simply being used to bypass the many anti-avoidance rules placed in recent years on trusts, which were once a very popular tax-avoidance tool. In an attempt to [maximise their revenues](https://taxdisputes.co.uk/hmrc-tax-investigations/) from the UK's richest families, HMRC set up this team in April last year due to the growing concerns that the ultra rich were avoiding paying tax through an extensive network of legal loopholes. ## How do FIC's avoid Tax? Many FIC's are being used as inheritance vehicles to hold assets, bonds and stocks, which would pay out dividends periodically subject to corporation tax. Importantly, these dividends would not be taxed as personal income, benefiting from the lower rates of corporation tax (assuming the shareholder are higher rate tax payers). This would allow parents to bring their children into the FIC as shareholders, thus reducing inheritance tax in some circumstances. An HMRC spokesperson stated that: > "The Family Investment Company team was established to look at FICs and do a quantitative and qualitative review into any tax risks associated with them with a focus on inheritance tax implications. The team's work is exploratory at this stage and as such, we would not like to share any more details". ## Why use a FIC? Aside from the clear tax benefits, the bespoke nature of FICs allow for greater control over assets and investment strategy than outsourcing the role to investment managers and private banks. Thus allowing parents to exert control over their children's finances. ## Expert London Tax Investigation Lawyers We can help you at every stage of any[ HMRC Investigation](https://taxdisputes.co.uk/hmrc-tax-investigations/). Our legal team has first-hand experience and [knowledge of how HMRC works](https://lexlaw.co.uk/hmrc-tax-investigation-penalty-advice-solicitors/) at every level, in particular in relation to their legal and complaints teams.  We provide the [very best representation](https://taxdisputes.co.uk/success/) in negotiations with HMRC and defending all allegations in a tax enquiry, [tax fraud investigation](https://taxdisputes.co.uk/hmrc-duty-evasion-fraud/), [criminal tax evasion](https://taxdisputes.co.uk/tax-evasion-hmrc-code-practice-9-investigations/) or similar investigation.  We have a [track record of successfully challenging HMRC](https://taxdisputes.co.uk/success/) decisions and will assist you and appoint forensic support where necessary to provide expert reports. Unlike accountant tax advisers we analyse the merits at the outset and keep them under review and we won’t have to hand over all your confidential data as lawyers have legal advice privilege unlike accountants. Our [specialist Tax Solicitors and Barristers](https://taxdisputes.co.uk/) deliver expert technical knowledge, strong negotiation skills and advice which can make a pronounced difference to eventual tax penalties, charges and liability. We provide tax advice and representation against HMRC. [Get in touch ](https://taxdisputes.co.uk/contact-us/)with our expert tax solicitors and barristers so we can get you a result. We provide a quick no cost initial telephone case review to establish whether or not we can help you; just call one of our team on 02071830529. --- # Case Study: HMRC’s Entry, Search & Seizure Declared Unlawful by High Court Source: https://taxdisputes.co.uk/2014/01/case-study-hmrcs-entry-search-seizure-declared-unlawful-by-high-court/ *In the recent case of case of R (on the application of Robin Lees & Others) v Solihull Magistrates Court and HMRC [2013] EWHC 3779 the Claimants sought judicial review against a search and seizure warrant granted by **Solihull Magistrates Court, and executed by HM Revenue and Customs ("HMRC"). **The High Court held that the execution of the search and seizure warrant by HMRC was unlawful. The Court was influenced by the fact that the warrants lacked sufficient specific detail as to the articles sought.* [![p00w68yy](https://taxdisputes.co.uk/wp-content/uploads/2013/11/p00w68yy-300x168.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2013/11/p00w68yy.jpg) ## HMRC's Investigation into Excise Duty Evasion The Claimants were arrested as suspects into a criminal investigation for the storage and sale of non-duty paid excise goods contrary to Section 170 of the Customs and Excise Management Act 1979 and associated money laundering activities contrary to sections 327 - 329 of the Proceeds of Crime Act 2002. On 20 July 2012, search warrants were executed on the distributor of these goods and over 260,000 litres of alcohol were seized with an alleged evasion of duty of more than £556,000. On 21 January 2013, HMRC obtained warrants under section 8 of the Police and Criminal Evidence Act 1984 ('PACE') to search the Claimants' home addresses. During the execution of these warrants various articles were found and the Claimants were arrested. In light of this, the Claimant's launched a judicial review proceedings claiming that the execution of the search warrant by HMRC was unlawful. The claim was brought under three grounds: - Ground 1: the warrants should be quashed as defective because it did not identify with sufficient precision the property which may be seized contrary to Section 15(6) (b) of PACE 1984. - Ground 2: the description of the property (which was subject to the search warrant) was so wide that the Magistrates Court could not have reasonable grounds to believe that such material was likely to be relevant evidence for the purposes of section 8(1) (c) of PACE 1984. - Ground 3: the Claimant's alleged that HMRC were in serious breach of their duty to provide full and frank disclosure of the relevant facts to the Magistrates Court when the application for the warrant was made. ## The High Court's Decision In relation to ground 1, the Court had little difficulty in concluding that the execution of the warrant by HMRC was unlawful. The Court emphasised that the purpose of section 15(6) (b) of PACE 1984 is to enable anyone interested in the execution of the warrant to know what the limits are and that any person can challenge it's lawfulness. Lord Justice Treacy stated: > "...the magistrates had applied the wrong test and failed to consider whether the material was likely to be relevant evidence... the terms of the warrant must be precise and intelligible by reference exclusively to its own terms and not by reference to any other material." In relation to ground 2, the Court held that it was satisfied that there was reasonable grounds for believing that an indictable offence had been committed and that the material in the relevant premises was likely to be relevant evidence. HMRC served new evidence during the proceedings and therefore the Claimant's did not pursue ground 3 further. ## Remedies For Unlawful Entry and Search by HMRC HMRC argued that the Claimants did not act promptly in bringing judicial review proceedings and remedy should only be granted under section 59 of the Criminal Justice and Police Act 2001, or, in the event of any criminal prosecution, under section 78 of PACE 1984. The Court held that the only forum to a challenge to the validity of the warrant is in judicial review proceedings and therefore section 59 was not an appropriate remedy. With reference to section 78 PACE 1984, the court held that as no criminal proceedings were initiated, section 78 PACE 1984 was also not a suitable remedy. The Court ordered the return of all the property within 14 days of marking the order, unless HMRC make an application to the Crown Court under section 59 of the Criminal Justice and Police Act 2001. ## Commentary: Judicial Review Against HMRC The wider implications of this case is that despite the fact that Claimant's did not acting promptly in bring judicial review proceedings, the Court decided not to exercise its discretion in denying the Claimants appropriate relief. Nevertheless, anyone completing legal proceedings against HMRC for unlawful entry and search should always act promptly in bringing judicial review. This case also demonstrates that warrants granted by the Magistrates Court need to be thoroughly checked and scrutinised as to whether the grant and the execution of the warrant is lawful. Full Judgment: [*R (on the application of Robin Lees & Others) v Solihull Magistrates Court and HMRC [2013] EWHC 3779 *]( http://www.bailii.org/ew/cases/EWHC/Admin/2013/3779.html) ## Need Expert Tax Advice? If you have been subject to a tax duty investigation by HMRC our [expert tax solicitors and barristers ](https://taxdisputes.co.uk/)can assist you in managing HMRC's investigation by providing comprehensive legal advice and robust responses to the investigators. --- # Kickboxing company loses VAT dispute Source: https://taxdisputes.co.uk/2020/01/kickboxing-company-loses-vat-dispute/ *The First Tier Tribunal has dismissed a VAT appeal by Premier Family Martial Arts LLP on the basis that kickboxing is not private tuition, and therefore not an exempt activity under the Value Added Tax Act 1994 (VATA 1994) and the company was liable for a VAT bill of £411,497. * ![](https://taxdisputes.co.uk/wp-content/uploads/2020/01/VAT_1200.jpg) ## The Company's dispute with HMRC The dispute between the Company and HMRC commenced on 7 April 2017 when HMRC began a VAT enquiry into the Company. On 11 August 2017 HMRC determined that the supplies of kickboxing classes were not [exempt ](https://www.gov.uk/guidance/vat-exemption-and-partial-exemption)from VAT and were [standard rated (20%](https://www.gov.uk/vat-rates)) and as a result issued a VAT assessment to the Company in the sum of £411,497 for output tax for the Company's supplies of kickboxing classes from 1 August 2011 onwards. The Company requested a review of the decision from HMRC which was upheld on 19 October 2017. The parties subsequently entered into settlement discussions with HMRC and this resulted in the original VAT assessment being cancelled and the date of registration for VAT purposes was amended to 1 April 2018. This meant that the appellant was liable to register for VAT with effect from 1 April 2018, and the classes would be standard-rated for VAT purposes. As the supplies for the classes were not exempt they would be taxed at the standard rate of 20% VAT. ## The Company's Appeal to the Tribunal The Company brought an appeal under [Sections 83(1)(a) and 83(1)(b) of the VAT Act 1994.](http://www.legislation.gov.uk/ukpga/1994/23/section/83) The Company argued that they were VAT exempt under [Article 132(1)(j) of Council Directive 2006/112/EC](https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2006:347:0001:0118:en:PDF) which states: *"member states shall exempt the transactions such as ‘tuition given privately by teachers and covering school or university education". * ### The legislation The main porivsions of the Council Directive 2006/112/EC have been transposed into the Value Added Tax Act 1994. [Section 31 of the Value Added Tax Act 1994 (VATA 1994)](http://www.legislation.gov.uk/ukpga/1994/23/section/31) states* *"*a supply of goods or services is an exempt supply it is of a description for the time being specified in Schedule 9"*. [Group 6 of Schedule 9 of the Value Added Tax Act 1994 ](http://www.legislation.gov.uk/ukpga/1994/23/schedule/9)states *"the supply of private tuition, in a subject ordinarily taught in a school or university, by an individual teacher acting independently of an employer*". At the Tribunal hearing, Judge Beare explained he would proceed solely by addressing the question of whether the supplies of kickboxing classes by the Appellant properly fell within the ambit of Article 132(1)(j) of the Directive. The Tribunal focused on four key questions: - To consider kickboxing or martial arts as a whole?- Is kickboxing taught at a single school or taught commonly?- Is kickboxing taught commonly at schools in the EU?- Is kickboxing purely recreational? Drawing on the case *[Haderer v Finanzamt Wilmersdorf](https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A62005CJ0445)*, Judge Beare said: ‘*it is clear from the CJEU (Court of Justice of the European Union) decisions that it is possible for the tuition of an activity in a school to involve “a transfer of knowledge and skills” from teacher to pupils and yet still fall outside the exemption in Article 132(1)(j) of the Directive because the activity in question is “purely recreational”*.’ The Tribunal Judge observed that *"kickboxing is not an activity which is commonly taught at schools or universities in the European Union". * The Tribunal held that kickboxing was not a VAT exempt activity and dismissed the Company's appeal. *[Premier Family Martial Arts LLP v Commissioners for HMRC [2020] UKFTT 0001 (TC)](https://www.casemine.com/judgement/uk/5e1c19802c94e05a9345294a)* ## Comment This case provides for an in-depth analysis of VAT exempt activities and matters to be determined under the Value Added Tax Act 1994. Reports of this case also reflect the importance of Alternative Dispute Resolution and exploring the same, together with advice on the merits of litigation. ## I have received a VAT assessment or penalty If your company has received an assessment or penalty from HMRC, it is important you seek legal advice as soon possible. We can [advise](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) you on the review procedure, a Tribunal appeal or negotiating with HMRC to agree a repayment plan. ## Need Expert Tax Advice? Our [expert tax solicitors and barristers](https://taxdisputes.co.uk/expert-advice/) can assist your company in managing HMRC’s investigation, appealing any assessments or penalties and entering into negotiations by providing [comprehensive legal advice](https://bankruptcypetitionandannulmentlaw.co.uk/) and robust responses to the investigators. Our [tailored team ](https://bankruptcypetitionandannulmentlaw.co.uk/expert-legal-advice/)which also comprises of specialist forensic accountants can calculate what you owe and make representations on your behalf to HMRC. #### Call us on 02071830529 or complete our online contact form. For general VAT advice, please see HMRC's [page](https://www.gov.uk/topic/business-tax/vat). --- # VAT on Self Storage of Goods: Impact on Landlords Source: https://taxdisputes.co.uk/2014/01/vat-on-self-storage-of-goods-impact-on-landlords/ *HM Revenue and Customs ("HMRC") have issued a [VAT Information Sheet 10/13: Provision of Storage Facilities ("the Information Sheet")](http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_ShowContent&propertyType=document&columns=1&id=HMCE_PROD1_032879) which provides clarity as to what constitutes "storage of goods" for the purposes of Value Added Tax ("VAT") payable on storage facilities. The purpose of the Information Sheet is to establish the correct VAT liability for the use of storage **facilities. ** * [![](https://taxdisputes.co.uk/wp-content/uploads/2013/10/hmrc-llp-tax-avoidance-lexlaw-solicitors1-300x102.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2013/10/hmrc-llp-tax-avoidance-lexlaw-solicitors1.jpg) ## VAT Implications: Storage of Goods Before 1 October 2012, the general rule was that rent is exempt from VAT. Therefore, properties leased for the purpose of storage were exempt from VAT provided the conditions for a licence to occupy land were satisfied. However, the owner of the storage space could elect to pay VAT in which case the license to occupy the land becomes taxable at the standard rate of VAT (20%). ## Value Added Tax Act 1994: Storage of Goods On 1 October 2012, the Value Added Tax Act 1994 ("VATA 1994") was amended so that VAT is now payable on properties leased for purposes of  "the self-storage of goods." If the goods are being stored in a relevant structure then that structure is being used for the storage of goods regardless of any intention of the supplier of the space or any agreement between the supplier and the customer. VAT is payable on such properties even if the landlord has not elected to pay VAT. However, if the purpose of the storage is ancillary to the main commercial business (for example a stock room in a shop) VAT is not automatically charged, unless the owner of the property elects to charge VAT.  These changes are intended to create a level playing field by ensuring that the provision for the storage of goods are taxed consistently. Certain storage facilities remain exempt from VAT such as the storage of live animals, storage of a premises rented to a charity and storage used for non-commercial purposes. ## What is meant by "Storage" and "Self-Storage"? When changes were introduced under the VATA 1994 there was some confusion as to what constituted "storage" or "self-storage". The Information Sheet clarified what is meant by "storage" and "self-storage". Paragraph 1.5 of the Information Sheet stated that there is no difference between "storage" or "self-storage" and that both terms apply to any space which is used for the purpose of storage within a relevant structure which is the whole or part of a building, container or other structure which is fully enclosed. ## Conclusion: Implications for Landlords Owners of leased properties should monitor how the premises are used in order to avoid being liable to account to HMRC for VAT. Another proposition would be for the owner to the premises to carry out regular inspect to ensure that the use of the property is not changed because if storage is not a permitted use under the lease, VAT is automatically chargeable. ## Need Expert Tax Advice? If you have been subject to a VAT assessment by HMRC our [expert tax solicitors and barristers ](https://taxdisputes.co.uk/)can assist you in managing HMRC's investigation by providing comprehensive legal advice and robust responses to the investigators. --- # HMRC’s new framework for double taxation disputes: Should I voluntarily disclose? Source: https://taxdisputes.co.uk/2020/01/hmrc-framework-double-taxation-disputes-voluntary-disclosure-risks-advice/ [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)have outlined revamped proposals for new regulations to deal with double taxation disputes arising between the UK and other EU member states after Brexit. These regulations, which build on the UK's other bilateral tax treaties with EU states and the existing Union Arbitration Convention  are due to come into force by January 2020. ## What is double taxation? [Double taxation](https://www.gov.uk/tax-foreign-income/taxed-twice) refers to the instance where income tax is paid twice on the same source of income. This may occur in international trade or investment when the same income is [taxed ](https://taxdisputes.co.uk/hmrc-tax-investigations/)in two separate countries as well as when income is [taxed ](https://taxdisputes.co.uk/hmrc-tax-investigations/)at both the corporate level and personal level. ## Why can double taxation occur with companies and SMEs? [Double taxation](https://www.gov.uk/tax-foreign-income/taxed-twice) can often occur as companies are legally considered separate legal entities to their shareholders. Therefore, just like individuals, corporations are required to pay [tax ](https://taxdisputes.co.uk/hmrc-tax-investigations/)on their annual earnings. However, when corporations pay out dividends to their shareholders, the shareholders will then have to pay income [tax ](https://taxdisputes.co.uk/hmrc-tax-investigations/)on these earnings despite the earnings being provided to the dividends already being [taxed ](https://taxdisputes.co.uk/hmrc-tax-investigations/)at the corporate level. ## What is International Double Taxation? International businesses can often be faced with [double taxation](https://www.gov.uk/tax-foreign-income/taxed-twice) as the income may be [taxed ](https://taxdisputes.co.uk/hmrc-tax-investigations/)in the country where it is earnt and then [taxed ](https://taxdisputes.co.uk/hmrc-tax-investigations/)again when it is repatriated in the business’ home country. To avoid the issue of [double taxation ](https://taxdisputes.co.uk/)countries across the world a have signed treaties to avoid [double taxation. ](https://www.gov.uk/tax-foreign-income/taxed-twice) ## What is HMRC’s proposal for the new regulations? [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)have outlined proposals for new regulations to combat double taxation disputes arising between the UK and other member states post-Brexit. The new measure will apply to disputes in relation to capital earned in a tax year commencing on or after 1 January 2018. The new regulations do not replace the existing bilateral[ tax treaties](https://www.gov.uk/government/collections/tax-treaties) or the [Union Arbitration Convention](https://ec.europa.eu/taxation_customs/business/company-tax/transfer-pricing-eu-context/transfer-pricing-arbitration-convention_en), however will build on the UK’s network of bilateral [tax treaties](https://www.gov.uk/government/collections/tax-treaties) with other member states. [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)have said the new regulation will build on the UK’s existing bilateral [tax treaties](https://www.gov.uk/government/collections/tax-treaties) as well as allowing another option for businesses or individuals to consider. The new regulations will be able to be applied in respect of a connected party transaction where the other enterprise is a tax resident in another member state. It will allow the persons affected to challenge the decisions made by the member states and to refuse access to the mechanism as well as introducing a role for domestic courts to oversee adherence requirements of the mechanism. It also aims to lessen the amount of administration involved in presenting a case of double taxation for [SMEs ](https://stats.oecd.org/glossary/detail.asp?ID=3123)(small and medium sized enterprises) and individuals. ## What is transfer pricing and the Arbitration Convention? The EU [Arbitration Convention](https://ec.europa.eu/taxation_customs/business/company-tax/transfer-pricing-eu-context/transfer-pricing-arbitration-convention_en) establishes a procedure designed to resolve disputes in which [double taxation ](https://www.gov.uk/tax-foreign-income/taxed-twice)occurs between enterprises of different member states as a result of an upward adjustment of profits of an enterprise of one Member State. The convention is designed to remove the occurring[ double taxation ](https://www.gov.uk/tax-foreign-income/taxed-twice)by creating agreement between the two contracting states including the opinion of an independent advisory body if it is necessary. ## Why is HMRC developing new regulations? In 2019 [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)received 154 requests for assistance with [double taxation](https://www.gov.uk/tax-foreign-income/taxed-twice) dispute resolution where the treaty partner was another state as well as 64 requests from business relation transfer pricing issue and a further 8 requests for other reasons. A review of the [Union Arbitration Convention](https://ec.europa.eu/taxation_customs/business/company-tax/transfer-pricing-eu-context/transfer-pricing-arbitration-convention_en), in 2015, revealed a number of short comings when looking at the length of time to resolve the dispute as well as scope of the mechanism used. Therefore the new mechanism aims to cover a much wider scope, covering disputes arising from the interpretation and application of[ tax treaties. ](https://www.gov.uk/government/collections/tax-treaties) ## Will HMRC be lenient to taxpayers making a voluntary disclosure? Under normal circumstances if HMRC investigate your tax matters and find that you have not paid the amount of tax that you were meant to or that you have failed to disclose financial information then HMRC can penalise you in a number of ways, which could include imposing a penalty of up to 100% of your tax liability or even prosecuting you. HMRC work out the penalties using various factors, including calculating the amount of potential lost revenue, determining ‘behaviour’ of the tax payer, deciding whether the disclosure was prompted or unprompted and considering the HMRC penalty ranges. For example is someone deliberately concealed financial information from HMRC and HMRC prompted them to provide the information then the person could face penalties of between 50% – 100% of the tax liability. The advantage of the ‘wider impact campaign’ or a targeted campaign are that HMRC would be willing to significantly reduce the penalties and in some cases may even waive the penalties altogether. There may also be some instances where the HMRC decide not to prosecute those who have failed to disclose information previously, due to the fact that the disclosure made during the campaign was unprompted. Our solicitors have the specialist knowledge and understanding when negotiating penalties with the HMRC. We do this by making detailed representations on your behalf to HMRC specifying any mitigating circumstances and explaining why your tax penalties are excessive. ## Should you make a voluntary disclosure? It is important to note that HMRC exercise their discretion when reducing or waiving penalties and consider each case separately. HMRC have by their own admission stated that where there are systematic fraudulent matters they will not hesitate to commence prosecution even if the disclosure of the information came as a result of a campaign. Although it is safe to assume that if you disclose your financial information voluntarily then the HMRC are likely to be more lenient when deciding what penalties to impose. If you are under the impression that you should not disclose financial information because you have ‘got away with it’, then the advice would be to disclose the information now rather than later or never, regardless of which industry you belong to. This is due to the fact that HMRC are likely to impose harsher penalties if they later discover that you haven’t disclosed the information. If you find yourself in a position where you need to disclose elements of your earnings or elements of your financial information for previous years then you should contact us as we work with specialist tax advisers who will be able to establish your tax liability. Our specialist solicitors are subsequently able to robustly negotiate the terms of any tax settlement with HMRC. Alternatively, we are able to work with your accountant to ensure that collectively we are able to obtain the best possible outcome for you. ## Expert London Tax Investigation Lawyers If you need HMRC Tax Investigation advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. **We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](javascript:;).** --- # Covid-19 causes delay to HMRC’s IR35 Source: https://taxdisputes.co.uk/2020/03/covid-19-delays-ir35/ *The tumultuous [Covid-19](https://lexlaw.co.uk/wp-content/uploads/2020/03/The-Health-Protection-Coronavirus-Restrictions-England-Regulations-2020.pdf) has caused a further delay to IR35 which will now be implemented on 6 April 2021*. *This news comes at a time of great uncertainty for both businesses and contractors* *with the goal of alleviating the administrative burden they will face in the coming months. * *This delay came as part of a sweeping package of emergency measures announced by the Treasury in a bid to ease the pressures on the economy caused by the Covid-19 shutdowns. * ## What is IR35? [HMRC introduced IR35 in 1999](https://webarchive.nationalarchives.gov.uk/20140206165106tf_/http://www.hmrc.gov.uk/ir35/seprelease.htm). The intention was to prevent individuals working in a manner which was effectively the same as employees, but under the guise of limited companies. However, these self-employed individuals do not have to pay national insurance and were paying lower income tax. [Originally, the onus was on individuals](https://taxdisputes.co.uk/hmrc-ir35/) to assess and then declare to HMRC that they fell under IR35. However, HMRC are now tightening the net on these self*-*employed workers by shifting that onus to businesses to determine the status of their contractors. HMRC claim that currently only 1 in 10 contractors, who should be paying these taxes are doing so and that these changes will bring in an additional £3.1bn in additional tax revenue between [2020 and 2024.](https://www.gov.uk/topic/business-tax/ir35) ## How has Covid-19 impacted IR35? In the midst of the [current global pandemic](https://lexlaw.co.uk/corona-coronavirus-covid-19-legal-litigation-insolvency-tax-employment-dispute-advice/) caused by the [Coronavirus](https://lexlaw.co.uk/wp-content/uploads/2020/03/The-Health-Protection-Coronavirus-Restrictions-England-Regulations-2020.pdf), the UK Government have delayed the implementation of their controversial IR35. It follows calls from members of the House of Lords last week which urged for IR35 to be postponed in light of the global pandemic. Contractors have said that this brief reprieve has granted them temporary relief in times of great job uncertainty. Contractors however are aware that they will be the first overhead to be cut from businesses as they prepare to whether out the proverbial economic storm which is to come. This may drive many contractors to seek full employment within their companies to ensure job security moving forward. The Director of policy at the Association of Independant Professionals and the Self-Employed has said: > "The Government has done the sensible thing by delaying the changes to IR35 in the private sector. It is right and responsible to delay the changes to IR35 for at least a year during the coronavirus crisis, to reduce the strain and income loss for self-employed businesses." > > *Andy Chamberlain, director of policy at IPSE * This news may come too late for some contractors, as many large companies have already made blanket determinations about their contractors tax status or taken this opportunity to thin out their workforces. ## What does this mean for businesses? This delay presents a unique opportunity for both employers and contractors to develop their understanding of the changes IR35 will have and assess its possible impact, in order to make considered decisions about how to best prepare. It has been reiterated by the Chief Secretary to the Treasury that: > “This is a deferral in response to the ongoing spread of Covid-19 to help businesses and individuals. **This is a deferral, not a cancellation**, and the government remain committed to reintroducing this policy to ensure that people who are working like employees, but through their own limited company, pay broadly the same tax as those employed directly.” > > -Steve Barclay Given the current economic status of the UK, it is clear that now certainly would not have been the best time to roll out tax changes which will impact hundreds of thousands of contractors' jobs. However, as Steve Barclay has stated, "this is a deferral, not a cancellation", therefore what matters now is that businesses use this time wisely to prepare for IR35 in April 2021. ## Can I still see a lawyer given the Coronavirus situation? Yes. We are a technologically advanced law firm and are well equipped for the current situation and have the resources and infrastructure to support you with any litigation issue. We are actively monitoring and responding to the COVID-19 situation and will continue to follow advice issued by the [UK Government](https://www.gov.uk/coronavirus), [Public Health England](https://www.gov.uk/government/organisations/public-health-england) and the [NHS](https://www.nhs.uk/). The well-being of our team and our clients is our priority. We are following the advice to maintain [social distancing](https://www.gov.uk/government/publications/covid-19-guidance-on-social-distancing-and-for-vulnerable-people/guidance-on-social-distancing-for-everyone-in-the-uk-and-protecting-older-people-and-vulnerable-adults), therefore we will hold all meetings with clients via video conferencing or via our telephone conferencing facilities for the foreseeable future. ### Check Your Coronavirus Litigation Case ✔ We understand the legal issues arising from the COVID-19 situation which may affect you, your company or your employees. We analyse your case prospects. We deliver strategic legal advice at your first meeting. We get optimal legal results. *Want a first or second opinion on your case? *Click below or call our lawyers in London on ☎ [02071830529](tel:+442071830529) [Check My Case ✔](https://lexlaw.co.uk/legal-case-assessment/) --- # Case Study: Tax Tribunal Directs HMRC to Issue Closure Notice Source: https://taxdisputes.co.uk/2014/02/case-study-tax-tribunal-directs-hmrc-to-issue-closure-notice/ In the recent case of*[ Kenneth William Bloomfield v the Commissioners of Her Majesty's Revenue and Customs [2013] UKFTT 593 (TC)](http://www.bailii.org/cgi-bin/markup.cgi?doc=/uk/cases/UKFTT/TC/2013/TC02982.html&query=Bloomfield&method=boolean) *the First tier tax tribunal directed HM Revenue and Customs ("HMRC") to issue a closure notice in relation to Mr Bloomfield's tax return for the period of 2007-2008. Mr Bloomfield was investigated by HMRC on the basis that he owned three properties which were not disclosed in his tax return. [![p00w68yy](https://taxdisputes.co.uk/wp-content/uploads/2013/11/p00w68yy-300x168.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2013/11/p00w68yy.jpg) ## Factual Background: HMRC's Tax Enquiry In January 2010, HMRC opened an enquiry into Mr Bloomfield's tax returns. Despite providing adequate information HMRC believed that further properties owned by Mr Bloomfield which were purchased in 2007/2008 were not disclosed in his tax returns. As a result, HMRC requested further information from Mr Bloomfield. ## Closure Notice: Application under section 28A(4) Taxes Management Act 1970 In response to HMRC's request for further information, Mr Bloomfield made an application under section 28A(4), Taxes Management Act 1970 (TMA). Under this section, a taxpayer has the right to apply to the Commissioners for directions requiring an officer to issue a closure notice within a specific period. This application will be heard and determined in the same way as an appeal. If the application is successful, HMRC will be required to issue a closure notice unless there are reasonable grounds for not doing so. Mr Bloomfield's application under section 28A(4) TMA was based on the following grounds: - HMRC's enquiry has been unreasonably protracted, onerous and conducted unreasonably; - Mr Bloomfield is a 70 year old male who is undergoing medical investigations for memory loss and confusion; - Following a complaint being made, there has been unreasonable delay and a refusal by HMRC's officers to answer correspondence; and - HMRC made voluminous requests for documents and information, parts of which were based on information already provided, which had not been considered significant. ## Tribunal's Decision: Closure Notice In understanding the tribunal's decision, it is important to note that during the prolonged period of enquiry, it transpired (as was accepted by HMRC at the hearing) that two of the properties in question where not owned by Mr Bloomfield and the third was his home. The tribunal heard evidence that Mr Bloomfield had repeated cooperated with HMRC requests and that HMRC's enquiries had been unreasonable, onerous and continuously extended without good reason. Judge Blewitt stated that when considering an application under section 28(4)A TMA a number of factors need to be considered including, whether the enquiry has been going on for a significant period of time, the cooperation of the Appellant, and other queries which remain outstanding.  At paragraph 17 of the judgment, Judge Blewitt stated: > "...it appeared from the evidence of HMRC that its lines of enquiry would be exhausted and there was no reason put forward as to why HMRC could not reach a conclusion." The tribunal directed HMRC to issue a closure notice within 30 days of its decision which would allow the remaining enquiries to be completed without delay. ## Comments: Implications of Closure Notices This case is a reminder to taxpayers that they can bring to an end a long running investigation and enquiry by HMRC, provided there are sufficient grounds for doing so. However, an application under section 28(4)(A) TMA will not be appropriate in all circumstances and much will depend on specific factors of the case. ## Need Expert Tax Advice? If you have been subject to a tax assessment by HMRC our [expert tax solicitors and barristers ](https://taxdisputes.co.uk/)can assist you in managing HMRC's investigation by providing comprehensive legal advice and robust responses to the investigators. --- # Statement by LEXLAW re Coronavirus (COVID-19): HMRC’s Failure to Process NHS Uniformed Workers Claims for Laundering Uniforms Source: https://taxdisputes.co.uk/2020/03/statement-by-lexlaw-re-coronavirus-covid-19-hmrcs-failure-to-process-nhs-uniformed-workers-claims-for-laundering-uniforms/ ## CORONAVIRUS (COVID-19): HMRC’S FAILURE TO PROCESS NHS UNIFORMED WORKERS CLAIMS FOR LAUNDERING UNIFORMS **LONDON, UK** – The HMRC Director General for Customer Services has taken and continues to pursue an unreasonable decision to suspend the processing of thousands of claims for tax relief made by NHS and other frontline Uniformed PAYE employees where they are seeking to claim tax relief for laundering their uniforms. The Government has made it a number one priority to protect NHS staff including the provision of Personal Protective Equipment (PPE) which forms part of their uniform. This priority ought to encompass the protection of other uniformed persons that serve the public such as police officers and firemen and so on. Given the current unprecedented societal conditions brought about by the COVID-19 pandemic, it is a necessity (and a governmental imperative) to support the nation’s front-line uniformed keyworkers. In particular, to ensure healthcare workers from the NHS and other critical keyworkers are able to claim from HMRC the tax rebates rightfully due to them. Uniformed workers who pay tax through PAYE are entitled to claim tax credit from HMRC. HMRC have published an array of different rules for different uniformed employees online but these rules are cumbersome and difficult to understand. Critics of HMRC might say this is purposeful in order to reduce the number of rebate claims. Because of this many workers prefer to use a pro forma to make a rebate claim by post to HMRC. HMRC are now identifying pro forma claims and have as against certain organisations issued a refusal to process legitimate rebate claims from frontline uniformed workers. HMRC claim that although most claims are correctly made out, some of them fail.  For instance, they say a health worker may be low paid and fall beneath the income tax threshold and so are not entitled to credit. These are not reasonable explanations to justify blanket refusals by HMRC to process claims submitted using ease to use pro forma claim forms. Mr [M. Ali Akram](https://lexlaw.co.uk/our-people/m-ali-akram/), a dual qualified barrister and solicitor practising at City of London law firm [LEXLAW Solicitors & Barristers](https://lexlaw.co.uk/), stated: > *“Thousands of frontline uniformed workers have correctly reclaimed tax against keeping their uniforms hygienically clean, which has meant HMRC having to pay out tens of Millions of Pounds in tax credits. I appreciate that HMRC are trying to maximise government Revenue, but it is completely wrong to delay the processing of claims for tax relief on essential hygiene by frontline NHS health staff and other uniformed workers. Not only should HMRC be speeding up the processing of claims, they should actively consider increasing allowances to take account of the necessary increased laundering of health and other workers uniforms. I fear that some of the hard working, but low paid health workers may find themselves unable to launder as often as they would want. This could lead to contaminated uniforms passing COVID-19 on to vulnerable patients and family members”* LEXLAW has written directly to Ms Angela MacDonald, the relevant Director General at HMRC (copied to the Prime Minister, Boris Johnson) lobbying to seek that she reconsider her draconian policy decision, and in particular has requested that: - HMRC should not be refusing to process any claims for tax relief on laundering and, in fact, the tax allowance should be significantly increased to take account of the increased and critical need for cleanliness promulgated by the COVID-19 threat to the UK.- HMRC should be publicising the fact that tax relief for cleaning and laundering uniform is available to PAYE employees in particular to NHS staff and other uniformed keyworkers who continue to serve the UK for the greater good.- Laundering is a critical service which ought properly to be maintained and that this service be immediately zero rated for the purposes of VAT in the wider public interest, such zero rating to include the cost of collection and delivery as appropriate.- Low paid uniformed workers should be paid an equivalent to the tax relief they would have been given to reimburse them for laundry and cleaning costs. Mr [M. Ali Akram](https://lexlaw.co.uk/our-people/m-ali-akram/) further stated: > *“It is surely wrong to penalise low paid health workers who are putting their lives at risk for the greater good. A lot of retired health workers have come back to aid the nation in this time of global crisis. Because their employment may be short, they may fall below the income tax threshold. Some workers may have to take unpaid leave to care for others. I believe the right thing to do is for us to support the NHS and its workers. Credit for the basic hygiene of uniforms should be given to all and not just those who are higher earners”* LEXLAW acts for taxpayers against HMRC and are instructed in ongoing judicial review permission proceedings against HMRC’s unreasonable decision to refuse to process proforma claims. Affected taxpayers include front line keyworkers such as NHS healthcare workers, nurses, midwives, paramedics and any other uniformed workers. Mr [Karim Oualnan](https://lexlaw.co.uk/our-people/karim-oualnan/), a solicitor and partner at City of London law firm [LEXLAW Solicitors & Barristers](https://lexlaw.co.uk/) with conduct of the judicial review proceedings against HMRC stated: > *“NHS staff have already reportedly suffered enough through the state’s lack of provision of Personal Protective Equipment (PPE). Exposing NHS health workers and other uniformed frontline workers to unwarranted and unnecessary financial concerns at this difficult time is wrong. It will also be a disaster in terms of the aim for reduction of the spread of the coronavirus if some workers have to cut back on laundering their uniforms particularly given the unprecedented COVID-19 pandemic because of the Director General, Ms MacDonald’s unreasonable decision to stop HMRC from processing legitimate rebate claims which is contrary to HMRC’s obligations under the Taxpayer’s Charter. I trust that common sense and fairness will prevail within HMRC and that they will choose to give our essential uniformed keyworkers support at this critical and unprecedented time.”* HMRC’s unreasonable policy decision is antithetical to the national policy. On the one hand, the government urges the nation to protect the NHS but on the other hand HMRC’s draconian policy decision does not protect the personal finances of key NHS workers during a time of economic uncertainty. To that end we have instructed specialist Tax Counsel who will advocate on behalf of frontline keyworkers at the earliest opportunity. The public interest would be best served by an immediate processing of all outstanding claims without HMRC imposing arbitrary criteria the breach of which will inevitably lead to HMRC not processing any claims from a significant portion of uniformed workers in the UK including frontline NHS staff and other keyworkers protecting our communities. ## Summary: - A HMRC Commissioner on the executive committee, has taken a draconian policy decision to suspend the processing of thousands of claims for tax relief made by NHS and other frontline uniformed PAYE employees such as the police and fire services where they are trying to claim tax relief for laundering their work uniforms.- HMRC are trying to maximise government revenue, but it is completely wrong to issue a blanket refusal to the processing of claims for tax relief on essential hygiene by key frontline health and other uniformed workers particularly given the COVID-19 pandemic.- The Government has made it the number one priority to protect the NHS particularly given the COVID-19 pandemic however HMRC have taken the policy decision not to reimburse NHS workers for laundering their uniforms.- HMRC is exposing key health workers and other uniformed frontline workers to unwarranted and unnecessary financial concerns at this difficult time not least given the national coronavirus (COVID-19) pandemic when laundering of healthcare unfirms is vital to slow the spread of the disease and save lives. ## Contact details for editors: - [LEXLAW](https://lexlaw.co.uk/) is a unique law firm that partners solicitors and barristers and is the only law firm based in the Middle Temple (an Inn of Court). The [Tax Disputes](https://taxdisputes.co.uk/) team has years of experience in challenging decisions against HMRC and handling tax appeals at the Tax Tribunals and in the High Court in contentious tax dispute cases. - Andrew Young, Barrister of Prince Henry’s Chambers, is counsel in Judicial Review proceedings against HMRC. Andrew is a former Principal Revenue Lawyer and has headed Tax Litigation practices at Deloitte and PWC. #### ENDS ![](https://taxdisputes.co.uk/wp-content/uploads/2020/03/LEXLAW-coronavirus-covid19-nhs-tax-rebate-keyworkers-hmrc-litigation-lawyer-london.png) [Download LEXLAW Statement [PDF]](https://lexlaw.co.uk/wp-content/uploads/2020/03/HMRC-Uniformed-Workers-Press-Release-LEXLAW-270320-1.pdf) --- # Loan Charge Review Announced: What does it mean for those in disguised remuneration schemes? Source: https://taxdisputes.co.uk/2019/09/hmrc-loan-charge-review-2019-disguised-remuneration-advice/ *It has[ recently been announced](https://www.gov.uk/government/publications/disguised-remuneration-independent-loan-charge-review) by the [Chancellor](https://www.gov.uk/government/ministers/chancellor-of-the-exchequer), Sajid Javid, that the [retrospective loan charge](https://taxdisputes.co.uk/2019/03/the-spotlight-shines-on-disguised-remuneration/) by [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) will be reviewed independently by Sir Amyas Morse, giving hope to those who have been part of disguised remuneration schemes that less punishing rates of interest will be levied. This is concerning to those that have received letters from HMRC and settled their matters by paying a settlement sum to HMRC. It is understood around 2,000 people have already opted to settle with the Revenue for sums of around £1 billion to avoid any further loan charge penalties. It has yet to be clarified whether the loan charge would be cancelled. * ## What is the Loan Charge review? The [independent review](https://www.gov.uk/government/publications/disguised-remuneration-independent-loan-charge-review) is being conducted by Sir Amyas Morse, the former Comptroller and Auditor General and Chief Executive of the [National Audit Office (NAO)](https://www.nao.org.uk/). The review comes in response to the evidence collected by The [All-Party Parliamentary Group on the Loan Charge (APPG)](http://www.loanchargeappg.co.uk/). The review will look into the effectiveness of the loan charge. ## When will the loan charge review findings be released? The Government advise that the Terms of Reference specify that the review will report and provide independent recommendations to the government by mid-November. They also specify that, whilst the review is ongoing, the Loan Charge will remain in force, in line with current legislation. The Government has said that it will consider and respond to the outcome of the Review once it has concluded. ## Why is the loan charge so controversial? The main bone of contention is that the loan charge appears for all intents and purposes to be a retrospective penalty, which constitutionalists argues breaches the rule of law. In particular going against the fundamental Fullerian principles that laws should not be retrospective in their effect i.e. not illegal at the time but subsequently deemed to be so thereby creating uncertainty which is antithetical to the rule of law. In addition, the loan charge has caused significant stress to those effected by it (including one case of suicide). ## What are Disguised Remuneration schemes? [Disguised remuneration schemes](https://bankruptcypetitionandannulmentlaw.co.uk/solicitors-london/new-3-billion-disguised-remuneration-loan-charge-leaves-contractors-facing-bankruptcy/) are schemes that seek to avoid Income Tax and National Insurance contributions by paying users their income in the form of loans that are never repaid. However, as the loans were never intended to be repaid, they do not differ to normal income and are therefore taxable. The most common forms of disguised remuneration in recent years have been [Employee Benefit Trust](https://www.thegazette.co.uk/all-notices/content/101229)s and unregulated pension schemes known as [Employer Financed Retirement Benefit Schemes](https://www.gov.uk/expenses-and-benefits-retirement-benefit-schemes), both of which have now been identified by HMRC as Disguised Remuneration Schemes. ## What is the Loan Charge? The 2019 loan charge, which is the charge on outstanding disguised remuneration loans, is a [government measure](https://www.gov.uk/government/publications/loan-schemes-and-the-loan-charge-an-overview/tax-avoidance-loan-schemes-and-the-loan-charge) aimed at tackling this type of income tax avoidance. Having previously been announced at Budget 2016 and was introduced in the Finance Act (No 2) 2017, the charge will apply to all loans made since 6 April 1999 if they are still outstanding on 5 April 2019. HMRC has issued a [briefing](https://www.gov.uk/government/publications/hmrc-issue-briefing-disguised-remuneration-charge-on-loans/hmrc-issue-briefing-disguised-remuneration-charge-on-loans) encouraging people to come forward and settle their tax affairs before the 2019 loan charge comes into effect on 5 April 2019. This charge will not arise on outstanding loans if the user has agreed or is progressing towards settlement with HMRC before 5 April 2019. Since the loan charge was announced, HMRC has agreed settlements on disguised remuneration schemes with employers and individuals worth more than £1 billion. Around 85% of this amount was collected from employers, with less than 15% from individuals. ## Am I liable for tax under a scheme I entered into? If the scheme you have entered into falls within the definition of a disguised remuneration scheme, an account of the tax liabilities on this income will have to be made to HMRC. Payment of any tax owing can be demanded some time after you entered into the scheme together with additional penalties. HMRC has written to individuals it knows to be involved in disguised remuneration schemes to encourage them to come forward and settle before the loan charge applies. Once HMRC is aware of the disguised remuneration scheme then an Accelerated Payment Notice may be issued for payment. Loan scheme users have a choice to: - Repay the loans that they took out;- Settle the tax due; or- Pay the loan charge on balances that are outstanding in April. ## Need Expert Tax Advice? If you have entered into a disguised remuneration scheme (or any other tax avoidance scheme), it is important you seek legal advice as soon as possible. Whether you are an employer, employee or contractor, our [expert tax solicitors and barristers](https://taxdisputes.co.uk/expert-advice/) can assist you in managing HMRC’s investigation and entering into negotiations by providing [comprehensive legal advice](https://bankruptcypetitionandannulmentlaw.co.uk/) and robust responses to the investigators. Our [tailored team ](https://bankruptcypetitionandannulmentlaw.co.uk/expert-legal-advice/)which also comprises of specialist forensic accountants can calculate what you owe and make representations on your behalf to HMRC. ## Expert City of London Offshore Tax Disclosure Lawyers Our [specialist Tax Solicitors and Barristers](https://taxdisputes.co.uk/expert-advice/) deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. **Our Tax Disputes professionals are available to give information and advice in negotiating penalties and loan charge settlement with HMRC. To contact one of our specialist Tax Lawyers please [click here](https://taxdisputes.co.uk/2011/08/2011/08/2011/07/legal-case-assessment/) or call 02071830529.** --- # Court of Appeal confirms discovery assessment was invalid Source: https://taxdisputes.co.uk/2019/06/court-of-appeal-confirms-discovery-assessment-was-invalid/ ***The Court of Appeal has held that finding a different reason for assessing an insufficiency of tax of which HMRC was already aware was not enough to enable HMRC to issue a discovery assessment. *** [The Commissioners for Her Majesty's Revenue and Customs -v- Raymond Tooth A3/2018/1266 ](https://www.bailii.org/ew/cases/EWCA/Civ/2019/826.pdf) ## Background The taxpayer, Mr Tooth, participated in a tax planning arrangement known as "Romangate" designed to reduce his liability for income tax for 2007/08. The arrangement was intended to produce an income tax loss. Mr Tooth submitted his self assessment tax return for the relevant period and sought to reduce his income tax liability by carrying back employment related losses arising in 2008/09. The tax return did not contain a specific box for recording such losses, so Mr Tooth entered them on the partnership pages of the return together with an explanation in the blank white space that the loss being claimed was an employment loss, not a partnership loss. In August 2009, HMRC informed Mr Tooth that it had commenced an enquiry into the loss relief claim under Schedule 1A, which enables HMRC to open an enquiry into a claim which is not included within a return. Following the [Cotter](https://www.supremecourt.uk/cases/docs/uksc-2012-0062-judgment.pdf) decision, HMRC wrote to Mr Tooth confirming that income tax was overdue and owing and rejected his claim to offset the employment losses against his other income. In October 2014 (over six years after the tax year in question), HMRC issued an assessment to Mr Tooth claiming that his return was inaccurate and that the mistake was deliberate, which leads to a higher penalty. The normal time limit for a discovery assessment is 4 years but by claiming deliberateness, HMRC could rely on the 20 year time limit for raising a discovery assessment pursuant to section 36(1A), TMA. ## Mr Tooth's appeal to the First Tier Tax Tribunal (FTT) Mr Tooth appealed to the First Tier Tax Tribunal arguing that HMRC had not made a discovery and there was no deliberate accuracy therefore the assessment was out of time. Whilst the FTT acknowledged that HMRC had made a discovery, it held that there was no deliberate conduct and therefore the threshold of section 29(4), TMA had not been met which deemed the assessment invalid. ## HMRC 's appeal to the Upper Tribunal (UT) The Upper Tribunal dismissed the appeal holding that there was no inaccuracy in Mr Tooth's tax return. The Upper Tribunal considered Mr Tooth had provided a full explanation for the position he was taking on the partnership pages of the tax return. It concluded that looking at the return in its entirety, the approach Mr Tooth had taken did not constitute a deliberate inaccuracy, as Mr Tooth had taken steps to draw the inaccuracies to the attention of HMRC. The Upper Tribunal considered HMRC's assessment delivered in 2014, which followed a discovery back in 2009, to be "stale". ## Court of Appeal judgment The Court of Appeal considered the following issues: - Was there a discovery?- Was there a deliberate inaccuracy?- Did the deliberate inaccuracy result in an insufficiency in the assessment or a loss of tax? *i) Was there a discovery?* HMRC argued that it made a discovery that Mr Tooth's self assessment was incorrect after receiving a letter from his accountants in March 2014. The Court of Appeal applied *Charlton & Others v RCC* [2012] UKUT 770 (TCC) and confirmed that for there to be a discovery of insufficient tax, for the purpose of section 29(1)(b), TMA, HMRC must have newly discovered that an assessment to tax was insufficient. The Court held that HMRC had not established that there had been a discovery and the assessment was therefore out of time and invalid. This was good news for Mr Tooth however the Court proceeded to consider the other issues surrounding deliberateness, which comments are not positive for taxpayers in general. *(ii) Was there a deliberate inaccuracy?* Despite finding that the discovery assessment was invalid, the Court analysed the deliberate inaccuracy issue. Floyd LJ concluded that there was no inaccuracy in Mr Tooth's return merely because he included his employment related losses in the wrong box, given that he had fully explained what he had done elsewhere in his tax return. Lord Justices Patten and Males disagreed however, holding that there was an inaccuracy in a document given to HMRC, even if it had been corrected in another part of the return. All of the judges agreed that if there was an inaccuracy, it was deliberate as the figures were intentionally inserted on the partnership page. Males LJ commented that there was no question of Mr Tooth or his advisers having acted dishonestly but the fact that Mr Tooth lacked intention to provide an inaccurate return was irrelevant. This contrasts with the comments made in the Upper Tribunal that an allegation of deliberately bringing about a tax loss was 'tantamount to an allegation of fraud'. *iii) Did the inaccuracy result in a loss of tax?* It was held that the inaccuracy resulted in an insufficiency of assessment because the partnership loss was forced into the tax computation by the software used to complete the self assessment return. ## Comment The Court's comments in relation to what constitutes a deliberate inaccuracy are unhelpful for taxpayers. The deliberate inaccuracy in this case was essentially caused by a software failure, yet in trying to ensure that HMRC had all the relevant information required to make his return accurate, the taxpayer was deemed to have submitted a deliberately inaccurate return. It would appear that a taxpayer cannot rely on disclosure in a blank space to remedy an 'inaccuracy' elsewhere in the return. The time limits in place for HMRC to enquire into returns and make assessments are designed to provide some certainty for taxpayers that if they have made a full disclosure in their return, HMRC cannot demand further tax from them. There appears to be an increase in cases where HMRC allege deliberate conduct in order to go back to earlier periods and this Court of Appeal decision makes it more difficult for taxpayers to obtain such certainty. ## I've received an assessment from HMRC Our [expert tax solicitors and barristers](https://taxdisputes.co.uk/expert-advice/) can assist you in submitting an appeal to HMRC or the Tribunal and entering into negotiations with HMRC by providing [comprehensive legal advice](https://bankruptcypetitionandannulmentlaw.co.uk/) and robust responses to the investigators. Our [tailored team ](https://bankruptcypetitionandannulmentlaw.co.uk/expert-legal-advice/)which also comprises of specialist forensic accountants can calculate what you owe and make representations on your behalf to HMRC. #### Call us on 02071830529 or complete our online contact form. --- # COVID-19: HMRC Guidance on Taxpayers facing Assessments and Penalties Source: https://taxdisputes.co.uk/2020/04/covid-19-coronavirus-hmrc-dispute-taxpayers-assessments-penalties-advice/ During the current uncertainty brought about by coronavirus (COVID-19), HMRC has issued advice to individuals and companies. In particular, HMRC have issued guidance on taxpayers requesting time to pay. It is important to seek legal advice if you have any penalties or assessments against you as soon as possible as these are subject to strict time limits. ## HMRC's Advice for Small Businesses  ### How will furloughed workers be supported? All UK employers with a [PAYE ](https://www.gov.uk/paye-online)scheme will be able to access support to continue paying part of their employees’ salaries that otherwise would have been laid off due to the crisis. This will be done through the [Coronavirus Job Retention Scheme](https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme).  ‘Furloughed workers’ will be workers who have been asked to stop working, however will be kept on payroll. These workers will be paid 80% of their regular wages up to £2,500 per month which will be reimbursed by [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs). The purpose of this scheme is to safeguard workers from being made redundant.   The scheme will apply to: - Businesses- Charities- Recruitment agencies whose workers are paid through PAYE- Public Authorities.  The [PAYE ](http://gov.uk/paye-online)payroll scheme must have been started and created before 28 February 2020 and have a UK bank account.  Furloughed employees must have been on payroll on 28 February 2020 on any type of contract. The scheme covers employees who were made redundant by their employer if they have been rehired since. To be eligible, the employee can not undertake work for or on behalf of the organisation. The employees wage will still be subject to usual income tax and other deductions.  ### Will businesses still have to make tax payments?  [UK VAT registered businesses ](https://www.gov.uk/vat-registration)will be able to differ value added tax (VAT) payments for three months.  Income Tax Sef-Assessment payments due on 31 July 2020 may be deferred until 21 January 2021. The deferral is optional and the government has advised that if you are able to make the payment it should be made. To further this, if the payment is deferred until January 2021 no interest or late payment fees will be charged.   ### How will the self-employed be supported? The [self-employment income Support Scheme](https://www.businesssupport.gov.uk/self-employment-income-support-scheme/) ([SEISS](https://www.businesssupport.gov.uk/self-employment-income-support-scheme/)) will support self-employed individuals who have lost income due to coronavirus.  The scheme will allow those self employed to to claim a grant worth 80% of trading profits up to a maximum of £2,500 per month for the next 3 months, which may be extended if needed.  To qualify for the [SEISS ](https://www.businesssupport.gov.uk/self-employment-income-support-scheme/)annual trading profits must be less than £50,000 and at least 50% of income must be derived from self-employment. the determination of trading profits will be determined from reference to profits in the year 2018/2019, or your average profits in the three years up to 2018/2019. ### Time to pay Service All businesses and those who are self-employed who are in financial distress with outstanding tax liabilities may be eligible to receive support with their tax affairs from [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs).  Support from [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)will depend on individual circumstances and liabilities to be eligible for the service the business must pay tax to the UK government and have outstanding tax liabilities.  ### Controlled Foreign Company Rules – State Aid Recovery Due to disruption caused by Covid-19, Group companies which benefited from the Finance Company Exemption (FCE) under the UK's [Controlled Foreign Company (CFC)](https://www.gov.uk/hmrc-internal-manuals/international-manual/intm207400) rules whoare required to pay [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs), have been allowed a further 30 days to the 60 day deadline for responding to information requests. ## Book your Initial Consultation with our Specialist Tax Solicitors Our [specialist Tax Solicitors and Barristers](https://taxdisputes.co.uk/) deliver expert technical knowledge, strong negotiation skills and advice which can make a pronounced difference to eventual tax penalties, charges and liability.   We provide tax advice and representation against HMRC. [Get in touch ](https://taxdisputes.co.uk/contact-us/)with our expert tax solicitors and barristers so we can get you a result. We provide a quick no cost initial telephone case review to establish whether or not we can help you; just call one of our team on 02071830529. --- # Tax Tribunal Denies HMRC’s Extension of Time to Serve Notice of Appeal Source: https://taxdisputes.co.uk/2014/02/tax-tribunal-denies-hmrcs-extension-of-time-to-serve-notice-of-appeal/ *In the recent case of [HMRC v McCarthy & Stone (Developments Limited)](http://www.bailii.org/uk/cases/UKUT/TCC/2014/B1.html)  the Upper Tribunal (Tax and Chancery Chambers) ("UT") refused HMRC's application for an extension of time to serve it's Notice of Appeal.  The UT's decision was heavily influenced by the Rule 3.9 of the Civil Procedure Rules 1998 ("CPR") and the Jackson Reforms despite the fact that the CPR are only persuasive (not applicable) to tax tribunals.* [![p00w68yy](https://taxdisputes.co.uk/wp-content/uploads/2013/11/p00w68yy-300x168.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2013/11/p00w68yy.jpg) ## HMRC's Application for Extension of Time to Serve Notice of Appeal McCarthy and Stone (Developments Limited) ("McCarthy and Stone") built and sold retirement accommodations consisting of separate apartments with communal areas. They also furnished communal areas and deducted the input tax incurred. HMRC decided that the input tax was not deductible and McCarthy and Stone appealed to the First Tier Tribunal ("FTT"). The FTT allowed the appeal on the basis that there was a single zero rated supply and therefore the input tax on the furnished communal areas was deductible for tax purposes. On 8 February 2013, HMRC applied to the FTT for permission to appeal to the UT. In a decision dated 4 April 2013, the FTT granted HMRC permission to appeal. Rule 23(2) of the Tribunal Procedure (Upper Tribunal) Rules 2008 states that an Appellant must provide a Notice of Appeal to the UT within one month from the date on which the FTT sent the decision granting the Appellant permission to appeal. In breach of Rule 23(2) HMRC served their Notice of Appeal to UT on 1 July 2013, 56 days late. As a result, and in accordance with Rule 23(5) of the Tribunal Procedure (Upper Tribunal) Rules 2008, HMRC's Notice of Appeal must include a request for extension of time and it must state the reasons why the Notice of Appeal was not provided in time. Unless the UT extends time for the Notice of Appeal, the UT must not admit the Notice of Appeal. ## Application for Relief from Sanctions and the Jackson Report: Review of Civil Litigation Costs From April 2013, under CPR 3.9, when considering an application for relief of any sanctions the court will consider all the circumstances of the case including the need for *a) for litigation to be conducted efficiently and at proportionate costs and b) to enforce compliance with rules, practice directions and orders.* The leading authority is *[Mitchell MP v News Group Newspapers Limited [2013] EWCA Civ](http://www.bailii.org/ew/cases/EWCA/Civ/2013/1537.html)*[ 1537](http://www.bailii.org/ew/cases/EWCA/Civ/2013/1537.html). In this case, the Court of Appeal held that relief from sanctions should be granted only where the breach is *"trivial*" and there has been a failure of *"form rather than substance."* ## Upper Tier Tax Tribunal's Decision Judge Sinfield refused HMRC's application for extension of time and HMRC's notice of appeal was therefore not admitted. The Judge held that whilst the CPR does not apply in tax tribunals there was no reason for the UT to adopt a different, or more relaxed approach, to compliance with rules, directions and orders, than the courts do under the CPR. The Judge's decision was heavily influenced by ruling in *Mitchell* stating that HMRC's breach could not be seen as *"trivial"* and  that HMRC were unable to provide a good reason as to why they had not complied with the relevant time limit to serve their Notice of Appeal. Judge Sinfield concluded: > *" I can see no reason why time limits in the UT Rules should be enforced any less rigidly than time limits in the CPR. In my view, the reasons given by the Court of Appeal in Mitchell for a stricter approach to time limits  are as applicable to proceedings in the UT as to proceedings in courts which are subject to the CPR."* ## Commentary The decision in this case demonstrates that there is a greater need to ensure that tax appeals are conducted efficiently and non-compliance with rules will not be tolerated, unless there are exceptional circumstances. Although the CPR do not apply to the tax tribunal it is clear from this decision that (to a large extent) tribunal judges are willing to consider and be persuaded by the CPR if it is appropriate to do so. --- # HMRC rejects construction company’s hardship application requiring payment before appeal Source: https://taxdisputes.co.uk/2020/06/hmrc-rejects-small-business-hardship-application-vat-assessment-tax-appeal-tribunal/ *We have seen an increase in the number of small businesses facing [VAT assessments](https://taxdisputes.co.uk/labour-payroll-supplies-chain-vat-mtic-deregistration-entitlement-deduct-input-tax-appeal-investigation-kittel-fraud-advice/) of significant amounts, likely to have a severe impact on the company's cashflow and financial status, particular in light of the current challenges concerning COVID-19. In a recent [case concerning a construction company](https://taxdisputes.co.uk/wp-content/uploads/2020/06/Rok-Construction-and-Hire-Ltd.pdf), HMRC objected to the company's application for hardship requiring payment of an assessment in full despite an existing [appeal in the Tribunal](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/). * ## Deferring payment for direct and indirect tax For disputes concerning direct tax e.g. [income tax](https://www.gov.uk/topic/personal-tax/income-tax), it is possible to agree to defer payment of the tax until the dispute is resolved, whether that is via the internal HMRC review or an appeal in the Tax Tribunal. In cases concerning [indirect tax](https://www.gov.uk/hmrc-internal-manuals/appeals-reviews-and-tribunals-guidance/artg3330) e.g. [a VAT assessment dispute](https://taxdisputes.co.uk/labour-payroll-supplies-chain-vat-mtic-deregistration-entitlement-deduct-input-tax-appeal-investigation-kittel-fraud-advice/), the taxpayer is required to pay the assessment before the appeal can proceed to be heard in the Tax Tribunal. ## Construction company's hardship application A taxpayer can apply under [section 84 VAT Act 1994 ](http://www.legislation.gov.uk/ukpga/1994/23/section/84)to defer payment of any assessment in dispute, if payment of the same would "*cause the appellant to suffer hardship*". This was considered in the case of a construction company, [Rok Construction and Hire Ltd (TC07638)](https://taxdisputes.co.uk/wp-content/uploads/2020/06/Rok-Construction-and-Hire-Ltd.pdf). The Company submitted an appeal to the [First Tier Tax Tribunal](https://www.gov.uk/courts-tribunals/first-tier-tribunal-tax) against a [VAT assessment](https://taxdisputes.co.uk/labour-payroll-supplies-chain-vat-mtic-deregistration-entitlement-deduct-input-tax-appeal-investigation-kittel-fraud-advice/) for the sum of £6,189 issued in October 2018. The Company claimed that the assessment was based on errors made on the Company's VAT returns for the periods December 2015 and March 2016. The Company also made a hardship application and requested that the collection of payment under the assessment be deferred until the outcome of the appeal. The Company argued that HMRC should not collect payment of £6,189 demanded in the assessment because the company was owed a refund of £34,958 relating to the [Construction Industry Scheme](https://www.gov.uk/what-is-the-construction-industry-scheme). In addition, the company informed HMRC it owed £13,000 for another VAT period. ## Information requested by HMRC when considering hardship applications In giving serious consideration to hardship applications and exercising their discretion, HMRC has previously issued guidance on the information they require about a company's financial affairs. - An explanation as to why the company would suffer financial hardship if it required to pay the disputed amount before a Tribunal Hearing- Copy of the most recent annual accounts and management accounts- Bank account statements for a requested period- Any loan or overdraft facilities the company has with any bank or financial institution- Assets and liabilities of the Company - Budget and cash flow forecast (at least the next six months) to include all income streams, revenue costs and capital expenditure. It should identify the expected funding requirements throughout the year and also the maximum funding available. - Business premises’ owned or leased by the business- Investments that are held by the company. This should include stocks, shares and investments in other businesses- Steps taken by the company to raise funds to pay the assessments- Any assets subject to a charge by a bank or other financial institution as security against existing borrowings In this case, the Company did not provide all of the requested information to HMRC and on this basis, HMRC rejected the hardship application and the Tax Tribunal dismissed the appeal. This case highlights HMRC's discretion when considering hardship application and the importance of information to be provided in proving hardship to obtain a successful outcome. ## What is the Appeal to the Tax Tribunal Process? The Tax Tribunals can be used by a taxpayer when appealing a HMRC decision. If the [appeal to HMRC](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/) after the penalty notice is issued is unsuccessful and the HMRC  [internal review](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/) procedure has not yielded a satisfactory conclusions then recourse is available by appealing to the [First Tier Tax Tribunal](https://www.gov.uk/courts-tribunals/first-tier-tribunal-tax) ([section 49D](https://www.legislation.gov.uk/ukpga/1970/9/section/49/enacted), TMA 1970). It is not permissible to appeal to the Tax Tribunal during the course of the internal review. The procedural rules governing the First Tier Tribunal are found in the *[Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273)](https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/357075/tax-chamber-tribunal-procedure-rules.pdf)*. The Tax Tribunal is completely independent of HMRC and is governed by an overriding objective to deal with cases fairly and justly ([rule 2, First Tier Tribunal Rules (FTR 2009)](https://www.legislation.gov.uk/uksi/2009/273/article/2/made)). The Tribunal will consider the evidence of both parties, equally whilst the judge heavily relies on previous case law. Commencing proceedings at the First Tier Tax Tribunal is subject to statutory time limits. It is recommended that legal advice is sought as soon as you become involved in a HMRC dispute to prevent a situation where a potential claim becomes time-barred. The First Tier Tax Tribunal is in essence a fact-finding court, therefore it is imperative to prepare the optimum set of facts in advance and this usually requires the most extensive preparation. We are well-versed in the Hearing procedure itself and presenting our clients’ cases to the Tax Tribunal. We consider the preparatory stage an essential part of the Hearing process and extensively complete the best factual picture from which the First Tier Tax Tribunal will draw its inferences. Our specialist Tax Solicitors and Barristers have successfully represented taxpayers before the First Tier Tax Tribunal. Our Tax Disputes team will typically: - advise you for a long period of time prior to the hearing;- discuss the evidence required;- prepare the appeal in detail; and- rehearse your case with you. ## Expert VAT Appeal Tax Lawyers If you need HMRC Tax Disputes advice, we are available to aid you at every stage of the HMRC appeals process. Members of our legal team have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the HMRC internal review process and in front of the Tax Tribunal. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect including developing a strategy. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](javascript:;). --- # GVC faces HMRC investigation over former Turkish business Source: https://taxdisputes.co.uk/2020/08/gvc-hmrc-investigation-over-former-turkish-business-tax-evasion-bribery-act-advice/ [GVC Holdings](https://web.archive.org/web/20201204194103/https://gvc-plc.com/) has [revealed ](https://www.igamingbusiness.com/news/gvc-faces-hmrc-investigation-over-former-turkish-business)that it is under [investigation ](https://taxdisputes.co.uk/hmrc-tax-investigations/)by [HMRC ](https://www.gov.uk/tax-compliance-checks)in relation to its former Turkish operations over *"potential corporate offending"*. [HMRC ](https://www.gov.uk/tax-compliance-checks)notified the business on 20 July 2020 that the Commissioners would be widening their scope of the [investigation ](https://taxdisputes.co.uk/hmrc-tax-investigations/)launched in November 2019 to look for wrongdoing within the business. [GVC ](https://web.archive.org/web/20201204194103/https://gvc-plc.com/)stated that the decision to expand the scope of the [investigation ](https://taxdisputes.co.uk/hmrc-tax-investigations/)was surprising and that it was disappointed by the lack of clarity that was provided by [HMRC ](https://www.gov.uk/tax-compliance-checks)as to what was under scrutiny. ## Why is HMRC investigating GVC? [HMRC ](https://www.gov.uk/tax-compliance-checks)[investigation ](https://taxdisputes.co.uk/hmrc-tax-investigations/)centres around third party suppliers, relating to the processing of payments for online gambling in Turkey. [GVC ](https://web.archive.org/web/20201204194103/https://gvc-plc.com/)is yet to be informed as to which subsidiary or subsidiaries are under scrutiny from the UK tax authority. [HMRC ](https://www.gov.uk/tax-compliance-checks)have referred to Section [7 of the 2010 Bribery Act](https://www.legislation.gov.uk/ukpga/2010/23/pdfs/ukpga_20100023_en.pdf) in relation to the investigation which covers the failure of corporate entities to prevent bribery, however, has not provided any details of the nature of the [investigation ](https://taxdisputes.co.uk/hmrc-tax-investigations/)taking place. Section 7 of the Act states that a commercial organisation is guilty of an offence if a person associated with that company bribes another person to obtain or retain business, or to retain an advantage in the conduct of business. ## How is GVC connected with the Turkish business? In 2017 [GCV ](https://web.archive.org/web/20201204194103/https://gvc-plc.com/)ended its connection with the Turkish business subsidiary 'Headlong Limited' in order to pursue its £4 billion takeover of Ladbrokes Coral Plc. Headlong Limited was divested in November 2017 to an entity called Ropso Malta Limited, for a performance-related earn-out of up to £135.2m. This would have been payable on a monthly basis over 5 years. After the acquisition had been agreed in December 2017, [GVC ](https://web.archive.org/web/20201204194103/https://gvc-plc.com/)announced in February 2018 that it would waive the agreed earn-out for the Turkish business. Following media reports explaining that the deal had been brokered by US investment bank [Houlihan Lokey,](https://hl.com/) the operator was forced to publicly deny that it was still benefiting from Turkish operations. GVC claimed that it had waived the earn-out to avoid regulatory delays in order to push the completion of the Ladbrokes Coral deal. ## What is a Tax Investigation? A [tax investigation](https://lexlaw.co.uk/hmrc-tax-investigation-penalty-advice-solicitors/) is an enquiry conducted by HMRC into the tax affairs and tax payment history of any UK individual, employee, director or company. A HMRC tax investigation can come in many forms and covers a range of taxes covered under HMRC jurisdiction such as: VAT; income tax; corporation tax and capital gains tax. The type and severity of the investigation is completely dependent on the facts of any individual case. Typically, an investigation generally commences when HMRC notice irregularities in information supplied via a Self Assessment Tax return. A taxpayer will receive a letter from HMRC informing  them that an [investigation](https://lexlaw.co.uk/hmrc-tax-investigation-penalty-advice-solicitors/) has been opened into their tax affairs and may include a request for information. It is strongly recommended that you consult a tax lawyer as soon as possible to receive detailed advice on how to take control of the situation and negotiate with HMRC. ## How will you know if you are subject to a HMRC investigation? HMRC will notify a taxpayer in writing when it commences to [examine their tax affairs.](https://lexlaw.co.uk/hmrc-tax-investigation-penalty-advice-solicitors/) Typically, if HMRC starts a formal civil investigation, a letter will be sent requesting more information. For example, a taxpayer may receive a request for information on a property transaction or further information about a tax return from a local compliance audit. However, if HMRC suspects criminal VAT fraud or high amounts of [tax evaded](https://taxdisputes.co.uk/offshore-tax-evasion-tax-avoidance-solicitors-london/) then it may commence criminal investigations. Typically, unlike for a civil investigation, HMRC are unlikely to notify you at the start of the process but instead you will be informed once you receive a letter requesting attendance to a voluntary interview under caution or when you are arrested. Alternatively, even where criminal tax evasion is suspected, HMRC may wish to deal with the investigation through the civil route under Code of Practice 9.  This process offers a taxpayer a civil solution for potentially criminal evasion by allowing a full disclosure under contract (Contractual Disclosure Facility). It is crucial that once under review, specialist Tax Investigation Lawyers are instructed. We regularly liaise with HMRC at formal meetings, agree what the scope of the disclosure should be and prepare the report on your behalf and reach a civil settlement with HMRC.  We have wide-ranging experience in assisting those facing a COP 9 investigation whilst helping to navigate the rigid time-limits and strict rules. ## How long will a tax investigation last? It depends on the scope and nature of the [HMRC investigation](https://lexlaw.co.uk/hmrc-tax-investigation-penalty-advice-solicitors/). The opening letter issued by the HMRC is usually a good guide on the potential length of any investigation. Some tax investigations finish after one letter; other investigations can take months with HMRC consistently requesting more information; and some investigations can be extending to longer than a year if involving complex tax structures or large businesses. It is important to engage professional advice early on to minimise the length of any investigation as we identify any problems quickly and efficiently to get to the heart of the matter. ## Expert London Tax Investigation Lawyers If you need [HMRC Tax Investigation advice](https://lexlaw.co.uk/hmrc-tax-investigation-penalty-advice-solicitors/), we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. **We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](javascript:;).** --- # HMRC offer option to defer VAT payments Source: https://taxdisputes.co.uk/2020/06/hmrc-option-defer-vat-payments-deferral-period-legal-advice/ [HMRC ](https://www.gov.uk/guidance/deferral-of-vat-payments-due-to-coronavirus-covid-19)published guidance on 26 March 2020 offering [UK VAT](https://taxdisputes.co.uk/hmrc-vat-investigations-evasion-input-ouput-double-taxation-tribunal-legal-advice/) businesses the option to defer VAT payments falling due between 20 March 2020 and 30 June 2020 until 31 March 2021. [HMRC ](https://www.gov.uk/guidance/deferral-of-vat-payments-due-to-coronavirus-covid-19)have brought the measure in to [support businesses ](https://lexlaw.co.uk/corona-coronavirus-covid-19-legal-litigation-insolvency-tax-employment-dispute-advice/)who have struggled with the impact of [COVID-19](https://www.gov.uk/coronavirus/business-support).  [HMRC ](https://www.gov.uk/guidance/deferral-of-vat-payments-due-to-coronavirus-covid-19)have also agreed not to charge interest or penalties on any deferred [VAT payments](https://taxdisputes.co.uk/hmrc-vat-investigations-evasion-input-ouput-double-taxation-tribunal-legal-advice/). [HMRC ](https://www.gov.uk/guidance/deferral-of-vat-payments-due-to-coronavirus-covid-19)have also agreed that businesses who wish to defer their payments however, were unable to cancel their direct debit in time are now able to [claim ](https://lexlaw.co.uk/corona-coronavirus-covid-19-legal-litigation-insolvency-tax-employment-dispute-advice/)a refund. ## What VAT payments can be deferred?  You are only able to defer:  - Quarterly and monthly VAT returns’ payments for the periods ending in February, March and April. - Payments on account due between 20 March 2020 and 30 June 2020. - Annual accounting advance payments due between 20 March 2020 and 30 June 2020. [VAT payments](https://taxdisputes.co.uk/hmrc-vat-investigations-evasion-input-ouput-double-taxation-tribunal-legal-advice/) that are due after the end of the deferral period will need to be paid as normal.  ## How can businesses obtain a refund on their VAT payments? There are two possible methods available for businesses to obtain a refund: - **Indemnity claim via your bank - **this method is the quickest way to receive a refund. Businesses have been encouraged to contact their bank for details of the relevant procedure to follow to make a direct debit indemnity claim as the procedure may vary between each bank. - **Repayment from HMRC - **another method is to contact HMRC directly through the coronavirus helpline. Businesses should ensure that their bank details are updated using their online service. Due to COVID-19 businesses should also be aware that it may take up to 21 days to receive the refund.  Businesses who think they will struggle to repay the deferred VAT at the end of the deferral period should get into contact with [HMRC ](https://www.gov.uk/guidance/deferral-of-vat-payments-due-to-coronavirus-covid-19)as soon as possible to explore the possibilities of agreeing a time to pay the arrangement. ## What can I claim VAT back on? You can only claim back [VAT ](https://www.gov.uk/vat-rates)on services and goods that are used wholly and exclusively for your business, this could include: office supplies, transport costs and services such as accountancy as they are all used solely for the purpose of the business. If a supplier does not give you back a valid [VAT ](https://www.gov.uk/vat-rates)invoice then in the majority of cases you will not be able to claim [VAT](https://www.gov.uk/vat-rates) back.  If a service or good is used partially for the business and partially for home use, you may also still claim back a proportion of the [VAT ](https://www.gov.uk/vat-rates)that is equal to the amount used by your business. An example of this could be home broadband.  If you raise an invoice and pay [VAT ](https://www.gov.uk/vat-rates)on the expected income however the invoice is not paid by a customer, this is considered bad debt. The [VAT ](https://www.gov.uk/vat-rates)that has been paid on the invoice can then be claimed back from [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)on your next return. Furthermore if the customer then later does pay the invoice the [VAT ](https://www.gov.uk/vat-rates)can then be repaid then.  ## How is VAT recovered? A [VAT](https://www.gov.uk/vat-rates)–registered business has the right to recover the [VAT ](https://www.gov.uk/vat-rates)charged and therefore the recovery can be exercised before a supplier has been paid for the supply in question.  To recover the [VAT ](https://www.gov.uk/vat-rates)a [VAT](https://www.gov.uk/vat-rates)-registered business must complete a [VAT ](https://www.gov.uk/vat-rates)return for the period that is in question. [VAT ](https://www.gov.uk/vat-rates)returns are generally completed quarterly.  To return [VAT ](https://www.gov.uk/vat-rates)through the [VAT ](https://www.gov.uk/vat-rates)return the following is calculated:  - The input tax is subtracted from the output tax that the business is required to pay [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs). - If there is then an excess of recoverable input tax over output tax the business will be able to claim a [VAT ](https://www.gov.uk/vat-rates)return from [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)equal to that excess.  A business must keep the appropriate records to justify the output tax chargeable by the business for the period in question.  ## Expert London Tax Lawyers If you need HMRC Tax Disputes advice, we are available to aid you at every stage of the HMRC appeals process. Members of our legal team have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the HMRC internal review process and in front of the Tax Tribunal. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect including developing a strategy. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](javascript:;). --- # HMRC to accept service of legal proceedings by email Source: https://taxdisputes.co.uk/2020/04/hmrc-accept-service-by-email-specialist-tax-lawyers/ ## Can I serve legal proceedings by email in the UK? Due to the current global pandemic HMRC have stated that service of any new legal proceedings or pre-action letters should now be sent via email to HMRC. This is to enforce the governments COVID-19 [social distancing policy](https://www.gov.uk/government/publications/guidance-for-businesses-on-further-social-distancing) preventing the physical service of documents and spread of coronavirus. ## What is the email address for service of new legal proceedings and for pre-action correspondence? For any new legal proceedings which are to be commenced in England and Wales and served on the Solicitor for HMRC you should use the email address: newproceedings@hmrc.gov.uk. For all pre-action correspondence which is to be sent to the Solicitor for HMRC, in compliance with the Civil Procedure Rules, must be sent via email to: preactionletters@hmrc.gov.uk. ## What format should the documents I serve by email be in? If you will be attaching documents to your email such as claim forms and particulars, you must ensure that you send: - the documents in common formats such as PDF or word; and- must ensure that your attachments do not exceed 10mb file size. In the instance that your documents exceed 10mb in size you can split them into smaller emails and send to the above addresses. ## Can I request a review of HMRC's tax decision by email? No. The above email addresses can only be used for the service of new proceedings and for pre-action letters. Therefore, if you wish to: - [appeal to the First-tier Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/), you should follow the government guidance [here](https://www.gov.uk/tax-tribunal); or- request a [review of a decision by HMRC](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/), follow the government guidance [here](https://www.gov.uk/tax-appeals/decision). HMRC's guidance is clear on this matter, stating that if any correspondence is received via email which does not pertain to the above, it will be unread and deleted. ## Book your Initial Consultation with our Specialist Tax Solicitors Our [specialist Tax Solicitors and Barristers](https://taxdisputes.co.uk/) deliver expert technical knowledge, strong negotiation skills and advice which can make a pronounced difference to eventual tax penalties, charges and liability.   We provide tax advice and representation against HMRC. [Get in touch ](https://taxdisputes.co.uk/contact-us/)with our expert tax solicitors and barristers so we can get you a result. We provide a quick no cost initial telephone case review to establish whether or not we can help you; just call one of our team on 02071830529. --- # APPG call for equitable settlement opportunity over Loan Charge Source: https://taxdisputes.co.uk/2020/08/loan-charge-hmrc-settlement-opportunity-disguised-remuneration-policy-voluntary-tax-disclosure-advice/ [The All-Party Parliamentary Loan Charge Group](http://www.loanchargeappg.co.uk/) have written to Chancellor Rishi Sunak on behalf of taxpayers seeking the 30 September 2020 loan charge settlement date to be further delayed until the end of January 2021. MPs have called for the Chancellor to instruct HMRC to soften contractor settlements and to seek a fairer deal for contractors caught by HMRC’s disguised remuneration policy. The APPG state that the reality of the current so-called ‘settlement terms’ being offered by HMRCare *"grossly unfair and punitive"*, rather than being about reaching a reasonable and fair agreement that enables people to pay an affordable amount, both in total and in terms of monthly payments ## What is the loan charge? The loan charge is an anti-tax avoidance measure which was introduced by the [Finance Act 2017](http://www.legislation.gov.uk/ukpga/2017/32/contents/enacted) to recoup losses to the Exchequer from disguised remuneration schemes. The loan charge is levied as a back tax and demanded by HMRC in one tax year, 2019-2020. Anyone who has ever been employed through such as structure will face a retrospective charge in the 2018-19 tax year in one go, meaning largely unaffordable bills. The average amount of tax avoided per person was in the region of £20,000 per annum, with a large proportion of those using a disguised remuneration scheme doing so for more than 1 year. The sums involved clearly leaves at least 50,000 people facing a significant tax bill which could force many into [bankruptcy.](https://bankruptcypetitionandannulmentlaw.co.uk/) ## What is the position of the Loan Charge APPG? [The Loan Charge APPG](http://www.loanchargeappg.co.uk/) argue that loan remuneration arrangements should be subject to taxation from the point of the introduction of legislation, i.e. prospective from 16th November 2017, and that the Treasury should then clearly outlaw their usage. The main concerns of the APPG are: - the retrospective nature of the Loan Charge legislation, which overrides tax law of the time and statutory protections for taxpayers, by allowing HMRC to going back further than time limits allow to claim tax; and, - the impact the Loan Charge will have on those facing it, which is a cause for concern for all Group members and for the majority, if not all, MPs with constituents facing the Loan Charge. ## The APPG Loan Charge Group's Letter to the Chancellor [The letter](http://www.loanchargeappg.co.uk/wp-content/uploads/2020/08/2020-08-18-Letter-from-Loan-Charge-APPG-to-the-Chancellor-re-realistic-settlement-opportunity.pdf) was written by the three co-chairs of APPG and state that a delay in the Loan Charge declaration would give HMRC a more "realistic chance" of completing the settlement process. In particular: > Despite the misleading impression regularly given, the reality of the current so-called “settlement terms” being offered by HMRC is that they are grossly unfair and punitive, rather than being about reaching a reasonable and fair agreement that enables people to pay an affordable amount both in total and in terms of monthly payments. The payment terms that HMRC are insisting on are often far harsher than those imposed on people guilty of criminal offences such as fraud and theft which, as has been raised before, is indicative of the vindictive way those facing the Loan Charge are treated. The APPG continue: > The current terms involve penalties and interest (often accumulated over lengthy periods and charged even when HMRC failed to respond in a timely manner). In some cases the terms include Inheritance Tax on the loans which of course contradicts HMRC and the Treasury’s claims that the loans are being treated as income. Overall people are being asked to pay sums far in excess of the disputed tax amount and far in excess of any financial benefit gained by using the loan arrangements. This is not only very unfair to the taxpayer, but it also ignores the large sums deducted by those who promoted and operated schemes and who are not being asked to pay any of the disputed tax. The letter follows the publication of guidance by HMRC which warned those affected by the policy are expected to have provided HMRC with details on their 2018-2019 tax returns about any outstanding loan charge balance. In HMRC's view the loan are "never intended to be repaid" and now with loan charge settlements it is now seeking from those who took part in these schemes represent the amount of unpaid tax it claims these individuals owe. ## What is “disguised remuneration”? [Disguised remuneration schemes](https://bankruptcypetitionandannulmentlaw.co.uk/solicitors-london/new-3-billion-disguised-remuneration-loan-charge-leaves-contractors-facing-bankruptcy/) seek to avoid Income Tax and NICs by paying users their income in the form of loans that are never repaid. However, as the loans were never intended to be repaid, they do not differ to normal income and are therefore taxable. You may have been part of one of these schemes if you worked for someone as a paid: director, employee or contracted worker, and agreed to receive your salary in the form of a loan. Importantly, the understanding would be that this loan would not need to be repaid at any time. These loans are described as disguised remuneration loans. The most common forms of disguised remuneration in recent years have been [Employee Benefit Trusts](https://www.thegazette.co.uk/all-notices/content/101229) (EBTs) and unregulated pension schemes known as [Employer Financed Retirement Benefit Schemes](https://www.gov.uk/expenses-and-benefits-retirement-benefit-schemes), both of which have now been identified by HMRC as disguised remuneration schemes. ## How does this policy affect Contractors? It is estimated that tens of thousands of those affected by the policy are IT contractors many of those that have been left with extreme life changing tax bills which can only be paid by falling into financial ruin or bankruptcy. Due to this reason the Loan Charge APPG and various other campaigning groups have called on HMRC to consider those who have been caught in the policy's scope to repay a percentage of the total tax they owe. ## What we can do for you? - Review your entire matter;- Provide expert advice throughout the entire process;- Represent you in correspondence, interviews and meetings with HMRC;- Collate and prepare all documentation required by HMRC, including Outline Disclosure, Full Disclosure and the Disclosure Report; and- Contesting disputed tax assessments and penalties ## Instruct Expert HMRC Tax Disputes Solicitors If you have entered into a disguised remuneration scheme (or any other tax avoidance scheme), it is important you seek legal advice as soon as possible. Whether you are an employer, employee or contractor, our [expert tax solicitors and barristers](https://taxdisputes.co.uk/expert-advice/) can assist you in managing HMRC’s investigation and entering into negotiations by providing [comprehensive legal advice](https://bankruptcypetitionandannulmentlaw.co.uk/) and robust responses to the investigators. Our [tailored team ](https://bankruptcypetitionandannulmentlaw.co.uk/expert-legal-advice/)which also comprises of specialist forensic accountants can calculate what you owe and make representations on your behalf to HMRC. --- # COVID-19: HMRC Guidance on Share Schemes Source: https://taxdisputes.co.uk/2020/06/covid-19-coronavirus-hmrc-guidance-share-schemes-say-sip-csop-advice/ [HMRC ](https://lexlaw.co.uk/solicitors-london/coronavirus-covid-19-and-its-impact-on-uk-litigation/)have issued further guidance on how employment-related securities will be affected due to the pandemic, including how arrangements will interact with the [Coronavirus ](https://lexlaw.co.uk/solicitors-london/coronavirus-covid-19-and-its-impact-on-uk-litigation/)Job Retention Scheme. ## Save as you Earn (SAYE) [HMRC guidance](https://www.gov.uk/tax-employee-share-schemes/save-as-you-earn-saye) confirms that all employees that have a saving contract in place on 10 June 2020 are able to delay the payment of monthly contributions, beyond the allotted 12 months, if the delay is due to impacts from [COVID-19. ](https://lexlaw.co.uk/solicitors-london/coronavirus-covid-19-and-its-impact-on-uk-litigation/) The maturity date for the contract will be put back for the total number of months that the payments are delayed for. [SAYE contributions](https://www.gov.uk/tax-employee-share-schemes/save-as-you-earn-saye) can continue to be deducted from payments that are received through furloughed payments from the [Coronavirus ](https://lexlaw.co.uk/solicitors-london/coronavirus-covid-19-and-its-impact-on-uk-litigation/)Job Retention Scheme. Those who are unable to make monthly contributions from their salary, due to the pandemic, are able to pay by standing order instead. ## Share Incentive Plan (SIP) HMRC have further confirmed that payments to furloughed workers can constitute as salary and [SIP ](https://www.gov.uk/tax-employee-share-schemes/share-incentive-plans-sips)contributions can be deducted from those payments. [SIP participants](https://www.gov.uk/tax-employee-share-schemes/share-incentive-plans-sips) are already able to stop their deductions from their salary, however any missed payments due to [coronavirus ](https://lexlaw.co.uk/solicitors-london/coronavirus-covid-19-and-its-impact-on-uk-litigation/)will not be allowed to be made up later on. ## Company Share Options Plan (CSOP) [HMRC ](https://www.gov.uk/government/publications/company-share-option-plan-end-of-year-return-template/company-share-option-plan-guidance-notes)accepts that where employees and full-time directors are furloughed, options granted before the pandemic will remain qualifying on the basis that they were full-time directors and qualifying employees at the time of the grant. ## Valuations When [EMI ](https://www.gov.uk/tax-employee-share-schemes/enterprise-management-incentives-emis)options are available to be granted HMRC can be contacted to agree an appropriate valuation. HMRC will normally grant [EMI options](https://www.gov.uk/tax-employee-share-schemes/enterprise-management-incentives-emis) within a maximum of 90 days following the agreement of the valuation by HMRC however, due to [coronavirus ](https://lexlaw.co.uk/solicitors-london/coronavirus-covid-19-and-its-impact-on-uk-litigation/)HMRC have advised there may be delays with the process. If there has been no change that may affect an appropriate value then: - any [EMI valuation](https://www.gov.uk/tax-employee-share-schemes/enterprise-management-incentives-emis) agreement letters that have already been issued, where the 90 day expires on or after 1 March 2020, can be automatically treated as being extended by a period of 30 days; and- any new [EMI valuation ](https://www.gov.uk/tax-employee-share-schemes/enterprise-management-incentives-emis)agreement letters issued on or after 1 March 2020 will be valid for an extend 120 days. ## Deadlines for registering new schemes and filing returns Due to the effect of [COVID-19](https://lexlaw.co.uk/solicitors-london/coronavirus-covid-19-and-its-impact-on-uk-litigation/) some employers have found it difficult to meet ERS tax obligations such as registering new schemes and filing returned by the 6 July 2020 deadline. If the difficultly to meet the obligations has been affected by the pandemic, HMRC will consider coronavirus as a [reasonable excuse](https://www.gov.uk/tax-appeals/reasonable-excuses), however, you must explain how the coronavirus had an effect and pay the return as soon as possible. ## Expert London Tax Investigation Lawyers If you need [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)[Tax Investigation](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) advice, we are available to aid you at every stage of the [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs). We can provide you with the very best representation in negotiations with [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)and defending all forms of [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)fraud, tax inquiry, tax fraud investigation, criminal tax evasion and [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)enquiries and investigations. Our team specialises in successfully challenging [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. **We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](javascript:;).** --- # HMRC issues “nudge letters” on Furlough Fraud Source: https://taxdisputes.co.uk/2020/08/hmrc-issues-nudge-letters-furlough-fraud-coronavirus-job-retention-scheme-advice/ *HMRC has begun sending nudge letters to 3,000 employers each week advising them they may need to repay amounts received under the [Coronavirus Job Retention Scheme](https://www.gov.uk/guidance/claim-for-wages-through-the-coronavirus-job-retention-scheme).* *The intention of the letters is to give employers the opportunity to review their records and their claim in case of any "mistakes" that may have taken place when [claiming ](https://www.gov.uk/guidance/claim-for-wages-through-the-coronavirus-job-retention-scheme)grants. It is expected that some businesses may have claimed grants that are greater than businesses are entitled to or may not have met the [conditions of the scheme](https://taxdisputes.co.uk/2020/06/covid19-hmrc-tackle-furlough-fraud-specialist-tax-investigation-solicitors/). * *If you need [HMRC Tax Investigation advice](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/), we are available to aid you at every stage of the HMRC investigate process. Members of [our legal team](https://taxdisputes.co.uk/expert-advice/) have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation.* ## What is a nudge letter from HMRC? The intention of the nudge letter is to prompt UK taxpayers into reviewing their tax returns to check whether they need to notify HMRC of any further gains, income or profits which they are yet to disclose. If you are unsure if you have received a “nudge letter” from HMRC, you can see an [example of one here.](https://taxdisputes.co.uk/wp-content/uploads/2020/08/Offshore-letter-represented-customer.pdf) [![](https://taxdisputes.co.uk/wp-content/uploads/2020/08/image.png)](https://taxdisputes.co.uk/wp-content/uploads/2020/08/Offshore-letter-represented-customer.pdf) ## How should employers respond to the "nudge letters"? Whether or not a businesses believes they have over claimed or not they have been told they should contact HMRC either way. Employers should ensure that all staff that were put on furlough complied with the rules of the scheme whether or not a letter was received from [HMRC](https://www.gov.uk/guidance/claim-for-wages-through-the-coronavirus-job-retention-scheme). HMRC advise that those who have breached the rules should take advantage of the amnesty time limit to repay the fees in order to avoid penalty fees. ## What does the amnesty time limit cover? The amnesty time limit covers the following behaviours: - Not being aware that remote staff are working;- Technical or computational issues;- Remittance delays ; and- Deliberate fraudulent behaviour This will be the only chance employers have to remedy their position without sanction or penalty but will need to respond promptly according to HMRC. Those who do not notify HMRC within the 'amnesty' period, the first significant date for which is 20 October 2020, but knew they had received the money or stopped being entitled due to a change in circumstances will be liable for a penalty on the basis that the wrong doing was deliberate and concealed. This could give rise to a penalty of 100%. Although some employers may have told workers they must not work when furloughed they may have generated large volumes of emails during this period. Alternatively, head office may have given directions regarding the prohibition of working while [furloughed ](https://taxdisputes.co.uk/2020/06/covid19-hmrc-tackle-furlough-fraud-specialist-tax-investigation-solicitors/)but this may have been ignored by some line managers. ## What will happen if employers are found to not be entitled to furlough payments? If employers are found to have not been entitled to their claimed grant, the payments can be clawed back by way of a 100% income tax charge regardless of whether the claim was made innocently or deliberately. Employers will also not be entitles to payments where an employee may have left or the employer has not used the amount to pay the intended costs within a reasonable period. ## How has HMRC tried to prevent furlough fraud? According to HMRC, the [Coronavirus Job Retention Scheme](https://www.gov.uk/guidance/claim-for-wages-through-the-coronavirus-job-retention-scheme) has four key protections against fraud: - Employees must have been added to payroll on or before 19 March 2020 in order to limit the use of “fake employees”;- Claims can only be accepted from employers who are authenticated by HMRC;- All claims are to be assessed by a specialist team within a 72 hour window; and- Proportionate and reasonable interventions with customers after the money has been paid. Rule changes that were enforced since 1 July 2020 are also expected to make furlough fraud less likely as employers are now able to bring furloughed employees back to work for varying amounts of time. However, this would not stop employers from saying employees have worked one day when in actual fact they have worked four days. ## How will deliberate furlough fraud be treated? [Deliberate behaviour](https://taxdisputes.co.uk/2020/07/hmrc-tax-investigation-increase-in-furlough-fraud-arrests-allegations-defence-advice/) that is not corrected using the amnesty time limit will also potentially expose employers to HMRC's criminal powers, as well as HMRC's powers to publish details of deliberate tax defaulters in order to 'name and shame'. In July HMRC made it's [first arrest](https://taxdisputes.co.uk/2020/07/hmrc-tax-investigation-increase-in-furlough-fraud-arrests-allegations-defence-advice/) in a 'dawn raid' as part of an investigation into a suspected £495,000 furlough fraud. HMRC has a hotline for reporting furlough fraud and has already received around 7,000 reports of abuse. ## Can you appeal against a tax investigation being opened? No, unfortunately you cannot appeal against an investigation being opened. However, once HMRC have concluded their investigation and issued a penalty, then you have 30 days to appeal the decision. You can appeal in writing by giving [Notice of Appeal to HMRC](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/). HMRC will either confirm their first decision, amend their decision or agree with your assessment. If your position cannot be agreed with HMRC then two further options are available. HMRC could offer an[ internal review](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/) of the disputed decision (or you can request this procedure at any time). The review is an entirely internal procedure completed not by the original HMRC decision maker but by a different HMRC officer. You could also [appeal to the First Tier Tax Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) if you cannot agree your position following the review. The independent tribunal will make a determination on the case. A further appeal is permitted if you do not agree with the decision. We have a proven track record of successfully contesting disputed tax assessments and penalties with HMRC. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one.The tax authorities have lost many cases that are appealed through negotiation, internal review or through the Tax Tribunal. Detailed advice on HMRC Tax Appeals can be found [here](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/). ## Expert London Tax Investigation Lawyers If you need HMRC Tax Investigation advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. --- # Case study: Successful Tribunal Appeal on VAT Treatment of Supplies Source: https://taxdisputes.co.uk/2020/06/successful-first-tier-tax-tribunal-appeal-vat-treatment-medical-supplies-ftt-hearing-representation/ In [Window to the Womb (Franchise) Ltd, D I Harries Ltd, DJC Studios Ltd, and the Commissioners for Her Majesty’s Revenue and Customs [2020] UKFTT 201 ](https://taxdisputes.co.uk/wp-content/uploads/2020/06/Window-to-the-Womb-case.pdf)the First Tier Tax Tribunal ruled that ultrasound scanning services constituted an exempt supply of medical care. HMRC lost the tax tribunal appeal over the VAT treatment of supplies of ultrasound scanning services to pregnant women, which the appellants claimed should be exempt as supplies of medical care, but which HMRC argued were standard rated. ## The Issue These appeals are lead cases and concern the VAT treatment of supplies of certain ultrasound scanning services to pregnant women. The issue in each appeal is whether the supplies are standard rated for VAT purposes as HMRC contend, or exempt as the appellants contend. The appellants say that they are exempt as supplies of medical care. The issues of law common to each appeal were stated as follows in a direction released on 22 October 2018: > “ … whether certain supplies made by the appellants at particular times are exempt from VAT either: > > (a) as supplies of services constituting the provision of medical care by a person registered or enrolled in the register kept under the Health and Social Work Professions Order 2001 pursuant to Item 1 Group 7 Schedule 9 Value Added Tax Act 1994, or > > (b) as the provision of care or medical or surgical treatment and, in connection with it, the supply of any goods, in any hospital or state regulated institution pursuant to Item 4 Group 7 Schedule 9 Value Added Tax Act 1994.” > > [Window to the Womb (Franchise) Ltd, D I Harries Ltd, DJC Studios Ltd, and the Commissioners for Her Majesty’s Revenue and Customs [2020] UKFTT 201](https://taxdisputes.co.uk/wp-content/uploads/2020/06/Window-to-the-Womb-case.pdf) ## The HMRC decisions under appeal   The decisions under appeal were as follows: (1)  A decision addressed to the appellant dated 21 December 2016 to the effect that supplies of scanning services made by franchisees of the appellant are standard rated. Decisions to the same effect were addressed to the franchisees. (2)  Assessments to VAT dated 20 April 2017 to the franchisees in the sum of £3,341 for period 01/17 and to DJC in the sum of £24,106 for periods 07/14 to 01/17. (3) A decision addressed to the appellant dated 26 March 2018 to the effect that supplies of scanning services made by franchisees of the appellant should continue to be standard rated. ## The Facts WTTW operates a franchise model for businesses which supply various packages of ultrasound scans for pregnant women. Harries and DJC are franchisees. The appellants contend that what is being supplied in each case is a supply of medical care. The respondents contend that in each case what is being supplied is a “bonding experience” or a “reassurance scan” for pregnant women based on viewing the fetus and being provided with images. ## The Decision Tribunal Judge Jonathan Cannan was satisfied that the appellants’ supplies are indeed exempt supplies of medical care and therefore allowed the appeal. The Tribunal cited the leading Court of Justice judgment in this area in [*d’Ambrumenil and another v Customs and Excise Commissioners; Unterpertinger v Pensionversicherungsanstalt der Arbeiter* [2005] STC 650 (“d’Ambrumenil”)](https://www.bailii.org/eu/cases/EUECJ/2003/C30701.html). It is well established from [d’Ambrumenil](https://www.bailii.org/eu/cases/EUECJ/2003/C30701.html) and other case law in the CJEU that the purpose of the exemption is to reduce the cost of medical care and that medical care must have a therapeutic aim.  It is clear that the focus is on whether the principal purpose of the supply is therapeutic and/or prophylactic in nature. In order to fall within the exemption for medical care, the principal purpose of the service must be to diagnose, monitor, treat or prevent illness. One purpose of a supply may be to provide a medical diagnosis, but it is the principal purpose which is determinative. It is not sufficient if the medical care is incidental or ancillary to the principal purpose.  On the facts of the case,  the Tribunal was satisfied on the evidence before it that the principal purpose of typical customers of the appellants for First Scans is the diagnosis, prevention or monitoring of a medical condition. The appellants’ supplies of First Scans are therefore exempt as a supply of medical care. In line with the judgment in [d’Ambrumenil](https://www.bailii.org/eu/cases/EUECJ/2003/C30701.html), the scanning service constituted an exempt supply of medical care. ## What happens at a First Tier Tax Tribunal Hearing? All Basic, Standard and Complex cases are determined by a Hearing. Usually two people sit on the tribunal: a legally qualified judge and a non-lawyer member (for example an accountant). Each party, their witnesses and their legal representatives are entitled to attend the hearing. In Basic and Standard cases, HMRC will be represented by a *“presenting officer”* from its Appeal and Reviews Unit. In complex cases, either a solicitor or barrister will represent HMRC. The First Tier Tax Tribunal will provide 14 days notice of a hearing ([rule 31](https://www.legislation.gov.uk/uksi/2009/273/article/31/made), FTR 2009). Generally, all hearings are held in public ([rule 32(1)](https://www.legislation.gov.uk/uksi/2009/273/article/32/made), FTR 2009), but a taxpayer can apply for private hearing on the grounds that a minor is involved; to protect one’s private life; or if it is believed that publicity might affect the hearing being fair and just. During the hearing itself, the taxpayer’s representative opens the case by presenting the documents, arguments on the law, witness evidence and agreed facts. Following this, HMRC cross-examines the witnesses face-to-face if they seek to challenge witness evidence. HMRC will then present arguments on the law and the taxpayer’s representative will close by replying to these arguments. ## We represent you at the Tax Tribunal The First Tier Tax Tribunal is in essence a fact-finding court, therefore it is imperative to prepare the optimum set of facts in advance and this usually requires the most extensive preparation. We are well-versed in the Hearing procedure itself and presenting our clients’ cases to the Tax Tribunal. We consider the preparatory stage an essential part of the Hearing process and extensively complete the best factual picture from which the First Tier Tax Tribunal will draw its inferences. It is imperative to collect the relevant evidence in advance (oral and documentary). Moreover, an important part of the process is to agree facts with HMRC in advance of the hearing. The statement of agreed facts in required by the standard directions and in essence takes the form of a chronology of events. The importance of legal representation is apparent as HMRC are increasingly reluctant to agree all the facts in a case, we work with our clients to ensure that both parties can agree to the substantial facts in a case. Furthermore, nowadays witness evidence is typically provided in the form of a written witness statement. It is important that a taxpayer starts to draft their witness statement as early as possible. The witness statement must be comprehensive and contain all the facts which the appellant wishes the witness to give. In addition, evidence may be provided by experts- this is typically accountancy evidence. The tribunal prefers the two parties to use a single expert or to encourage their experts to meet to narrow the points of expert dispute.  HMRC and the taxpayer provides a list of documents to each other prior to the hearing. It is useful to have a clear, understandable and well-presented set of agreed documents at the hearing. Our specialist Tax Solicitors and Barristers have successfully represented taxpayers before the First Tier Tax Tribunal. Our Tax Disputes team will typically: - advise you for a long period of time prior to the hearing;- advise you on the merits of your case;- discuss the evidence required;- prepare the appeal in detail; and- rehearse your case with you. ## Costs of Tax Tribunal Appeals Costs are generally awarded on the standard basis. Each party will normally be liable for their own costs and cannot be ordered to pay the costs of the other party- even if they are the losing party. As such, a taxpayer will have to fund their own appeal but there is normally no risk in having to pay HMRC’s costs. However, the First Tier Tax Tribunal may make a Costs Order where either party has acted unreasonably in defending, bringing or conducting the appeal. Therefore, you could be ordered to pay HMRC’s costs if the First Tier Tax Tribunal believes you have acted unreasonably ([rule 10(1)(b)](https://www.legislation.gov.uk/uksi/2009/273/article/10/made) FTR 2009). It is very uncommon for the Tax Tribunal to make an order for costs against an unsuccessful party simply because they should have realised that their case was weak ([Invicta Foods v HMRC [2014] UKFTT 456 (TC)](http://www.bailii.org/uk/cases/UKFTT/TC/2014/TC03583.html)). However, in [Gekko and Co Ltd v HMRC [2017] UKFTT 0586](http://www.bailii.org/uk/cases/UKFTT/TC/2017/TC06029.html)*[, ](http://www.bailii.org/uk/cases/UKFTT/TC/2017/TC06029.html)*costs were awarded against HMRC for its *“unreasonable”* failure to abide by its litigation and settlement strategy. Moreover, in [Sussex Cars Association v HMRC [2017] UKFTT 691](http://www.bailii.org/uk/cases/UKFTT/TC/2017/TC06110.pdf)the First Tier Tax Tribunal made an order for costs against HMRC because HMRC had acted *“unreasonably”* in its failure to seek legal advice at an earlier stage in the proceedings. However, unlike an appeal to the First Tier Tax Tribunal (which involves little risk of substantial costs), a losing appeal to the Upper Tribunal could leave you liable for HMRC’s costs as well as your own. Nevertheless, a taxpayer has the option of opting out of the costs regime. This ensures that neither party will be liable for the costs of the other party. ## Expert London Tax Lawyers If you need HMRC Tax Disputes advice, we are available to aid you at every stage of the HMRC appeals process. Members of our legal team have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the HMRC internal review process and in front of the Tax Tribunal. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect including developing a strategy. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](javascript:;). --- # How will Covid-19 affect Tax Disputes with HMRC? Source: https://taxdisputes.co.uk/2020/04/how-will-covid-19-affect-tax-disputes-with-hmrc/ Despite the ongoing coronavirus (COVID-19) pandemic, it is clear that [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)will continue to pursue [tax investigations](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) and seek the enforcement of tax debts. It is therefore important to be fully informed as to the approach that HMRC will be adopting during this time of widespread uncertainty.   ## How will HMRC change their investigations during Covid-19? While [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)will continue to investigate tax debts during the COVID-19 pandemic, it has been reported that in some cases [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)will not request (or reiterate requests previously made for) further documents or information from taxpayers during the lockdown. In other cases [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)may temporarily suspend inquiries.  [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)have also confirmed that they will continue to send out letters during lockdown to some taxpayers who are facing the [controversial loan charge](https://taxdisputes.co.uk/2019/03/the-spotlight-shines-on-disguised-remuneration/), some of whom will need a respond to HMRC within 30 days.  ## Why have HMRC changed their approach? [HMRC’s ](https://www.gov.uk/government/organisations/hm-revenue-customs)main priority at this time is to protect individuals, businesses and the economy and therefore has prioritised work that will support businesses. Furthermore [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)now has a lot of extra work as they implement the Government’s furlough scheme.  Similarly to many other UK businesses, it is also likely that [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)have a reduced number of employees due to the pandemic and therefore, by shifting their priorities will be able to deal with the work load more effectively.  ## How have the tax tribunal adapted to COVID-19? The [tax tribunals](https://www.judiciary.uk/coronavirus-covid-19-advice-and-guidance/) have also had to make changes to allow them to still [operate during the pandemic](https://www.tax.org.uk/policy-technical/technical-news/covid-19-%E2%80%93-first-tier-tribunal-tax-chamber-practice-statements-and).  The main changes that the [First-tier Tax Tribunal](https://www.gov.uk/courts-tribunals/first-tier-tribunal-tax) in light of the Covid-19 crisis are: - extending the circumstances in which the tribunal can make a decision without a hearing;- extending the circumstances in which the tribunal can direct that a hearing be held in private. (thereby enabling the tribunal to conduct video or telephone hearings, which would otherwise be regarded as private hearings, in many more cases); - allowing the use of electronic bundles of documents during tribunal hearings; and- requiring recordings to be made of any video or telephone hearings. There will now be no physical in-person hearings to take place. Hearings will only take place by video or telephone where electronic bundles of documents will be used. The decision to extend the circumstances for on paper sessions to be made will also allow more cases to be decided on paper and therefore reduce the number of hearings.  Similar changes have also been made to the[ Upper Tribunal](https://www.gov.uk/courts-tribunals/upper-tribunal-tax-and-chancery-chamber) with the default position being that hearings will be conducted by video. Parties are also able to apply to adjourn a hearing to a date when it will be possible to hold a physical hearing.  ## How will you know if you are subject to a HMRC investigation? [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)will notify a taxpayer in writing when it commences to examine their tax affairs. Typically, if [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)starts a formal civil investigation, a letter will be sent requesting more information. For example, a taxpayer may receive a request for information on a property transaction or further information about a tax return from a local compliance audit. However, if [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)suspects [criminal VAT fraud](https://taxdisputes.co.uk/repayment-fraud/) or high amounts of tax evaded then it may commence criminal investigations. Typically, unlike for a civil investigation, [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)are unlikely to notify you at the start of the process but instead you will either be informed once you receive a letter requesting attendance to a voluntary interview under caution or when you are arrested. It is crucial that, once under review, specialist [Tax Investigation](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) Lawyers are instructed. We regularly liaise with [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)at formal meetings, agree what the scope of the disclosure should be and prepare the report on your behalf and reach a civil settlement with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs).  We have wide-ranging experience in assisting those facing a COP 9 investigation whilst helping to navigate the rigid time-limits and strict rules. ## How long will a tax investigation last? It depends on the scope and nature of the [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)investigation. The opening letter issued by the [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)is usually a good guide on the potential length of any investigation. Some [tax investigations](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) finish after one letter; other investigations can take months with [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)consistently requesting more information; and some investigations can be extending to longer than a year if involving complex tax structures or large businesses. It is important to engage professional advice early on to minimise the length of any investigation as we identify any problems quickly and efficiently to get to the heart of the matter. ## Expert London Tax Investigation Lawyers If you need [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)[Tax Investigation](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) advice, we are available to aid you at every stage of the [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs). We can provide you with the very best representation in negotiations with [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)and defending all forms of [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)fraud, tax inquiry, tax fraud investigation, criminal tax evasion and [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)enquiries and investigations. Our team specialises in successfully challenging [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. **We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](javascript:;).** --- # COVID 19: HMRC Tackle Furlough Fraud Source: https://taxdisputes.co.uk/2020/06/covid19-hmrc-tackle-furlough-fraud-specialist-tax-investigation-solicitors/ [New measures](https://www.accountancyage.com/2020/06/16/hmrc-to-tackle-cjrs-fraud-but-funds-could-already-be-lost/) have been put into place to tackle those who have abused the [Coronavirus ](https://lexlaw.co.uk/corona-coronavirus-covid-19-legal-litigation-insolvency-tax-employment-dispute-advice/)Job Retention Scheme (CJRS). ## How will HMRC tackle furlough fraud? On 29 My 2020, [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs/contact/report-fraud-to-hmrc)released draft legislation aimed at penalising the abuse of the [Coronavirus ](https://lexlaw.co.uk/corona-coronavirus-covid-19-legal-litigation-insolvency-tax-employment-dispute-advice/)Job Retention Scheme. The new legislation will introduce a 30-day amnesty window for businesses to confess any errors or deliberate abuse were made in relation to the furlough scheme. After the 30 day window, [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs/contact/report-fraud-to-hmrc)is expected to begin recovering overpayments and penalise fraudsters. [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs/contact/report-fraud-to-hmrc)have already received 2,000 claims of abuse of the CJRS reported between 1 April and 2 June 2020. Nearly 900 of these claims have already been reviewed. [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs/contact/report-fraud-to-hmrc)have requested that workers should report employers who have abused the scheme. ## What kind of furlough fraud will be penalised? It is expected that [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs/contact/report-fraud-to-hmrc)will be focusing on larger claims rather than smaller ones. Those who have asked people to continue working despite claiming furlough payments will be penalised. [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs/contact/report-fraud-to-hmrc)is also likely to be sympathetic with regards to those who have made innocent mistakes with regards to the scheme, rather than those who have deliberately set out to abuse the scheme. ## Challenges HMRC will face when recovering furlough payments: [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs/contact/report-fraud-to-hmrc)is eager to recover fraudulent furlough payments however, accessing the money that has been given to fraudsters is expected to be much more difficult. Due to lockdown [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs/contact/report-fraud-to-hmrc)also faces challenges as they are unable to do any site visits or in-person meetings. Despite providing a 30 day period for mistakes or fraudulent behaviour in relation to the [Coronavirus ](https://lexlaw.co.uk/corona-coronavirus-covid-19-legal-litigation-insolvency-tax-employment-dispute-advice/)Job retention Scheme, it is expected that this won't be effective in changing behaviours. It has also been suggested that a longer period could have been more effective to tackle fraudulent claims. ## What is a Tax Investigation? A [tax investigation](https://lexlaw.co.uk/hmrc-tax-investigation-penalty-advice-solicitors/) is an enquiry conducted by HMRC into the tax affairs and tax payment history of any UK individual, employee, director or company. A HMRC tax investigation can come in many forms and covers a range of taxes covered under HMRC jurisdiction such as: VAT; income tax; corporation tax and capital gains tax. The type and severity of the investigation is completely dependent on the facts of any individual case. Typically, an investigation generally commences when HMRC notice irregularities in information supplied via a Self Assessment Tax return. A taxpayer will receive a letter from HMRC informing  them that an [investigation](https://lexlaw.co.uk/hmrc-tax-investigation-penalty-advice-solicitors/) has been opened into their tax affairs and may include a request for information. It is strongly recommended that you consult a tax lawyer as soon as possible to receive detailed advice on how to take control of the situation and negotiate with HMRC. ## How will you know if you are subject to a HMRC investigation? HMRC will notify a taxpayer in writing when it commences to [examine their tax affairs.](https://lexlaw.co.uk/hmrc-tax-investigation-penalty-advice-solicitors/) Typically, if HMRC starts a formal civil investigation, a letter will be sent requesting more information. For example, a taxpayer may receive a request for information on a property transaction or further information about a tax return from a local compliance audit. However, if HMRC suspects criminal VAT fraud or high amounts of [tax evaded](https://taxdisputes.co.uk/offshore-tax-evasion-tax-avoidance-solicitors-london/) then it may commence criminal investigations. Typically, unlike for a civil investigation, HMRC are unlikely to notify you at the start of the process but instead you will be informed once you receive a letter requesting attendance to a voluntary interview under caution or when you are arrested. Alternatively, even where criminal tax evasion is suspected, HMRC may wish to deal with the investigation through the civil route under Code of Practice 9.  This process offers a taxpayer a civil solution for potentially criminal evasion by allowing a full disclosure under contract (Contractual Disclosure Facility). It is crucial that once under review, specialist Tax Investigation Lawyers are instructed. We regularly liaise with HMRC at formal meetings, agree what the scope of the disclosure should be and prepare the report on your behalf and reach a civil settlement with HMRC.  We have wide-ranging experience in assisting those facing a COP 9 investigation whilst helping to navigate the rigid time-limits and strict rules. ## How long will a tax investigation last? It depends on the scope and nature of the [HMRC investigation](https://lexlaw.co.uk/hmrc-tax-investigation-penalty-advice-solicitors/). The opening letter issued by the HMRC is usually a good guide on the potential length of any investigation. Some tax investigations finish after one letter; other investigations can take months with HMRC consistently requesting more information; and some investigations can be extending to longer than a year if involving complex tax structures or large businesses. It is important to engage professional advice early on to minimise the length of any investigation as we identify any problems quickly and efficiently to get to the heart of the matter. ## Expert London Tax Investigation Lawyers If you need [HMRC Tax Investigation advice](https://lexlaw.co.uk/hmrc-tax-investigation-penalty-advice-solicitors/), we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. **We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](javascript:;).** --- # HMRC Continues to push Loan Charge settlements during Covid-19 Source: https://taxdisputes.co.uk/2020/05/hmrc-continues-to-push-loan-charge-settlements-during-covid-19/ HMRC have been criticised for continuing to pursue matters involving [Loan Charge](https://www.gov.uk/government/publications/disguised-remuneration-independent-loan-charge-review/guidance) contractors, despite choosing to temporarily suspend compliance activity on other matters during the [Covid-19 lockdown. ](https://taxdisputes.co.uk/2020/04/how-will-covid-19-affect-tax-disputes-with-hmrc/) ## What is the Loan Charge? The 2019[ Loan Charge,](https://taxdisputes.co.uk/disguised-remuneration-loan-charge-hmrc-tax-appeals-lawyers/) which is the charge on outstanding [disguised remuneration](https://taxdisputes.co.uk/2019/03/the-spotlight-shines-on-disguised-remuneration/) loans, is a [government measure](https://www.gov.uk/government/publications/loan-schemes-and-the-loan-charge-an-overview/tax-avoidance-loan-schemes-and-the-loan-charge) aimed at tackling this type of income tax avoidance. Having previously been announced in the 2016 Budget and was introduced in the [Finance Act (No 2) 2017](http://www.legislation.gov.uk/ukpga/2017/32/contents/enacted), the charge applied to all disguised remuneration loans made since 6 April 1999 if they were still outstanding on 5 April 2019. HMRC has issued a [briefing](https://www.gov.uk/government/publications/hmrc-issue-briefing-disguised-remuneration-charge-on-loans/hmrc-issue-briefing-disguised-remuneration-charge-on-loans) encouraging people to come forward and settle their tax affairs before the 2019 loan charge comes into effect on 5 April 2019. This charge will not arise on outstanding loans if the user has agreed or is progressing towards settlement with HMRC before 5 April 2019. Since the [Loan Charge](https://taxdisputes.co.uk/disguised-remuneration-loan-charge-hmrc-tax-appeals-lawyers/) was announced, HMRC has agreed settlements on disguised remuneration schemes with employers and individuals worth more than £1 billion. Around 85% of this amount was collected from employers, with less than 15% from individuals. ## Why has HMRC chosen to push loan charge settlements? Due to time limitations on some [Loan Charge](https://www.gov.uk/government/publications/disguised-remuneration-independent-loan-charge-review/guidance) matters, HMRC expects that if they fail to pursue settlements on these cases they will then be “legally unable to collect any tax that is owed”.  As a result, HMRC will send letters to Loan Charge contractors that will include a calculation of their settlement and then ask for the contractor to agree to the settlement within 30 days. If the contractor does not respond within 30 days, HMRC has the power to ask them to pay the full settlement sum immediately.  Penny Ciniewicz, director-general of customer compliance at HMRC, [has stated ](https://www.thisismoney.co.uk/money/news/article-8208127/Self-employed-caught-loan-charge-chased-taxman-despite-coronavirus.html)that "Customers who need more time to make a decision should let us know, and we will continue to take a reasonable and proportionate approach to such requests." ## What criticism has HMRC faced? HMRC will be sending many loan charge letters to business addresses, even though many of which are closed due to [Covid-19](https://taxdisputes.co.uk/2020/04/how-will-covid-19-affect-tax-disputes-with-hmrc/). As a result, many taxpayers risk being unaware that they are being pursued by HMRC in relation to the Loan Charge. In addition, the widespread effect of the Covid-19 lockdown on businesses has meant a lack of income for many businesses during the pandemic , who may therefore not be able to pay the sought [Loan Charge](https://www.gov.uk/government/publications/disguised-remuneration-independent-loan-charge-review/guidance).   A [Loan Charge Action Group ](https://www.hmrcloancharge.info/)spokesman stated: “We do know that HMRC is still sending out letters to people saying they need to settle, which is disappointing.” However, more positively arrangements have been made for those who are self-employed to be able to benefit from the coronavirus self-employed income support scheme, even if their 2018-2019 tax return has not been filed. ## Would I know if I have been part of a disguised remuneration scheme? If you were caught by the aforementioned legislation, then HMRC would have been in contact and initially offered you the opportunity to settle with advantageous terms by 5 April 2019. However, due to the complexity of the claims, this deadline was further extended to 31 August 2019, with many cases still unresolved. If you fall into this group, where you have not yet settled, our expert legal team may be able to help. ## What we can do for you? - Review your entire matter;- Provide expert advice throughout the entire process;- Represent you in correspondence, interviews and meetings with HMRC;- Collate and prepare all documentation required by HMRC, including Outline Disclosure, Full Disclosure and the Disclosure Report; and- Contest disputed tax assessments and penalties. ## Need Expert Tax Disclosure Lawyers Advice? If you have entered into a disguised remuneration scheme (or any other tax avoidance scheme), it is important you seek legal advice as soon as possible. Whether you are an employer, employee or contractor, our [expert tax solicitors and barristers](https://taxdisputes.co.uk/expert-advice/) can assist you in managing HMRC’s investigation and entering into negotiations by providing [comprehensive legal advice](https://bankruptcypetitionandannulmentlaw.co.uk/) and robust responses to the investigators. Our [tailored team ](https://bankruptcypetitionandannulmentlaw.co.uk/expert-legal-advice/)which also comprises of specialist forensic accountants can calculate what you owe and make representations on your behalf to HMRC. **Our Tax Disputes professionals are available to give information and advice in negotiating penalties and loan charge settlement with HMRC. To contact one of our specialist Tax Lawyers please [click here](https://taxdisputes.co.uk/2011/08/2011/08/2011/07/legal-case-assessment/) or call 02071830529.** --- # Suspension of Tax Tribunal Cases Source: https://taxdisputes.co.uk/2020/05/tribunal-cases-suspended-tax-solicitors/ As of March 24 2020 hearings at the [First Tier Tax Tribunal ](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/)and Upper Tribunal were forcibly postponed due to the global pandemic. The only caveat being, those that could be held remotely could still be heard, if agreed by all parties. The FTT announced [last week ](https://taxdisputes.co.uk/wp-content/uploads/2020/05/FTT-Announcement.png) that this postponement would last until at least the end of June where they would review their decision. The FTT have been under pressure to increase the number of remote hearings, however have stated that they are under-resourced and are struggling with the increasing [number of delayed hearings](https://www.judiciary.uk/coronavirus-covid-19-advice-and-guidance/#civilguidance). > There are problems with the First Tier Tribunal is not geared up to hear cases which involve numerous witnesses that need to dial in > > Tim Brown - Temple Tax Chambers The tax policy director at the Chartered Institute of Taxation, John Cullinane, has stated that these delays will prevent both taxpayers and HMRC bringing "frivolous case" to the FTT and ease the overwhelming workload on the FTT. ## How many companies may be affected by this delay? The worry for many companies is that they may not survive the delay in physical hearings. This may be a significant number considering that the [FTT had a backlog of 27,820 tax disputes ](https://www.gov.uk/courts-tribunals/first-tier-tribunal-tax)last quarter, which was up from 26,010 in the preceding three months. However, a government spokesperson has attempted to ease the worries of UK businesses and taxpayers by stating: > "It is important that the tax system continues to function so it can fund vital public services like the NHS but HMRC will deal sympathetically with taxpayers who cannot meet their tax obligations on time, or appeal or review HMRC decisions within the usual time limits” Please see below the announcement made by the FTT: [![Directions for a further general stay in relation to certain proceedings](https://taxdisputes.co.uk/wp-content/uploads/2020/05/FTT-Announcement.png)](https://taxdisputes.co.uk/wp-content/uploads/2020/05/FTT-Announcement.png)[Download the Directions for a Further General Stay in Relation to Proceedings here](https://taxdisputes.co.uk/wp-content/uploads/2020/05/FTT-Announcement.png) ## Book your Initial Consultation with our Specialist Tax Solicitors Our [specialist Tax Solicitors and Barristers](https://taxdisputes.co.uk/) deliver expert technical knowledge, strong negotiation skills and advice which can make a pronounced difference to eventual tax penalties, charges and liability.   We provide tax advice and representation against HMRC. [Get in touch ](https://taxdisputes.co.uk/contact-us/)with our expert tax solicitors and barristers so we can get you a result. We provide a quick no cost initial telephone case review to establish whether or not we can help you; just call one of our team on 02071830529. --- # HMRC pursues Iceland for tax underpayments Source: https://taxdisputes.co.uk/2020/05/hmrc-tax-investigation-enforcement-action-iceland-scheme-covid-19-coronavirus-tax-legal-advice/ UK frozen food specialist [Iceland ](https://www.iceland.co.uk/)has slammed [HMRC ](https://taxdisputes.co.uk/2020/04/how-will-covid-19-affect-tax-disputes-with-hmrc/)over the [£21 million](https://www.retailgazette.co.uk/blog/2019/01/iceland-threatened-21m-tax-bill-staff-christmas-scheme/) tax bill that it has received over its employee Christmas saving scheme, and HMRC's further pursuit of the matter during the [Covid-19 ](https://taxdisputes.co.uk/2020/04/how-will-covid-19-affect-tax-disputes-with-hmrc/)crisis. ## What has Iceland been accused of? Over Christmas, [Iceland](https://www.iceland.co.uk/) had a voluntary scheme allowing members of its floor staff to save money from their wage for the Christmas holiday period, which could then be returned to them on demand, usually before Christmas. However, despite Iceland staff voluntarily setting aside the money on a temporary basis, HMRC has claimed that the pay they received from Iceland fell below the minimum wage. ## What action has HMRC taken? [HMRC ](https://taxdisputes.co.uk/2020/04/how-will-covid-19-affect-tax-disputes-with-hmrc/)handed Iceland a £21 million bill at the beginning of the year, on the basis that there had been an estimated £3.5 million underpayment for each of the six years of the scheme. Furthermore, in the past month, [HMRC ](https://taxdisputes.co.uk/2020/04/how-will-covid-19-affect-tax-disputes-with-hmrc/)has requested payslips and further information from [Iceland ](https://www.iceland.co.uk/)as part of its investigation. ## How has Iceland responded to the allegations? Sir Malcolm Walker, the founder of [Iceland](https://www.iceland.co.uk/), has [responded ](https://www.bmmagazine.co.uk/news/iceland-launches-furious-attack-on-hmrc-over-harassment/)to [HMRC ](https://taxdisputes.co.uk/2020/04/how-will-covid-19-affect-tax-disputes-with-hmrc/)in a letter stating “I don’t know what planet you and your colleagues are living on, but in case you haven’t noticed here on Earth we are in the midst of an unprecedented global crisis. “I think you and your teams would be far better employed helping [furlough payments](https://www.gov.uk/guidance/claim-for-wages-through-the-coronavirus-job-retention-scheme) come through instead of spending your time harassing companies that are hard at work feeding the nation on an absolutely ridiculous technicality. I think you should be ashamed of yourself in continuing to pursue this matter.” Sir Malcolm also added that the company currently had 3,000 employees on sick leave with full pay and a further 1,200 vulnerable staff taking 12 weeks' leave on sick pay to avoid possible infection. The company expects that it will face £20 million of additional costs due to the pandemic. [An HMRC spokesman said](https://www.bmmagazine.co.uk/news/iceland-launches-furious-attack-on-hmrc-over-harassment/): “We don’t discuss identifiable businesses. We understand that businesses are facing unprecedented challenges. Many of our minimum wage teams are working to deliver the vital support schemes the government has put in place. HMRC’s priority is to support employers and workers during this time.” ## How will you know if you are subject to a HMRC investigation? [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)will notify a taxpayer in writing when it commences to examine their tax affairs. Typically, if [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)starts a formal civil investigation, a letter will be sent requesting more information. For example, a taxpayer may receive a request for information on a property transaction or further information about a tax return from a local compliance audit. However, if [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)suspects [criminal VAT fraud](https://taxdisputes.co.uk/repayment-fraud/) or high amounts of tax evaded then it may commence criminal investigations. Typically, unlike for a civil investigation, [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)are unlikely to notify you at the start of the process but instead you will either be informed once you receive a letter requesting attendance to a voluntary interview under caution or when you are arrested. It is crucial that, once under review, specialist [Tax Investigation](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) Lawyers are instructed. We regularly liaise with [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)at formal meetings, agree what the scope of the disclosure should be and prepare the report on your behalf and reach a civil settlement with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs).  We have wide-ranging experience in assisting those facing a COP 9 investigation whilst helping to navigate the rigid time-limits and strict rules. ## How long will a tax investigation last? It depends on the scope and nature of the [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)investigation. The opening letter issued by the [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)is usually a good guide on the potential length of any investigation. Some [tax investigations](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) finish after one letter; other investigations can take months with [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)consistently requesting more information; and some investigations can be extending to longer than a year if involving complex tax structures or large businesses. It is important to engage professional advice early on to minimise the length of any investigation as we identify any problems quickly and efficiently to get to the heart of the matter. ## Expert London Tax Investigation Lawyers If you need [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)[Tax Investigation](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) advice, we are available to aid you at every stage of the [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs). We can provide you with the very best representation in negotiations with [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)and defending all forms of [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)fraud, tax inquiry, tax fraud investigation, criminal tax evasion and [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)enquiries and investigations. Our team specialises in successfully challenging [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. **We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](javascript:;).** --- # COVID 19: Time to Pay Arrangements with HMRC Source: https://taxdisputes.co.uk/2020/05/covid-19-coronavirus-hmrc-time-to-pay-arrangements-tax-solicitors-advice/ ## What is a Time to Pay Arrangement? A time to pay arrangement ("TTPA") gives a company extra breathing space to settle existing liabilities with creditors. A TTPA is a debt repayment plan which provides structured tax payments outside the strict statutory framework. If you successfully negotiate a TTPA with HMRC it will relieve you of late payment penalties, however late payment interest is still chargeable. ## What is the Government guidance on late payment of taxes? On 20 March 2020 Rishi Sunak, the Chancellor of the Exchequer, [announced various financial packages ](https://www.gov.uk/government/speeches/the-chancellor-rishi-sunak-provides-an-updated-statement-on-coronavirus)aimed at alleviating the pressures caused by COVID-19. One of the measures which he implemented was the deferral of tax payments to HMRC. This includes: - Corporation Tax;- [VAT;](https://taxdisputes.co.uk/2020/04/deferral-of-tax-payments-tax-lawyers/)- Income Tax;- PAYE;- NIC. In the instance that you, like many others during the Covid-19 pandemic, cannot pay tax due to HMRC on time, agreeing a TTPA may be essential to the survival of your business. If agreeable, HMRC will usually allow you 6-12 months under the TTPA in which to settle outstanding debts owed. ## What does a taxpayer need to do to arrange a TTPA? HMRC will consider cases on a case-by-case basis but will assess them on the following criteria: - **Your business/industry** - HMRC are less likely to offer you a TTPA if you are in a high risk industry due to competition, past experience or cash flow issues.- **History of compliance with tax rules and regulations** - if you have previously filed your taxes late incurring penalties/fines, it would suggest to HMRC that you are unreliable and unlikely to adhere to the terms of the TTPA.- **Previous TTPA's** - if you had previously had a TTPA where you managed to pay the agreed instalments on time, this may work in your favour with HMRC.- **COVID-19** - HMRC will be far more lenient during this current pandemic and more willing to grant a TTPA, but again this will be determined on a case-by-case basis. ## What if HMRC will not grant me a TTPA? HMRC's[ guidance ](https://www.gov.uk/difficulties-paying-hmrc/your-payment-isnt-due-yet)on late payment of taxes states that they will consider your businesses balance sheet and assess whether you are likely to be able to pay your taxes fully in the future. If they do not think a TTPA would be suitable they will expect you to pay your tax bill straight away, and if you fail to do so they may start enforcement action. ## What enforcement action will HMRC take if I cannot pay my taxes on time? [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) can enforce tax debts against individuals and companies in a number of ways and it is imperative that you seek legal advice from a [specialist law firm](https://taxdisputes.co.uk/legal-representation/)  at the earliest opportunity to protect your position. If you have received a [statutory demand](https://windinguppetitionsolicitors.co.uk/debt-recovery-claims-pre-action-protocol/), you must act quickly (usually within 18 days) if you hope to avoid HMRC bankrupting you as an individual or applying for a winding up petition if you are a company. With debt enforcement by HMRC it is inevitable that unless action is taken the demand will eventually lead to the presentation of a[ winding up](https://windinguppetitionsolicitors.co.uk/) against a company or [bankruptcy petition](https://windinguppetitionsolicitors.co.uk/debt-recovery-claims-pre-action-protocol/) against an individual. Our tax team work closely with our [insolvency team](https://windinguppetitionsolicitors.co.uk/expert-advice/) to manage the HMRC enforcement process for you. Many specialist tax firms cannot offer dual expertise in both practice areas, but our firm can provide a bespoke solution to your individual circumstances be it with tax advice or insolvency solutions. ## Book your Initial Consultation with our Specialist Tax Solicitors We provide tax advice and representation against HMRC. [Get in touch ](https://taxdisputes.co.uk/contact-us/)with our expert tax solicitors and barristers so we can get you a result. We provide a quick no cost initial telephone case review to establish whether or not we can help you; just call one of our team on 02071830529. --- # HMRC Tax Investigations: Increase in Furlough Fraud arrests Source: https://taxdisputes.co.uk/2020/07/hmrc-tax-investigation-increase-in-furlough-fraud-arrests-allegations-defence-advice/ The [Coronavirus Job Retention Scheme](https://www.gov.uk/guidance/claim-for-wages-through-the-coronavirus-job-retention-scheme) has supported 1.1 million employers and 9.4 million jobs through the lockdown, however, the first [arrest](https://www.personneltoday.com/hr/first-furlough-fraud-arrests-are-made/) has been made in connection to alleged [furlough fraud.](https://taxdisputes.co.uk/2020/06/covid19-hmrc-tackle-furlough-fraud-specialist-tax-investigation-solicitors/) A 57 year old man from the West Midlands has been arrested following an investigation into a suspected[ Coronavirus Job Retention Scheme fraud](https://www.gov.uk/guidance/claim-for-wages-through-the-coronavirus-job-retention-scheme). Eight other men were also [arrested ](https://www.personneltoday.com/hr/first-furlough-fraud-arrests-are-made/)in relation to the investigation which is expected to amount to £495,000 worth of fraudulent activity through the scheme. ## How is HMRC tackling furlough fraud? A business premises in the Solihull area was searched prior to the arrest, where computers and other digital devices were seized. Fund's in the company's bank account in relation to the business have also been frozen. There is a suspected multi-million-pound tax fraud allegation as well as money laundering offences that are also being investigated alongside the [furlough fraud](https://taxdisputes.co.uk/2020/06/covid19-hmrc-tackle-furlough-fraud-specialist-tax-investigation-solicitors/). > “The Coronavirus Job Retention Scheme is part of the collective national effort to protect jobs. The vast majority of employers will have used the CJRS responsibly, but we will not hesitate to act on reports of abuse of the scheme. > > This is taxpayer’s money and any claim that proves to be fraudulent limits our ability to support people and deprives public services of essential funding. > > As usual, we have built steps in to prevent mistakes and fraud happening in the first place, but anyone who is concerned that their employer might be abusing the scheme should report it to [HMRC online](https://www.gov.uk/government/organisations/hm-revenue-customs/contact/report-fraud-to-hmrc).” > > *Richard Las, acting director, Fraud Investigation Service, HMRC* More than 100 HMRC officers were deployed to 11 locations in relation to the investigation where further devices were seized as well as business and personal records. ## How has HMRC tried to prevent Furlough Fraud? According to HMRC, the [Coronavirus Job Retention Scheme](https://www.gov.uk/guidance/claim-for-wages-through-the-coronavirus-job-retention-scheme) has four key protections against fraud: - Employees must have been added to payroll on or before 19 March 2020 in order to limit the use of "fake employees";- Claims can only be accepted from employers who are authenticated by HMRC; - All claims are to be assessed by a specialist team within a 72 hour window; and- Proportionate and reasonable interventions with customers after the money has been paid. Rule changes that were enforced since 1 July 2020 are also expected to make furlough fraud less likely as employers are now able to bring furloughed employees back to work for varying amounts of time. However, this would not stop employers from saying employees have worked one day when in actual fact they have worked four days. ## What is a Tax Investigation? A [tax investigation](https://lexlaw.co.uk/hmrc-tax-investigation-penalty-advice-solicitors/) is an enquiry conducted by HMRC into the tax affairs and tax payment history of any UK individual, employee, director or company. A HMRC tax investigation can come in many forms and covers a range of taxes covered under HMRC jurisdiction such as: VAT; income tax; corporation tax and capital gains tax. The type and severity of the investigation is completely dependent on the facts of any individual case. Typically, an investigation generally commences when HMRC notice irregularities in information supplied via a Self Assessment Tax return. A taxpayer will receive a letter from HMRC informing  them that an [investigation](https://lexlaw.co.uk/hmrc-tax-investigation-penalty-advice-solicitors/) has been opened into their tax affairs and may include a request for information. It is strongly recommended that you consult a tax lawyer as soon as possible to receive detailed advice on how to take control of the situation and negotiate with HMRC. ## How will you know if you are subject to a HMRC investigation? HMRC will notify a taxpayer in writing when it commences to [examine their tax affairs.](https://lexlaw.co.uk/hmrc-tax-investigation-penalty-advice-solicitors/) Typically, if HMRC starts a formal civil investigation, a letter will be sent requesting more information. For example, a taxpayer may receive a request for information on a property transaction or further information about a tax return from a local compliance audit. However, if HMRC suspects criminal VAT fraud or high amounts of [tax evaded](https://taxdisputes.co.uk/offshore-tax-evasion-tax-avoidance-solicitors-london/) then it may commence criminal investigations. Typically, unlike for a civil investigation, HMRC are unlikely to notify you at the start of the process but instead you will be informed once you receive a letter requesting attendance to a voluntary interview under caution or when you are arrested. Alternatively, even where criminal tax evasion is suspected, HMRC may wish to deal with the investigation through the civil route under Code of Practice 9.  This process offers a taxpayer a civil solution for potentially criminal evasion by allowing a full disclosure under contract (Contractual Disclosure Facility). It is crucial that once under review, specialist Tax Investigation Lawyers are instructed. We regularly liaise with HMRC at formal meetings, agree what the scope of the disclosure should be and prepare the report on your behalf and reach a civil settlement with HMRC.  We have wide-ranging experience in assisting those facing a COP 9 investigation whilst helping to navigate the rigid time-limits and strict rules. ## How long will a tax investigation last? It depends on the scope and nature of the [HMRC investigation](https://lexlaw.co.uk/hmrc-tax-investigation-penalty-advice-solicitors/). The opening letter issued by the HMRC is usually a good guide on the potential length of any investigation. Some tax investigations finish after one letter; other investigations can take months with HMRC consistently requesting more information; and some investigations can be extending to longer than a year if involving complex tax structures or large businesses. It is important to engage professional advice early on to minimise the length of any investigation as we identify any problems quickly and efficiently to get to the heart of the matter. ## Expert London Tax Investigation Lawyers If you need [HMRC Tax Investigation advice](https://lexlaw.co.uk/hmrc-tax-investigation-penalty-advice-solicitors/), we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. **We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](javascript:;).** --- # HMRC encourages self-employed to claim COVID-19 support Source: https://taxdisputes.co.uk/2020/05/hmrc-encourages-self-employed-claim-covid-19-coronavirus-support-claims-income-support-scheme-legal-advice/ [HMRC ](https://www.gov.uk/government/news/self-employed-invited-to-get-ready-to-make-their-claims-for-coronavirus-covid-19-support)will begin contacting around three and a half million taxpayers who may be eligible for the government’s Self-Employment Income Support Scheme. [HMRC ](https://www.gov.uk/government/news/self-employed-invited-to-get-ready-to-make-their-claims-for-coronavirus-covid-19-support)will explain the application process for the support scheme and how they will be able to make a claim.  Those who are eligible will be able to claim a taxable grant worth 80% of their average trading profits up to a maximum of £7,500 (equivalent to three months’ profits), paid in a single instalment. HMRC is also inviting customers, or their agents, to [go online and check their eligibility for SEISS](https://www.tax.service.gov.uk/self-employment-support). ## How will the Scheme help those who are self employed? The service opened on 13 May 2020 and will allow those who are self-employed to claim a taxable grant worth up to 80% of their average trading profits for three months. The maximum grant for those who are eligible will be a maximum of £7,500.  [HMRC ](https://www.gov.uk/government/news/self-employed-invited-to-get-ready-to-make-their-claims-for-coronavirus-covid-19-support)will use the information that is provided in their 2018/2018 tax return, returns for 2016/17 and returns for 2017/18 if needed, to gadge whether people are eligible for the scheme and how much for.  ## Who is eligible for the Self-Employment Income Support Scheme? Self-employed taxpayers whose businesses have been adversely affected by the [Covid-19 crisis](https://taxdisputes.co.uk/2020/04/how-will-covid-19-affect-tax-disputes-with-hmrc/) will be eligible for the scheme.  Taxpayers will also have to: - Have traded in 2019/20 and intend to continue trading;- Earned at least half of their income through self-employment; - Have trading profits of no more than £50,000 a year; - Have traded in the tax year 2018 to 2019 and submitted their tax return on or before 23 April 2020 for that year.  ## How to make a claim from the Self-Employment Income Support Scheme? [HMRC ](https://www.gov.uk/government/news/self-employed-invited-to-get-ready-to-make-their-claims-for-coronavirus-covid-19-support)are encouraging those who believe they are [eligible ](https://www.tax.service.gov.uk/self-employment-support/enter-unique-taxpayer-reference)for the scheme to use their [online check](https://www.tax.service.gov.uk/self-employment-support/enter-unique-taxpayer-reference) to show their eligibility. Once someone is confirmed as eligible they will be given a date when they will be able to submit their appeal.  Those [eligible ](https://www.tax.service.gov.uk/self-employment-support/enter-unique-taxpayer-reference)are also encouraged to ensure that their contact information is up to date so that they can easily be contacted if they are able to receive a grant. The claims service will open on 13 May 2020 which [HMRC ](https://www.gov.uk/government/news/self-employed-invited-to-get-ready-to-make-their-claims-for-coronavirus-covid-19-support)have explained is ahead of their original timetable. ## Expert London Tax Investigation Lawyers If you need [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)[Tax Investigation](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) advice, we are available to aid you at every stage of the [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs). We can provide you with the very best representation in negotiations with [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)and defending all forms of [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)fraud, tax inquiry, tax fraud investigation, criminal tax evasion and [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)enquiries and investigations. Our team specialises in successfully challenging [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. **We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](javascript:;).** --- # HMRC Investigations: Inheritance Tax Disputes Source: https://taxdisputes.co.uk/2020/07/hmrc-investigations-inheritance-tax-disputes-iht-disclosure-advise/ [Inheritance tax ](https://www.gov.uk/inheritance-tax)is imposed on the estates of people who have died and are handing assets over to beneficiaries so long as the estate is of a certain value. Therefore, it is important that the evaluation of the estate is done accurately as [HMRC ](https://www.gov.uk/inheritance-tax)are able to access documentation for a long time. HMRC may check on estate valuations 20 years after payment, HMRC will notify a taxpayer in writing when it commences to examine their tax affairs. Typically, if HMRC starts a formal civil investigation, a letter will be sent requesting more information. For example, if you receive a request for information, it is important to contact an expert tax lawyer. It is crucial that once under review, [specialist Tax Investigation Lawyers](https://taxdisputes.co.uk/) are instructed. We regularly liaise with HMRC at formal meetings, agree what the scope of the disclosure should be and prepare the report on your behalf and reach a civil settlement with HMRC.   ## When will inheritance tax be levied? [Inheritance tax](https://www.gov.uk/inheritance-tax) will only be imposed if the estate is valued at over £325,000. The evaluation will cover more than simply the home or mortgage, an estate can be made up of valuable possessions, jewellery or cash assets. ## How is the valuation of an estate completed? To value an estate the parties involved must list out all the assets and work out their value at the time of death then deduct any debts and liabilities. Those affected should keep records of how the valuation was calculated i.e. an estate agent's valuation. **It is important to do so as [HMRC ](https://www.gov.uk/inheritance-tax)can request records up to 20 years after the inheritance tax is paid. ** Any costs that are incurred following death such as solicitors fees, cannot be deducted from the estate's value for inheritance tax purposes. Due to the broad nature of some estates, this can make a valuation much more difficult to complete however [HMRC ](https://www.gov.uk/inheritance-tax)have permitted an extended time frame to do so. The legislature have stated that the valuation of the esstate can take anywhere from six to nine months. This time frame may also be extended further for more complicated estates. If there is no [inheritance tax](https://www.gov.uk/inheritance-tax) to pay an estate will not need to be valued straight away, however, if inheritance tax is due the parties will need to send in the [inheritance tax ](https://www.gov.uk/inheritance-tax)forms within one year. ## When does the inheritance tax need to be paid? The bill will need to start being paid by the end of the sixth month after the person died. It should be noted that inheritance tax payments can be started prior to the completion of the valuation. ## How can an overall inheritance tax bill be lowered? - Leaving a legacy of a certain size to charity;- Putting assets into a trust for heirs;- Leaving the estate to a spouse or civil partner;- Paying into a pension instead of a savings account; or- Regularly giving away up to £3,000 a year in gifts ## Expert London Tax Lawyers If you need HMRC Tax Disputes advice, we are available to aid you at every stage of the HMRC appeals process. Members of our legal team have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the HMRC internal review process and in front of the Tax Tribunal. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect including developing a strategy. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](javascript:;). --- # Covid-19: HMRC Extends Deadline to Appeal Source: https://taxdisputes.co.uk/2020/05/covid-19-coronavirus-hmrc-extends-deadline-to-appeal-penalty-assessment-decision-first-tier-tribunal-urgent-late-appeals-company-taxpayer-legal-representation-advice/ Taxpayers who wish to [appeal ](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/)against a tax decision normally have 30 days to do so. This is a strict deadline. Any out of time appeals have to be supported with evidence and there is no guarantee that the tribunal or HMRC would countenance such an extension. However, [HMRC ](https://www.gov.uk/tax-appeals/penalty)has recently issued guidance to taxpayers subject to penalties and assessments that it will grant those impacted by coronavirus (COVID-19) an extra three months to appeal any decision dated February 2020 or later, compared to the ususal 30 days. It is strongly recommended that legal representation is sought when appealing a tax penalty or assessment with HMRC. Although HMRC has updated the time limits, we recommend that any such appeal happens as soon as possible, and within the 30 day limit if practicable. We have a team of specialist tax solicitors and barristers that are able to successfully negotiate with HMRC on a taxpayer’s behalf. It is essential to seek advice as soon as possible because an appeal must be lodged within 30 days and a late response can be fatal to any appeal. ## Who will be able to use the extension?  The [extension ](https://www.accountancydaily.co/covid-19-tax-appeal-deadlines-extended)will apply to all tax appeals including penalty assessments. Taxpayers who need the extension will have to explain how they have been affected by the pandemic in their appeal. [HMRC ](https://www.gov.uk/tax-appeals/penalty)has requested that those who do so should submit their assessment as they can. [HMRC ](https://www.gov.uk/tax-appeals/penalty)have already chosen to write to companies involved in enquiries that during the lockdown it will not be requesting any further information or press for responses.  ## Other Covid-19 guidance from HMRC Other guidance updates showed HMRC will now consider coronavirus as a “reasonable excuse” for missing some tax obligations, such as payments or filing dates. HMRC has also recently[ suspended enquiries into taxpayers and businesses under investigation](https://www.ftadviser.com/your-industry/2020/04/14/hmrc-pauses-investigations-due-to-capacity-issues/) as a result of capacity limits in the department. This is in line with Companies House, which [extended filing deadlines](https://www.ftadviser.com/companies/2020/03/20/companies-house-extends-filing-deadlines/) by two months automatically due to the impact of Covid-19. ## Appeal against a HMRC Tax Penalty or Assessment If HMRC have assessed you for a [tax penalty](https://taxdisputes.co.uk/hmrc-penalties/) then an appeal can be lodged against the penalty. There are penalties for [late payment of tax](https://taxdisputes.co.uk/hmrc-penalties/), [late filing of tax returns](https://taxdisputes.co.uk/hmrc-penalties/) and [late notification of liability to pay tax](https://taxdisputes.co.uk/hmrc-penalties/). Appealing penalties for late filing of returns and paperwork or late payment can be applied to any of these types of taxes: - **Self Assessment Tax Return** deadlines and penalties (form SA 370- see below);- **PAYE/National Insurance** payments and deadlines;- **PAYE** late payment penalties (appeal online using HMRC’s [PAYE for employers](https://www.gov.uk/guidance/what-happens-if-you-dont-pay-paye-and-national-insurance-on-time) service);- Missed **VAT** deadlines – penalties and surcharges ([form WT2](https://www.gov.uk/government/publications/vat-late-submission-of-online-vat-return-reasonable-excuse-wt2) if received a surcharge for submitting online VAT Return late and claim a *“reasonable excuse”*);- Late returns and late return penalties under** CIS**; and- **Corporation Tax** penalties ([form WT1](https://www.gov.uk/government/publications/company-tax-return-it-problems) if there were issues sending a Company Tax Return). For example, you can appeal a penalty for the late filing of a tax return, where a penalty can be charged even if no tax is owed. Late filing penalties start with a fixed £100 penalty that escalates to fixed daily penalties and/or tax-geared penalties if the failure continues. ## Expert London Tax Lawyers If you need HMRC Tax Disputes advice, we are available to aid you at every stage of the HMRC appeals process. Members of our legal team have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the HMRC internal review process and in front of the Tax Tribunal. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect including developing a strategy. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](javascript:;). --- # HMRC: Increase Reporting Requirements for Tax Advisers Source: https://taxdisputes.co.uk/2020/07/hmrc-increase-reporting-requirements-for-tax-advisers-accountants-legal-professional-privilege-confidential-advice/ Tax advisers could soon be compelled into providing more [information ](https://www.ftadviser.com/your-industry/2020/07/21/hmrc-mulls-new-reporting-requirements-for-tax-advisers/?page=2)to the Commissioners under new rules proposed by [HMRC](https://www.gov.uk/topic/dealing-with-hmrc/tax-agent-guidance). Currently, tax advisers (like lawyers) are excluded from HMRC’s powers to inspect a person’s position regarding a potential penalty and to collect information to help identify any other person who enabled the tax avoidance arrangements. But the Commissioners are proposing to remove the exclusion, meaning advisers could be compelled to provide information regarding clients involved in ongoing tax investigations. It is important to note that all client communications to **accountants **are ***not ***legally privileged and are easy for [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) to obtain; however, ***[communications to lawyers are legally privileged](https://en.wikipedia.org/wiki/Legal_professional_privilege)*** and highly confidential. Therefore it is beneficial to the [success](https://taxdisputes.co.uk/success/) of many of our clients’ cases that we be instructed to instruct an experienced forensic accountant on your behalf. ## What are the current rules? Currently,[ tax advisers](https://www.gov.uk/topic/dealing-with-hmrc/tax-agent-guidance) are excluded from [HMRC's ](https://www.gov.uk/topic/dealing-with-hmrc/tax-agent-guidance)powers to inspect a person's position regarding a potential penalty and to collect information to help identify those who are enabling [tax avoidance](https://taxdisputes.co.uk/tax-avoidance-cop-8-investigations-solicitors-london/). However, the new suggested rules would remove the exclusion which previously allowed [tax advisers](https://www.gov.uk/topic/dealing-with-hmrc/tax-agent-guidance) to withhold information from the authority. ## What do the new rules mean for tax advisers? Tax advisers would still be able to withhold any information they do not think is required for the purpose of checking the penalty position. The background notes show that tax advisers are not the end target for new measures as HMRC have stated that,* “many tax advisers adhere to high professional standards and are a very useful source of advice and support to taxpayers”* and that the *“measures are not aimed at such professionals”.* ## Why have HMRC proposed new rules? The purpose of policy change is part of a wider push aiming to increase penalties for enablers of [tax avoidance.](https://taxdisputes.co.uk/tax-avoidance-cop-8-investigations-solicitors-london/) The proposals have been introduced following Sir Amyas Morse's independent review of the loan charge - a fee levied since the start of the last tax year on those who benefited from [disguised remuneration schemes. ](https://taxdisputes.co.uk/disguised-remuneration-loan-charge-hmrc-tax-appeals-lawyers/) The Government have also pledged to provide extra funding support for HMRC's crackdown on [tax avoidance](https://taxdisputes.co.uk/tax-avoidance-cop-8-investigations-solicitors-london/). The Chancellor has stated that this would create an additional £4.4 billion in revenue over the next 5 years. ## Risk of using an accountant against HMRC… It is important to note that all client communications to **accountants **are ***not ***legally privileged and are easy for [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) to obtain; however, ***[communications to lawyers are legally privileged](https://en.wikipedia.org/wiki/Legal_professional_privilege)*** and highly confidential. Therefore it is beneficial to the [success](https://taxdisputes.co.uk/success/) of many of our clients’ cases that we be instructed to instruct an experienced forensic accountant on your behalf. Although you may have instructed an accountant in relation to your accounts and tax matters for yourself or your business, in most cases your accountant should realistically only assist you in tax compliance matters whereas we specialise in assisting you in relation to any investigations that HMRC have brought against you. We regularly work with accountants to ensure that collectively we are able to obtain the best possible resolution to your matter. ## What is a Tax Investigation? A tax investigation is an enquiry conducted by HMRC into the tax affairs and tax payment history of any UK individual, employee, director or company. A HMRC tax investigation can come in many forms and covers a range of taxes covered under HMRC jurisdiction such as: VAT; income tax; corporation tax and capital gains tax. The type and severity of the investigation is completely dependent on the facts of any individual case. Typically, an investigation generally commences when HMRC notice irregularities in information supplied via a Self Assessment Tax return. A taxpayer will receive a letter from HMRC informing  them that an investigation has been opened into their tax affairs and may include a request for information. It is strongly recommended that you consult a tax lawyer as soon as possible to receive detailed advice on how to take control of the situation and negotiate with HMRC. ## Need advice from ex-HMRC Tax Counsel? *Want to challenge a HMRC tax penalty or fine? HMRC investigation? VAT issues? Problems with a disguised remuneration scheme or tax evasion? Need representation at the First Tier Tax Tribunal? * We are a [specialist](https://taxdisputes.co.uk/expert-advice/) leading City of London tax law firm based in [Middle Temple](https://www.middletemple.org.uk/) (Barristers’ Inns of Court) adjacent to the Royal Courts of Justice. Our [expert tax solicitors and barristers](https://taxdisputes.co.uk/) have years of [experience](https://taxdisputes.co.uk/success/) in of working with and negotiating with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) and managing appeals against their decisions at all levels. Members of the team include qualified [Tax Solicitors](https://taxdisputes.co.uk/tax-solicitors/) and [Tax Barristers](https://taxdisputes.co.uk/tax-barristers/) whom have vast experience of tax laws and first hand commercial, litigation and advocacy experience previously working in-house for multinational accountancy firms and as senior counsel at HMRC itself. Our [experienced](https://bankruptcypetitionandannulmentlaw.co.uk/) lawyers regularly carry out work in many tax disputes areas,  from advising clients on whether HMRC have followed the correct procedures to successfully challenging HMRC’s policies. We have specialist knowledge in HMRC internal processes as well as ensuring that we are able to successfully challenge HMRC decisions in the Tax Tribunals. We have a team of established tax and duties specialist lawyers with a [proven track record](https://taxdisputes.co.uk/success/) of delivering authoritative solutions for our high net worth individual and corporate clients. ## Expert London Tax Investigation Lawyers If you need HMRC Tax Investigation advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. **We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](javascript:;).** --- # Rise in HMRC Asset Seizure Orders Source: https://taxdisputes.co.uk/2020/06/hmrc-asset-seizure-account-freezing-order-forfeiture-notice-director-liability-furlough-fraud-advice/ There has been a 177% [increase in ](https://www.accountancydaily.co/surge-hmrc-asset-seizure-orders)the number of account freezing orders (AFOs) issued by [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs/contact/report-fraud-to-hmrc)in 2019/20, rising to 166 from 60 the previous year. By applying for an account freezing order (which can be for a sum as small as £1000), HMRC can prevent money being withdrawn from or deposited into accounts linked to suspected criminal activity or money that is suspected of having been obtained by unlawful conduct. Our tax team is made up of specialist [tax lawyers](https://taxdisputes.co.uk/expert-advice/) who can assist you to resolve your tax dispute. Our ex-HMRC lawyers will guide you on complex tax legislation to get you the best possible result. ## Why has there been an increase in the number of Asset Seizure Orders? In January 2018 forfeiture orders and forfeiture notices were introduced. These can be used to directly seize money that is suspected of having been obtained by unlawful conduct. Forfeiture orders are issued by the Magistrates’ Court, whereas forfeiture notices are issued by regulatory bodies, including HMRC.  Prior to the introduction of these powers regulatory bodies had fewer options available to seize money directly from bank accounts without having to charge the person of suspected wrongdoing first. This is likely to be the reason for the significant increase in the number of freezing orders as [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs/contact/report-fraud-to-hmrc)no longer has to bring any [allegation](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) of criminal wrongdoing. ## What is a freezing order? A freezing order is used by a creditor who may be concerned that a company may wish to sell their assets rather than pay what is due to the creditor. The freezing order will allow almost any asset to be frozen which may include: company bank accounts, property, land or investments and shares.   The freezing order will not, however, prevent the company or individual from borrowing money and if they are to borrow money following the order being put in place the borrowed money is not classed as an asset. When a freezing order is granted by court it is endorsed with a penal notice in case a respondent does not comply, it will be contempt of court and face a fine.  ## Why is HMRC using freezing orders? [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs/contact/report-fraud-to-hmrc)are most likely at the moment using freezing orders to seize money in accounts of suspected fraudsters in relation to the government’s £360 billion coronavirus stimulation package.  Businesses that have also been [suspected of abusing](https://www.personneltoday.com/hr/rife-furlough-fraud-being-revealed-by-whistleblowers/) the coronavirus job retention scheme could have their accounts frozen for up to two years. It has been suspected that employers could exaggerate claims if they are struggling during lockdown, especially with government plans to further extend the job retention scheme to include part-time working.   As of 29 May 2020, [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs/contact/report-fraud-to-hmrc)has reportedly received 1,868 reports of [fraudulent use](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) of the furlough scheme, which is almost double the number of reports received as of 12 May 2020 at 795.   ### The main types of furlough fraud that have been identified are:   - A company furloughs staff but asks them to continue to work or volunteer unpaid.- Companies furlough staff without telling them. The workers only find out when they are paid.- A company claims furlough money for a “ghost” employee who may be someone they dismissed or “recruited” so they could claim the money. [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs/contact/report-fraud-to-hmrc)has warned that it would hold directors "jointly and severally" liable in cases where partners in a firm were unaware another partner had made a claim in the scheme on the assumption that "each partner is taken to know anything that any of the other partners knows". ## Expert London Tax Investigation Lawyers If you need HMRC Tax Investigation advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. **We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](javascript:;).** --- # HMRC to restart tax enquiries Source: https://taxdisputes.co.uk/2020/06/hmrc-restart-tax-enquiries-specialist-solicitors/ *HMRC are to restart their enquiries following the brief pause which was put in place due to COVID-19. The new remit of the investigations will include whether employees broke the rules and worked whilst being furloughed*. ## When will HMRC restart their investigations? Following the introduction of a nationwide lockdown in the UK due to the global pandemic, HMRC provided tax payers with a [brief respite from investigations.](https://taxdisputes.co.uk/2020/04/covid-19-coronavirus-hmrc-dispute-taxpayers-assessments-penalties-advice/) This period now seems to have come to an end with Blick Rothenberg stating that HMRC enquiries into taxpayers' affairs were restarting as a "matter of urgency" and with "renewed vigour". ## Why are HMRC restarting their investigations? The assistance Government has provided to businesses and individual taxpayers in recent months have been costly and they will want to ensure that borrowing requirements are not exacerbated by taxpayers who are not paying the correct amount of tax.  There is no doubt that HMRC will be under pressure from Government to look at anyone who they think is defrauding the system as a matter of urgency. ## What investigations will HMRC be focussing on now? On 20 March 2020 Rishi Sunak, the Chancellor of the Exchequer, [announced various financial packages ](https://www.gov.uk/government/speeches/the-chancellor-rishi-sunak-provides-an-updated-statement-on-coronavirus)aimed at alleviating the pressures caused by COVID-19 such as the introduction of the the furlough scheme, which is costing the UK government roughly £14bn a month. This will therefore be one of the focusses of HMRC investigations, to ensure that those who were not supposed to be working during furlough were complying with the law. They will also be looking at other areas which have seen a surge in activity such as internet trading whilst the lockdown has been in place. In addition to this to the, it is understood that HMRC have also been given the go-ahead to start new Code of Practice 8 investigations (those that involve significant amounts of tax or complex technical arguments). > By contrast, however, new [Code of Practice 9 (COP9) investigations ](https://taxdisputes.co.uk/tax-evasion-hmrc-code-practice-9-investigations/)(i.e. those where there is a suspicion of serious tax fraud) will not start yet. [COP9](https://taxdisputes.co.uk/tax-evasion-hmrc-code-practice-9-investigations/) enquiries commenced before the pandemic struck were never paused in the same way that other enquiries were, although HMRC has been very reasonable about providing additional time to submit reports in view of the difficulties posed by the lockdown.  Taxpayers previously under enquiry and who took advantage of HMRC’s offer to pause, should now prepare to resume their dialogue. > > Fiona Fernie, Blick Rothenberg ## How will you know if you are subject to a HMRC investigation? [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)will notify a taxpayer in writing when it commences to examine their tax affairs. Typically, if [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)starts a formal civil investigation, a letter will be sent requesting more information. For example, a taxpayer may receive a request for information on a property transaction or further information about a tax return from a local compliance audit. However, if [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)suspects [criminal VAT fraud](https://taxdisputes.co.uk/repayment-fraud/) or high amounts of tax evaded then it may commence criminal investigations. Typically, unlike for a civil investigation, [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)are unlikely to notify you at the start of the process but instead you will either be informed once you receive a letter requesting attendance to a voluntary interview under caution or when you are arrested. It is crucial that, once under review, specialist [Tax Investigation](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) Lawyers are instructed. We regularly liaise with [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)at formal meetings, agree what the scope of the disclosure should be and prepare the report on your behalf and reach a civil settlement with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs).  We have wide-ranging experience in assisting those facing a COP 9 investigation whilst helping to navigate the rigid time-limits and strict rules. ## How long will a tax investigation last? It depends on the scope and nature of the [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)investigation. The opening letter issued by the [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)is usually a good guide on the potential length of any investigation. Some [tax investigations](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) finish after one letter; other investigations can take months with [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)consistently requesting more information; and some investigations can be extending to longer than a year if involving complex tax structures or large businesses. It is important to engage professional advice early on to minimise the length of any investigation as we identify any problems quickly and efficiently to get to the heart of the matter. ## Expert London Tax Investigation Lawyers If you need HMRC Tax Investigation advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. **We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. ** --- # Potential HMRC penalties: Directors and furlough scheme fraud Source: https://taxdisputes.co.uk/2020/06/hmrc-penalties-tax-investigation-directors-furlough-scheme-fraud-advice/ £17.5 billion has been paid out in Government grants so far to 8.7 million people who have been placed on [furloughed leave](https://www.gov.uk/guidance/check-which-employees-you-can-put-on-furlough-to-use-the-coronavirus-job-retention-scheme). more than a million employers have used the scheme to cover workers wages. [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs/contact/report-fraud-to-hmrc)has warned that it will impose a penalty on directors who deliberately flout the rules of the government’s COVID-19 [furlough scheme. ](https://www.gov.uk/guidance/check-which-employees-you-can-put-on-furlough-to-use-the-coronavirus-job-retention-scheme) As of 29 May 2020 [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs/contact/report-fraud-to-hmrc)have already reportedly received 1,868 reports to its digital reporting service regarding fraudulent use of its[ furlough scheme.](https://www.gov.uk/guidance/check-which-employees-you-can-put-on-furlough-to-use-the-coronavirus-job-retention-scheme) *Got a dispute with HMRC?* Our tax team is made up of specialist [tax lawyers](https://taxdisputes.co.uk/expert-advice/) who can assist you to resolve your tax dispute. Our ex-HMRC lawyers will guide you on complex tax legislation to get you the best possible result. ## Furlough Scheme Fraud and Warnings to Directors  In draft legislation that was published on the government website plans were outlined to recover payments people were not entitled to through the various coronavirus support schemes. These schemes will include the Self-Employment Income Support Scheme and the Coronavirus Job Retention Scheme.  In the draft tax information and impact note it is [warned that](https://www.ftadviser.com/your-industry/2020/06/02/hmrc-to-go-after-company-directors-for-furlough-fraud/) in cases of *“deliberate non-compliance”*, such as where other parties are not aware that one director has misused the COVID-19 schemes, they intend to hold **all directors accountable for the fraudulent grants**.  Directors whose non-compliance with the requirements of the [furlough scheme](https://www.gov.uk/guidance/check-which-employees-you-can-put-on-furlough-to-use-the-coronavirus-job-retention-scheme) could also fall into the same rules. Therefore, directors who may not have understood the complex scheme and claimed a grant in error will also face a penalty.  A [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs/contact/report-fraud-to-hmrc)spokesperson said that fraudulent claims for [furlough ](https://www.gov.uk/guidance/check-which-employees-you-can-put-on-furlough-to-use-the-coronavirus-job-retention-scheme)limit the government’s “ability to support people and deprive public services of essential funding”. > “We’d ask anyone concerned their employer might be abusing the scheme to please contact us. It could be that you’re not being paid what you’re entitled to, they might be asking you to work while you’re on [furlough,](https://www.gov.uk/guidance/check-which-employees-you-can-put-on-furlough-to-use-the-coronavirus-job-retention-scheme) or they may have claimed for times when you were working.” > > “These reports are just one way that HMRC identifies fraud. Claims are checked and payments may be withheld or need to be repaid if the claim is based on dishonest or inaccurate information. We won’t hesitate to take criminal action against the most serious cases.” > > HMRC spokesman ## What is furlough scheme fraud? - A company [furloughs](https://www.gov.uk/guidance/check-which-employees-you-can-put-on-furlough-to-use-the-coronavirus-job-retention-scheme) staff but asks them to continue to work or volunteer unpaid.- Companies[ furlough ](https://www.gov.uk/guidance/check-which-employees-you-can-put-on-furlough-to-use-the-coronavirus-job-retention-scheme)staff without telling them. The workers only find out when they are paid.- A company claims [furlough](https://www.gov.uk/guidance/check-which-employees-you-can-put-on-furlough-to-use-the-coronavirus-job-retention-scheme) money for a “ghost” employee who may be someone they dismissed or “recruited” so they could claim the money. ## What is a Tax Investigation? A tax investigation is an enquiry conducted by HMRC into the tax affairs and tax payment history of any UK individual, employee, director or company. A HMRC tax investigation can come in many forms and covers a range of taxes covered under HMRC jurisdiction such as: VAT; income tax; corporation tax and capital gains tax. The type and severity of the investigation is completely dependent on the facts of any individual case. Typically, an investigation generally commences when HMRC notice irregularities in information supplied via a Self Assessment Tax return. A taxpayer will receive a letter from HMRC informing  them that an investigation has been opened into their tax affairs and may include a request for information. It is strongly recommended that you consult a tax lawyer as soon as possible to receive detailed advice on how to take control of the situation and negotiate with HMRC. ## How will you know if you are subject to a HMRC investigation? HMRC will notify a taxpayer in writing when it commences to examine their tax affairs. Typically, if HMRC starts a formal civil investigation, a letter will be sent requesting more information. For example, a taxpayer may receive a request for information on a property transaction or further information about a tax return from a local compliance audit. However, if HMRC suspects criminal VAT fraud or high amounts of tax evaded then it may commence criminal investigations. Typically, unlike for a civil investigation, HMRC are unlikely to notify you at the start of the process but instead you will be informed once you receive a letter requesting attendance to a voluntary interview under caution or when you are arrested. Alternatively, even where criminal tax evasion is suspected, HMRC may wish to deal with the investigation through the civil route under Code of Practice 9.  This process offers a taxpayer a civil solution for potentially criminal evasion by allowing a full disclosure under contract (Contractual Disclosure Facility). It is crucial that once under review, specialist Tax Investigation Lawyers are instructed. We regularly liaise with HMRC at formal meetings, agree what the scope of the disclosure should be and prepare the report on your behalf and reach a civil settlement with HMRC.  We have wide-ranging experience in assisting those facing a COP 9 investigation whilst helping to navigate the rigid time-limits and strict rules. ## How long will a tax investigation last? It depends on the scope and nature of the HMRC investigation. The opening letter issued by the HMRC is usually a good guide on the potential length of any investigation. Some tax investigations finish after one letter; other investigations can take months with HMRC consistently requesting more information; and some investigations can be extending to longer than a year if involving complex tax structures or large businesses. It is important to engage professional advice early on to minimise the length of any investigation as we identify any problems quickly and efficiently to get to the heart of the matter. ## Expert London Tax Investigation Lawyers If you need HMRC Tax Investigation advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. **We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](javascript:;).** --- # HMRC Escalate Investigations into Furlough Fraud Source: https://taxdisputes.co.uk/2020/09/hmrc-tax-investigations-into-furlough-fraud-coronavirus-job-retention-scheme-advice/ *As at midnight on 16 August 2020 the value of claims made by employers to HMRC under the furlough scheme is over £35.4 billion. Almost 1.2 million employers have taken advantage of the furlough scheme, furloughing or flexibly furloughing 9.6 million jobs (see [here](https://www.gov.uk/government/collections/hmrc-coronavirus-covid-19-statistics) for more information)*. *The COVID-19 pandemic has brought with it a number of challenges, including the Coronavirus Job Retention Scheme Fraud known more colloquially as ‘Furlough Fraud.’* *If you need [HMRC Tax Investigation advice](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/), we are available to aid you at every stage of the HMRC investigate process. Members of [our legal team](https://taxdisputes.co.uk/expert-advice/) have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation.* ## What is the furlough scheme? The Coronavirus Job Retention Scheme (CJRS), also known as the furlough scheme, is the provision made by the UK government to assist businesses in retaining employees during the COVID-19 pandemic. The scheme pays a percentage of the wages of employees that are furloughed by their employer due to COVIC-19, with the aim of avoiding the need to make staff redundant at this time. One of the requirements of the scheme is that furloughed employees are not allowed to work for their employer at this time. ## What is furlough fraud? The main ways in which a firm could commit furlough fraud include: - Asking a furloughed employee to return to work as a ‘volunteer’ without pay; - Not informing the staff that they have been furloughed, so the worker only finds out when they receive their wages;- Not paying employees the full amount received from HMRC;- Employers making backdated claims that include periods in which the employee was working; - Employers pretending to hire staff shortly prior to the qualifying period to take advantage of the payments. Jim Harra, HMRC’s chief executive, told the Treasury select committee on 8 April 2020: > *We are going to be paying out a vast sum of money in a rapid period of time. Any scheme like this is a target for organised crime. Any scheme that pays out I'm afraid attracts criminals that want to defraud it and people that are genuinely entitled to it who inflate their claims.* [The Criminal Finance Act 2017](https://www.legislation.gov.uk/ukpga/2017/22/contents/enacted) gives HMRC an arsenal of civil remedies, which includes the right to charge 100% tax on wrongly claimed furlough payments and, importantly for company officers, the ability to make a company officer pay a portion of the company’s penalty where there has been a deliberate act or failure attributable to that individual. Importantly, the Act also places an obligation on businesses to notify HMRC of any wrongly claimed payments. ## How has HMRC tried to prevent furlough fraud? According to HMRC, the [Coronavirus Job Retention Scheme](https://www.gov.uk/guidance/claim-for-wages-through-the-coronavirus-job-retention-scheme) has four key protections against fraud: - Employees must have been added to payroll on or before 19 March 2020 in order to limit the use of “fake employees”;- Claims can only be accepted from employers who are authenticated by HMRC;- All claims are to be assessed by a specialist team within a 72 hour window; and- Proportionate and reasonable interventions with customers after the money has been paid. Rule changes that were enforced since 1 July 2020 are also expected to make furlough fraud less likely as employers are now able to bring furloughed employees back to work for varying amounts of time. However, this would not stop employers from saying employees have worked one day when in actual fact they have worked four days. ## How will deliberate furlough fraud be treated? [Deliberate behaviour](https://taxdisputes.co.uk/2020/07/hmrc-tax-investigation-increase-in-furlough-fraud-arrests-allegations-defence-advice/) that is not corrected using the amnesty time limit will also potentially expose employers to HMRC's criminal powers, as well as HMRC's powers to publish details of deliberate tax defaulters in order to 'name and shame'. In July HMRC made it's [first arrest](https://taxdisputes.co.uk/2020/07/hmrc-tax-investigation-increase-in-furlough-fraud-arrests-allegations-defence-advice/) in a 'dawn raid' as part of an investigation into a suspected £495,000 furlough fraud. By August 2020, HMRC had received almost 8,000 reports of furlough fraud on their Fraud Hotline. ## Can you appeal against a tax investigation being opened? No, unfortunately you cannot appeal against an investigation being opened. However, once HMRC have concluded their investigation and issued a penalty, then you have 30 days to appeal the decision. You can appeal in writing by giving [Notice of Appeal to HMRC](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/). HMRC will either confirm their first decision, amend their decision or agree with your assessment. If your position cannot be agreed with HMRC then two further options are available. HMRC could offer an[ internal review](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/) of the disputed decision (or you can request this procedure at any time). The review is an entirely internal procedure completed not by the original HMRC decision maker but by a different HMRC officer. You could also [appeal to the First Tier Tax Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) if you cannot agree your position following the review. The independent tribunal will make a determination on the case. A further appeal is permitted if you do not agree with the decision. We have a proven track record of successfully contesting disputed tax assessments and penalties with HMRC. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one.The tax authorities have lost many cases that are appealed through negotiation, internal review or through the Tax Tribunal. Detailed advice on HMRC Tax Appeals can be found [here](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/). ## Expert London Tax Investigation Lawyers If you need HMRC Tax Investigation advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. --- # Do HMRC have the power to enforce asset disclosure? Source: https://taxdisputes.co.uk/2020/09/hmrc-tax-investigation-power-to-enforce-asset-disclosure-independent-confidential-advice/ *Yes. HMRC will be given [new powers](https://www.cityam.com/hmrc-to-receive-powers-to-enforce-disclosure-of-assets/) allowing the Commissioners to force financial institutions such as banks to provide [information ](https://taxdisputes.co.uk/2020/07/hmrc-investigations-inheritance-tax-disputes-iht-disclosure-advise/)regarding people's assets. * *Under new measures proposed in the next Financial Bill, financial institutions will be required to pass on customer information if they are served with a "financial institution notice".* *If you need [HMRC Tax Investigation advice](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/), we are available to aid you at every stage of the HMRC investigate process. Members of [our legal team](https://taxdisputes.co.uk/expert-advice/) have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation.* ## Why have HMRC been provided with this power? Currently [HMRC ](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/)will need consent from the individual or tax tribunal to receive information from financial institution however the new measure will allow [HMRC ](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/)to request the information directly. The reason for the measure is to make the it easier and quicker for [HMRC ](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/)to share information with [foreign tax ](https://taxdisputes.co.uk/offshore-tax-evasion-tax-avoidance-solicitors-london/)authorities as part of a global crackdown on [tax evasion](https://taxdisputes.co.uk/offshore-tax-evasion-tax-avoidance-solicitors-london/). #### Financial institutions included in the asset enforcement: - Banks- Investment advisers- Fund managers - Credit unions - Insurance Companies - Credit cad issuers ## How has the measure been critisised? The [Chartered Institute of Taxation](https://www.tax.org.uk/) has expressed concern about the loss of independent tribunal oversight particularly in cases that involve a request for information about UK taxpayers. [UK Finance](https://www.ukfinance.org.uk/) also described the measure as "watering down safeguards". HMRC state that the new measures are important with regards to the battle against [tax evasion](https://taxdisputes.co.uk/offshore-tax-evasion-tax-avoidance-solicitors-london/) and [avoidance ](https://taxdisputes.co.uk/vat-evasion/)and would help them deal with the issue in "an appropriate and effective way". > “The new notice will contain numerous safeguards for taxpayers, in line with practice in all other G20 countries, and the power can only be used in specific circumstances where the information is reasonably required for the purposes of checking a taxpayer’s tax position,” > > HM Revenues & Cusoms ## Risk of using an accountant against HMRC… It is important to note that all client communications to **accountants **are ***not ***legally privileged and are easy for [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) to obtain; however, ***[communications to lawyers are legally privileged](https://en.wikipedia.org/wiki/Legal_professional_privilege)*** and highly confidential. Therefore it is beneficial to the [success](https://taxdisputes.co.uk/success/) of many of our clients’ cases that we be instructed to instruct an experienced forensic accountant on your behalf. Although you may have instructed an accountant in relation to your accounts and tax matters for yourself or your business, in most cases your accountant should realistically only assist you in tax compliance matters whereas we specialise in assisting you in relation to any investigations that HMRC have brought against you. We regularly work with accountants to ensure that collectively we are able to obtain the best possible resolution to your matter. ## What is a Tax Investigation? A tax investigation is an enquiry conducted by HMRC into the tax affairs and tax payment history of any UK individual, employee, director or company. A HMRC tax investigation can come in many forms and covers a range of taxes covered under HMRC jurisdiction such as: VAT; income tax; corporation tax and capital gains tax. The type and severity of the investigation is completely dependent on the facts of any individual case. Typically, an investigation generally commences when HMRC notice irregularities in information supplied via a Self Assessment Tax return. A taxpayer will receive a letter from HMRC informing them that an investigation has been opened into their tax affairs and may include a request for information. It is strongly recommended that you consult a tax lawyer as soon as possible to receive detailed advice on how to take control of the situation and negotiate with HMRC. ## Expert London Tax Investigation Lawyers If you need HMRC Tax Investigation advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. **We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](javascript:;).** --- # HMRC’s new “nudge letter” targets offshore assets Source: https://taxdisputes.co.uk/2020/08/hmrc-new-nudge-letter-offshore-assets-disclosure-tax-investigation-advice/ *[HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)have rolled out their latest weapon to combat offshore income or gains, in the form of "nudge letters". These letters from HMRC's Risk and Intelligence Service are based on information from overseas tax authorities and intend to prompt taxpayers to make voluntary disclosures.* *If you need [HMRC Tax Investigation advice](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/), we are available to aid you at every stage of the HMRC investigate process. Members of [our legal team](https://taxdisputes.co.uk/expert-advice/) have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation.* ## What is a nudge letter from HMRC? The intention of the nudge letter is to prompt UK taxpayers into reviewing their tax returns to check whether they need to notify HMRC of any further gains, income or profits which they are yet to disclose. If you are unsure if you have received a "nudge letter" from HMRC, you can see an [example of one here. ](https://taxdisputes.co.uk/wp-content/uploads/2020/08/Offshore-letter-represented-customer.pdf) [![](https://taxdisputes.co.uk/wp-content/uploads/2020/08/image.png)](https://taxdisputes.co.uk/wp-content/uploads/2020/08/Offshore-letter-represented-customer.pdf) ## What are my obligations with a nudge letter? It is important to remember that HMRC do not issue nudge letters to all taxpayers whose returns may be wrong, they could simply opt to start a tax investigation. As per[ ss 106B-D of the Taxes Management Act 1970](https://www.legislation.gov.uk/uksi/2017/988/made/data.pdf), failure to disclose offshore income, assets or gains, may result in HMRC opening a criminal investigation. By virtue of the Tax Management Act if you dishonestly make a false statement to evade paying tax, it will be a criminal offence which can result in both an investigation and criminal prosecution. ## Do I need to respond to the nudge letter? It is very important that you do not ignore a nudge letter from HMRC as failure to do so may result in HMRC launching an enquiry or tax investigation into your tax affairs. It is therefore vital that you instruct [specialist tax solicitors](https://taxdisputes.co.uk/hmrc-tax-investigations/) in this instance to prepare a response on your behalf. The recent [guidance](https://www.tax.org.uk/sites/default/files/CIOT%20member%20guidance%20re%20offshore%20nudge%20letters%20UPDATED%20July%202020.pdf) posted by the [Chartered Institute of Taxation](https://www.tax.org.uk/) makes it clear that whilst HMRC cannot compel you to use any specific method for disclosure, you should respond to HMRC's letter to mitigate the risks of further action being taken. Recipients of a nudge letter will have 30 days to respond to HMRC with a completed Certificate of Tax Position. In completing this certificate you will either be confirming: - Your tax affairs are not up to date and that you will be making a voluntary disclosure via the Worldwide Disclosure Facility ("WDF"); OR- Your tax affairs are up to date and therefore there is no additional tax payable and all offshore income, gains and assets have been declared, as required. ## I have just received a nudge letter from HMRC, what next? Whilst there is no legal obligation on you to complete the Certificate of Tax Position, the CIOT advise that it is best to respond to the nudge letter as failure to do so may cause further investigation. The Certificate of Tax Position contains a formal declaration by the taxpayer that the information provided is "correct and complete" to the best of the taxpayer's knowledge and belief. Therefore, the CIOT suggest in their guidance that it may be preferable to respond to the nudge letter with a letter, which will allow you to explain fully any offshore incomes or gains, thus avoiding a tax investigation. ## Can you appeal against a tax investigation being opened? No, unfortunately you cannot appeal against an investigation being opened. However, once HMRC have concluded their investigation and issued a penalty, then you have 30 days to appeal the decision. You can appeal in writing by giving [Notice of Appeal to HMRC](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/). HMRC will either confirm their first decision, amend their decision or agree with your assessment. If your position cannot be agreed with HMRC then two further options are available. HMRC could offer an[ internal review](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/) of the disputed decision (or you can request this procedure at any time). The review is an entirely internal procedure completed not by the original HMRC decision maker but by a different HMRC officer. You could also [appeal to the First Tier Tax Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) if you cannot agree your position following the review. The independent tribunal will make a determination on the case. A further appeal is permitted if you do not agree with the decision. We have a proven track record of successfully contesting disputed tax assessments and penalties with HMRC. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one.The tax authorities have lost many cases that are appealed through negotiation, internal review or through the Tax Tribunal. Detailed advice on HMRC Tax Appeals can be found [here](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/). ## Expert London Tax Investigation Lawyers If you need HMRC Tax Investigation advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. --- # Many including ITV presenters to fight HMRC on IR35 Source: https://taxdisputes.co.uk/2020/10/many-including-itv-presenters-to-fight-hmrc-on-ir35/ *Two high profile tv presenters, [Kaye Adams](https://en.wikipedia.org/wiki/Kaye_Adams) and ITV's [Eamon Holmes](https://en.wikipedia.org/wiki/Eamonn_Holmes), are amongst many to challenge HMRC's assessments issued under IR35 rules and now they are taking their appeals to the [Tax Tribunal](https://www.gov.uk/courts-tribunals/first-tier-tribunal-tax). * ## Why is Eamonn Holmes challenging HMRC? [Eamonn Holmes](https://en.wikipedia.org/wiki/Eamonn_Holmes) is facing an assessment from [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) for £250,000 after claiming he was a freelancer and that he gets paid through his limited company Red, White and Green. HMRC had been investigating the way many tv presenters and actors are paid as freelancers through personal service companies. HMRC can begin personal investigations to make sure employees pay employment taxes even if they are working for their own company. The well known itv presenter has reportedly filed an appeal against HMRC's assessment which is due to be heard in the [First Tier Tax Tribunal](https://www.gov.uk/courts-tribunals/first-tier-tribunal-tax) next year. He has accused HMRC of "reinventing the rules" when it comes to IR35. ## What is IR35? [HMRC introduced IR35 in 1999](https://webarchive.nationalarchives.gov.uk/20140206165106tf_/http://www.hmrc.gov.uk/ir35/seprelease.htm). The intention was to tackle "disguised employment" and prevent individuals working in a manner which was effectively the same as employees, but under the guise of limited companies. Companies engage contractors through an intermediary, often a personal services company. These self-employed individuals do not have to pay national insurance and and benefit from lower income tax. HMRC claim that currently only 1 in 10 contractors, who should be paying these taxes are doing so and that these changes will bring in an additional £3.1bn in additional tax revenue between [2020 and 2024.](https://www.gov.uk/topic/business-tax/ir35) ## Who is affected by IR35 upcoming rules? • Contractors providing services to medium and large businesses; • Fee-payers in the recruitment sector; and • Medium and large businesses in private sector that are end user of the worker’s services. [Originally, the onus was on individuals](https://taxdisputes.co.uk/hmrc-ir35/) to assess and then declare to HMRC that they fell under IR35. However, HMRC are now tightening the net on these self*-*employed workers by shifting that onus to businesses to determine the status of their contractors. ## Changes to IR35 Legislation? Changes are being implicated into IR35 Legislation due to contractors not paying the correct tax and National Insurance and incorrectly assessing their IR35 status. The non-compliance has reportedly costed HMRC millions therefore the rules are changing in hope to ensure compliance.  IR35 changes are being introduced in April 2021 to move the responsibility for assessing IR35 obligations from the contractor to the end user. The fee payer will be responsible for calculating and paying the related tax and National Insurance contributions to HM Revenue & Customs.  Private sector companies will have statutory obligation to assess the deemed employment status of contractors engage through an intermediary and if they are in fact employees, they will need to issue a determination to the contractor and subsequently add the individual to PAYE. ## Do the IR35 rules affect my company? Companies will not have to comply with the new IR35 legislation if they satisfy two or more of the following criteria: (a) an annual turnover of not more than 10.2 million; (b) balance sheet total of not more than 5.1 million; and (c) number of employees of not more than 50. ## How has Covid-19 impacted IR35? In the midst of the [current global pandemic](https://lexlaw.co.uk/corona-coronavirus-covid-19-legal-litigation-insolvency-tax-employment-dispute-advice/) caused by the [Coronavirus](https://lexlaw.co.uk/wp-content/uploads/2020/03/The-Health-Protection-Coronavirus-Restrictions-England-Regulations-2020.pdf), the UK Government delayed the implementation of their controversial IR35. Contractors have said that this brief reprieve has granted them temporary relief in times of great job uncertainty, particularly where contractors are often the first overhead to be cut from businesses as they handle the aftermath of the pandemic and its financial impact. This may drive many contractors to seek full employment within their companies to ensure job security moving forward. ## How do contractors prepare for IR35? Contractors should be communicating with their employers and reviewing their existing arrangements. If you are a contractor likely to be affected by IR35 or would like advice on your options, get in touch with our tax team now. ## How do companies prepare for HMRC? There are a number of steps companies should be taking including reviewing their workforce and all of their arrangements with contractors and communicating with any affected contractors about the changes. There may be changes that need to be made to contracts, bot existing and future contracts. We can assist you with the review and advise you on the next steps in preparation for the implementation of the new legislation in April 2021. ## Expert London Tax Investigation Lawyers If you need HMRC Tax Investigation advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist[ Tax Solicitors](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. --- # Introduction of VAT reverse charge on the construction sector Source: https://taxdisputes.co.uk/2020/10/hmrc-vat-reverse-charge-on-the-construction-sector-advice/ *The introduction of VAT reverse charge on the construction sector will change how businesses account for [VAT](https://taxdisputes.co.uk/hmrc-vat-investigations-evasion-input-ouput-double-taxation-tribunal-legal-advice/). Businesses may need to change the way they present information on their invoices to their customers and prepare their VAT returns.* *[Our London Tax Solicitors and Barristers](https://taxdisputes.co.uk/expert-advice/) have vast experience of tax laws and first hand commercial, litigation and advocacy experience. We have a proven track record of successfully contesting disputed tax assessments and penalties with HMRC. The tax authorities have lost many cases that are appealed through negotiation, internal review or through the Tax Tribunal.* ## What is the VAT reverse charge? Under the domestic reverse charge, the customer who receives the service will have to pay the VAT owed straight to [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) instead of paying the supplier. Therefore, if you are making payments for construction works and the new VAT charge regime applies, you are not required to pay VAT to the subcontractor; instead you pay the VAT to HMRC. On the other hand, if you are a subcontractor receiving payments, you may only receive the net of VAT amount, which will naturally affect your cash flow. ## Who does the VAT reverse charge apply to? From 1 March 2021 the domestic VAT reverse charge must be used for most supplies of building and construction services. The charge applies to standard and reduced-rate VAT services: - for individuals or businesses who are registered for VAT in the UK; and- reported within the Construction Industry Scheme (CIS). The reverse charge only applies if both parties are registered under the CIS; both parties are VAT registered and VAT is chargeable on the supply. ## When does it start? The change was originally scheduled to come into effect from 1 October 2019, however after concerns raised by the industry bodies and accounting specialists highlighted in relation to the lack of preparation and the impact on businesses; the change was delayed by 12 months The introduction of the domestic reverse charge for construction services has been further delayed by five months due to the impact of the COVID-19 pandemic on the construction sector, HMRC have announced. The changes to VAT will now apply from 1 March 2021. ## How do you prepare? In order to prepare for the VAT reserve charge, businesses will need to: - make sure your accounting systems and software can deal with the reverse charge;- consider whether the change will impact your cash flow; and- make sure all your staff who are responsible for VAT accounting are familiar with the reverse charge and how it will work. If the VAT reverse charge does not apply you should follow the [normal VAT rules](https://www.gov.uk/pay-vat).  ## When must you use the reverse charge? As listed in [HMRC's guidance page](https://www.gov.uk/guidance/vat-domestic-reverse-charge-for-building-and-construction-services), you must use the reverse charge for the following services: - constructing, altering, repairing, extending, demolishing or dismantling buildings or structures (whether permanent or not), including offshore installation services;- constructing, altering, repairing, extending, demolishing of any works forming, or planned to form, part of the land, including (in particular) walls, roadworks, power lines, electronic communications equipment, aircraft runways, railways, inland waterways, docks and harbours, pipelines, reservoirs, water mains, wells, sewers, industrial plant and installations for purposes of land drainage, coast protection or defence- installing heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems in any building or structure- internal cleaning of buildings and structures, so far as carried out in the course of their construction, alteration, repair, extension or restoration- painting or decorating the inside or the external surfaces of any building or structure- services which form an integral part of, or are part of the preparation or completion of the services described above - including site clearance, earth-moving, excavation, tunnelling and boring, laying of foundations, erection of scaffolding, site restoration, landscaping and the provision of roadways and other access works ## Does the domestic reverse charge apply to me? HMRC have prepared a flow chart (below) to help businesses decide whether to apply normal VAT rules or the domestic reverse charge. [![](https://taxdisputes.co.uk/wp-content/uploads/2020/10/image-1.png)](https://taxdisputes.co.uk/wp-content/uploads/2020/10/Annex_1_-_VAT_domestic_reverse_charge_for_building_and_construction_services.pdf) ## Are there any penalties for not implementing the reverse charge? In their guidance, HMRC have stated the following: > HMRC understands that implementing the reverse charge may cause some difficulties and will apply a light touch in dealing with any errors made in the first 6 months of the new legislation, as long as you are trying to comply with the new legislation and have acted in good faith. Any errors need be corrected as soon as possible… HMRC officers may assess for errors during the light touch period, but penalties will only be considered if you are deliberately taking advantage of the measure by not accounting for it correctly > > [HMRC Guidance](https://www.gov.uk/guidance/vat-domestic-reverse-charge-for-building-and-construction-services) ## Expert London HMRC Tax Appeal Lawyers If you need [HMRC Tax Disputes advice](https://taxdisputes.co.uk/second-opinion/), we are available to aid you at every stage of the HMRC appeals process. Members of [our legal team](https://taxdisputes.co.uk/contact-us/) have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the [HMRC internal review](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/) process and in front of the [Tax Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/). Our team specialises in successfully challenging HMRC decisions, submitting out of time appeals, and will assist you in every aspect including developing a strategy. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk). --- # HMRC sends 14,000 “nudge” letters for review of Capital Gains Tax Source: https://taxdisputes.co.uk/2020/10/hmrc-nudge-letters-capital-gains-tax-compliance-check-tax-investigation-voluntary-disclosure/ *HMRC has sent out 14,000 "nudge" letters to individuals who have sold a property in the year 2018/19 requiring them to check whether they owe Capital Gains Tax. It is important not to ignore these letters and you should seek legal advice as soon as possible. * ## What is Capital Gains tax? If you sell or 'dispose of' and asset i.e. a property and make a profit, you should pay [capital gains tax](https://www.gov.uk/capital-gains-tax) to HMRC on the profit received. You should pay capital gains tax, where applicable, on chargeable assets such as: - most [personal possessions](https://www.gov.uk/capital-gains-tax-personal-possessions/) worth £6,000 or more, apart from your car- [property](https://www.gov.uk/tax-sell-property) that’s not your main home- your main home if you’ve [let it out, used it for business or it’s very large](https://www.gov.uk/tax-sell-home)- [shares](https://www.gov.uk/tax-sell-shares) that are not in an ISA or PEP- [business assets](https://www.gov.uk/capital-gains-tax-businesses) ## When do I have to pay Capital Gains Tax? If you have sell a chargeable asset, Capital Gains Tax should be reported and paid within 30 days. You should keep records evidencing your capital gains such as invoices, receipts which show the amount you paid for the asset and the amount you received and also any valuations or correspondence relating to the asset. ## What is a compliance check? A [compliance check](https://www.gov.uk/tax-compliance-checks) is an enquiry conducted by HMRC into the tax affairs and tax payment history of any UK individual, employee, director or company. A [HMRC tax investigation](https://taxdisputes.co.uk/hmrc-tax-investigations/) can come in many forms and covers a range of taxes covered under HMRC jurisdiction such as: VAT; income tax; corporation tax and capital gains tax. The type and severity of the investigation is completely dependent on the facts of any individual case. Typically, an investigation generally commences when HMRC notice irregularities in information supplied via a Self Assessment Tax return. A taxpayer will receive a letter from HMRC informing  them that an investigation has been opened into their tax affairs and may include a request for information. It is strongly recommended that you consult a tax lawyer as soon as possible to receive detailed advice on how to take control of the situation and negotiate with HMRC. ## What triggers a compliance check? Typically, HMRC will not specifically detail what has initiated an investigation into your tax affairs in the letter sent by HMRC notifying you that an investigation has commenced. There is limited HMRC guidance on the criteria of a civil tax investigation, however, the following are common triggers of a government audit: - **Mistakes, Omissions or Inconsistencies** on a Company or Personal Tax Return: for example, the submission of inaccurate figures and the submission of frequent inaccuracies could cause HMRC to investigate in order to ascertain a clearer picture of your finances.- HMRC receiving a **tip-off** can be the catalyst for an investigation: examples of informers include d[isgruntled former employees and embittered divorcees](http://ig-legacy.ft.com/content/0f98bbc0-2db6-11e2-9988-00144feabdc0#axzz57qED81Px).- Part of a **HMRC target area**: HMRC regularly set up taskforces to target either geographic areas or specific job sectors thought to be at high risk of tax fraud. Job sectors such as the medical profession, those with multiple sources of income and landlords have been targeted using HMRC’s [Connect investigative software](https://www.ifa.org.uk/media/653935/Tax-HMRC-Connect-system.pdf), which provides an indication of industries where there are potential tax shortfalls.- [HMRC Campaigns](https://taxdisputes.co.uk/hmrc-voluntary-disclosure-campaigns-solicitors-london/)- **Random check**: this is unlikely but larger businesses that have undergone a rapid period of growth may attract the attention of HMRC based on this sudden change.- **Suspicious activity** that attracts the interest of HMRC: for example, the fluctuation of numbers by a large margin; years of unprofitability for a business; your figures are inconsistent with industry standards for those in the same profession; an omission of income. ## I have not declared Capital Gains Tax Often individuals instruct accountants to manage their tax affairs and sometimes errors are made where the tax or the accurate amount has not been declared to HMRC. This can result in HMRC taking serious action and issuing a penalty assessment and they can also take criminal action. Once you have become aware of the need to pay tax to HMRC, you should seek advice in making a [voluntary disclosure](https://taxdisputes.co.uk/hmrc-voluntary-disclosure-campaigns-solicitors-london/). If you consider your accountants or other advisers have been negligent and have failed to carry out your instructions to manage your tax affairs correctly, we can advise you on a potential complaint for professional negligence against tax [advisers ](https://professionalnegligenceclaimsolicitors.co.uk/bad-hmrc-finance-advice-sue-advisor/)or [accountants](https://professionalnegligenceclaimsolicitors.co.uk/compensation-negligent-accountants-financial-tax-advisors/). ## Should you make a voluntary disclosure? It is important to note that HMRC exercise their discretion when reducing or waiving penalties and consider each case separately. HMRC have by their own admission stated that where there are systematic fraudulent matters they will not hesitate to commence prosecution even if the disclosure of the information came as a result of a campaign. Although it is safe to assume that if you disclose your financial information [voluntarily ](https://taxdisputes.co.uk/hmrc-voluntary-disclosure-campaigns-solicitors-london/)then the HMRC are likely to be more lenient when deciding what penalties to impose. It is advised to disclose the information now rather than later or never, regardless of which industry you belong to. This is due to the fact that HMRC are likely to impose harsher penalties if they later discover that you haven’t disclosed the information. If you find yourself in a position where you need to [disclose ](https://taxdisputes.co.uk/hmrc-voluntary-disclosure-campaigns-solicitors-london/)elements of your earnings or elements of your financial information for previous years then you should contact us as we work with specialist tax advisers who will be able to establish your tax liability. Our specialist solicitors are subsequently able to robustly negotiate the terms of any tax settlement with HMRC. Alternatively, we are able to work with your accountant to ensure that collectively we are able to obtain the best possible outcome for you. ## Expert London Tax Investigation Lawyers If you need HMRC Tax Investigation advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. --- # Reminder: Revised IR35 rules come into force on 6 April 2021 Source: https://taxdisputes.co.uk/2021/01/reminder-revised-ir35-rules-come-into-force-on-6-april-2021/ *With effect from 6 April 2021, medium- or large-sized businesses will be responsible for determining the employment status of individuals who provide services to them through intermediary vehicles such as personal service companies. The fee payer will be responsible for calculating and paying the related tax and National Insurance contributions to HM Revenue & Customs. * *Although calls for a further delay to implementation persist due to the COVID-19 pandemic, current indications are that the Government will press ahead with a 6 April 2021 start date.* *[Our London Tax Solicitors and Barristers](https://taxdisputes.co.uk/expert-advice/) have vast experience of tax laws and first hand commercial, litigation and advocacy experience. We have a proven track record of successfully contesting disputed tax assessments and penalties with HMRC. The tax authorities have lost many cases that are appealed through negotiation, internal review or through the Tax Tribunal.* ## What is IR35? [HMRC introduced IR35 in 1999](https://webarchive.nationalarchives.gov.uk/20140206165106tf_/http://www.hmrc.gov.uk/ir35/seprelease.htm). The intention was to tackle “disguised employment” and prevent individuals working in a manner which was effectively the same as employees, but under the guise of limited companies. Companies engage contractors through an intermediary, often a personal services company. These self-employed individuals do not have to pay national insurance and and benefit from lower income tax. HMRC claim that currently only 1 in 10 contractors, who should be paying these taxes are doing so and that these changes will bring in an additional £3.1bn in additional tax revenue between [2020 and 2024.](https://www.gov.uk/topic/business-tax/ir35) ## Who is affected by IR35 upcoming rules? • Contractors providing services to medium and large businesses; • Fee-payers in the recruitment sector; and • Medium and large businesses in private sector that are end user of the worker’s services. [Originally, the onus was on individuals](https://taxdisputes.co.uk/hmrc-ir35/) to assess and then declare to HMRC that they fell under IR35. However, HMRC are now tightening the net on these self*–*employed workers by shifting that onus to businesses to determine the status of their contractors. ## Changes to IR35 Legislation? Changes are being implicated into IR35 Legislation due to contractors not paying the correct tax and National Insurance and incorrectly assessing their IR35 status. The non-compliance has reportedly costed HMRC millions therefore the rules are changing in hope to ensure compliance.  IR35 changes are being introduced in April 2021 to move the responsibility for assessing IR35 obligations from the contractor to the end user. The fee payer will be responsible for calculating and paying the related tax and National Insurance contributions to HM Revenue & Customs.  Private sector companies will have statutory obligation to assess the deemed employment status of contractors engage through an intermediary and if they are in fact employees, they will need to issue a determination to the contractor and subsequently add the individual to PAYE. ## Do the IR35 rules affect my company? Companies will not have to comply with the new IR35 legislation if they satisfy two or more of the following criteria: (a) an annual turnover of not more than 10.2 million; (b) balance sheet total of not more than 5.1 million; and (c) number of employees of not more than 50. ## How do contractors prepare for IR35? Contractors should be communicating with their employers and reviewing their existing arrangements. If you are a contractor likely to be affected by IR35 or would like advice on your options, get in touch with our tax team now. ## How do companies prepare for HMRC? In order to prepare for these upcoming changes companies organisations should: - The first step is to assess whether they would be considered either a medium or large organisation for the purposes of the rules;- Assess the deemed employment status of contractors who supply their services via an intermediary such as their personal service company;- HMRC has updated its 'Check Employment Status' ('CEST') [tool](https://info.dechert.com/e/tm0avtqxt0jgznw/1aa73d35-8e0f-4a6e-8b04-4ea370a1b735), which is one way for businesses to make a determination about whether or not an individual operating through an intermediary falls within the scope of IR35;- Ensure that systems are in place to comply with the requirement to produce a 'status determination statement';- Introduce disputes resolution to deal with any disputes regarding status determination statements;- Review and amend engagement, payslip, payroll processes; and review and amend labour supply contractual liabilities and indemnities to ensure compliance. There may be changes that need to be made to contracts, both existing and future contracts. We can assist you with the review and advise you on the next steps in preparation for the implementation of the new legislation in April 2021. ## How has Covid-19 impacted IR35? In the midst of the [current global pandemic](https://lexlaw.co.uk/corona-coronavirus-covid-19-legal-litigation-insolvency-tax-employment-dispute-advice/) caused by the [Coronavirus](https://lexlaw.co.uk/wp-content/uploads/2020/03/The-Health-Protection-Coronavirus-Restrictions-England-Regulations-2020.pdf), the UK Government delayed the implementation of their controversial IR35. Contractors have said that this brief reprieve has granted them temporary relief in times of great job uncertainty, particularly where contractors are often the first overhead to be cut from businesses as they handle the aftermath of the pandemic and its financial impact. This may drive many contractors to seek full employment within their companies to ensure job security moving forward. ## What can we do for you? Our expert tax litigation team can: - assess the employment status of your current contractor workforce and produce a status determination statement for each contractor as to whether they fell under IR35- review your contractual terms to ensure the business has all the protection required- assist with drafting communications with contractors and their line managers- assist with liaising with HMRC where necessary ## Expert London Tax Investigation Lawyers If you need HMRC Tax Investigation advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist[ Tax Solicitors](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. --- # Taxpayer’s appeal allowed: HMRC cannot refresh penalty time limit by reissuing information notices Source: https://taxdisputes.co.uk/2020/09/taxpayer-appeal-allowed-tribunal-hmrc-penalty-information-notice-investigation-time-limits/ *The First Tier Tribunal allowed the taxpayer's [appeal against a penalty](https://taxdisputes.co.uk/wp-content/uploads/2020/09/Ahmed-v-Revenue-Customs-INCOME-TAX-AND-CAPITAL-GAINS-TAX-information-notice-made-up-of-text-of-two-earlier-notices-2020-UKFTT-337-TC-17-August-2020.pdf) for failing to comply with an information notice because the [penalty notice](https://taxdisputes.co.uk/hmrc-penalties/) was not issued within 12 months of the taxpayer becoming liable to a penalty. HMRC could not refresh the time period by issuing a subsequent information notice which repeated earlier information notices.* ## HMRC's investigation into taxpayer's personal affairs In or around July 2017, the taxpayer, Mr Salim Ahmed, wrote to HMRC informing him that they had received information about a number of properties he had purchased and sold and had failed to declare to HMRC. After the taxpayer did not respond, HMRC commenced an [investigation](https://taxdisputes.co.uk/hmrc-tax-investigations/) and sent an information notice to the taxpayer requiring him to produce certain documents by 20 November 2017 (the First Notice). On 20 December 2017, after the taxpayer failed to provide the information, HMRC issued a penalty notice for non-compliance with the First Notice. This penalty notice was later cancelled after HMRC realised it had been sent to the wrong address. In January 2018, the taxpayer's accountant provided HMRC with some of the documentation required. HMRC issued further notices to the taxpayer on 30 July 2018 (the Second Notice) and 23 January 2019 (the Third Notice) and during this period the taxpayer's accountant continued to liaise with HMRC in relation to its request for documents. The taxpayer's accountant sent HMRC all of the information requested in HRMC's second notice following which he did not hear from HMRC for four months and assumed the case was closed. ## HMRC's penalty notice issued over a year after notice On 19 March 2019, HMRC issued a penalty notice to the taxpayer pursuant to paragraph 39, Schedule 36, Finance Act for the taxpayer's failure to comply with the Third Notice. The taxpayer's accountant appealed against the notice explaining that he had sent all of the requested documents to HMRC and did not know what else was required. HMRC refused the appeal and the taxpayer [appealed to the First Tier Tax Tribunal](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/). ## Tax Tribunal upholds taxpayer's appeal The Tribunal allowed the [taxpayer's appeal ](https://taxdisputes.co.uk/wp-content/uploads/2020/09/Salim-Ahmed-v-HMRC-2020-UKFTT-337-TC.pdf)and cancelled the penalty notice issued on 19 March 2019. - **Time limits**: The Tribunal held that a penalty can only be issued within 12 months after a person becomes liable to a penalty. The First Notice was issued on 20 November 2017 and therefore the penalty notice was issued more than twelve months after this, on 19 March 2019. The second and third notices issued later were repeated requests and the Tribunal held that this would not refresh the twelve month time limit. Where the penalty notice related to information requests which were in the Second and Third notices, the penalty notice was issued in time.- **Burden of proof**: It is for HMRC to show that the taxpayer did not comply with the requests for information and paragraph 18, Schedule 36, provides that t notice can only require a person to produce a document if "*it is in the taxpayer's possession or power*". The taxpayer had filed evidence that all of the relevant documents had been provided to HMRC other than those which were no longer in his possession. HMRC had failed to file any witness evidence and therefore failed to meet its burden of proof. Read the full judgment for [Salim Ahmed v HMRC [2020] UKFTT 337 (TC) here](https://taxdisputes.co.uk/wp-content/uploads/2020/09/Ahmed-v-Revenue-Customs-INCOME-TAX-AND-CAPITAL-GAINS-TAX-information-notice-made-up-of-text-of-two-earlier-notices-2020-UKFTT-337-TC-17-August-2020.pdf). ## What is an information notice? Schedule 36 of the Finance Act 2008 allows HMRC to issue a formal notice containing a request for information from the taxpayer during the course of an investigation. This may be a request for bank statements, copies of loan agreements, sale and purchase agreements or any other information required by HMRC to investigate and assess a taxpayer's position. ## What is a HMRC penalty notice? If you fail to provide requested information to HMRC, notify HMRC of any changes in your tax position or file a tax return late, you may receive a penalty from HMRC issued under the Finance Act 2008. ## How is HMRC's penalty calculated? If a penalty arises because of a lack of reasonable care, the level of the penalty will depend on the amount of the extra tax due and the reasons for the error. For example: - If a penalty arises because of a lack of reasonable care, the level of the penalty will depend on the amount of the extra tax due and the reasons for the error. If the error is careless, the penalty will be between 0 and 30% of the extra tax due.- If the error is deliberate, the penalty will be between 20 and 70% of the extra tax due.- If the error is deliberate and concealed, the penalty will be between 30 and 70% of the extra tax due. ## How do I appeal a penalty? If a taxpayer disagrees with HMRC, the taxpayer has the following options: **Stage 1**: **Request a HMRC review**: A taxpayer can appeal in writing within 30 days of HMRC’s notice of their decision. HMRC can offer an internal review of the disputed decision (or the taxpayer can request this procedure at any time). The review is an entirely internal procedure completed not by the original HMRC decision maker but by a different HMRC officer. **Stage 2**: **Appeal to the Tax Tribunal**: A taxpayer can [appeal to the First Tier Tax Tribunal](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) if the taxpayer cannot agree their position following the review. The independent tribunal will make a determination on the case. A further appeal is permitted if a taxpayer does not agree with the decision. There are strict time limits for appealing to the Tax Tribunal and you should seek legal advice as soon as possible. ## Expert London HMRC Penalty Disputes Lawyers If you need HMRC Penalty Dispute advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. **Have you been unfairly charged a penalty by HMRC? Our Tax Disputes professionals are here to help and are able to provide clear advice and information to assist you. We regularly negotiate and defend the application of penalties on behalf of our clients. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk).** --- # HMRC criticised over loan charge deadline Source: https://taxdisputes.co.uk/2020/10/hmrc-criticised-over-loan-charge-deadline/ *[HMRC ](https://www.gov.uk/government/publications/disguised-remuneration-independent-loan-charge-review/guidance)has been heavily [criticised ](https://www.yorkshirepost.co.uk/business/consumer/former-tory-leader-slams-appalling-behaviour-hmrc-over-loan-charge-2969996)by Ian Duncan Smith, former leader of the conservative party and Munira Wilson, Liberal Democrat MP in relation to their management of the [loan charge.](https://taxdisputes.co.uk/disguised-remuneration-loan-charge-hmrc-tax-appeals-lawyers/) * *If you have entered into a disguised remuneration scheme (or any other tax avoidance scheme) or you have failed to meet HMRC's deadline of 30 September 2020, it is important you seek legal advice as soon as possible. Whether you are an employer, employee or contractor, our [expert tax solicitors and barristers](https://taxdisputes.co.uk/expert-advice/) can assist you in managing HMRC’s investigation and entering into negotiations by providing [comprehensive legal advice](https://bankruptcypetitionandannulmentlaw.co.uk/)*. ## What is the Loan Charge? The 2019[ Loan Charge,](https://taxdisputes.co.uk/disguised-remuneration-loan-charge-hmrc-tax-appeals-lawyers/) which is the charge on outstanding [disguised remuneration](https://taxdisputes.co.uk/2019/03/the-spotlight-shines-on-disguised-remuneration/) loans is a [government measure](https://www.gov.uk/government/publications/loan-schemes-and-the-loan-charge-an-overview/tax-avoidance-loan-schemes-and-the-loan-charge) aimed at tackling this type of income tax avoidance. Having previously been announced in the 2016 Budget, it was introduced in the [Finance Act (No 2) 2017](http://www.legislation.gov.uk/ukpga/2017/32/contents/enacted) and the charge applied to all disguised remuneration loans made since 6 April 1999 if they were still outstanding on 5 April 2019. HMRC has issued a [briefing](https://www.gov.uk/government/publications/hmrc-issue-briefing-disguised-remuneration-charge-on-loans/hmrc-issue-briefing-disguised-remuneration-charge-on-loans) encouraging people to come forward and settle their tax affairs before the 2019 loan charge came into effect on 5 April 2019. Since the [Loan Charge](https://taxdisputes.co.uk/disguised-remuneration-loan-charge-hmrc-tax-appeals-lawyers/) was announced, HMRC has agreed settlements on disguised remuneration schemes with employers and individuals worth more than £1 billion. Around 85% of this amount was collected from employers, with less than 15% from individuals. ## Why has HMRC chosen to push loan charge settlements? Due to time limitations on some [Loan Charge](https://www.gov.uk/government/publications/disguised-remuneration-independent-loan-charge-review/guidance) matters, HMRC expects that if they fail to pursue settlements on these cases they will then be “legally unable to collect any tax that is owed”.  As a result, HMRC have sent letters to Loan Charge contractors which included a calculation of their settlement and sought an agreement to the settle the outstanding sums due within 30 days. If the contractor does not respond within 30 days, HMRC has the power to ask them to pay the full settlement sum immediately.  Penny Ciniewicz, director-general of customer compliance at HMRC, [has stated ](https://www.thisismoney.co.uk/money/news/article-8208127/Self-employed-caught-loan-charge-chased-taxman-despite-coronavirus.html)that “*Customers who need more time to make a decision should let us know, and we will continue to take a reasonable and proportionate approach to such requests*.” ## How has the loan charge been criticised? Iain Duncan Smith criticised [HMRC's ](https://taxdisputes.co.uk/2020/05/hmrc-continues-to-push-loan-charge-settlements-during-covid-19/)management of the [loan charge ](https://taxdisputes.co.uk/disguised-remuneration-loan-charge-hmrc-tax-appeals-lawyers/)calling their behaviour "*appalling*". Smith commented that it would be impossible for people to finalise their settlement by the 30 September 2020 deadline and called for a 6 month delay and government delay. Mr Smith asked Rishi Sunak, Chancellor of the Exchequer, if the declaration deadline for 30 September 2020 could be extended until the end of January 2021. Furthermore, Liberal Democrat MP Murina Wilson has stated that the[ loan charge](https://taxdisputes.co.uk/disguised-remuneration-loan-charge-hmrc-tax-appeals-lawyers/) has left some of her constituents facing bankruptcy during a time of great financial uncertainty due to the COVID-19 [pandemic](https://taxdisputes.co.uk/2020/05/hmrc-continues-to-push-loan-charge-settlements-during-covid-19/). Ms Wilson called on Mr Sunak to make the '*punitive loan charge fairer for those who have been hit with significant retrospective charges in order to reduce the number of [bankruptcies ](https://bankruptcypetitionandannulmentlaw.co.uk/)resulting from the [loan charge](https://taxdisputes.co.uk/disguised-remuneration-loan-charge-hmrc-tax-appeals-lawyers/)*'. Coservative MP Matthew Offord has also expressed concerns about the consequences of the[ loan charge](https://taxdisputes.co.uk/disguised-remuneration-loan-charge-hmrc-tax-appeals-lawyers/) settlement's impacts whilst there is added financial strain due to the impact of the [COVID-19 pandemic. ](https://taxdisputes.co.uk/2020/05/hmrc-continues-to-push-loan-charge-settlements-during-covid-19/) > "I have written to the Chancellor of the Exchequer, urging him to review and accept the reasonable proposals put forward by the Loan Charge APPG which would allow many people to reach affordable settlements. At a time when many of my constituents are facing financial pressures due to the impact of Covid-19, they should not have to face bankruptcy, especially as the vast majority acted in good faith – many times on the advice of qualified accountants and financial professionals." > > Matthew Offord  ## Have HMRC extended the loan charge deadline? Jesse Norman, the Financial Secretary to the Treasury, previously indicated that there will be no extension of the deadline commenting that individuals had already been provided with an 8 month extension from 31 January 2020 to 30 September 2020 to submit their 2018/2019 Self Assessment returns and pay the taxes due or alternatively agree a time to pay the arrangement. [HMRC ](https://www.gov.uk/government/publications/disguised-remuneration-independent-loan-charge-review/guidance)have, however, stated that they will keep the situation under review and provide a reasonable approach for those who are unable to file their tax return or pay the taxes due by 30 September if the reason for their delay was a direct result of[ COVID-19. ](https://taxdisputes.co.uk/2020/05/hmrc-continues-to-push-loan-charge-settlements-during-covid-19/) ## Would I know if I have been part of a disguised remuneration scheme? If you were caught by the aforementioned legislation, HMRC would have been in contact and initially offered you the opportunity to settle with advantageous terms by 5 April 2019. However, due to the complexity of the claims, this deadline was further extended to 31 August 2019, with many cases still unresolved. If you fall into this group, where you have not yet settled, our expert legal team may be able to help. ## What we can do for you? - Review your entire matter;- Provide expert advice throughout the entire process;- Represent you in correspondence, interviews and meetings with HMRC;- Collate and prepare all documentation required by HMRC, including Outline Disclosure, Full Disclosure and the Disclosure Report; and- Contest disputed tax assessments and penalties. ## Need Expert Tax Disclosure Lawyers Advice? If you have entered into a disguised remuneration scheme (or any other tax avoidance scheme), it is important you seek legal advice as soon as possible. Whether you are an employer, employee or contractor, our [expert tax solicitors and barristers](https://taxdisputes.co.uk/expert-advice/) can assist you in managing HMRC’s investigation and entering into negotiations by providing [comprehensive legal advice](https://bankruptcypetitionandannulmentlaw.co.uk/) and robust responses to the investigators. Our [tailored team ](https://bankruptcypetitionandannulmentlaw.co.uk/expert-legal-advice/)which also comprises of specialist forensic accountants can calculate what you owe and make representations on your behalf to HMRC. **Our Tax Disputes professionals are available to give information and advice in negotiating penalties and loan charge settlement with HMRC. To contact one of our specialist Tax Lawyers please [click here](https://taxdisputes.co.uk/2011/08/2011/08/2011/07/legal-case-assessment/) or call 02071830529.** --- # Successful Case Study: Reduction in penalty in out of time appeal Source: https://taxdisputes.co.uk/2020/10/successful-case-study-reduction-in-penalty-assessment-out-of-time-appeal-hmrc-tax-tribunal-limitation/ *We advised our client in its VAT assessment dispute, appealing a penalty for our client's alleged failure to notify HMRC of VAT due, in the sum of £80,355.24. In response to our grounds of appeal disputing the penalty, we successfully obtained a reduction in the penalty of £38,264.24* *on the basis that the failure to notify HMRC of the tax due was non-deliberate. If you are seeking advice in relation to a penalty assessment from HMRC or an appeal to the Tribunal, get in touch with our tax team. * Our client instructed accountants to file VAT returns with HMRC. Due to an administrative error, these were not filed and HMRC issued a VAT assessment and a penalty in the sum of £80,355.24 which represented 42% of the assessment sum. The penalty range applied by HMRC will be based on the behaviour of the taxpayer i.e. deliberate failure to notify and the disclosure i.e. prompted or unprompted. In this case, HMRC had decided our client's failure to notify HMRC of the tax due was deliberate. When our client realised its accountants had failed to rectify matters or submit an appeal to HMRC in time, they instructed us for legal advice. We submitted an out of time appeal against HMRC's assessment and penalty. In response to our appeal, HMRC have reconsidered the penalty charged to our client and reduced this from £80,355.25 to £38,264.24 i.e. a successful reduction of £42,091. ## Can I appeal to the Tribunal out of time? The First Tier Tribunal have the judicial discretion to permit tax appeals made out of time to proceed. The time limit to bring a VAT appeal to the FTT in 30 days and a late appeal will only be permitted in exceptional circumstances. ## How do I appeal a penalty? If a taxpayer disagrees with HMRC, the taxpayer has the following options: **Stage 1**: **Request a HMRC review**: A taxpayer can appeal in writing within 30 days of HMRC’s notice of their decision. HMRC can offer an internal review of the disputed decision (or the taxpayer can request this procedure at any time). The review is an entirely internal procedure completed not by the original HMRC decision maker but by a different HMRC officer. **Stage 2**: **Appeal to the Tax Tribunal**: A taxpayer can [appeal to the First Tier Tax Tribunal](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) if the taxpayer cannot agree their position following the review. The independent tribunal will make a determination on the case. A further appeal is permitted if a taxpayer does not agree with the decision. There are strict time limits for appealing to the Tax Tribunal and you should seek legal advice as soon as possible. ## When will the First-tier Tax Tribunal (FTT) allow a late appeal? A late appeal can be made if the FTT grant permission (VATA 1994, s. 83G(6)). However, case law suggests that permission will only be granted in exceptional circumstances and permission will not be granted unless the FTT is satisfied on balance that it should be allowed using a discretionary balancing exercise (Wan (t/a Wan’s Chinese Takeaway) [1997] BVC 2,364). Factors the FTT take into account in allowing a late appeal: ### 1.      The length of the delay in making an appeal If the delay is very short, then the FTT may consider the breach to be neither “serious nor significant”; however, this is not a carte blanche to allow all short delays to be granted, the following two stages will be considered by the FTT. If the delay is too long, then the FTT may dismiss any application for an extension of time for appeal. For example the FTT dismissed an appeal made 3 years after the expiry of the 30-day limit (Meah (t/a Raj Dharbar Takeaway) [2014] TC 03829).    ### 2.      What was the reason for the delay? The FTT will assess whether there is a reasonable excuse for the delay, for example, where the appellant was not aware that there were grounds for an appeal or before legal advice has been sought.   ### 3. Was the delay caused by the actions of HMRC? Many appellants assume that by entering into correspondence with HMRC over the disputed tax liability stops the clock running and submits reasons why the debt is disputed. This does not constitute an appeal and does not stop the clock running. If HMRC fail to respond to the taxpayer or fail to notify the taxpayer that correspondence does not constitute an appeal, may be grounds the FTT takes into account in granting permission for an out of time appeal. ### 4.      Once the taxpayer is aware of an appeal, did the appeal progress expeditiously? It is important to progress an out of time appeal as soon as you become aware of it. Every day that is delayed will need to be explained to the FTT. Therefore it is imperative to seek legal advice as soon as possible. ### 5.      Will there be prejudice to the taxpayer or to HMRC is allowed or refused? The FTT will take into account all circumstances of the case and will assess whether a late appeal will prejudice HMRC in any way. ### 6.      Are there public interests considerations if an out of time appeal is allowed or refused? The FTT might consider a delay of years might be consideration to denying an appeal as it is not in the public interest to allow litigation over a long period of time. The FTT might not allow permission if it affects other proceedings.  Another consideration is whether the length of time has affected the credibility of the evidence available. ## Successful hardship application for appeal to proceed without payment of disputed tax Where a company or an individual has received an assessment from HMRC for payment of tax and this is the subject of an appeal to the First Tier Tax Tribunal, HMRC can request that payment of the assessment be made in full prior to the Tribunal hearing the appeal under[ section 84 of the VAT Act 1994](https://www.legislation.gov.uk/ukpga/1994/23/section/84). It is for the taxpayer to demonstrate that payment of the disputed tax would cause them to suffer financial hardship and each case will be considered on the basis of the facts. To date, we have been successful in making hardship applications on our clients' behalf. HMRC requested information from our client to assess its [hardship application](https://taxdisputes.co.uk/hmrc-hardship-application-dispute-vat-assessment-appeal-tribunal-successful-outcome/) within 30 days. We work with our clients to obtain and assess the information requested by HMRC to identify any gaps or weaknesses where HMRC may oppose an application for hardship and we carefully prepare witness evidence in support of an application for hardship, all of which can be prepared on an urgent basis. In the event HMRC oppose a [hardship application](https://taxdisputes.co.uk/hmrc-hardship-application-dispute-vat-assessment-appeal-tribunal-successful-outcome/), the Tribunal will consider the same therefore it is important to seek legal advice from the outset and carefully prepare evidence in the required form to achieve a successful outcome. In this case, in light of the information provided and arguments we made on behalf of our client that the company would suffer hardship if required to pay the disputed sums before its appeal was determined, HMRC granted the company's application. ## Expert London HMRC Tax Appeal Lawyers If you need [HMRC Tax Disputes advice](https://taxdisputes.co.uk/second-opinion/), we are available to aid you at every stage of the HMRC appeals process. Members of [our legal team](https://taxdisputes.co.uk/contact-us/) have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the [HMRC internal review](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/) process and in front of the [Tax Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/). Our team specialises in successfully challenging HMRC decisions, submitting out of time appeals, and will assist you in every aspect including developing a strategy. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk). --- # High Court re-confirms accountants reports are not protected by litigation privilege Source: https://taxdisputes.co.uk/2020/10/high-court-re-confirms-accountant-consultant-reports-are-not-protected-by-litigation-legal-privilege-disclosure-hmrc-advice/ *In [Financial Reporting Council v Frasers Group plc [2020] EWHC 2607 (Ch)](https://taxdisputes.co.uk/wp-content/uploads/2020/10/FRC-v-Sports-Direct.pdf) Lord Justice Nugee re-confirmed the principle that accountants reports are not subject to litigation privilege and could be subject to third party disclosure orders from tax authorities such as HMRC. In this case, it was found that the reports prepared by the accountants were not for the sole or dominant purpose of litigation and as such are not protected from disclosure by litigation privilege. * *[Our London Tax Solicitors and Barristers](https://taxdisputes.co.uk/expert-advice/) have vast experience of tax laws and first hand commercial, litigation and advocacy experience. We have a proven track record of successfully contesting disputed tax assessments and penalties with HMRC. The tax authorities have lost many cases that are appealed through negotiation, internal review or through the Tax Tribunal.* ## What is legal advice privilege? Legal advice privilege covers confidential communications (written or oral) between a lawyer and their client for the purpose of giving or receiving legal advice. It applies to all advice in relation to a client’s legal rights and obligations. It does not apply to strategic or commercial advice. As originally formulated by the courts, the privilege covered only confidential communications made between a lawyer and his client, or a lawyer or client and a third party, which came into existence for the purposes of litigation (“[litigation privilege](https://lexlaw.co.uk/solicitors-london/confidential-communications-legal-litigation-professional-advice-privilege/)”). The rationale of the privilege was said to be that: > “it is an absolute necessity that a man, in order to prosecute his rights or defend himself from an improper claim, should have resource to the assistance of professional lawyers” and that “he should be able to make a clean breast of it to the gentlemen whom he consults” in the sure knowledge that his communications to and from the lawyer will be “kept secret” unless disclosed with his consent” > > Anderson v Bank of British Columbia (1876) 2 Ch D 644 at page 649 per Sir George Jessel MR Although legal professional privilege is regarded of such importance that it has been described as “absolute”; but, like most rights, it is not absolute in the true sense of that word, as the case at hand demonstrates. ## Does legal advice privilege apply to accountants? No. For [privilege](https://lexlaw.co.uk/solicitors-london/confidential-communications-legal-litigation-professional-advice-privilege/) to apply, there must be a lawyer (i.e. a solicitor or barrister) in the communication for legal advice privilege to apply. Legal advice privilege does NOT extend to other professionals such as accountants. Therefore, in [disputes with HMRC](https://taxdisputes.co.uk/) for example, (potentially incriminating) communications with an accountant can be disclosed and are not privileged. Therefore, in order to ensure confidentiality, a lawyer must be involved in the communications. ## Does litigation privilege apply to my solicitor? Yes. Communications between parties or their solicitors and third parties for the purpose of obtaining information or advice in connection with existing or contemplated[ litigation](https://lexlaw.co.uk/practice-areas/) are privileged, but only when the following conditions are satisfied: (a) litigation must be in progress or in contemplation; (b) the communications must have been made for the sole or dominant purpose of conducting that litigation; (c) the litigation must be adversarial, not investigative or inquisitorial. ## What was the application about? The application raised the question whether 3 documents in the hands of the Respondent were privileged from production to the Applicant on the grounds of litigation privilege. The Applicant is the Financial Reporting Council Ltd ("the FRC"). The Respondent is now called Frasers Group plc, but until December last year it was called Sports Direct International plc. ## What is the Financial Reporting Council (FRC)? The FRC is a regulatory body with certain responsibilities for, among other things, the regulation of statutory auditors and audit work. Its functions include carrying out investigations into statutory auditors and audit work and imposing and enforcing sanctions. ## The Facts Frasers Group received enquiries from the French tax authorities regarding its online sales in France. Frasers Group assumed that the French authorities were likely to challenge its VAT treatment in relation to those sales. It therefore instructed tax consultants/accountants who had devised its existing VAT structure to report on how it could defend such a challenge. The consultants/accountants reverted with written reports in response. The judgment is concerned with three of these reports. The FRC later obtained an order for third party disclosure against Fraser Group. The issue was whether Fraser Group could claim litigation privilege in relation to the three reports. ## The Judgment The 3 reports were not for the sole or dominant purpose of litigation. LJ Nugee asked the question whether the reports were written for the sole or dominant purpose of litigation and stated at paragraph 36: > To my mind the answer is obviously "No". A taxpayer who takes advice as to how to structure his affairs does not do so for litigation purposes. He does so because he wants to achieve a particular result for tax purposes – in this case the result that the transport by Barlin would not be "by or on behalf of" SDR (or other Sports Direct company) for the purpose of Art 33, and hence that VAT would be payable on the sale of goods in the UK and not in France, Ireland, Finland or other Member States. Even if it is contemplated that the particular structure will be likely to be attacked by the relevant tax authorities and that there will be litigation, the advice as to how to implement the new structure – or, if this is preferred, how to revise or enhance an existing structure – is not primarily advice as to the conduct of the future possible litigation. It is primarily advice as to how to pay less tax – or, as the case may be, how to avoid the administrative inconvenience of having to register in every Member State. > > [Financial Reporting Council v Frasers Group plc [2020] EWHC 2607 (Ch)](https://taxdisputes.co.uk/wp-content/uploads/2020/10/FRC-v-Sports-Direct.pdf), Lord Justice Nugee ## Download the judgment [![](https://taxdisputes.co.uk/wp-content/uploads/2020/10/image.png)](https://taxdisputes.co.uk/wp-content/uploads/2020/10/FRC-v-Sports-Direct.pdf) ## Expert London HMRC Tax Appeal Lawyers If you need [HMRC Tax Disputes advice](https://taxdisputes.co.uk/second-opinion/), we are available to aid you at every stage of the HMRC appeals process. Members of [our legal team](https://taxdisputes.co.uk/contact-us/) have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the [HMRC internal review](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/) process and in front of the [Tax Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/). Our team specialises in successfully challenging HMRC decisions, submitting out of time appeals, and will assist you in every aspect including developing a strategy. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk). --- # Eat Out to Help Out: HMRC fraud compliance checks Source: https://taxdisputes.co.uk/2020/11/eat-out-to-help-out-fraud-compliance-checks-hmrc-investigation-penalty-criminal-voluntary-disclosure/ *HMRC sends nudge letters to 4,000 hospitality businesses opening compliance checks into their claims in the government's [Eat Out to Help Out](https://www.gov.uk/guidance/get-a-discount-with-the-eat-out-to-help-out-scheme) scheme. Fraudulent claims can lead to HMRC conducting a formal investigation and taking criminal action or issuing a considerable penalty assessment. If you are a company who has participated in the scheme and need legal advice, get in touch with our tax team. * In August 2020, in an attempt to boost the hospitality sector, the government offered 50% to consumers who ate out at restaurants that were registered with the [Eat Out to Help Out](https://www.gov.uk/government/publications/get-more-information-about-the-eat-out-to-help-out-scheme/get-more-information-about-the-eat-out-to-help-out-scheme) scheme. More than 84,000 businesses took part in the scheme until it was closed on 1 September 2020. ## What is Eat Out to Help Out fraud? The ways in which a company could commit fraud or abuse of the Eat Out to Help Out scheme include: - A company being ineligible to make a claim under the Eat Out to Help Out scheme- A company claiming for more payments than it was entitled to based on the information HMRC holds about the business i.e. the amounts claimed and the payments the business has received- A company providing incorrect or fraudulent information to HMRC ## What are the consequences of committing fraud? Criminal action can be taken against individuals who commit fraud including fines and imprisonment. [Arrests](https://www.independent.co.uk/news/uk/home-news/coronavirus-arrests-eat-out-to-help-out-fraud-hmrc-b1601503.html) for fraud were in fact made at the start of this month following HMRC's investigations. HMRC can also take action such as issuing hefty penalty assessments to businesses who they deem to have failed to comply or deliberately abused the system. > The vast majority of businesses will have used Eat Out to Help Out responsibly but we will not hesitate to act where we suspect abuse of the scheme > > Kath Doyle, Deputy director of HMRC's fraud investigation service ## What is a compliance check or tax investigation? A compliance check is an enquiry conducted by HMRC into the tax affairs and tax payment history of any UK individual, employee, director or company. A HMRC tax investigation can come in many forms and covers a range of taxes covered under HMRC jurisdiction such as: VAT; income tax; corporation tax and capital gains tax and in this case with [tax support payments](https://www.gov.uk/coronavirus/business-support) granted to businesses as a result of the [coronavirus pandemic](https://www.gov.uk/coronavirus/business-support) e.g. the Coronavirus Job Retention Scheme ("CJRS") i.e. furlough scheme. ## How HMRC does carry out a compliance check? The type and severity of the investigation is completely dependent on the facts of any individual case. Typically, an investigation generally commences when HMRC notice irregularities in information supplied via a Self Assessment Tax return. A taxpayer will receive a letter from HMRC informing  them that an investigation has been opened into their tax affairs and may include a request for information. Businesses will have 60 days to respond to HMRC's letter opening a compliance check and provide HMRC with any requested information. Failure to provide the requested information or correct information may result in HMRC issuing a penalty notice. It is strongly recommended that you consult a tax lawyer as soon as possible to receive detailed advice on how to take control of the situation and negotiate with HMRC. ## Which sales are eligible for Eat Out to Help Out ? The discount can be applied to food and/or non-alcoholic drink purchased for immediate consumption on premises, up to a maximum discount of £10 per diner (inclusive of VAT). This includes soft drinks and/or packaged snacks, as long as they are for immediate consumption on the premises. There is no minimum spend requirement. ## Which sales are ineligible for Eat Out to Help Out ? The discount cannot be applied to the following items: - alcoholic drinks- tobacco products- food or drink that is to be consumed off premises- food or drink that is sold as part of a private party, event or function taking place within an eligible establishment ## Can I appeal against a tax investigation being commenced? No, you cannot appeal against an investigation being opened. You must cooperate with HMRC as much as possible and it is recommended to seek legal advice as soon as possible. Once HMRC have concluded their investigation, they may issue a [penalty assessment](https://taxdisputes.co.uk/hmrc-penalties/) following which you have 30 days to appeal the decision. You can appeal in writing by giving [Notice of Appeal to HMRC](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/). HMRC will either confirm their first decision, amend their decision or agree with your assessment. ## What is voluntary disclosure? HMRC campaigns encourage taxpayers that have undeclared income to voluntarily disclose their undeclared earnings or additional income*. *In return, HMRC will usually be more lenient when it comes to potential penalties on those who come forward and voluntarily disclose their financial information. It is important to cooperate with HMRC as much as possible during a compliance check and seek legal advice at the outset to understand your position as it may be advisable or necessary to give a voluntary disclosure to HMRC. ## Expert London Tax Investigation Lawyers If you need HMRC Tax Investigation advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. --- # IR35 Disputes: Renewed concerns over HMRC’s CEST Tool Source: https://taxdisputes.co.uk/2020/12/ir35-disputes-concerns-problems-hmrc-cest-tool-check-employment-status-for-tax-advice/ *[HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) have recently disclosed data showing that in almost 20% of cases, the [Check Employment Status for Tax (CEST) tool](https://www.gov.uk/guidance/check-employment-status-for-tax) was unable to return a conclusive response. The [CEST tool ](https://taxdisputes.co.uk/2020/10/many-including-itv-presenters-to-fight-hmrc-on-ir35/)therefore leaves many contractors and companies in limbo before the implementation of the private sector IR35 reforms. The CEST tool has been subject to criticism in the past, with critics arguing that the tool is not aligned with IR35 case law. MPs have previously been vocal critics of HMRC's IR35 tool. * *When the [private sector IR35 reforms](https://taxdisputes.co.uk/hmrc-ir35/) are implemented, private companies will assume responsibility for determining whether the contractors they engage should be taxed (depending on whether the work they do falls within the IR35 rules or not). You should [seek legal advice](https://taxdisputes.co.uk/) early, and we can offer an initial fixed fee conference with a tax specialist barrister in order to provide guidance on whether your contractors are likely to fall within the IR35 rules or not.* *[Our London Tax Solicitors and Barristers](https://taxdisputes.co.uk/expert-advice/) have vast experience of tax laws and first hand commercial, litigation and advocacy experience. We have a proven track record of successfully contesting disputed tax assessments and penalties with HMRC. The tax authorities have lost many cases that are appealed through negotiation, internal review or through the Tax Tribunal.* ## What is IR35? [HMRC introduced IR35 in 1999](https://webarchive.nationalarchives.gov.uk/20140206165106tf_/http://www.hmrc.gov.uk/ir35/seprelease.htm). The intention was to tackle “disguised employment” and prevent individuals working in a manner which was effectively the same as employees, but under the guise of limited companies. Companies engage contractors through an intermediary, often a personal services company. These self-employed individuals do not have to pay national insurance and and benefit from lower income tax. HMRC claim that currently only 1 in 10 contractors, who should be paying these taxes are doing so and that these changes will bring in an additional £3.1bn in additional tax revenue between [2020 and 2024.](https://www.gov.uk/topic/business-tax/ir35) ## Who is affected by IR35 upcoming rules? • Contractors providing services to medium and large businesses; • Fee-payers in the recruitment sector; and • Medium and large businesses in private sector that are end user of the worker’s services. [Originally, the onus was on individuals](https://taxdisputes.co.uk/hmrc-ir35/) to assess and then declare to HMRC that they fell under IR35. However, HMRC are now tightening the net on these self*–*employed workers by shifting that onus to businesses to determine the status of their contractors. ## Changes to IR35 Legislation? Changes are being implicated into IR35 Legislation due to contractors not paying the correct tax and National Insurance and incorrectly assessing their IR35 status. The non-compliance has reportedly costed HMRC millions therefore the rules are changing in hope to ensure compliance.  IR35 changes are being introduced in April 2021 to move the responsibility for assessing IR35 obligations from the contractor to the end user. The fee payer will be responsible for calculating and paying the related tax and National Insurance contributions to HM Revenue & Customs.  Private sector companies will have statutory obligation to assess the deemed employment status of contractors engage through an intermediary and if they are in fact employees, they will need to issue a determination to the contractor and subsequently add the individual to PAYE. ## Do the IR35 rules affect my company? Companies will not have to comply with the new IR35 legislation if they satisfy two or more of the following criteria: (a) an annual turnover of not more than 10.2 million; (b) balance sheet total of not more than 5.1 million; and (c) number of employees of not more than 50. ## How has Covid-19 impacted IR35? In the midst of the [current global pandemic](https://lexlaw.co.uk/corona-coronavirus-covid-19-legal-litigation-insolvency-tax-employment-dispute-advice/) caused by the [Coronavirus](https://lexlaw.co.uk/wp-content/uploads/2020/03/The-Health-Protection-Coronavirus-Restrictions-England-Regulations-2020.pdf), the UK Government delayed the implementation of their controversial IR35. Contractors have said that this brief reprieve has granted them temporary relief in times of great job uncertainty, particularly where contractors are often the first overhead to be cut from businesses as they handle the aftermath of the pandemic and its financial impact. This may drive many contractors to seek full employment within their companies to ensure job security moving forward. ## How do contractors prepare for IR35? Contractors should be communicating with their employers and reviewing their existing arrangements. If you are a contractor likely to be affected by IR35 or would like advice on your options, get in touch with our tax team now. ## How do companies prepare for HMRC? There are a number of steps companies should be taking including reviewing their workforce and all of their arrangements with contractors and communicating with any affected contractors about the changes. There may be changes that need to be made to contracts, bot existing and future contracts. We can assist you with the review and advise you on the next steps in preparation for the implementation of the new legislation in April 2021. ## Expert London Tax Investigation Lawyers If you need HMRC Tax Investigation advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist[ Tax Solicitors](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. --- # De-registration: What do you do if HMRC cancels your VAT number? Source: https://taxdisputes.co.uk/2020/10/de-registration-what-do-you-do-if-hmrc-cancels-your-vat-number-company-director-guide-kittel-assessment-letter-legal-advice/ *[HM Revenue and Customs (HMRC)](https://www.gov.uk/government/organisations/hm-revenue-customs) have actively sought to clamp down on tax fraud and increasingly more businesses in a variety of sectors (away from the traditional [MTIC](https://taxdisputes.co.uk/missing-trader-fraud-vat-evasion-solicitors-london/) cases involving alcohol or mobile phones) are subject to HMRC decisions de-registering a VAT number. It is vital that any company deal with tax issues as soon as they occur to prevent their appeal from being time-barred (and such decisions are usually subject to a strict 30 day time limit).* *Our [London Tax Solicitors and Barristers](https://taxdisputes.co.uk/contact-us/) have vast experience of tax laws and first hand commercial, litigation and advocacy experience . We have a proven track record of successfully contesting disputed tax assessments and penalties with HMRC. The tax authorities have lost many cases that are appealed through negotiation, internal review or through the Tax Tribunal.* ## HMRC have cancelled my VAT registration De-registration of a VAT number can lead to serious consequences for a company, especially one where taxable supplies are being made and are contemplated. For example, a company without a VAT number would be unlikely to secure future lucrative contracts, would not be able to issue tax invoices charging VAT or showing a VAT registration number, and would not be able to claim back input tax from taxable supplies and as such would be consequently subject to a hefty assessment. It is therefore crucial to take [specialist advice](https://taxdisputes.co.uk/) early and appeal the decision in good time. There are a number of avenues a company can take in appealing such a decision from the Commissioners. ## In what circumstances do HMRC de-register VAT numbers? HMRC can exercise it powers under [paragraph 13 of Schedule 1 of the VAT Act 1994](http://www.legislation.gov.uk/ukpga/1994/23/schedule/1) to cancel a VAT registration. The two main reasons are when HMRC conclude after an investigation that a company is either no longer making taxable supplies or a Commissioner believes that the company has been registered with the principal aim of the registration is to facilitate a fraud on the VAT system. ## On what basis do HMRC allege that connections to fraud can lead to de-registration of a VAT number? The [UK VAT Act 1994](http://www.legislation.gov.uk/ukpga/1994/23/schedule/1) is governed by the EU Principal VAT Directive (Dir. 2006/112), the directive requires UK VAT legislation to be interpreted in conformity with it. Case law such as [Kittel (C-439/04)](https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A62004CJ0439) and Mecsek (C-273/11) establishes the principle that community law cannot be relied on for fraudulent ends and the right to input tax recovery can be denied in circumstances where a transaction chain is connected with VAT fraud and the trader is found to have the requisite level of knowledge. Therefore, we have seen cases where HMRC cancel a VAT registration where the Commissioners conclude that a trader is using its VAT registration for fraudulent purposes (or will do so in the future). ## Can a company get its VAT number re-instated? The answer is, it depends on the facts of each individual case. For example, in cases where fraud is alleged, the onus is on HMRC to establish that fraudulent activyt has occured or that the company is part of a chain of fraudulent transactions and that the trader knew- or ought to have known- about the fraud. Fraud is a serious accusation to level and HMRC should be put to the proof on this at the outset. Normally, such decision letters from HMRC do not go into detail. Deregistration would ordinarily be a step taken after months of investigation by HMRC into a company’s affairs. In other cases, HMRC seek to import a wider interpretation to Community law than what the judges intended at the time. For example, [Kittel](https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A62004CJ0439) refers to taxable goods, however, we have seen cases where HMRC attempt to expand the meaning of [Kittel](https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A62004CJ0439) to include taxable supplies. It is not known at this stage how a Tribunal would interpret such a wide importation given by HMRC. ## Can a company seek judicial review of a decision to cancel a VAT registration? Again, the answer depends on the facts of the case. Generally it can be argued that cancelling the VAT number of a business that makes taxable supplies can be disproportionate. Arguments could be made that such a disproportionate action is incompatible with rights under the European Convention on Human Rights, contrary to[ section 6(1) of the Human Rights Act 1998](https://www.equalityhumanrights.com/en/human-rights/human-rights-act). ## Is there a time limit to bring a judicial review claim? Yes. A judicial review claim must be made promptly and in any event no later than 3 months after the grounds to make the claim arose (*[CPR 54.5(1)](https://www.justice.gov.uk/courts/procedure-rules/civil/rules/part54#54.5)*). Note that this date **cannot **be extended by agreement between parties. Therefore, if you believe that you may have a claim against HMRC for judicial review, then you should [seek legal advice promptly](https://taxdisputes.co.uk/contact-us/). ## How do I appeal a HMRC decision? If a taxpayer disagrees with HMRC regarding a VAT de-registration decision, there is a 2-stage process for a taxpayer to dispute a HMRC decision: **Stage 1**: give notice of appeal to HMRC. A taxpayer can appeal in writing within 30 days of HMRC’s notice of their decision. HMRC will confirm their first decision, amend their decision or agree with the taxpayer’s assessment. **Stage 2**: if the taxpayer’s position cannot be agreed with HMRC in stage 1 then a taxpayer can avail themselves of two further options: **i.** HMRC can offer an internal review of the disputed decision (or the taxpayer can request this procedure at any time). The review is an entirely internal procedure completed not by the original HMRC decision maker but by a different HMRC officer. **ii.** A taxpayer can appeal to the First Tier Tax Tribunal if the taxpayer cannot agree their position following the review. The independent tribunal will make a determination on the case. A further appeal is permitted if a taxpayer does not agree with the decision. ## What is a Notice of Appeal to HMRC? If you disagree with HMRC’s deicison to de-register a VAT number, then you should first send notice to [appeal the decision to HMRC](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/). If HMRC makes a tax decision against you, you can [contact HM Revenue and Customs (HMRC)](https://www.gov.uk/government/organisations/hm-revenue-customs/contact) or professional advice should be sought. The first recourse of a taxpayer wishing to dispute a decision of HMRC is to examine the decision letter sent by HMRC which will contain instructions on how to appeal the decision made. Notice to appeal the tax decision must be made in writing by the taxpayer (or their legal representative) to HMRC by completing the appeal form attached to HMRC’s penalty letter or by following the instructions on the letter. It is essential to appeal promptly within 30 days and seek early specialist advice because a late response can be fatal to any appeal. Members of our legal team have first-hand experience and working knowledge of the internal workings of HMRC. As specialist London Tax Disputes Solicitors, we have the competency and experience to unblock negotiations with HMRC. More detailed guidance on HMRC Penalty Appeals can be found: [here](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/). ## Should I use HMRC Internal Review? The HMRC internal review process can be used by a taxpayer when appealing a HMRC decision. If the stage 1 [appeal to HMRC](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/) after the penalty notice is issued is unsuccessful then either the taxpayer or HMRC can request an internal review of the decision. The review is a statutory process conducted by a different tax officer from the first reviewer and is seen as a useful tool in providing a fresh set of eyes on the interpretation of facts. Not on whether the decision was *“fair”* or for a technical dispute- but on determining whether the decision was made in line with HMRC guidelines. There are a number of advantages in utilising the internal review procedure. The internal review process is conducted within strict time periods, allowing the taxpayer to gain control of the timing of the case and resolution may be achieved faster than using the Tax Tribunal option. Moreover, previously published [official statistics](https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/322801/140610_Reviews_and_Appeals_MI_2013-14_final.pdf) shows that 49% of internal reviews have resulted in HMRC penalties being annulled or amended. This demonstrates that HMRC is prone to making errors when issuing a penalty notice. HMRC’s internal review process is subject to a number of formalities and strict time limits, it is important to seek legal representation as soon as possible. If the taxpayer neither accepts the review process nor notifies the appeal to the Tax Tribunal, the tax dispute is considered settled under [section 54](https://www.legislation.gov.uk/ukpga/1970/9/section/54/enacted) TMA 1970 in line with HMRC’s view of the matter. Therefore, it is important to seek legal representation early to help navigate the internal review process because after missing this response deadline, it is impossible to resile from the settlement according to [section 54(2)](https://www.legislation.gov.uk/ukpga/1970/9/section/54/enacted) TMA 1970 (unless the Tax Tribunal allows late notification of the appeal). If after the completion of internal review process the tax issue is still in dispute then recourse is also available by appealing to the [First Tier Tax Tribunal](https://www.gov.uk/courts-tribunals/first-tier-tribunal-tax) ([section 49D](https://www.legislation.gov.uk/ukpga/1970/9/section/49/enacted), TMA 1970) or by considering [alternative dispute resolution (ADR)](https://www.gov.uk/guidance/tax-disputes-alternative-dispute-resolution-adr). More detailed guidance on HMRC Internal Review Advice can be found: [here.](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/) ## How do I appeal to the Tax Tribunal? The Tax Tribunals can be used by a taxpayer when appealing a HMRC decision. If the [appeal to HMRC](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/) after the penalty notice is issued is unsuccessful and the HMRC  [internal review](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/) procedure has not yielded a satisfactory conclusions then recourse is available by appealing to the [First Tier Tax Tribunal](https://www.gov.uk/courts-tribunals/first-tier-tribunal-tax) ([section 49D](https://www.legislation.gov.uk/ukpga/1970/9/section/49/enacted), TMA 1970). It is not permissible to appeal to the Tax Tribunal during the course of the internal review. The procedural rules governing the First Tier Tribunal are found in the *[Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273)](https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/357075/tax-chamber-tribunal-procedure-rules.pdf)*. The Tax Tribunal is completely independent of HMRC and is governed by an overriding objective to deal with cases fairly and justly ([rule 2, First Tier Tribunal Rules (FTR 2009)](https://www.legislation.gov.uk/uksi/2009/273/article/2/made)). The Tribunal will consider the evidence of both parties, equally whilst the judge heavily relies on previous case law. Commencing proceedings at the First Tier Tax Tribunal is subject to statutory time limits. It is recommended that legal advice is sought as soon as you become involved in a HMRC dispute to prevent a situation where a potential claim becomes time-barred. The First Tier Tax Tribunal will then give a direction allocating the case to one of four categories, which all have different procedures: - **Default Paper cases**:  ordinarily involve uncomplicated issues where the facts are simple and there is little dispute as to the law. The First Tier Tax Tribunal will determine the issue without a hearing (unless either party has requested one).- **Basic cases**: typically include standard tax penalties and covers both direct and indirect taxes and includes VAT *“migration appeals”* as well as all [*“reasonable excuse”*](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/) appeals. These cases are generally disposed of at a hearing and involve a minimal exchange of documents prior to the hearing.- **Standard cases**: the cases that can be diposed of in one day, in an area of uncomplicated law, with one witness providing uncontested evidence, are assigned to the Standard track.- **Complex cases**: cases are assigned here if it satisfies one of the conditions in [rule 23(4)](https://www.legislation.gov.uk/uksi/2009/273/article/23/made), FTR 2009. The procedural Tax Tribunal rules are the same save for a special costs regime applying for Complex cases. The First Tier Tax Tribunal is in essence a fact-finding court, therefore it is imperative to prepare the optimum set of facts in advance and this usually requires the most extensive preparation. We are well-versed in the Hearing procedure itself and presenting our clients’ cases to the Tax Tribunal. We consider the preparatory stage an essential part of the Hearing process and extensively complete the best factual picture from which the First Tier Tax Tribunal will draw its inferences. Our specialist Tax Solicitors and Barristers have successfully represented taxpayers before the First Tier Tax Tribunal. Our Tax Disputes team will typically: - advise you for a long period of time prior to the hearing;- discuss the evidence required;- prepare the appeal in detail; and- rehearse your case with you. ## Contact our VAT De-registration Appeal Lawyers now If you need HMRC Tax Disputes advice, we are available to aid you at every stage of the HMRC appeals process. Members of our legal team have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the HMRC internal review process and in front of the Tax Tribunal. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect including developing a strategy. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](javascript:;). --- # Third party’s failure to file tax return does not discharge penalty unless deliberate Source: https://taxdisputes.co.uk/2021/01/third-party-defence-failure-to-file-tax-return-deliberate-penalty-assessment-hmrc-tribunal-reasonable-excuse-accountant-tax-agent/ *The [First Tier Tax Tribunal](https://www.gov.uk/courts-tribunals/first-tier-tribunal-tax) has held that HMRC must show deliberate behaviour on the part of a third party who has failed to file the return delegated to them, when determining [penalties](https://taxdisputes.co.uk/hmrc-penalties/), which case is important to taxpayers who often delegate tax returns to tax advisers and accountants. If you are facing a penalty from HMRC and require legal advice on the same, contact our tax team*. The appeal in [*H Dhaliwal v HMRC *[2020] UKFTT 463 (TC)](https://taxdisputes.co.uk/wp-content/uploads/2021/01/Dhaliwal-v-Revenue-Customs-INCOME-TAX-late-filing-and-late-payment-penalties-2020-UKFTT-463-TC-12-November-2020.pdf) concerned [penalty assessments](https://taxdisputes.co.uk/hmrc-penalties/) issued against the Appellant, Mrs Dhaliwal for late filing of tax returns for the years 2010/11 and 2012/13. The penalties were issued pursuant to [Schedule 55 of the Finance Act 2009](https://www.legislation.gov.uk/ukpga/2009/10/schedule/55) for deliberate withholding of information from HMRC by failing to make the returns. Schedule 55 sets out the various levels of penalty to be imposed depending on the taxpayer's behaviour i.e. (i) deliberate and concealed; (ii) deliberate but not concealed; or (iii) not deliberate (careless). The Appellant submitted an [appeal](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) against the penalty assessment. ## What is a reasonable excuse? [Schedule 55](https://www.legislation.gov.uk/ukpga/2009/10/schedule/55) provides that penalties do not arise where the taxpayer is able to show that they had a reasonable excuse for failing to comply with a tax requirement such as: - Late filing of returns - Failing to make a payment on time- Failing to file online- Failing to notify chargeability Reasonable excuse is expressly stated to exclude where the taxpayer relied on a third party to do anything i.e. third party defence therefore reliance on an accountant or [tax adviser](https://professionalnegligenceclaimsolicitors.co.uk/bad-hmrc-finance-advice-sue-advisor/) is unlikely to be a ground of defence. ## Appellant's reasonable excuse The Appellant managed several restaurants across the UK and often travelled between them and when the business was sold in 2013, both the Appellant and her husband were made redundant. During this difficult time, the Appellant was also occupied with looking after her father and parents-in-law who were severely unwell. The Appellant had left financial matters including her tax affairs to her husband and their accountant. She claimed that she was unaware that her husband had not filed the tax returns and did not know why they had not been filed. She also argued that her work and family pressures amounted to a reasonable excuse for the failure to file the tax returns. ## HMRC disputes taxpayer's reasonable excuse It was not disputed that the appellant had failed to file tax returns on time and made late payments and it was only for the Tribunal to consider whether the Appellant had deliberately withheld information from HMRC and whether the Appellant had a reasonable excuse. It is for HMRC to show that in failing to submit a return, the taxpayer deliberately withheld information. HMRC contended that all other tax returns before, between and after the two years in question had been filed and the liability for the tax returns in question were substantially higher therefore argued that the Appellant was aware of her obligations and inferred that she had deliberately failed to file the relevant tax returns on time. HMRC also argued that her delegation to her husband was irrelevant and the responsibility to file tax returns on time ultimately rested with her i.e. a third party defence was not available. Where tax returns were dealt with by an accountant, HMRC did not make any submissions as to who, other than the Appellant, may have acted deliberately. ## Tribunal's finding on deliberate behaviour in upholding a penalty The [Tribunal](https://www.gov.uk/courts-tribunals/first-tier-tribunal-tax) held that establishing whether behaviour is a subjective test and the courts will consider what the taxpayer's knowledge and intentions were at the time of the error. The Tribunal held that for deliberate behaviour to occur, there must be a conscious act on the part of the taxpayer to undertake that behaviour and where the Appellant had left tax matters to her husband and unaware of the failure to file, she did not deliberately withhold information by failing to file tax returns. It rejected HMRC's inferences drawn from the Appellant's conduct in the other tax years. > *Although we note that the responsibility to file returns remains with a taxpayer where the taxpayer has delegated such filing to another person, we consider that in order for HMRC to satisfy the burden of proof upon them to show that the failure to file was deliberate, it would be necessary to show that such other person had deliberately failed to file the return if the appellant was unaware of the failure to file*.’ HMRC had not discharged the burden of proof to show deliberate behaviour on the part of the Appellant however the Tribunal did not accept that the Appellant had shown a reasonable excuse. A penalty should still therefore be imposed albeit not based on deliberate error i.e. for a lower amount. ## Accountants or agents managing tax affairs This case is key for tax advisers and accountants who are often instructed to manage a taxpayer's tax affairs and prepare and submit returns on their behalf. The burden of proof remains on HMRC to show deliberate behaviour but where actions have been delegated to a tax adviser or accountant, to show their conduct was also deliberate. Read the full judgment for [*H Dhaliwal v HMRC* [2020] UKFTT 463 (TC)](https://taxdisputes.co.uk/wp-content/uploads/2021/01/Dhaliwal-v-Revenue-Customs-INCOME-TAX-late-filing-and-late-payment-penalties-2020-UKFTT-463-TC-12-November-2020.pdf). ## My accountant failed to file my tax return Whilst there may not be a third party defence in an[ appeal ](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/)against a tax assessment or penalty, if your tax agent, [accountant](https://professionalnegligenceclaimsolicitors.co.uk/compensation-negligent-accountants-financial-tax-advisors/) or [tax adviser](https://professionalnegligenceclaimsolicitors.co.uk/bad-hmrc-finance-advice-sue-advisor/) has failed to carry out your instructions i.e. file a tax return, prepared incorrect calculations, you may have a valid complaint or potential negligence claim against the individual or company. Our professional negligence claim can assist and advise you on the suitable course of action. ## Expert London HMRC Penalty Disputes Lawyers If you need HMRC Penalty Dispute advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. --- # VAT Fraud: Tribunal rules both Company and Director liable for HMRC’s costs Source: https://taxdisputes.co.uk/2021/01/vat-fraud-tribunal-rules-both-company-and-director-liable-for-hmrc-costs-appeal-advice/ *In [Eurochoice Ltd v HMRC [2020] UKFTT 449 (TC)](https://taxdisputes.co.uk/wp-content/uploads/2021/01/TC07925.pdf), the First Tier Tax Tribunal has held that a company and its director were jointly and severally liable for HMRC's costs, in an appeal in which only the company (and not the director personally) was party to the proceedings. Ordinarily under the Tribunal rules, in non-complex cases, each party bears its own costs irrespective of the outcome. This case was however allocated to the complex category and HMRC succeeded in its application for the company's appeal to be struck out as it stood no reasonable prospect of success as the appellant did not respond to the application. * *The decision is a warning to those that have been accused of VAT fraud that HMRC are taking a hardline approach and that the corporate veil will not always provide protection to directors of companies, particularly in circumstances where fraud is alleged- and not defended.* *[HM Revenue and Customs (HMRC)](https://www.gov.uk/government/organisations/hm-revenue-customs) have actively sought to clamp down on tax fraud and increasingly more businesses in a variety of sectors (away from the traditional [MTIC](https://taxdisputes.co.uk/missing-trader-fraud-vat-evasion-solicitors-london/) cases involving alcohol or mobile phones) are subject to HMRC decisions de-registering a VAT number. It is vital that any company deal with tax issues as soon as they occur to prevent their appeal from being time-barred (and such decisions are usually subject to a strict 30 day time limit).* *[Our London Tax Solicitors and Barristers](https://taxdisputes.co.uk/expert-advice/) have vast experience of tax laws and first hand commercial, litigation and advocacy experience. We have a proven track record of successfully contesting disputed tax assessments and penalties with HMRC. The tax authorities have lost many cases that are appealed through negotiation, internal review or through the Tax Tribunal.* ## The Facts On 13 October 2015 HMRC notified the Company of the decision to refuse it the right to deduct input tax in the sum of £5,843,093.00 and raise a corresponding VAT assessment in respect of its VAT accounting periods 10/13, 01/14, 04/14 and 07/14 on the basis that the Company knew or should have known that the transactions concerned were connected with a fraudulent loss of tax. The Company appealed to the Tribunal on 12 February 2016. On receipt by the Tribunal, the appeal was allocated to the “complex” category in accordance with Rule 23 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The effect of such an allocation was that the case was subject to the full cost shifting regime unless the Company gave notice under Rule 10 that the case be excluded from potential liability for costs. No such notice was given by the Company. On 5 September 2019 HMRC applied to the Tribunal for a direction to strike out the appeal, under Rule 8(3)(c), on the grounds that it had no reasonable prospects of success. In the absence of any response to its letter, dated 8 November 2019, inviting representations on HMRC’s application, the Tribunal issued an “unless” order to the Company directing the Company to confirm in writing by no later than 30 January 2020 that it intended to proceed with its appeal. The Company was warned that if no response was received the appeal may be struck out without further reference to the parties. As no response was received within the time stated or at all, and because of the failure to co-operate with the Tribunal to such an extent that it was unable to deal with proceedings fairly and justly, on 4 March 2020, Judge Geraint Williams struck out the appeal. ## The Judgment HMRC contend that as Rule 10(1)(c), unlike Rule 10(1)(b), does not refer to “a party or their representative” the Tribunal has the power to direct that a non-party, such as the director of the company, pay the costs of the proceedings. The Tribunal found it did have the power to make a costs order against a non-party to a case: > It is clear from s 29 TCEA that, subject to the Rules, the Tribunal has “full power to determine by whom and to what extent the costs are to be paid.” As HMRC submit it is apparent that the Rules anticipate that applications for costs will be made by, and against, persons who are not a party (or a representative). For example, Rule 10(3) refers to the requirement that “[a] person making an application to the Tribunal” for costs must send the application to “the person against whom it is proposed the order be made”. Rules 10(5) and 10(6) introduce the definitions of “paying person” and “receiving person”, definitions which are not contingent on being a formal party to the appeal which contrasts with the language used in Rule 10(1)(b) which specifically refers to “a party”.. > > .Therefore, given the wide scope of s 29 TCEA which is not limited, at least in relation to costs in complex cases, by the Rules, I consider that the Tribunal does have the power to make an order for costs against a non-party. The question therefore, is whether I should do so in this case. > > Tribunal Judge Brooks, [Eurochoice Ltd v HMRC [2020] UKFTT 449 (TC)](https://taxdisputes.co.uk/wp-content/uploads/2021/01/TC07925.pdf) ## Can a director be jointly and severally liable for HMRC's costs? Yes, should there be bad faith on part of the director and where a director is considered the controlling mind of the company. HMRC submitted that this is an exceptional case where the Tribunal should direct that Mr Ahmed, the director of the Company, should pay the costs of the proceedings that he caused the company to instigate and continue. They contend that as Mr Ahmed has been the sole director and shareholder of the Company since 1 February 2012 he can be considered the controlling mind of the company, and “the real party” to the litigation in the terms described by the Privy Council in Dymocks. HMRC refer to the Company’s grounds of appeal which must have been approved by Mr Ahmed in the full knowledge that these were not only unsustainable but, given his conviction, false. As such, it is contended that the appeal was commenced by the Company at the instigation of Mr Ahmed in bad faith, and such conduct falls well outside the “ordinary run of cases”. ## Download the First Tier Tribunal Decision [![](https://taxdisputes.co.uk/wp-content/uploads/2021/01/image.png)](https://taxdisputes.co.uk/wp-content/uploads/2021/01/TC07925.pdf) ## HMRC investigations on Labour/Payroll chains connected with fraud We have seen a number of decision letters and investigations from HMRC’s Fraud Investigation Service against companies in the construction and car industries alleging supply chain fraud. These letters- if related to an investigation- seek a meeting. Or alternatively, if a decision has been made by HMRC- a notification that a company is not entitled to deduct input tax or ultimately the VAT number has been de-registered. In the latter case, an appeal must be made within the strict time limits (see below). ## Supply chain connected with fraud? Case law such as [Kittel (C-439/04)](https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A62004CJ0439) and Mecsek (C-273/11) establishes the principle that community law cannot be relied on for fraudulent ends and the right to input tax recovery can be denied in circumstances where a transaction chain is connected with VAT fraud and the trader is found to have the requisite level of knowledge. Therefore, we have seen cases where HMRC cancel a VAT registration where the Commissioners conclude that a trader is using its VAT registration for fraudulent purposes (or will do so in the future). ## Notified of a decision to refuse entitlement to the right to deduct input tax? Following [Kittel](https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A62004CJ0439), HMRC are increasingly sending decision letters alleging that labour/payroll supplies are connected with the fraudulent evasion of VAT (and that the taxpayer knew or should have known that this was the case). HMRC will normally allege that services received were from fraudulent defaulters. HMRC may also state that there is no evidence of any meaningful due diligence undertaken by the taxpayer on their clients or suppliers. So what can a company do in this situation? The answer is an appeal of the decision should be sought as soon as possible, and in any event, within 30 days of the date of the decision. ## How can a company appeal the decision to refuse the entitlement to deduct input tax? The answer is, it depends on the facts of each individual case. For example, in cases where fraud is alleged, the onus is on HMRC to establish that fraudulent activyt has occured or that the company is part of a chain of fraudulent transactions and that the trader knew- or ought to have known- about the fraud. Fraud is a serious accusation to level and HMRC should be put to the proof on this at the outset. Normally, such decision letters from HMRC do not go into detail. Deregistration would ordinarily be a step taken after months of investigation by HMRC into a company’s affairs. In other cases, HMRC seek to import a wider interpretation to Community law than what the judges intended at the time. For example, [Kittel](https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A62004CJ0439) refers to taxable goods, however, we have seen cases where HMRC attempt to expand the meaning of [Kittel](https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A62004CJ0439) to include taxable supplies. It is not known at this stage how a Tribunal would interpret such a wide importation given by HMRC. ## Expert London HMRC Tax Appeal Lawyers If you need [HMRC Tax Disputes advice](https://taxdisputes.co.uk/second-opinion/), we are available to aid you at every stage of the HMRC appeals process. Members of [our legal team](https://taxdisputes.co.uk/contact-us/) have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the [HMRC internal review](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/) process and in front of the [Tax Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/). Our team specialises in successfully challenging HMRC decisions, submitting out of time appeals, and will assist you in every aspect including developing a strategy. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk). --- # Judicial Review: Does the disguised remuneration loan charge breach EU law? Source: https://taxdisputes.co.uk/2020/09/judicial-review-disguised-remuneration-loan-charge-breach-eu-law-advice/ *This is the question that may soon be put before the Administrative Court.* *A fund has been launched to challenge [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs)'s controversial [disguised remuneration loan charge](https://taxdisputes.co.uk/2020/08/loan-charge-hmrc-settlement-opportunity-disguised-remuneration-policy-voluntary-tax-disclosure-advice/) with 85% of the £180,000 legal funds raised. The loan charge policy is designed to recoup taxes HMRC claim individuals avoided paying between December 2010 and April 2019 by using disguised remuneration loan schemes. * *MPs in the [Loan Charge All-Party Parliamentary Group](http://www.loanchargeappg.co.uk/) have [previously raised](https://taxdisputes.co.uk/2020/08/loan-charge-hmrc-settlement-opportunity-disguised-remuneration-policy-voluntary-tax-disclosure-advice/) the concern that many of these individuals caught up in such schemes do not have the ability to re-pay sums owed. In particular, the retrospective elements of the loan charge have caused concern. Funds are being raised by the [Loan Charge Judicial Review EU (LCJREU) group](https://lcjreu.org.uk/) to challenge whether the policy breaches EU law. * *If you need [HMRC Tax Investigation advice](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/), we are available to aid you at every stage of the HMRC investigate process. Members of [our legal team](https://taxdisputes.co.uk/expert-advice/) have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation.* ## Judicial Review of the Loan Charge The group are raising funds to seek [judicial review](https://lexlaw.co.uk/judicial-review-court-lawyers-london-hmrc-tax-dispute-decision-advice-representation/) of the Loan Charge and state: > “We believe that LCJREU is the last and best hope of challenging the loan charge legally and urge people facing the loan charge to chip in and fund it, to make it happen... “This is the only judicial review that, if it succeeds, would stop enforcement of the loan charge. Other judicial reviews can only challenge certain decisions made relating to it, but would leave the loan charge in place. So we urge all those facing the loan charge to contribute to LCJREU to allow this challenge to happen.” > > Loan Charge Judicial Review EU (LCJREU) group ## What is judicial review? [Judicial review](https://lexlaw.co.uk/judicial-review-court-lawyers-london-hmrc-tax-dispute-decision-advice-representation/) is the procedure whereby the court can consider the lawfulness of a decision made by a public body. A judicial review claim may be bought against legislation or public bodies, including HMRC. Judicial review is generally only available where there is no adequate alternative remedy. ## What claims would lend themselves to Judicial Review? HMRC have a duty to act fairly and lawfully at all times. However, more and more taxpayers are finding that HMRC are falling short of this mark. A claim for judicial review may be brought by an individual if any of the following criteria are met: ### Illegality Where a public body such as HMRC acts *ultra vires *(beyond the powers conferred on them) then they would have acted illegally. ### Irrationality This is also known as *[Wednesbury](https://taxdisputes.co.uk/wp-content/uploads/2020/02/Associated-Provincial-Pictures-v-Wednesbury-Corporation-1948-1-KB-223.pdf) *unreasonableness. One formulation of this test is that to be considered unreasonable or irrational it must be: > “So outrageous in it s defiance of logic or accepted moral standards that no sensible person who had applied his mind to the question to be decided could have arrived at it”. > > Council of Civil Service Unions -v- Minister for the Civil Service [1985] AC 374 ### Procedural impropriety There are two fundamental pillars to procedural impropriety described as the rule against bias and the right to be heard. Additionally, there is a right to be given the reasoning for a decision made by a public body. The courts must determine that there is a real possibility of bias. > The question is whether the fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased. > > Magill -v- Porter [2001] UKHL 67 103 ### A breach of legitimate expectations This is a discrete ground of judicial review where a party is given an expectation that a public body will act in a certain way. This expectation can arise from previous conduct of that body or because of express statements made by them. For a successful legitimate expectation claim in judicial review, there must have therefore been a clear promise or evidence of regular practice made by the public body. ### Breach of Human Rights This is governed by the [Human Rights Act 1998](http://www.legislation.gov.uk/ukpga/1998/42/contents) and may give rise to a judicial review claim: > it is unlawful for a public authority to act in a way which is incompatible with a Convention right. > > Section 6(1) Human Rights Act 1998 If you believe that a decision made by HMRC fulfilled any of the above criteria, you should contact our expert team[ now.](https://taxdisputes.co.uk/contact-us/) ## Is there a time limit to bring a judicial review claim? A judicial review claim must be made promptly and in any event no later than 3 months after the grounds to make the claim arose (*[CPR 54.5(1)](https://www.justice.gov.uk/courts/procedure-rules/civil/rules/part54#54.5)*). Note that this date **cannot **be extended by agreement between parties. Therefore, if you believe that you may have a claim against HMRC for judicial review, then you should [seek legal advice promptly](https://taxdisputes.co.uk/contact-us/). ## What are the available remedies for a Judicial Review claim? The following are [remedies](http://www.legislation.gov.uk/ukpga/1981/54/section/31) which the High Court or the Upper Tribunal can provide at a judicial review hearing: - a **declaration**– this is a statement made by a High Court judge which clarifies the law through stating the law as an order;- a **prohibitory order** – an order preventing a public body from acting beyond its powers in the future;- a **quashing order **– sets aside the decision of a public body on the basis that it is invalid ;- an** injunction** – this is sought as a form of interim relief during proceedings which essentially compel a party to act or prohibit them from acting;- a **mandatory order** – this is an order requiring the defendant to carry out a duty that it is obliged to do by law; or- **damages**– whilst there is no right in judicial review to claim damages for losses caused by an unlawful administrative action, it is possible to claim damages if there is another cause of action. If this established cause of action is separate to the grounds under which judicial review is sought, then damages may be a remedy the court will consider. Examples may include: breach of statutory duty, misfeasance in public office or private action in tort. ## Instruct Specialist HMRC Judicial Review Solicitors We have decades of experience in negotiating with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) and [managing appeals](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) against their decisions at all levels. Members of the team include qualified [Tax Solicitors](https://taxdisputes.co.uk/tax-solicitors/) and [Tax Barristers](https://taxdisputes.co.uk/tax-barristers/) whom have vast experience of tax laws and first hand commercial, litigation and advocacy experience including previously working at HMRC as senior Tax Counsel. --- # HMRC Assessments: Can I appeal to the Tax Tribunal out of time? Source: https://taxdisputes.co.uk/2020/10/hmrc-assessments-penalties-vat-appeal-to-first-tier-tax-tribunal-out-of-time-late-advice/ *[HM Revenue and Customs (HMRC) ](https://www.gov.uk/government/organisations/hm-revenue-customs)have actively sought to clamp down on tax evasion or avoidance and increasingly more individuals and businesses are subject to HMRC tax penalties. It is vital that any taxpayer (individuals and businesses) deal with tax issues as soon as they occur to prevent their appeal from being time-barred and to minimise the accrual of penalty fees. * *[Our London Tax Solicitors and Barristers](https://taxdisputes.co.uk/expert-advice/) have vast experience of tax laws and first hand commercial, litigation and advocacy experience. We have a proven track record of successfully contesting disputed tax assessments and penalties with HMRC. The tax authorities have lost many cases that are appealed through negotiation, internal review or through the Tax Tribunal.* Our team of expert [Tax Solicitors and Barristers ](https://taxdisputes.co.uk/)provide our clients with advice in relation to: - appealing against a tax assessment;- appealing against a tax penalty;- submitting a [tax appeal](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/) even after the 30-day time limit;- negotiating with HMRC;- navigating the [HMRC internal review process](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/); and- advising on statutory tax appeals within the Tax Tribunal. ## Does the Tax Tribunal allow appeals made after 30 days? The First Tier Tribunal have the judicial discretion to permit tax appeals made out of time to proceed. The time limit to bring a VAT appeal to the FTT in 30 days and a late appeal will only be permitted in exceptional circumstances. ## When does the 30-day period to submit a tax appeal start to run? The time limit for bringing an appeal to the FTT commences from the date of the document notifying the appellant of the decision, or where someone else is the appellant, the date on which that person becomes aware of the tax decision (VATA 1994, s. 83G(1)(a)).   ## When will the First-tier Tax Tribunal (FTT) allow a late appeal? A late appeal can be made if the FTT grant permission (VATA 1994, s. 83G(6)). However, case law suggests that permission will only be granted in exceptional circumstances and permission will not be granted unless the FTT is satisfied on balance that it should be allowed using a discretionary balancing exercise (Wan (t/a Wan’s Chinese Takeaway) [1997] BVC 2,364). Factors the FTT take into account in allowing a late appeal: ### 1.      The length of the delay in making an appeal If the delay is very short, then the FTT may consider the breach to be neither “serious nor significant”; however, this is not a carte blanche to allow all short delays to be granted, the following two stages will be considered by the FTT. If the delay is too long, then the FTT may dismiss any application for an extension of time for appeal. For example the FTT dismissed an appeal made 3 years after the expiry of the 30-day limit (Meah (t/a Raj Dharbar Takeaway) [2014] TC 03829).    ### 2.      What was the reason for the delay? The FTT will assess whether there is a reasonable excuse for the delay, for example, where the appellant was not aware that there were grounds for an appeal or before legal advice has been sought.   ### 3. Was the delay caused by the actions of HMRC? Many appellants assume that by entering into correspondence with HMRC over the disputed tax liability stops the clock running and submits reasons why the debt is disputed. This does not constitute an appeal and does not stop the clock running. If HMRC fail to respond to the taxpayer or fail to notify the taxpayer that correspondence does not constitute an appeal, may be grounds the FTT takes into account in granting permission for an out of time appeal. ### 4.      Once the taxpayer is aware of an appeal, did the appeal progress expeditiously? It is important to progress an out of time appeal as soon as you become aware of it. Every day that is delayed will need to be explained to the FTT. Therefore it is imperative to seek legal advice as soon as possible. ### 5.      Will there be prejudice to the taxpayer or to HMRC is allowed or refused? The FTT will take into account all circumstances of the case and will assess whether a late appeal will prejudice HMRC in any way. ### 6.      Are there public interests considerations if an out of time appeal is allowed or refused? The FTT might consider a delay of years might be consideration to denying an appeal as it is not in the public interest to allow litigation over a long period of time. The FTT might not allow permission if it affects other proceedings.  Another consideration is whether the length of time has affected the credibility of the evidence available. ## Examples of late appeals allowed by the Tax Tribunal - HMRC decision letter was “on a balance of probabilities” not received by the taxpayers’ accountants and an out of time appeal was allowed (North Berwick Golf Club [2015] TC 04289).- Where it was found that a financial adviser had misled a taxpayer client.- A late appeal was not permitted when the appeal was sought around 8 years later (Balston [2015] TC 046662).- A taxpayer was unsuccessful in the attempt to appeal late when his bankruptcy was annulled (Farrington [2015] TC 04661). ## Expert London HMRC Tax Appeal Lawyers If you need [HMRC Tax Disputes advice](https://taxdisputes.co.uk/second-opinion/), we are available to aid you at every stage of the HMRC appeals process. Members of [our legal team](https://taxdisputes.co.uk/contact-us/) have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the [HMRC internal review](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/) process and in front of the [Tax Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/). Our team specialises in successfully challenging HMRC decisions, submitting out of time appeals, and will assist you in every aspect including developing a strategy. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk). --- # Taxpayer’s appeal against HMRC’s VAT misdeclaration penalty allowed Source: https://taxdisputes.co.uk/2020/10/taxpayers-appeal-against-hmrcs-vat-misdeclaration-penalty-allowed/ *Upper Tier Tax Tribunal allows taxpayer's further appeal against HMRC's penalty for misdeclaration in VAT returns on grounds of breach of ECHR.* The case of [Dhalomal Kishore v HMRC](https://taxdisputes.co.uk/wp-content/uploads/2020/10/Dhalomal_Kishore_v_HMRC.pdf) before the [Upper Tax Tribunal ](https://www.gov.uk/courts-tribunals/upper-tribunal-tax-and-chancery-chamber)concerned the decision of the [First Tier Tax Tribunal ](https://www.gov.uk/courts-tribunals/first-tier-tribunal-tax)which upheld penalties for misdeclaration imposed by HMRC under [section 63 of the VAT Act 1994](https://www.legislation.gov.uk/ukpga/1994/23/section/63). The taxpayer, Dhalomal Kishore claimed input tax in his quarterly returns for VAT periods 03/06 and 06/06 totalling £22,392,775.10. HMRC denied his claims for input tax on the grounds that there were transactions in the supply chain connected to VAT evasion and Mr Kishore knew or ought to have known the same. Mr Kishore made a *Kittel *appeal against HMRC's refusal to allow the input tax. The FTT struck out the appeal because the taxpayer failed to comply with an unless order in the appeal. The taxpayer made an appeal to the [Upper Tax Tribunal](https://www.gov.uk/tax-upper-tribunal/how-to-appeal) on the following grounds: - The taxpayer should be given the chance to satisfy HMRC that there was a  reasonable excuse  for the misdeclaration; - If the taxpayer was successful on ground 1 then no liability to  a  penalty  accrued  prior  to  the  repeal  of  section  63 on 31  March  2008;- HMRC's  penalty assessment was out of time;- HMRC had no right to set­off a repayment made to the taxpayer in  respect  of  input tax  against  the  penalty assessment;- The  penalty  violated Article  6  of the European  Convention on Human Rights (ECHR); and - The First Tier Tax Tribunal was wrong to strike out the  penalty appeal.  The Upper Tax Tribunal dismissed grounds 1 to 4 but allowed the appeal on grounds 5 and 6. The UTT considered the appellant's contention that he was facing a criminal penalty being but was denied the opportunity to defend it because the question of reasonable excuse is deemed to have been disposed of as a result of the strike out of his Kittel appeal. The UTT found that the First Tier Tax Tribunal was wrong to strike out the taxpayer's penalty Kittel appeal due to the fact he ran out of funds in order to obtain proper legal representation. ## What is a misdeclaration penalty? HMRC can issue a misdeclaration penalty or inaccuracy penalty for large errors in VAT returns. HMRC may begin a compliance check or decide they have enough information to impose a penalty for inaccuracies which include an under declaration, an increased repayment or failure to submit a return when HMRC assess the tax due. The rate of penalty if 15% of the amount of the misdeclaration and this can be reduced upon appeal to HMRC and they decided there are mitigating factors. HMRC have issued[ guidance on misdeclaration penalties here](https://www.gov.uk/guidance/misdeclaration-and-repeat-misdeclaration-penalties-for-vat-notice-70042#detail). ## HMRC's ability to impose misdeclaration penalty in absence of reasonable excuse This case shows the Tribunal will not impose a precondition that a taxpayer should have an opportunity to show a reasonable excuse for an error in a VAT return before HMRC can issue a misdeclaration penalty. Whilst a taxpayer can appeal and show a reasonable excuse, liability will accrue from the date of misdeclaration. Read the full judgment for [*Dhalomal Kishore v HMRC* [2020] UKUT 0233 (TCC)](https://taxdisputes.co.uk/wp-content/uploads/2020/10/Dhalomal_Kishore_v_HMRC.pdf). ## How do I appeal a misdeclaration penalty? If a taxpayer disagrees with HMRC, the taxpayer has the following options: **Stage 1**: **Request a HMRC review**: A taxpayer can appeal in writing within 30 days of HMRC’s notice of their decision. HMRC can offer an internal review of the disputed decision (or the taxpayer can request this procedure at any time). The review is an entirely internal procedure completed not by the original HMRC decision maker but by a different HMRC officer. **Stage 2**: **Appeal to the Tax Tribunal**: A taxpayer can [appeal to the First Tier Tax Tribunal](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) if the taxpayer cannot agree their position following the review. The independent tribunal will make a determination on the case. A further appeal is permitted if a taxpayer does not agree with the decision. There are strict time limits for appealing to the Tax Tribunal and you should seek legal advice as soon as possible. ## How do I appeal a First Tier Tax Tribunal decision? Any appeals against HMRC's decisions must first be made to the First Tier Tax Tribunal. Upon receipt of the outcome, if you do not agree with the decision of the First Tier Tax Tribunal, you can [appeal to the Upper Tier Tax Tribunal ](https://www.gov.uk/tax-upper-tribunal)however you must obtain permission from the First Tier Tax Tribunal. If you do not receive permission, you will need to request permission from the Upper Tier Tax Tribunal. There are strict time limits for submitting an appeal, usually 56 days from the date of the Tribunal decision. If you do not have permission, then you must seek permission within 30 days of the refusal letter. ## Expert London HMRC Penalty Disputes Lawyers If you need HMRC Penalty Dispute advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. --- # HMRC to gain further powers to gather information from third parties Source: https://taxdisputes.co.uk/2020/10/hmrc-to-gain-further-powers-to-gather-information-from-third-parties/ *HMRC's civil information powers to be extended as a result of the [Finance Bill 20/21](https://www.gov.uk/government/collections/finance-bill-2020-21) to include removing the need for taxpayer's permission when requesting information from third party financial institutions. * ## What is an information notice? [Schedule 36 of the Finance Act 2008](https://www.legislation.gov.uk/ukpga/2008/9/schedule/36) allows HMRC to issue a formal notice containing a request for information from the taxpayer during the course of an investigation. This may be a request for bank statements, copies of loan agreements, sale and purchase agreements or any other information required by HMRC to investigate and assess a taxpayer's position. ## What is a third party information notice? Pursuant to paragraph 3 of [Schedule 36 of the Finance Act 2008](https://www.legislation.gov.uk/ukpga/2008/9/schedule/36), HMRC has the power to issue an information notice to a third party such as a bank or other financial institution, requiring them to disclose certain documents or information relating to a taxpayer. The information should be 'reasonably required for checking the tax position' of the taxpayer. HMRC may need to issue a third party information where they cannot obtain the information from the taxpayer or they need to independently obtain this. It is important to note that HMRC must seek consent of either the taxpayer or approval from the First Tier Tax Tribunal prior to issuing a third party notice. HMRC has published [guidance on third party notices here](https://www.gov.uk/hmrc-internal-manuals/compliance-handbook/ch23600). ## HMRC's increased powers to issue information notices The draft legislation, [Finance Bill 2020/21](https://www.gov.uk/government/collections/finance-bill-2020-21) intends to [amend HMRC's civil information powers, ](https://www.gov.uk/government/publications/amendments-to-hmrcs-civil-information-powers/amendments-to-hmrcs-civil-information-powers#further-advice)allowing the revenue to issue 'Financial Institution Notices', without having to obtain consent from the taxpayer or approval from the Tax Tribunal. It is anticipated that removing the requirement for approval will help to speed up HMRC's processes in gathering information. ## Failure to comply with information notice A third party can appeal an information notice if it is unduly onerous to comply with the notice unless the notice requires the third party to produce its statutory records. If a taxpayer or third party fails to comply with the notice, HMRC can issue a penalty assessment. ## Expert London HMRC Penalty Disputes Lawyers If you need HMRC Penalty Dispute advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. --- # Sports Direct in hot water over alleged VAT evasion Source: https://taxdisputes.co.uk/2021/06/sports-direct-in-hot-water-over-vat-evasion/ *[Sports Direct](https://www.sportsdirect.com/) has been contacted by the European Union Tax Authority, in a VAT matter which could result in a controversial settlement between founders Mike Ashley and John Ashley. * *Our London Tax Solicitors and Barristers have vast experience of tax laws and first hand commercial, litigation and advocacy experience. We have a proven track record of successfully contesting disputed tax assessments and penalties with HMRC. The tax authorities have lost many cases that are appealed through negotiation, internal review or through the Tax Tribunal.* ## Under-declared VAT from Sports Direct Documents filed at the [High Court](https://www.judiciary.uk/you-and-the-judiciary/going-to-court/high-court/) have revealed that [Frasers Group](https://www.frasersgroupplc.com/) formerly named [Sports Direct](https://www.sportsdirect.com/) came under fire in Ireland, France, and Finland, over arrangements that involved [VAT ](https://www.gov.uk/vat-rates)in the UK on all sales to customers that [VAT ](https://www.gov.uk/vat-rates)was not applicable for a seven-year period. The arrangement involved setting up a separate company called [Barlin Delivery](https://www.sportsdirect.com/obsoletecspages/barlindeliverytermsandconditions). Which had no external resources such as drivers or trucks but rather John Ashley to deliver orders abroad. ## Sports Direct's comments The [Fraser Group](https://www.frasersgroupplc.com/) have gone on to say *"As we have repeatedly stressed, the group is adopting a fully cooperative approach with [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)and that the VAT was paid in the correct place"* as well as *“That process is not yet complete – progress has been slowed by the ongoing pandemic – but we hope and expect that it will be completed soon.”* Furthermore the [Fraser Group](https://www.frasersgroupplc.com/) said it set up Barlin to reduce administrative complexity as it expanded in the EU and not as a way of reducing VAT. It strongly denied it was involved in any sort of tax avoidance or minimisation scheme. ## The Rules [VAT ](https://www.gov.uk/vat-rates)should be applied on cross-border purchases delivered “by or on behalf of” a retailer should be paid to the tax authority in the country where the buyer lives. In other words, if the retailer arranges transport, the sale is regarded to have taken place in the buyer’s country of residence. However, if the buyer arranges collection from the UK, the sale is deemed to have taken place in the UK. Such arrangements fall into the remit of [Article 33 of the Principal VAT Directive](https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:32006L0112). ## Expert London VAT Tax Appeal Lawyers If you need VAT [ Tax Disputes advice](https://taxdisputes.co.uk/second-opinion/), we are available to aid you at every stage of the VAT appeals process. Members of [our legal team](https://taxdisputes.co.uk/contact-us/) have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the [VAT review](https://taxdisputes.co.uk/2021/01/vat-fraud-tribunal-rules-both-company-and-director-liable-for-hmrc-costs-appeal-advice/) process and in front of the [Tax Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/). Our team specialises in successfully challenging TAX decisions, submitting out of time appeals, and will assist you in every aspect including developing a strategy. --- # Kopparberg claims damages from HMRC in the High Court for “tax discrimination” Source: https://taxdisputes.co.uk/2021/08/kopparberg-claims-damages-from-hmrc-in-the-high-court-for-tax-discrimination/ *Swedish drinks maker [Kopparberg](https://kopparberg.co.uk/) has launched a High Court claim against the UK government accusing it of giving an unfair advantage to UK- based drinks producers through tax law loopholes.* *Kopparberg argues that the UK applied excessive duties on imported alcoholic ciders by allowing domestic producers to dilute their products to avoid taxes.* *Our [London Tax Solicitors and Barristers](https://taxdisputes.co.uk/) have vast experience of tax laws and first hand commercial, litigation and advocacy experience. We have a proven track record of successfully contesting disputed tax assessments and penalties with HMRC. The tax authorities have lost many cases that are appealed through negotiation, internal review or through the Tax Tribunal.* ## Why are Kopparberg seeking damages? In simple terms, the claim brought by the company Kopparberg which imports ciders of different flavours from their brewery in Sweden, alleges that the UK government was aware of the tax loophole which benefited the UK- based drinks makers. Therefore Kopparberg are alleging that the UK government were knowingly allowing unlawful tax discrimination which resulted in a reduction of the company’s profits. The tax loophole that Kopparberg is referring to is called the ‘[post duty point dilution](https://www.gov.uk/government/publications/post-duty-point-dilution-for-wine-and-made-wine/post-duty-point-dilution-for-wine-and-made-wine)’ (PDPD). This loophole allows UK-based makers of ciders and wines to pay duty on high-strength imported wine concentrates and eventually dilute them in UK-based factories and hence, avoiding a significant amount of duty paid on the imports of the finished products. In the documents that Kopparberg lodged at the High Court, it argued on the practice of [PDPD](https://www.gov.uk/government/publications/post-duty-point-dilution-for-wine-and-made-wine/post-duty-point-dilution-for-wine-and-made-wine) has given an “unfair and unlawful” benefit to UK- based manufacturers since the loophole breached EU state aid rules that require all companies to be treated equally. ## Will there be more cases similar to Kopparberg in the future ? According to some experts in the industry, if Kopparberg wins against the HMRC, it could lead to multimillion-pound claims from other importers of such beverages in finished product form and this includes leading supermarket chains, to seek damages for unfair treatment. When it comes to the practice of [PDPD](https://www.gov.uk/government/publications/post-duty-point-dilution-for-wine-and-made-wine/post-duty-point-dilution-for-wine-and-made-wine), it was banned for beer in 1993 and for pure cider in 2001 but was allowed by HMRC to continue for mixed products such as ciders with different flavours as they are legally known as ‘made-wines’ for tax purposes In 2017 the HMRC was warned by the European commission in regards to the loophole as the practice infringed EU state aid rules. According to Kopparberg, the UK’s failure to close the loophole for ‘made-wines’. despite banning it for both beer and pure cider is an “obvious and inexcusable” breach of EU law. ## We represent you in disputes with HMRC If you need [HMRC Tax Disputes advice](https://taxdisputes.co.uk/legal-representation/), we are available to aid you at every stage of the HMRC appeals process. Members of our legal team have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the HMRC internal review process and in front of the Tax Tribunal. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect including developing a strategy. ## How we can help you Our team is made of highly experienced and tough negotiators that will fight to get the best results for our clients. We have years of experience of negotiating with HMRC and providing representation to companies where multi-million pound sums are in dispute to smaller matters with equally large consequences for the person involved. ## Not based in London? We provide nationwide representation That does not matter, we will represent you no matter where you are based in England or Wales. If you contact us through our contact form, by email or by phone, one of our tax team members will contact you by phone to discuss your matter and assess whether we can help you. If we can, we will arrange a conference with a senior member(s) of our tax team. This meeting will take place either in person or using our telephone conference facilities or via Skype if you prefer. Therefore, no matter where you are based in England or Wales we can represent you. ## Expert Tax Disputes Lawyers If you need [HMRC Penalty Dispute advice](https://taxdisputes.co.uk/legal-representation/), we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. --- # New HMRC Task Force to tackle COVID related fraud Source: https://taxdisputes.co.uk/2021/05/new-hmrc-task-force-to-tackle-covid-related-fraud/ *In March 2021, government plans for a Taxpayers Protection Taskforce were announced. Over 1,250 [HMRC Officials](https://www.gov.uk/government/organisations/hm-revenue-customs) will oversee and be responsible for investigating and prosecuting individuals who may have misused or abused the government assistance schemes introduced during the pandemic. Such schemes include the Job Retention Scheme ([the Furlough Scheme](https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme)), [the Self Employment Income Support Scheme](https://www.gov.uk/guidance/claim-a-grant-through-the-coronavirus-covid-19-self-employment-income-support-scheme) and the [Bounce Back Loan Scheme](https://www.gov.uk/guidance/apply-for-a-coronavirus-bounce-back-loan) (withdrawn on 1st of April 2021). * ## How will HMRC's Taxpayer Protection Taskforce operate? The new Taskforce will be actively working alongside other measures to tackle fraudulent activity, including a campaign to highlight enforcement methods in order to deter fraudulent and criminal behaviour. In addition, examining claims from whistleblowers officials would be prompted to sift through [PAYE ](https://www.gov.uk/paye-online)records, tax returns and other relevant documents in order to establish unlawful means of generated income. To capture taxpayers who have fraudulently utilised the [Bounce Back Loan Scheme](https://www.gov.uk/guidance/apply-for-a-coronavirus-bounce-back-loan), the [Government](https://www.gov.uk/) will build on guidance issued to lenders leading to the scheme being withdrawn from 1st April 2021. This guidance has already stopped more than 42,000 fraudulent loans from being granted. ## How serious is Covid-19 related fraud? Throughout the pandemic, the Government have tried to help individuals and businesses recover from hardships and will now take fraudulent claims very seriously. HMRC are able to issue assessments and penalties and take criminal action. Cases caught have included an arrest for furlough fraud in the amount of £70,000 and it is estimated that hMRC have collected over £2 billion to date from fraudulent taxpayers. This has been greatly publicised as a result of their actions and heavy penalties have been produced. There will be more oversight by the taskforce over professions such as [tax advisers](https://professionalnegligenceclaimsolicitors.co.uk/bad-hmrc-finance-advice-sue-advisor/), [architects](https://professionalnegligenceclaimsolicitors.co.uk/riba-property-expert-no-win-no-fee-advice-claims/), [surveyors](https://professionalnegligenceclaimsolicitors.co.uk/rics-property-surveyor-expert-valuer-compensation/) and [legal professionals](https://professionalnegligenceclaimsolicitors.co.uk/sue-negligent-solicitor-law-firm/), and others who deal with client monies who can intentionally or inadvertently get entangled in fraud. ## What is a compliance check or tax investigation? A compliance check is an enquiry conducted by HMRC into the tax affairs and tax payment history of any UK individual, employee, director or company. A HMRC tax investigation can come in many forms and covers a range of taxes covered under HMRC jurisdiction such as: VAT; income tax; corporation tax and capital gains tax and in this case with [tax support payments](https://www.gov.uk/coronavirus/business-support) granted to businesses as a result of the [coronavirus pandemic](https://www.gov.uk/coronavirus/business-support) e.g. the Coronavirus Job Retention Scheme ("CJRS") also referred to as furlough scheme. ## How HMRC does carry out a compliance check? The type and severity of the investigation is completely dependent on the facts of any individual case. Typically, an investigation generally commences when HMRC notice irregularities in information supplied via a Self Assessment Tax return. A taxpayer will receive a letter from HMRC informing  them that an investigation has been opened into their tax affairs and may include a request for information. Businesses will have 60 days to respond to HMRC's letter opening a compliance check and provide HMRC with any requested information. Failure to provide the requested information or correct information may result in HMRC issuing a penalty notice. It is strongly recommended that you consult a tax lawyer as soon as possible to receive detailed advice on how to take control of the situation and negotiate with HMRC. ## What is voluntary disclosure? HMRC campaigns encourage taxpayers that have undeclared income to voluntarily disclose their undeclared earnings or additional income*. *In return, HMRC will usually be more lenient when it comes to potential penalties on those who come forward and voluntarily disclose their financial information. It is important to cooperate with HMRC as much as possible during a compliance check and seek legal advice at the outset to understand your position as it may be advisable or necessary to give a voluntary disclosure to HMRC. ## My adviser negligently handled my COVID-19 tax claim Tax advisers and accountants are often instructed to manage a taxpayer's tax affairs and prepare and submit returns on their behalf, they may have also been instructed to prepare any furlough claims or applications for bounce back loans. The burden of proof remains on HMRC to show deliberate behaviour but where actions have been delegated to a tax adviser or accountant, to show their conduct was also deliberate. Whilst there may not be a third party defence in an[ appeal ](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/)against a tax assessment or penalty, if your tax agent, [accountant](https://professionalnegligenceclaimsolicitors.co.uk/compensation-negligent-accountants-financial-tax-advisors/) or [tax adviser](https://professionalnegligenceclaimsolicitors.co.uk/bad-hmrc-finance-advice-sue-advisor/) has failed to carry out your instructions i.e. file a tax return, prepared incorrect calculations, you may have a valid complaint or potential negligence claim against the individual or company. Our [professional negligence team](https://professionalnegligenceclaimsolicitors.co.uk/contact-us-london/) can assist and advise you on the suitable course of action. ## Expert London HMRC Tax Investigations If you need HMRC Tax Investigation advice, we are available to aid you at every stage of the HMRC investigation process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, Code of Practice 8 (COP 8) investigations, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email contact@lexlaw.co.uk. --- # Update: Coronavirus Job Retention Scheme Source: https://taxdisputes.co.uk/2021/01/update-coronavirus-job-retention-scheme/ *The government has updated its guidance on the Coronavirus Job Retention Scheme ("**CJRS**") with UK currently going through its third lockdown. Current Government guidance is available on their [website](https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses).* *[Our London Tax Solicitors and Barristers](https://taxdisputes.co.uk/expert-advice/) have vast experience of tax laws and first hand commercial, litigation and advocacy experience. We have a proven track record of successfully contesting disputed tax assessments and penalties with HMRC. The tax authorities have lost many cases that are appealed through negotiation, internal review or through the Tax Tribunal.* ## What are the main changes? #### Caring Responsibilities The government has updated the CJRS guidance to state that employers can furlough employees who have caring responsibilities including caring for children who are at home as a result of school and childcare facilities closing and caring for vulnerable individuals in their household. #### Deadlines and publishing claims [Monthly deadlines for claims](https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/947842/Coronavirus_Job_Retention_Scheme_-_key_dates.pdf) must be now met unless an employer has a ‘[reasonable excuse](https://www.gov.uk/guidance/claim-for-wages-through-the-coronavirus-job-retention-scheme)’ for a late claim; the next deadline is **15 February 2021**. In addition to the above, HMRC intends to publish a list of the names of employers who have claimed under the scheme since 1 December 2020 on **26 January 2021**, and from February HMRC will publish employer names, company numbers and the band of claim value every month. Any applications by employers who wish to be excluded from publication the procedure for doing so has now been added to the [guidance](https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme) and must be made as soon as possible. HMRC will not publish details of employers if they can show that publicising these would result in a serious risk of violence or intimidation to certain relevant individuals, or any individual living with them. For more information see this [link](https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme#employer-claim-information-that-hmrc-will-make-public). ## What is the Coronavirus Job Retention Scheme? The legal framework for the Scheme was set out in a [Treasury Direction on 15 April](https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/879484/200414_CJRS_DIRECTION_-_33_FINAL_Signed.pdf), a legally-binding order from the Treasury to HMRC. The purpose of the Scheme is to reimburse employers for the cost of furloughing employees “*arising from the health, social and economic emergency in the United Kingdom resulting from coronavirus and coronavirus disease*.” HMRC guidance on the Scheme has been expanded and republished a number of times since it was first launched: - The original scheme introduced in March 2020;- The flexible CJRS, which came into force on 1 July 2020; and- the extended CJRS which took effect on 1 November 2020 and which is due to end on 30 April 2021. ## What does 'furlough' mean? Furlough basically means temporary leave of absence. The purpose of the CJRS is to ensure that employees are not made redundant and to incentivise employers to retain employees on *paid* temporary leave. The Government has been subsidising the earnings of furloughed employees under the CJRS (initially up to 80% of earnings, capped at £2,500 per month per employee) and these monies are not repayable. ## How do you make a claim? HMRC have helpfully laid out a step-by-step guidance below: #### Step One: Check you can claim Find out if you’re [eligible and how much you can claim ](https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme)to cover wages for employees on temporary leave (‘furlough’) due to coronavirus (COVID-19). #### Step Two: Decide who will claim You can make your own claim, or ask your agent to act on your behalf. You (or your agent) will need to be registered for PAYE online to make a claim. #### Step 3: Get ready to make your claim To make your claim you’ll need to give information about your business and employees, including: - employer UK, Isle of Man, or Channel Island bank account number and sort code- employer PAYE scheme reference number- number of employees being furloughed- National Insurance number for each employee- start and end date of the claim- Corporation Tax unique taxpayer reference, Self Assessment unique taxpayer reference ([find your UTR if you don’t know it](https://www.gov.uk/find-lost-utr-number)), or company registration number. If you don’t have any of these, you can enter your Employer Name instead. You should include all of the employees you want to furlough for that claim period. You won’t be able to make another claim for the same period and claim periods cannot overlap. #### Step 4: Calculate your claim For the majority of employers with full-time or part-time employees on a set salary, you’ll need to work out the total amount being paid to furloughed employees. Please read the [guidance on steps](https://www.gov.uk/guidance/steps-to-take-before-calculating-your-claim-using-the-coronavirus-job-retention-scheme) to take before calculating your claim for furloughed and flexibly furloughed employees. This gives examples to show how to calculate a claim, and a [calculator](https://www.gov.uk/government/publications/download-a-template-if-youre-claiming-for-100-or-more-employees-through-the-coronavirus-job-retention-scheme) that can work out most fixed or variable pay calculations. It’s your responsibility to check that the amount you’re claiming for is correct, even if you use a calculator. #### Step 5: Make your claim Make sure you have your Government Gateway user ID and password that you received when you registered for PAYE online. If you’re claiming for 100 or more furloughed employees, please use our template to upload your employees’ details to help you make sure your data is right. You need to make sure you use the right format when entering the details on the template, or it may be automatically rejected when you submit it – [read the guidance on using a template to claim for 100 or more employees](https://www.gov.uk/government/publications/download-a-template-if-youre-claiming-for-100-or-more-employees-through-the-coronavirus-job-retention-scheme). Please only provide the information requested. If you provide less or more information you may be asked to submit it again, or risk delaying your payment. You can save and return at any point during your claim. So if you don’t have all the information you need to complete a claim first time, or you want to take a break during a claim, you can save it and come back later. Also, you can delete a claim within 72 hours of starting it. Remember claims have monthly deadlines and they must be submitted within 14 calendar days of the month they relate to, unless this falls on a weekend and then it is the next working day. [Use our online service to make a claim](https://www.gov.uk/guidance/claim-for-wages-through-the-coronavirus-job-retention-scheme) #### Step 6: After you’ve claimed A claim reference number will be shown on screen once you’ve submitted your claim. Please print or note down the reference number, as you won’t get an email confirmation. If you’re using an agent, ask them to note down the claim reference number and share the calculations that form the basis for your claim. To make sure employees’ wages are correctly reported to HMRC, please check if you need to report payments on the PAYE Real Time Information system. Read the [guidance on reporting employees wages to HMRC when you’ve claimed through the Coronavirus Job Retention Scheme](https://www.gov.uk/guidance/reporting-payments-in-paye-real-time-information-from-the-coronavirus-job-retention-scheme). HMRC will verify your claim and may need to contact you for further information. You will receive the grant in six working days. If you have not claimed enough support, you have 28 days after the end of each month to contact HMRC and adjust your claim (if this falls on a weekend or a bank holiday, it would then be the next working day). #### Step 7: Making additional claims For your next claim period please return to Step 3, but remember your claim periods cannot overlap. Please also check your calculations every time you make a new claim, in case any details have changed. You will only be able to increase the amount of your claim if you amend it within 28 calendar days after the month the claim relates to (if this falls on a weekend or a bank holiday, it would then be the next working day). ## Expert London Tax Investigation Lawyers If you need HMRC Tax Investigation advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist[ Tax Solicitors](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. --- # A Taxpayer v HMRC: an ‘exceptional’ decision by the First Tier Tribunal Source: https://taxdisputes.co.uk/2022/09/a-taxpayer-v-hmrc-an-exceptional-decision-by-the-first-tier-tribunal/ *In the recent case of [A Taxpayer v HMRC [2022] UKFTT 133 (TC)](https://www.bailii.org/uk/cases/UKFTT/TC/2022/133.html), the First Tier Tribunal held that despite exceeding the permitted days, a taxpayer was non-UK resident owing to 'exceptional circumstances'. * *Our [Taxation practice](http://taxdisputes.co.uk/) is at the core of the firm.* *Got a dispute with HMRC?* *Our tax team is made up of specialist [tax lawyers](http://taxdisputes.co.uk/expert-advice/) who can assist you to resolve your tax dispute. Our ex-HMRC lawyers will guide you on complex tax legislation to get you the best possible result.* *We have years of experience [negotiating with HMRC](http://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) and handling tax appeals at the [Tax Tribunals](http://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) and in the High Court dealing with contentious tax disputes.* ## Background of the case In the concerned case, the taxpayer was resident in the UK during the 2014/15 tax year, living with her husband and children in the UK.  She moved to Ireland in April 2015 wherein, she declared herself, on the self-assessment tax return as non-UK resident under the [Statutory Residence Test (SRT)](https://www.gov.uk/government/publications/rdr3-statutory-residence-test-srt/guidance-note-for-statutory-residence-test-srt-rdr3). In the 2015/16 tax year, she received £8 million in dividends paid on shares in a UK company that her husband had transferred to her during the 2014/15 tax year, on which over £3m of income tax would have been due had she remained UK resident.  Under the SRT rules, in the 2015/16 tax year, the taxpayer had to spend 45 or fewer days in the UK in order to be non-UK resident, but she in fact spent 50 days in the UK. However, the taxpayer argued that 6 of those days should be discounted under the 'exceptional circumstances' exemption contained in [paragraph 22(4), Schedule 45, Finance Act 2013](https://www.legislation.gov.uk/ukpga/2013/29/schedule/45), as she had visited the UK in December and February of that tax year in order to support her twin sister (a suicidal alcoholic) and her two young children.  HMRC was of the view that the additional days spent in the UK by the taxpayer did not satisfy the requirements of the 'exceptional circumstances' test and as a result the taxpayer was UK resident under the SRT rules. The taxpayer appealed to the First Tier Tribunal (FTT).  ## What constitutes as 'exceptional circumstances'? The provision contained in paragraph [22(4) Schedule 25 of the Finance Act 2013](https://www.legislation.gov.uk/ukpga/2013/29/schedule/45) provides that an individual’s day spent in the UK may be disregarded if the taxpayer would not be present in the UK at the end of the day but for exceptional circumstances beyond the taxpayer’s control that prevents the taxpayer from leaving the UK till the issue resolves. The FTT reviewed the terms of the exemption set out in legislation and noted that each limb must be satisfied: (1) the circumstances were exceptional; (2) the circumstances were beyond the taxpayer’s control; (3) the taxpayer would not be present in the UK at the end of that day but for those circumstances (i.e. those circumstances prevented the taxpayer from leaving the UK); and (4) the taxpayer intended to leave the UK as soon as those circumstances permitted. Generally, it is thought that circumstances that are not beyond the individual’s control or which could reasonably have been foreseen or predicted are not usually exceptional. The FTT therefore rejected HMRC’s submission that foreseeability is, of itself, a factor which excludes the application of the “exceptional circumstances” test. However, at[ paragraph 147 of the judgment](https://www.bailii.org/uk/cases/UKFTT/TC/2022/133.html) the FTT notes – *“There is no requirement in the statutory language for foreseeability or non-foreseeability to determine whether circumstances are “exceptional”. **Foreseeability is not the statutory test**. It is true that foreseeability may be an element of exceptionality, but it is not a determining factor which, of itself, excludes the application of the exemption”.* ## Judgement of the FTT The FTT allowed six days on which the taxpayer had been present in the UK at midnight to take care of her twin sister and her two children during the 2015-16 tax year to be ignored for the purposes of the SRT, with the result that the taxpayer was non-UK resident for that tax year under the sufficient ties test. The taxpayer’s evidence was accepted that she was the only person able to assist her twin sister at the time and was under a moral obligation to come to the UK to do so.    ## What does this case highlight? The case under discussion sheds light on what the tax tribunals and courts believe may constitute ‘exceptional circumstances’ for the purpose of STR. Although the FTT said that HMRC’s requirement of an itemized timeline for each day was not necessary, taxpayers seeking to rely on the 'exceptional circumstances' exemption should keep a contemporaneous record evidencing the circumstances which are considered to be exceptional. Furthermore, moral obligations including those associated with close family ties can qualify as exceptional circumstances. It was therefore the caring element for the taxpayer’s sister and for her minor children that seemed to sway the FTT that the taxpayer should be allowed to claim that certain days in the UK do not count because of exceptional circumstances. ## Why instruct our tax experts? Our[ team of solicitors and barristers](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) represent your interests at all times. We start off with a customized strategy for each client. We can provide you with the best representation in negotiations with[ HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) and defend all forms of [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)enquiries and investigations. Our [specialist Tax Solicitors and Barristers](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) deliver expert technical knowledge which ensures best results for our clients. We are based in legal epicentre of London, just across the road from the [Royal Courts of Justice](https://www.find-court-tribunal.service.gov.uk/courts/royal-courts-of-justice). If you think you have a case, get in touch with our [team of professional tax lawyers](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) who can assist you in understanding the merits of your claim and advise you in your best interest. We are in it with you, from start to finish and will manage the entire process on your behalf. --- # Construction Industry: Domestic Reverse Charge to apply from 1 March 2021 Source: https://taxdisputes.co.uk/2021/02/construction-industry-domestic-reverse-charge-to-apply-from-1-march-2021/ *The Domestic Reverse Charge was due to be introduced in October 2019 but was twice delayed due to Brexit and COVID-19 but will now come in force from 1 March 2021. The introduction of VAT reverse charge on the construction sector will change how businesses account for [VAT](https://taxdisputes.co.uk/hmrc-vat-investigations-evasion-input-ouput-double-taxation-tribunal-legal-advice/). Businesses may need to change the way they present information on their invoices to their customers and prepare their VAT returns.* *[Our London Tax Solicitors and Barristers](https://taxdisputes.co.uk/expert-advice/) have vast experience of tax laws and first hand commercial, litigation and advocacy experience. We have a proven track record of successfully contesting disputed tax assessments and penalties with HMRC. The tax authorities have lost many cases that are appealed through negotiation, internal review or through the Tax Tribunal.* ## What is the VAT reverse charge? Under the domestic reverse charge, the customer who receives the service will have to pay the VAT owed straight to [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) instead of paying the supplier. Therefore, if you are making payments for construction works and the new VAT charge regime applies, you are not required to pay VAT to the subcontractor; instead you pay the VAT to HMRC. On the other hand, if you are a subcontractor receiving payments, you may only receive the net of VAT amount, which will naturally affect your cash flow. ## Who does the VAT reverse charge apply to? From 1 March 2021 the domestic VAT reverse charge must be used for most supplies of building and construction services. The charge applies to standard and reduced-rate VAT services: - for individuals or businesses who are registered for VAT in the UK; and- reported within the Construction Industry Scheme (CIS). The reverse charge only applies if both parties are registered under the CIS; both parties are VAT registered and VAT is chargeable on the supply. ## When does it start? The change was originally scheduled to come into effect from 1 October 2019, however after concerns raised by the industry bodies and accounting specialists highlighted in relation to the lack of preparation and the impact on businesses; the change was delayed by 12 months The introduction of the domestic reverse charge for construction services has been further delayed by five months due to the impact of the COVID-19 pandemic on the construction sector, HMRC have announced. The changes to VAT will now apply from 1 March 2021. ## How do you prepare? In order to prepare for the VAT reserve charge, businesses will need to: - make sure your accounting systems and software can deal with the reverse charge;- consider whether the change will impact your cash flow; and- make sure all your staff who are responsible for VAT accounting are familiar with the reverse charge and how it will work. If the VAT reverse charge does not apply you should follow the [normal VAT rules](https://www.gov.uk/pay-vat).  ## When must you use the reverse charge? As listed in [HMRC's guidance page](https://www.gov.uk/guidance/vat-domestic-reverse-charge-for-building-and-construction-services), you must use the reverse charge for the following services: - constructing, altering, repairing, extending, demolishing or dismantling buildings or structures (whether permanent or not), including offshore installation services;- constructing, altering, repairing, extending, demolishing of any works forming, or planned to form, part of the land, including (in particular) walls, roadworks, power lines, electronic communications equipment, aircraft runways, railways, inland waterways, docks and harbours, pipelines, reservoirs, water mains, wells, sewers, industrial plant and installations for purposes of land drainage, coast protection or defence- installing heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems in any building or structure- internal cleaning of buildings and structures, so far as carried out in the course of their construction, alteration, repair, extension or restoration- painting or decorating the inside or the external surfaces of any building or structure- services which form an integral part of, or are part of the preparation or completion of the services described above - including site clearance, earth-moving, excavation, tunnelling and boring, laying of foundations, erection of scaffolding, site restoration, landscaping and the provision of roadways and other access works ## Does the domestic reverse charge apply to me? HMRC have prepared a flow chart (below) to help businesses decide whether to apply normal VAT rules or the domestic reverse charge. [![](https://taxdisputes.co.uk/wp-content/uploads/2020/10/image-1.png)](https://taxdisputes.co.uk/wp-content/uploads/2020/10/Annex_1_-_VAT_domestic_reverse_charge_for_building_and_construction_services.pdf) ## Are there any penalties for not implementing the reverse charge? In their guidance, HMRC have stated the following: > HMRC understands that implementing the reverse charge may cause some difficulties and will apply a light touch in dealing with any errors made in the first 6 months of the new legislation, as long as you are trying to comply with the new legislation and have acted in good faith. Any errors need be corrected as soon as possible… HMRC officers may assess for errors during the light touch period, but penalties will only be considered if you are deliberately taking advantage of the measure by not accounting for it correctly > > [HMRC Guidance](https://www.gov.uk/guidance/vat-domestic-reverse-charge-for-building-and-construction-services) ## Expert London HMRC Tax Appeal Lawyers If you need [HMRC Tax Disputes advice](https://taxdisputes.co.uk/second-opinion/), we are available to aid you at every stage of the HMRC appeals process. Members of [our legal team](https://taxdisputes.co.uk/contact-us/) have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the [HMRC internal review](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/) process and in front of the [Tax Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/). Our team specialises in successfully challenging HMRC decisions, submitting out of time appeals, and will assist you in every aspect including developing a strategy. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk). --- # HMRC Assessment for Underdeclared Turnover (eBay / Amazon) Source: https://taxdisputes.co.uk/2022/10/hmrc-estimated-turnover-through-ebay/ *Our[ team of solicitors and barristers](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) represent your interests at all times. We start off with a customised strategy for each client. We can provide you with the best representation in negotiations with HMRC and defend all forms of HMRC enquiries and investigations.* [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)can use its information gathering powers to obtain data directly from eBay (and other UK marketplaces such as Amazon) if it suspects a taxpayer failure to give true information in regards to the sales made through online market provider. ## How HMRC suspicions were raised The company Adspec Limited imported electronic tablets and accessories from China and sold them to the customers in the United Kingdom via Amazon, eBay and its own website. The company was solely owned by Adil Hussain. HMRC made an assessment of Adspec’s import figures by comparing them to the turnover which was reported on its CT returns and VAT. HMRC’s suspicions were confirmed when a huge number of sales not declared upon obtaining data from one of the company’s eBay account. This specific information about the products being advertised and the price points permitted HMRC to raise VAT evaluations and calculate the possible profit margins of the business. HMRC raised assessments and penalty notices in August 2016, covering the accounting periods ended 3 March 2014 to 31 March 2015 and VAT quarters 4 March 2013 to 31 December 2015. The central idea of all these assessments was that HMRC believed that the company had considerably undeclared its imported goods figure. In other words, this would consequently mean that sales had also been understated. HMRC then requested the company to provide their records covering the periods under review; the requested documents were not still not provided until the time of the hearing. Nonetheless, the tax stake totalled at £316,053 along with penalties which were £193,585. A Personal Liability Notice (PLNs) was also issued by the HMRC for the penalties to make them a personal liability for Mr. Adil Hussain. ## Taxpayer Appeal to the UK Tax Tribunal (FTT) Mr. Hussain then appealed to the first tier tribunal (FTT). The disputed matters are discussed below: - Whether trading profits and receipts had been omitted for the purposes of CT covering periods in question and whether this was done deliberately for penalty purposes.- Whether there were sales undeclared for the purposes of VAT covering periods in question and there was a deliberate omission.- Whether the company should have registered and accounted for VAT from 4 March 2013, instead of 1 January 2014 and also whether this attracts a penalty.- Whether Mr. Hussain was liable personally for the penalties of company through the PLNs. ## Tax Tribunal findings The FTT concluded that Mr. Hussain’s behaviour indicated that he had deliberately not provided the information which was requested by HMRC. HMRC only received a set of bank statements confirming amounts being paid in from PayPal. The FTT were not convinced when Hussain claimed this to be the sole business account. It was agreed between the FTT and HMRC that their evaluations represented reasonable estimates based on the limited third-party information that HMRC had acquired from eBay. ## Round sums It was also noted that bank statements were not sufficient as evidence in showing how much had actually been received into the PayPal account because Hussain only transferred round sum figures. They would still be net of fees, even if these represented the full amounts being available to transfer, making them more akin to profits than turnover. It would eventually affect the VAT position. It was impossible to confirm without supporting accounting records, whether the bank represented the full picture. Mr. Hussain argued that further third-party information should have been acquired by HMRC. However, it was confirmed by the FTT that the onus is on the taxpayer to support their own figures. ## Counter arguments Mr. Hussain highlighted that the information provided by the company was irrelevant to the matter. The FTT believed that Mr. Hussain was being reluctant to provide the requested information as that could have supported HMRC’s position. Hussain argued that there should have been a reduction in tax liabilities for postage costs and faulty goods by the HMRC. Again, the FTT was unconvinced as the lack of supporting documents meant that proving the VAT status of the supplier would not be possible, nor whether the faulty items were refunded. It was further pointed out my Hussain that additional imports do not prove that there had been additional sales but the FTT still found that unconvincing. As a final attempt, Hussain claimed [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) failed to provide any evidence of where the alleged additional funds had gone. Again, the FTT ruled that there is no such requirement for [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) to demonstrate such things as the surplus funds could simply remain in the PayPal account. ## Personal Liability Notice The loss of tax seemed to occur by deliberate behaviour attributable to an officer of the company. The PLNs were held to be valid as the FTT and HMRC suspected the company i.e., Adspec could become insolvent in near future. However, this was challenged by Hussain as he stated that HMRC had no reason to believe that the company would become insolvent. However, the FTT disagreed based on the magnitude of the assessments and the lack of engagement by Hussain. The appeal eventually got dismissed. ## Conclusion It was not clear whether Hussain willfully withheld company information or whether it was unintentionally caused by their mental health issues as claimed by them, the lack of documentation made it easy for HMRC to win. Our expert team of established Tax and Duties Specialist Solicitors and Barristers have first-hand experience and knowledge of the internal workings of HMRC. We have extensive experience in advising individuals, employees, directors and corporate clients in relation to serious tax investigations and prosecutions conducted by [Her Majesty’s Revenue and Customs (HMRC)](https://www.gov.uk/government/organisations/hm-revenue-customs). The way a taxpayer responds to HMRC enquiries and investigations can have a substantial bearing on any tax penalties imposed, even where errors are made innocently. Therefore, it is important to take professional legal advice early to minimise tax fines, mitigate tax exposure as far as possible and ensure a settlement is reached on favourable terms. If you require advice on any tax investigation against you, contact our London Tax Solicitors and Barristers for a confidential consultation. ## Why instruct our tax experts? Our[ team of solicitors and barristers](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) represent your interests at all times. We start off with a customized strategy for each client. We can provide you with the best representation in negotiations with[ HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) and defend all forms of [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)enquiries and investigations. Our [specialist Tax Solicitors and Barristers](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) deliver expert technical knowledge which ensures best results for our clients. We are based in legal epicentre of London, just across the road from the [Royal Courts of Justice](https://www.find-court-tribunal.service.gov.uk/courts/royal-courts-of-justice). If you think you have a case, get in touch with our [team of professional tax lawyers](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) who can assist you in understanding the merits of your claim and advise you in your best interest. We are in it with you, from start to finish and will manage the entire process on your behalf. --- # HMRC’s change in approach on tax avoidance: Means-based settlements Source: https://taxdisputes.co.uk/2021/05/hmrcs-change-in-approach-on-tax-avoidance-means-based-settlements/ *HMRC has and will investigate a taxpayer's affairs if it is discovered that they are part of a tax avoidance scheme. Many taxpayers have entered or been advised to enter such schemes which have subsequently failed resulting in large tax bills often requiring payment upfront. HMRC have reviewed the approach they are taking to taxpayers in such situations and are now considering "means-based" settlements. If you have received correspondence or a settlement offer from HMRC get in touch with our tax team. * HMRC have previously taken a firm approach to engaging with taxpayers who have been involved in tax avoidance arrangements where they have determined that the arrangements did not work. HMRC would require taxpayers to enter into a settlement for the full amount of tax together with the accrued interest, showing no leniency with the amount. This led to many taxpayers being shocked with a significant tax bill which was required to be paid in a lump sum or as soon as possible. HMRC was open to time to pay arrangements but these were limited. HMRC’s Counter Avoidance Directorate have recently advised us that HMRC recognises that due to the stance they took previously, many investors avoid entering into a dialogue with HMRC about the settlement of their tax avoidance arrangements. This is because they believe it is unlikely they would ever be able to meet the full tax and interest liability, even if a time to pay arrangement was agreed. To address this issue, HMRC is changing its stance in order to encourage more taxpayers to come forward and reach **"means-based"** settlements. ## Tax Avoidance Schemes Advice Code of Practice 8 investigations generally arise where HMRC suspect that artificial tax avoidance schemes have been used to underpay tax. HMRC defines tax avoidance as: > “[B]ending the rules of the tax system to gain a tax advantage that Parliament never intended. It often involves contrived, artificial transactions that serve little or no purpose other than to produce this advantage. It involves operating within the letter, but not the spirit, of the law.” > > *[HM Revenue and Customs (HMRC)](https://www.gov.uk/government/organisations/hm-revenue-customs)* Tax avoidance structures are used to minimise tax exposure and can be considered perfectly legal if a particular interpretation of tax legislation is applied. If the planning of a scheme has been challenged by HMRC, it is essential to consult [legal tax specialists](https://taxdisputes.co.uk/), because the adviser who promoted the scheme may lack the objective clarity to honestly review and defend the arrangement. ## How to identify a Tax Avoidance scheme HMRC offers the following guidance on the warning signs that you might be in a tax avoidance scheme: - **It sounds too good to be true: **Some schemes promise to lower your tax bill for little or no real cost. They will say you do not have to do much more than pay the scheme promoter and sign some papers.- **Pay in the form of loans: **Some [schemes designed for contractors ](https://www.gov.uk/guidance/contractor-tax-loan-schemes-can-cost-you-more)involve giving you some or all of your payment in the form of a loan that you’re not expected to pay back. It is diverted through a chain of companies, trusts or partnerships and you’ll be told this is to save you tax.- **Huge benefits: **The benefits of the scheme seem out of proportion to the money being generated or the cost of the scheme to you. The scheme promoter will claim there’s very little risk to your investment.- **Round in circles: **The scheme involves money going around in a circle back to where it started, or some similar artificial arrangement.- **HMRC has given it a [Scheme Reference Number (SRN)](https://www.gov.uk/government/publications/tax-avoidance-withdrawn-scheme-reference-numbers/tax-avoidance-withdrawn-scheme-reference-numbers): **This is where HMRC has identified the arrangement as having the hallmarks of tax avoidance and are investigating it. You will have been given an SRN by your promoter and will have included it on your tax return. Having an SRN does not mean that HMRC has ‘approved’ the scheme. HMRC does not approve any tax avoidance schemes.- **Schemes HMRC has concerns about: **You can find examples of [tax avoidance schemes HMRC is looking at closely](https://www.gov.uk/government/collections/tax-avoidance-schemes-currently-in-the-spotlight). Even if a scheme is not mentioned, it may still be challenged by HMRC. ## What will HMRC do if they discover you are part of a Tax Avoidance scheme? HMRC will investigate fully your tax affairs if it is discovered that you are part of a tax avoidance scheme. In addition, HMRC may also: - **Require upfront payment of the tax avoided: **You may receive a tax bill called an [accelerated payment notice](https://www.gov.uk/government/publications/ten-things-about-accelerated-payment-notices). This is a requirement to pay the full amount of tax HMRC calculates as being due, upfront and within 90 days.- **Take legal action**- **Treat you as a high-risk taxpayer: **HMRC will closely scrutinise all your tax affairs in future, not just your use of the avoidance scheme. If you are implicated in a tax avoidance scheme, it is imperative to seek legal advice early. The implications for tax avoidance are serious, potentially leading to a prison sentence. [Contact](https://taxdisputes.co.uk/) our dedicated team of London Tax Solicitors and Barristers today for urgent and confidential advice. ## Examples of Tax Avoidance Schemes [Specialist Tax Solicitors](https://taxdisputes.co.uk/) should be consulted as soon as you enter into or suspect that you are part of tax avoidance scheme or are being investigated by HMRC. Examples of schemes that have formed part of a COP 8 notice include: - **Pension Schemes:** – *Artificial Surplus:* Some pension schemes create an [artificial surplus](https://www.gov.uk/government/publications/pensions-schemes-artificial-surplus-spotlight-3/spotlight-3-pensions-schemes-artificial-surplus). The scheme purports to enable a member of a registered pension scheme to remove funds from the pension scheme tax free. This can be by artificially creating a funding surplus through the surrender of rights by a member. – *Employer Financed Retirement Benefits Scheme (EFRBS)*: this unapproved pensions scheme involves the establishment of an offshore trust whereby an employer transfers funds and trustees apply funds via sub-trusts to the benefit of the employees.  This ensures that retirement benefits in the form of tax exempt or low tax amounts in the form of a loan. - **Employee Benefit Trusts ([EBT](https://www.taxation.co.uk/articles/2016-04-05-334565-heads-i-win-tails-you-lose))**: These enable a person (trustee) to own an asset on behalf of another person (beneficiary) which minimises liability to pay National Insurance contributions and Income Tax. Employers pay into the trust which would then be distributed to employees in the form of tax free loans. Previously, those in EBT schemes could utilise the [Liechtenstein Disclosure Facility](https://www.gov.uk/government/publications/offshore-disclosure-facilites-liechtenstein) which allowed taxpayers to disclose hidden assets to HMRC. However, this voluntary disclosure facility has been closed for new registrations since December 2015. Instead, HMRC recommends using the EBT settlement opportunity.- **[Stamp Duty Avoidance Schemes](https://www.gov.uk/government/collections/tax-avoidance-schemes-currently-in-the-spotlight):** this is where property sale arrangements have been artificially structured to avoid paying the correct amount of SDLT. HMRC has repeadely stated that it will continue to challenge these schemes.  HMRC successfully challenged a Stamp Duty Land Tax (SDLT) avoidance scheme in the [First Tier Tax Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) in [Vardy Properties and Vardy Properties (Teesside) Limited [2012] UKFTT 564 (TC)](http://www.bailii.org/uk/cases/UKFTT/TC/2012/TC02242.html).- **Share Loss Relief Schemes:** these schemes reduce the amount of tax payable on earnings by creating capital losses.- **Inheritance Tax Schemes (IHT)**: to avoid inheritance tax some schemes exist to allow the homeowner to sell a property to a trust and leave the proceeds of the sale outstanding as a loan which would then be gifted to a second trust. - **[Contractor loan schemes.](https://www.gov.uk/guidance/contractor-loan-schemes-misleading-advertising-spotlight-42)**- **[Capital Gains Tax: Entrepreneurs’ Relief tax avoidance scheme.](https://www.gov.uk/guidance/capital-gains-tax-entrepreneurs-relief-tax-avoidance-scheme)**- **[Employee Bonus Schemes: Growth Securities Ownership Plan tax avoidance](https://www.gov.uk/government/publications/spotlight-28-employee-bonus-schemes-growth-securities-ownership-plan-and-other-avoidance-schemes-based-on-contracts-for-difference)**.- **[Gift Aid with no real gift.](https://www.gov.uk/government/publications/spotlight-20-gift-aid-with-no-real-gift-update)**- **[VAT: artificial leasing.](https://www.gov.uk/government/publications/spotlight-2-vat-artificial-leasing)** ## I have received an offer from HMRC to settle my tax liability Our specialist tax team can consider your case and assess the settlement offer and assist in discussions and negotiations with HMRC. We regularly liaise with HMRC in a wide range of cases and our specialist litigation lawyers can assist you to reach an optimal settlement. ## My accountant advised me on a tax avoidance scheme Our [Expert Tax Lawyers](https://taxdisputes.co.uk/expert-advice/) will assist clients in negotiating settlements with HMRC if a penalty is levied against them following a Code Of Practice 8 investigation. Our [team of Specialist Professional Negligence Lawyers](https://lexlaw.co.uk/practice-areas/professional-negligence-solicitors-london/) can assist in securing compensation for the penalties from any advisor who mis-sold or recommended the Tax Avoidance scheme to them in the first place. The following advisors owe a duty of care to provide honest advice about the risks and consequences of entering into a tax avoidance scheme: - **Conveyancing solicitors;**- **Accountants;**- **Tax advisors; and/or**- **Financial advisors.** A professional negligence claim may exist where any of the above advisors have breached their duty of care owed to you and you have suffered loss as a result of HMRC investigating a Tax avoidance scheme. ## Expert London HMRC Tax Investigations & Tax Avoidance Lawyers If you need HMRC Tax Investigation advice, we are available to aid you at every stage of the HMRC investigation process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, Code of Practice 8 (COP 8) investigations, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email contact@lexlaw.co.uk. --- # HMRC issues new guidance on disguised remuneration loans to a third party Source: https://taxdisputes.co.uk/2021/09/hmrc-issues-new-guidance-on-disguised-remuneration-loans-to-a-third-party/ *[HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) has issued [new guidance for taxpayers](https://www.gov.uk/government/publications/loan-schemes-and-the-loan-charge-an-overview/repaying-a-disguised-remuneration-loan-to-a-third-party) who have received repayment claims for loans made as part of disguised [remuneration agreements](https://taxdisputes.co.uk/disguised-remuneration-loan-charge-hmrc-tax-appeals-lawyers/). The demand has been filed in most cases because the original loan source has sold the loan to a third party or because it has been recalled, according to the document.* *The vast majority of taxpayers who are facing the prospect of having to pay large amounts of income tax for loans which may have to be repaid will find little solace in HMRC's guidance.* *Our [London Tax Solicitors and Barristers](https://taxdisputes.co.uk/) have vast experience of tax laws and first hand commercial, litigation and advocacy experience. We have a proven track record of successfully contesting disputed tax assessments and penalties with HMRC. The tax authorities have lost many cases that are appealed through negotiation, internal review or through the Tax Tribunal.* ## What are disguised remuneration charges? [Disguised remuneration](https://taxdisputes.co.uk/disguised-remuneration-loan-charge-hmrc-tax-appeals-lawyers/) schemes are arrangements in which loans are paid instead of regular income in order to avoid paying income taxes and National Insurance contributions. To combat the use of disguised remuneration schemes, the loan charge was implemented. People who expect to have trouble paying the loan charge will be able to work out a sensible payment plan with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs), depending on their unique circumstances. There will be no time restriction, and people will be granted as much time as they need to pay their debts. ## The current approach on the Loan Charge On April 5 2019 the [Loan Charge](https://taxdisputes.co.uk/disguised-remuneration-loan-charge-hmrc-tax-appeals-lawyers/) was determined on any loan from a disguised remuneration scheme that was still due. The loan charge still applies if you repay your debt after that date. [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) is unable to issue a refund or change a settlement agreement if you have previously paid a loan charge. Third parties have approached taxpayers in the past, requesting repayment of debts, according to the guidelines. Despite the fact that taxpayers had already paid the [Loan Charge](https://taxdisputes.co.uk/disguised-remuneration-loan-charge-hmrc-tax-appeals-lawyers/) for a loan(s) that were due on April 5 2019, the taxpayer is nevertheless charged. A third party may have approached you about repaying a debt you took out under a [disguised remuneration arrangement](https://taxdisputes.co.uk/disguised-remuneration-loan-charge-hmrc-tax-appeals-lawyers/). The most common reason for the payback request is that the original loan source has sold the outstanding debts to a third party. An insolvency practitioner may also recall a loan in some conditions. Many of these third parties are now contacting scheme participants to demand repayment of outstanding debts, even if the participants thought they would not be asked to return the loans. They may have offered you the option of making a one-time payment to get out of the loan agreement and have the remaining sum written off. ## What is a repayment request? A third party may contact you in the following ways: - a letter asking for details of your loans- a request for repayment of your loans and/or payment of interest on your loans- a statutory demand for you to repay your loans If you receive a [statutory demand](https://windinguppetitionsolicitors.co.uk/statutory-demand-set-aside-lawyers-london-hmrc/), you should be aware that you have a certain amount of time to respond. You can learn more about how to fight a [statutory demand](https://windinguppetitionsolicitors.co.uk/statutory-demand-set-aside-lawyers-london-hmrc/) and the time limit for doing so, in addition to getting legal assistance. If the third party asking for reimbursement is based abroad and you believe the request is invalid or they are not following professional standards, you may choose to contact the relevant regulatory authority from where your letter originated. ## Need Expert Disguised Remuneration Lawyers Advice? If you have entered into a disguised remuneration scheme (or any other tax avoidance scheme), it is important you seek legal advice as soon as possible. Whether you are an employer, employee or contractor, our [expert tax solicitors and barristers](https://taxdisputes.co.uk/expert-advice/) can assist you in managing HMRC’s investigation and entering into negotiations by providing [comprehensive legal advice](https://bankruptcypetitionandannulmentlaw.co.uk/) and robust responses to the investigators. Our [tailored team ](https://bankruptcypetitionandannulmentlaw.co.uk/expert-legal-advice/)which also comprises of specialist forensic accountants can calculate what you owe and make representations on your behalf to HMRC. --- # HMRC guidance published to crack down on umbrella company fraud Source: https://taxdisputes.co.uk/2021/06/hmrc-guidance-published-to-crack-down-on-umbrella-company-fraud/ *HMRC published new [guidance](https://taxdisputes.co.uk/wp-content/uploads/2021/05/Mini-umbrella-company-fraud-GOV.UK_.pdf) last month to combat "mini umbrella company fraud" which sets out steps businesses should be taking to prevent fraud in their supply chain. If you are a business using or providing temporary labour and concerned about what action you need to take, our specialist tax team can assist you. * ## What is a mini umbrella company? Self-employed contractors can choose to work through an IR35 umbrella company rather than setting up their own limited company. When an individual joins a company, they become an employee and the umbrella acts as an intermediary between the individual and end employer. The umbrella company will then deal with all the administrative duties and payroll. ## What is umbrella company fraud? HMRC are investigating criminal conduct whereby several limited companies are set up to employ temporary workers to enable and hide fraudulent activities i.e. abuse employment allowances and the VAT flat rate scheme incentives which result in non payment of PAYE, national insurance and other taxes. ## Supply chain connected with fraud? Case law such as [Kittel (C-439/04)](https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A62004CJ0439) and Mecsek (C-273/11) establishes the principle that community law cannot be relied on for fraudulent ends and the right to input tax recovery can be denied in circumstances where a transaction chain is connected with VAT fraud and the trader is found to have the requisite level of knowledge. Therefore, we have seen cases where HMRC cancel a VAT registration where the Commissioners conclude that a trader is using its VAT registration for fraudulent purposes (or will do so in the future). ## What steps do I need to take in relation to umbrella company fraud? If you are a business that uses temporary labour, you should be aware of the potential dangers of mini umbrella company fraud in your labour supply chain.If you do not take reasonable care a fraudulent supply chain can lead to reputational and financial damage to your business, and your workers may not receive all they are entitled to. You should be carrying out due diligence checks of all of the businesses involved in your supply chain. ## Expert London IR35, Supply Chain & MTIC Disputes Lawyers A large number of contractors and companies can get implicated in IR35, supply chain and MTIC carousel fraud. We have the experience and knowledge to assist and defend allegations against our clients in either the civil regime before the courts and the tax tribunals or before the criminal courts. We can also advise our clients on how best to avoid being affixed with constructive notice (the legal concept that a trader should have known) of fraud in the supply chain by having stringent due diligence procedures in place. **We have a wealth of experience and are able to provide clear advice to assist you in managing HMRC’s investigation and in improving your Due Diligence process. Our Tax Disputes Solicitors and Barristers are here to help you.** **To contact one of our specialist VAT Lawyers please email contact@lexlaw.co.uk ****or call 02071830529.** --- # SRA Scam Alert: ‘Tax Appeal Solicitors’ / hmrctaxappealsolicitors.co.uk Source: https://taxdisputes.co.uk/2022/09/sra-alert-tax-appeal-solicitors-hmrctaxappealsolicitors-co-uk/ ## SRA Warning: Website claiming to be for a law firm called 'Tax Appeal Solicitors' 12 August 2022 https://www.sra.org.uk/consumers/scam-alerts/2022/aug/tax-appeal-solicitors/ The website at 'www.hmrctaxappealsolicitors.co.uk' s operating claiming to be for a law firm called 'Tax Appeal Solicitors'. *[Much of the content of the website has been plagiarised* *(copied and pasted) from other legitimate law firm and accountancy websites.]* ### What is the scam? The website at 'www.hmrctaxappealsolicitors.co.uk' is operating claiming to be for a law firm called 'Tax Appeal Solicitors' and refers to “our city of London expert solicitors and barristers”. The website provides a telephone number of '0208 058 2006'. *[The same phone number is used on a number of other similarly plagiarised websites: companydisputesolicitors.co.uk costslaw.co.uk cryptocurrencylawyers.co.uk professionalnegligenceclaimlawyers.co.uk debtrecovery-lawyers.co.uk hmrctaxappealsolicitors.co.uk (identified by the SRA as a scam on 12 August 2022) insolvency-lawyers.co.uk ]* The SRA does not authorise and regulate a firm of solicitors called 'Tax Appeal Solicitors'. Any business or transaction through 'Tax Appeal Solicitors', or the above website and telephone number above are not undertaken by a firm or individual authorised and regulated by the SRA. ### What should I do? When a firm's or individual's identity has been copied exactly (or cloned), due diligence is necessary. If you receive correspondence claiming to be from the above firm(s) or individual(s), or information of a similar nature to that described, you should conduct your own due diligence by checking the authenticity of the correspondence by contacting the law firm directly by reliable and established means. You can contact the SRA to find out if individuals or firms are regulated and authorised by the SRA and verify an individual's or firm's practising details. Other verification methods, such as checking public records (e.g. telephone directories and company records) may be required in other circumstances. --- # Marshmallow Decision Aids Company in VAT Case Source: https://taxdisputes.co.uk/2022/10/marshmallow-decision-aids-company-in-vat-case/ *The recent case of *[*Innovative Bites Ltd v Revenue & Customs [2022] UKFTT 352*](https://www.casemine.com/judgement/uk/633b31cfad47477d7e19ce14)* held that the brand of ‘mega’ marshmallows are categorised as ingredients and not confectionary therefore tax-free.* *Our [Taxation practice](https://taxdisputes.co.uk/) is at the core of the firm.* *Got a dispute with HMRC?* *Our tax team is made up of specialist [tax lawyers](https://taxdisputes.co.uk/expert-advice/) who can assist you to resolve your tax dispute. Our ex-HMRC lawyers will guide you on complex tax legislation to get you the best possible result.* *We have years of experience [negotiating with HMRC](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) and handling tax appeals at the [Tax Tribunals](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) and in the High Court dealing with contentious tax disputes.* ## Background Typically, VAT is payable on confectionery with the exception of being zero-rated where they are used for cooking. Innovative Bites Ltd had won the fight to challenge a large bill by arguing the purpose of its Mega Marshmallows are to be roasted, unlike confectionery which is eaten straight out of the pack. The Loughborough-based firm brought the case before a First Tier Tax Tribunal (FTT) to argue the large marshmallows, measured at 5cm in height compared to 2.5cm for regular marshmallows, were ingredients for S’mores (an American snack consisting of marshmallows, sandwiched between chocolate biscuits). The packaging also made it clear the product was made to be used as a roasting ingredient, although [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)argued the products could still be consumed ‘on the go’ as a bag of sweets therefore should be entitled to the standard rate of 20%. We ensure that we provide the best possible outcome for our clients by conducting in depth investigation and research into the realistic prospects of a case before selecting the appropriate course of action in order to reduce time and expense. ## Decision The Tribunal judge, Jonathon Cannan, ruled that the product ‘Mega Marshmallows’ did not fall under the definition of confectionery. It was marketed and purchased as a product specifically for roasting, not to mention sold in the barbecue aisle during summer months rather than the ‘World Foods’ or confectionery section. As a result, the product was zero-rated for tax purposes and Innovative Bites Ltd was exempt from paying £473,000 in tax. ## What does this case highlight? The way in which a product is marketed and sold holds significant importance in questions of ambiguity surrounding a products categorisation. The FTT relied on [*Customs and Excise Commissioners v Ferrero UK Ltd *[1997] STC 881](https://www.casemine.com/search/uk/%2BFerrero%2BUK%2BLimited), endorsing principles which related to the characteristics of a product. One of which stated: *“a product should be categorised by reference to the view of an ordinary man in the street”*. Where a bag of Mega Marshmallows is advertised and sold as a roasting ingredient, it can be seen by an ordinary man to be just that - a roasting ingredient for S’mores (as advertised). ## Why instruct our Solicitors? Our[ team of solicitors and barristers](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) represent your interests at all times. We start off with a customized strategy for each client. We can provide you with the best representation in negotiations with[ HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) and defend all forms of [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)enquiries and investigations. Our [specialist Tax Solicitors and Barristers](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) deliver expert technical knowledge which ensures best results for our clients. We are based in legal epicentre of London, just across the road from the [Royal Courts of Justice](https://www.find-court-tribunal.service.gov.uk/courts/royal-courts-of-justice). If you think you have a case, get in touch with our [team of professional tax lawyers](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) who can assist you in understanding the merits of your claim and advise you in your best interest. We are in it with you, from start to finish and will manage the entire process on your behalf. The information published on this website is: (a) for reference purposes only; (b) does not create a contractual relationship; (c) does not constitute legal advice and should not be relied upon as such; and (d) is not a complete or authoritative statement of the law. Specific legal advice about your circumstances should always be sought. --- # Dealing with a HMRC Warning of Winding up Action Letter Source: https://taxdisputes.co.uk/2022/06/dealing-with-a-hmrc-7-day-letter-before-winding-up-action/ *HMRC are increasingly turning to the Companies Court to collect unpaid taxes and threatening to wind up and shut down companies that have not paid their taxes.* Get in touch with us to help you defend HMRC's threats - we are [the UK's leading specialists in resolving HMRC Tax Disputes](https://lexlaw.co.uk/hmrc-tax-dispute-lawyers/). ## Ignoring HMRC Warning to wind-up my Company? Facing a [winding-up petition from HMRC](https://lexlaw.co.uk/practice-areas/winding-up-petitions-solicitors-london/hmrc-petition-winding-up/) is a serious matter for your company. Such a petition signifies that HMRC is taking legal action to force the compulsory court-ordered liquidation and closure of your business due to unpaid tax obligations. If the petition is successful, it can lead to severe [consequences](https://windinguppetitionsolicitors.co.uk/winding-up-consequences/), including the appointment of a liquidator, freezing of bank accounts, asset seizures, closure of operations and investigation into director conduct. Having a winding-up petition issued against your company can severely damage its reputation and credibility, making it challenging to secure future financing, attract customers, or maintain relationships with suppliers and business partners. It may also result in the loss of valuable assets and the dismissal of employees. To protect your company's interests and ensure its survival, it is crucial to seek immediate legal advice from experienced solicitors who specialise in handling winding-up petitions. We can guide you through the legal process, explore possible defence or [negotiations with HMRC](https://taxdisputes.co.uk/hmrc-winding-up-petitions/), and help formulate a strategic plan to address the outstanding tax issues. By engaging legal experts, you increase your chances of achieving a positive outcome, such as reaching a settlement, implementing a repayment plan, or resolving the dispute in a way that allows your business to continue its operations. *Remember, taking prompt action and seeking professional legal assistance is crucial when facing a winding-up petition, as it can make a significant difference in protecting your company's future and minimising the potential adverse effects on your business.* ## What is a 7 day warning letter from HMRC? The warning letter is pre-action communication that [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) intends to issue a winding up petition; effectively a [letter before claim](https://lexlaw.co.uk/letter-before-claim-specialist-solicitors/). The intention is to prompt the company into paying the debts it may owe or agreeing a time to pay (which HMRC often refuse unless you are professionally represented and advance good arguments for acceptance). Usually issued as a last resort by a creditor chasing its debts, a warning letter is often the last notice you will receive before the matter escalates to a more serious level. A warning letter from HMRC threatens to institute the presentation of a winding-up petition at the Companies Court. This is obviously a very serious matter that could jeopardise an entire company including its creditworthiness. It is critical to take [professional legal advice from an expert](https://lexlaw.co.uk/hmrc-debt-enforcement-defence-statutory-demand-winding-up-peititon-solicitor-london/). ## HMRC's Warning of winding up action letter > Please read this letter. If you act now, the company can still avoid being wound up. > We still haven’t received payment for the amount above or agreed a payment plan. You can find a breakdown of the amount the company owes on the enclosed statement of liabilities. We’ve contacted you a number of times to offer support with this. If the company doesn’t pay in full or contact us about a payment plan, we may apply for a winding-up order against the company for this debt. We’ll also keep charging you interest until you pay in full. > If the company is wound up: > -it could lose its assets > -its bank account may be frozen > -it may have to pay legal and other costs. > For more details about winding up, please see the enclosed information sheet. You can stop this happening if you pay in full now or contact us to agree a payment plan. > > ***Letter from HMRC Debt Management, Debt Enforcement, DM Field Force, HM Revenue and Customs, BX9 1WH.*** [![](https://taxdisputes.co.uk/wp-content/uploads/2022/06/HMRC-WARNING-OF-WINDING-UP-ACTION-SOLICITORS-LONDON-TAX-PETITION-DEFENCE.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2022/06/HMRC-WARNING-OF-WINDING-UP-ACTION-SOLICITORS-LONDON-TAX-PETITION-DEFENCE.jpg) ## What should I do if I have received a warning letter from HMRC?  A warning letter from HMRC usually gives you at least seven days (often more) to respond and take positive action. Time, however, is of the essence. Even if you cannot pay the debt owed, it is essential that you consider the options available to you.  In many circumstances, especially if you have professional advisers to respond to HMRC, HMRC may be open to negotiating a repayment plan under a [Time to Pay Arrangement (TTP)](https://www.gov.uk/guidance/find-out-how-to-pay-a-debt-to-hmrc-with-a-time-to-pay-arrangement). Under the TTP, HMRC may agree to reasoned and carefully proposed affordable monthly payment options that factor in income as well as the debt owed.  The company may also choose to undergo a [Company Voluntary Arrangement (CVA)](https://windinguppetitionsolicitors.co.uk/insolvency-lawyers-london/how-do-i-stop-a-winding-up-petition-advice/). This will essentially allow the company to apply for a stay in winding-up proceedings as it negotiates a plan that attempts to rescue the business and pay off any creditors. ## What happens if I do not act upon a HMRC warning letter? Not acting within the 7 days the warning letter afforded you now means that HMRC will present, issue and serve a winding up petition and advertise this winding up petition petition in the [Gazette](https://www.thegazette.co.uk/insolvency/content/100712). This will lead to your company’s bank accounts being frozen, leaving you practically unable to trade. A public winding up petition hearing would ensue. ## What does a winding up petition do?  A winding up petition seeks to put a company into compulsory liquidation. If successful, all the assets of the company are collected and distributed amongst creditors. The company will continue to carry on business and can enter and complete transactions, however, this can only be for the purpose of winding up its affairs in the interest of creditors and shareholders. No dispositions for value can be executed by a company that has been faced with a winding up order and any other transactions entered into will be void. ## How can we help you oppose a 7 day warning letter from HMRC? If you are a debtor who has received a warning letter and are unable to resolve the matter, we can help you. With [years of experience](https://windinguppetitionsolicitors.co.uk/expert-advice/) in negotiating with creditor, shareholder or director petitioners, particularly HMRC, we can [obtain adjournments](https://windinguppetitionsolicitors.co.uk/obtaining-an-adjournment-adjourning-winding-up-petition-lawyers-london/) to allow you time to negotiate and settle or to [defend a winding up petition](https://windinguppetitionsolicitors.co.uk/opposing-a-winding-up-petition/).  We also help companies to avoid having bank accounts frozen by [preventing the advertisement of winding up petition](https://windinguppetitionsolicitors.co.uk/restraining-injunctions-against-winding-up-petitions-and-advertisements/) notices or (if already advertised in the [London Gazette](https://www.thegazette.co.uk/)) by obtaining a [validation order](https://windinguppetitionsolicitors.co.uk/validation-order/) from the Court to [unfreeze the company’s bank accounts](https://windinguppetitionsolicitors.co.uk/practice-note-on-validation-orders-lawyers-london/). ## Instruct Specialist Winding Up Lawyers We provide a no cost initial discussion by phone call (02071830529) to establish whether or not we can help you by organising a discounted fixed fee advice conference for you with and ex-HMRC barrister and our experienced solicitors. We are a specialist [City of London](https://web.archive.org/web/20200622210953/https:/www.cityoflondon.gov.uk/Pages/default.aspx) law firm made up of Solicitors & Barristers and based in the [Middle Temple Inn of Court](https://www.middletemple.org.uk/) adjacent to the Royal Courts of Justice.  We are experts in dealing with matters surrounding insolvency in particular issues. Our team have unparalleled experience at serving statutory demands, negotiating with debtors/creditors, setting aside statutory demands and both issuing and defending winding up petitions vigorously at the [Royal Courts of Justice](https://www.find-court-tribunal.service.gov.uk/courts/royal-courts-of-justice) (Rolls Building), or the relevant High Court District Registry or County Court with jurisdiction under the [Insolvency Rules](https://www.legislation.gov.uk/uksi/2016/1024/contents/made).  --- # HMRC issues penalty to Home Office over “careless” application of IR35 rules Source: https://taxdisputes.co.uk/2021/08/hmrc-issues-penalty-to-home-office-over-careless-application-of-ir35-rules/ *The [Home Office](https://www.gov.uk/government/organisations/home-office) has been hit with a total of £33.5m of tax charges and penalties after an investigation by [Her Majesty's Revenue & Customs](https://www.gov.uk/government/organisations/hm-revenue-customs) revealed that it had failed to implement the [IR35](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35) tax avoidance reforms properly.* *Our London Tax Solicitors and Barristers have vast experience of tax laws and first hand commercial, litigation and advocacy experience. We have a proven track record of successfully contesting disputed tax assessments and penalties with HMRC. The tax authorities have lost many cases that are appealed through negotiation, internal review or through the Tax Tribunal.* ## Careless Application of IR35 guidance The [Home Office’s](https://www.gov.uk/government/organisations/home-office) annual report and accounts show that the implementation of the [IR35](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35) reforms was under review by [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) in 2018. This led to several instances where the employment status of contractors was incorrectly assessed. Since April 2017, the [Home Office](https://www.gov.uk/government/organisations/home-office) and other public sector organisations have been responsible for deciding whether contractors should be taxed the same way as employees. The [Home Office](https://www.gov.uk/government/organisations/home-office) had 216 off-payroll workers who were earning at least £245 a day as of March 2021. Some of them had their status changed following a review. To which the [Home Office's](https://www.gov.uk/government/organisations/home-office) £4 million charges was suspended to give it time to improve its compliance procedures. The conditions set out by the [Home Office](https://www.gov.uk/government/organisations/home-office) for the establishment of a new contract include a requirement that the company has a 100% assurance check on all future out-of-scope decisions.The [Home Office](https://www.gov.uk/government/organisations/home-office) has identified and corrected the errors made by [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) regarding the number of tax credits claimed by individuals. The [Home Office](https://www.gov.uk/government/organisations/home-office) has been working with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) to resolve the issue and suspended the penalty imposed on it. The [Home Office](https://www.gov.uk/government/organisations/home-office) has admitted that it made errors in assessing the [IR35](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35) status of contractors. The[ Home Office](https://www.gov.uk/government/organisations/home-office) has revealed that it made several errors in its [IR35](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35) assessment, and as a result, it has paid almost £9 million in unpaid tax to [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs). ## What is IR35? [HMRC introduced IR35 in 1999](https://webarchive.nationalarchives.gov.uk/20140206165106tf_/http://www.hmrc.gov.uk/ir35/seprelease.htm). The intention was to tackle “disguised employment” and prevent individuals working in a manner which was effectively the same as employees, but under the guise of limited companies. Companies engage contractors through an intermediary, often a personal services company. These self-employed individuals do not have to pay national insurance and and benefit from lower income tax. HMRC claim that currently only 1 in 10 contractors, who should be paying these taxes are doing so and that these changes will bring in an additional £3.1bn in additional tax revenue between [2020 and 2024.](https://www.gov.uk/topic/business-tax/ir35) ## Do the IR35 rules affect my company? Companies will not have to comply with the new IR35 legislation if they satisfy two or more of the following criteria: (a) an annual turnover of not more than 10.2 million; (b) balance sheet total of not more than 5.1 million; and (c) number of employees of not more than 50. ## How do I appeal a tax penalty? If a taxpayer disagrees with HMRC, the taxpayer has the following options: **Stage 1**: **Request an** HMRC review: A taxpayer can appeal in writing within 30 days of HMRC’s notice of their decision. HMRC can offer an internal review of the disputed decision (or the taxpayer can request this procedure at any time). The review is an entirely internal procedure completed not by the original HMRC decision-maker but by a different HMRC officer. **Stage 2**: **Appeal to the Tax Tribunal**: A taxpayer can [appeal to the First-Tier](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) Tax Tribunal if the taxpayer cannot agree with their position following the review. The independent tribunal will make a determination on the case. A further appeal is permitted if a taxpayer does not agree with the decision. There are strict time limits for appealing to the Tax Tribunal and you should seek legal advice as soon as possible. ## What can we do for you? Our expert tax litigation team can: - assess the employment status of your current contractor workforce and produce a status determination statement for each contractor as to whether they fell under IR35- review your contractual terms to ensure the business has all the protection required- assist with drafting communications with contractors and their line managers- assist with liaising with HMRC where necessary ## Expert London Tax Investigation Lawyers If you need HMRC Tax Investigation advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist[ Tax Solicitors](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. --- # Self-assessment tax returns: take action to avoid late filing penalties Source: https://taxdisputes.co.uk/2021/03/self-assessment-tax-returns-take-action-to-avoid-late-filing-penalties/ *In light of the global pandemic, [HMRC confirmed](https://taxdisputes.co.uk/2021/01/hmrc-relaxes-late-filing-penalty-for-self-assessment-tax-returns/) that [Self Assessment taxpayers](https://www.gov.uk/government/organisations/hm-revenue-customs) had more time to pay their tax bills or set up payment plans as coronavirus continued to impact the economy. So long as affected taxpayers took action, they would not face the standard 5% late payment penalty charge so long as arrangements were in place by 1 April 2021. Concurrently further [late payments](https://taxdisputes.co.uk/2013/08/taxpayer-appeals-hmrc-tax-tribunal-late-payment-of-paye-penalties/) are charged at 6 months being August 2021 and 12 months being February 2022 on tax outstanding where a payment plan has not be put in place.* *[Our London Tax Solicitors and Barristers](https://taxdisputes.co.uk/expert-advice/) have vast experience of tax laws and first hand commercial, litigation and advocacy experience. We have a proven track record of successfully contesting disputed tax assessments and penalties with HMRC. The tax authorities have lost many cases that are appealed through negotiation, internal review or through the [Tax Tribunal](https://www.gov.uk/tax-tribunal).* ## Late filing penalties waived for Self Assessment tax returns Ordinarily, [late filing penalties](https://taxdisputes.co.uk/hmrc-penalties/) are applied to all returns filed after the 31 January 2021 deadline. Those penalties can be appealed if the taxpayer has a reasonable excuse for filing late. However, this year HMRC is not issuing late filing penalties for a month to help taxpayers and agents who are unable to meet the deadline. Late filing penalties will not be issued for online tax returns received by 28 February 2021. HMRC’s chief executive Jim Harra states: > We recognise the immense pressure that many people are facing in these unprecedented times and it has become increasingly clear that some people will not be able to file their return by 31 January. Not charging late filing penalties for late online tax returns submitted in February will give them the breathing space they need to complete and file their returns, without worrying about receiving a penalty. We can reasonably assume most of these people will have a valid reason for filing late, caused by the pandemic. > > HMRC’s Chief Executive, Jim Harra ## What are the penalties for late filing of tax returns? [Penalties for late filing](https://taxdisputes.co.uk/hmrc-penalties/) of returns and paperwork or late payment can be applied to any of these types of taxes: - Self Assessment Tax Return deadlines and penalties;- PAYE/National Insurance payments and deadlines;- PAYE late payment penalties;- Missed VAT deadlines- penalties and surcharges;- Late returns and late return penalties under CIS; and- Corporation Tax penalties. ## Can I appeal a HMRC late filing penalty? If a taxpayer disagrees with HMRC, the taxpayer has the following options: **Stage 1**: **Request a HMRC review**: A taxpayer can appeal in writing within 30 days of HMRC’s notice of their decision. HMRC can offer an internal review of the disputed decision (or the taxpayer can request this procedure at any time). The review is an entirely internal procedure completed not by the original HMRC decision maker but by a different HMRC officer. **Stage 2**: **Appeal to the Tax Tribunal**: A taxpayer can [appeal to the First Tier Tax Tribunal](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) if the taxpayer cannot agree their position following the review. The independent tribunal will make a determination on the case. A further appeal is permitted if a taxpayer does not agree with the decision. There are strict time limits for appealing to the Tax Tribunal and you should seek legal advice as soon as possible. ## What is a reasonable excuse? [Schedule 55](https://www.legislation.gov.uk/ukpga/2009/10/schedule/55) provides that penalties do not arise where the taxpayer is able to show that they had a reasonable excuse for failing to comply with a tax requirement such as: - Late filing of returns- Failing to make a payment on time- Failing to file online- Failing to notify chargeability Reasonable excuse is expressly stated to exclude where the taxpayer relied on a third party to do anything i.e. third party defence therefore reliance on an accountant or [tax adviser](https://professionalnegligenceclaimsolicitors.co.uk/bad-hmrc-finance-advice-sue-advisor/) is unlikely to be a ground of defence. ## How do I appeal a First Tier Tax Tribunal decision? Any appeals against HMRC’s decisions must first be made to the First Tier Tax Tribunal. Upon receipt of the outcome, if you do not agree with the decision of the First Tier Tax Tribunal, you can [appeal to the Upper Tier Tax Tribunal ](https://www.gov.uk/tax-upper-tribunal)however you must obtain permission from the First Tier Tax Tribunal. If you do not receive permission, you will need to request permission from the Upper Tier Tax Tribunal. There are strict time limits for submitting an appeal, usually 56 days from the date of the Tribunal decision. If you do not have permission, then you must seek permission within 30 days of the refusal letter. ## Has my accountant failed to file my tax return in time? Whilst there may not be a third party defence in an[ appeal ](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/)against a tax assessment or penalty, if your tax agent, [accountant](https://professionalnegligenceclaimsolicitors.co.uk/compensation-negligent-accountants-financial-tax-advisors/) or [tax adviser](https://professionalnegligenceclaimsolicitors.co.uk/bad-hmrc-finance-advice-sue-advisor/) has failed to carry out your instructions i.e. file a tax return, prepared incorrect calculations, you may have a valid complaint or potential negligence claim against the individual or company. Our [professional negligence claim team](https://professionalnegligenceclaimsolicitors.co.uk/) can assist and advise you on the suitable course of action. ## Expert London HMRC Late Penalty Disputes Lawyers If you need [HMRC Penalty Dispute advice](https://taxdisputes.co.uk/hmrc-penalties/), we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. --- # Successful Party in Tax Appeal Does Not Require Permission to Appeal Source: https://taxdisputes.co.uk/2022/10/successful-party-in-tax-appeal-does-not-require-permission-to-appeal/ The recent Upper Tribunal (“**UT**”) case of* **[HBOS Plc and Lloyds Banking Group Plc v. HMRC [2022] UKUT 139 (TCC)](https://assets.publishing.service.gov.uk/media/62863cd8d3bf7f1f3c97dd16/HBOS_PLC_and_LLoyds_Banking_Group_PLC_v_HMRC_decision_on_appellants__preliminary_issue_application_UT-2021-000197_.pdf)*** establishes that a successful party to the decision of the court does not need to apply for permission to appeal (“**PTA**”) in order to bring forward new arguments in reply to unsuccessful party’s appeal. In this case, the appellants’ application was dismissed, and the court held that the respondent having won on the decision could not have sought PTA. Our taxation practice is the foundation of the firm. Have a conflict with HMRC? Our tax team is composed of knowledgeable tax lawyers who can help you handle your tax issues. For the best outcome, our ex-HRMC lawyers will advise you on intricate [tax laws](https://taxdisputes.co.uk/). We have years of expertise in dealing with complex tax problems, including negotiating with HMRC and handling tax appeals before Tax Tribunals and in the High Court. ### When do you need to apply for the PTA? The UT dismissed the appellants' application objecting to Her Majesty’s Revenue and Custom (“**[HMRC](https://www.gov.uk/log-in-register-hmrc-online-services)**”) introducing new issues in response to the appellants' appeal arguments in ***HBOS Plc and Lloyds Banking Group Plc v. HMRC [2022] UKUT 139 (TCC)*. **Judgment was given on 18 May 2022 by UT Judge Swami Raghavan. Since 6 April this year, respondents have been able to include a PTA application to the UT in their response to a notice of appeal (instead of making a separate PTA application to the First Tier Tribunal (“**FTT”**)) under Rule 24(1C) of the Tribunal Procedure (Upper Tribunal) Rules, SI 2008/2698 (“**the UT rules**”), but the UT rules do not outline whether a winning party is required to apply for PTA. Therefore, the ruling is beneficial in providing respondents with guidance pertaining to an unsuccessful party at the FTT appeals to the UT. **When a party has been entirely successful and the justifications for the pertinent decision are obvious, that party does not need to apply for PTA in order to rely on fresh grounds in opposition to the unsuccessful party’s appeal.** ### Background of the Case The underlying substantive appeals deal with HMRC's obligation to pay interest on VAT bad debt relief (“**BDR**”) claims in accordance with section 78 of the Value Added Tax Act of 1994 (**VATA**). Section 78 makes provision for interest to be paid to taxpayers in certain cases of an error on the part of [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs). The BDR claims arose out of the appellants' automobile hire purchase business supplies in a period during which claims for BDR had to comply with specific requirements. One of these requirements, the property requirement, was found to be against EU law. HMRC paid the appellants’ interest from the dates the appellant claimed BDR, up until the dates HMRC paid the BDR, on the basis the appellants had suffered a delay in receiving the BDR due to HMRC’s error in insisting that the property condition had to be fulfilled. The appellants argued they were entitled to interest from dates based on return dates linked to a statutory waiting period, or if later, the dates the debts were written off, which were many years before any claim for BDR had been made (“**the earlier dates**”). The agreed issue for determination by the FTT was whether interest arose from the claim dates (as HMRC contended) or the earlier dates (as the appellants contended). **Section 78 VATA 1994** provides, as follows: > “*78 Interest in certain cases of official error* > > *(1) Where, due to an error on the part of the Commissioners, a person has—* > > *(a) accounted to them for an amount by way of output tax which was not output tax due from him and, as a result, they are liable under section 80(2A) to pay (or repay) an amount to him, or* > > *(b) failed to claim credit under section 25 for an amount for which he was entitled so to claim credit and which they are in consequence liable to pay to him, or* > > *(c) (otherwise than in a case falling within paragraph (a) or (b) above) paid to them by way of VAT an amount that was not VAT due and which they are in consequence liable to repay to him, or* > > *(d) suffered delay in receiving payment of an amount due to him from them in connection with VAT,* > > *then, if and to the extent that they would not be liable to do so apart from this section, they shall pay interest to him on that amount for the applicable period, but subject to the following provisions of this section”* The appellants’ claim for interest from the earlier dates was based on section 78(1)(c) or (d), VATA, provided that (a) or (b) in that section above did not apply. The FTT believed that because the property requirement was an act of Parliament and not HMRC, its enactment did not constitute an "error on the part of the Commissioners" for the purposes of section 78(1). It also found that the appellants' assumption that the property requirement was legally valid, was the reason they did not claim BDR earlier. Due to the lack of a causal link between an "error on the part of the Commissioners" and one of the outcomes in section 78(1)(c) or (d) (the "due to..." condition in section 78(1)), section 78 was not engaged on the facts. the FTT next considered the other features of section 78 that were disputed at the hearing, on the “hypothetical basis” that the “due to” criterion is met, rejecting the appellants' case on section 78(1)(c) but allowing it on section 78(1)(d). The FTT dismissed the appellants' appeals after concluding that its interpretation and application of section 78 were consistent with the pertinent EU law principles and that no settlement agreement had developed. The appellants submitted a notice of appeal after their FTT appeal was denied. Two arguments were brought up by HMRC in its Rule 24 response to the appellant’s notice of appeal: (1) Points alleging the FTT erred in law in its interpretation of section 78(1)(d), and (2) Arguments, made in the alternative, based on the further issue, that claims for interest should start from dates later than the earlier dates The above stated are the two arguments that the appellants submitted, for which HMRC ought to have first sought permission from the FTT. ### Judgement of the UT **The appellant’s application was dismissed.** The UT confirmed that HMRC did not need permission to appeal, hence it did not fall to be determined whether it may waive this need or whether it should issue permission after the deadline had passed. The following principles were considered by the UT in making its decision and answering the question “*when is permission to appeal required?”*: Appeals lie against the decision; To identify the decision, one needs to look at the tribunal’s jurisdiction and issues put before the tribunal; A party can only appeal against the decision when it is unsuccessful; A party who was successful in the decision cannot appeal reasons in that decision that went against it; a successful party to the decision, as properly identified, cannot appeal other findings or reasoning which were not even part of the reasons in that decision. This includes views of the tribunal on how it would have concluded the decision on the hypothesis that it was wrong in the decision it did make. By definition, those are not part of the decision so it does not matter if the party was unsuccessful on those. The UT came to the conclusion that HMRC, having won on the decision, could not have sought permission to appeal (PTA) against an issue which the FTT did not decide, or purport to decide, let alone decide against HMRC. ### Expert Tax Investigation Lawyers If you need HMRC Tax Investigation advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. **We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk).** --- # Man Utd and Newcastle amongst football clubs tackling HMRC tax investigations Source: https://taxdisputes.co.uk/2021/08/man-utd-and-newcastle-amongst-football-clubs-tackling-hmrc-tax-investigations-advice/ *After a six-year investigation into the sport, [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) has recovered about £464 million from football players, clubs, and agents. In the last year alone, the revenue has recovered £55.6 million as a result of investigations into 93 footballers for possible [tax avoidance](https://taxdisputes.co.uk/2021/05/hmrcs-change-in-approach-on-tax-avoidance-means-based-settlements/). A Freedom of Information request by the Mirror revealed that another 23 agents and nine clubs are under scrutiny.* *Since 2015, [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) has collected £463.9 million "by combating non-compliance in the football sector," mostly through settlements on purportedly unpaid taxes.* *Our London Tax Solicitors and Barristers have vast experience of tax laws and first hand commercial, litigation and advocacy experience. We have a proven track record of successfully contesting disputed tax assessments and penalties with HMRC. The tax authorities have lost many cases that are appealed through negotiation, internal review or through the Tax Tribunal.* ## Tax Investigations into footballers The [tax investigation](https://taxdisputes.co.uk/hmrc-tax-investigations/) focused on money paid to athletes by teams for image rights. Multi-million-pound player salaries are boosted by image rights deals, which are taxed at a reduced rate. Big-name sportsmen frequently form corporations to manage their image rights arrangements, which are taxed at 19 percent instead of the 45 percent high-earner income tax rate. Because portions of the payments could be handled abroad, the savings for international players could be even greater. ## Tax Investigation Advice Our Tax Solicitors and Barristers are highly experienced in dealing with voluntary tax disclosures and will advise you on the best strategy and manage the entire process on your behalf. We can advice on all of HMRC’s investigatory areas, including: - **Civil Evasion and Fraud Tax Investigations:** – Personal Tax Return Section 9A TMA 1970 Enquiry; – [Code of Practice 8](https://taxdisputes.co.uk/tax-avoidance-cop-8-investigations-solicitors-london/) (suspicion of serious Tax Avoidance using schemes such as EBT/PBT structures); – [Code of Practice 9](https://taxdisputes.co.uk/tax-evasion-hmrc-code-practice-9-investigations/) (suspicion of serious Tax Fraud); and – [Code of Practice 11](https://web.archive.org/web/20160827075914/http://thepensionsregulator.gov.uk/docs/code-11-dispute-resolution.pdf) (Self Assessment Tax Investigations). - **Criminal Tax Investigation:** –[Section 144 Enquiry](https://taxdisputes.co.uk/hmrc-interviews/); and -Interviews under [PACE (Police and Criminal Evidence Act 1984)](https://www.legislation.gov.uk/ukpga/1984/60/contents). - **Corporate Tax Evasion:** – Code of Practice 14 Investigation (Company Tax Return Enquiries) - **Partnership Tax Return Enquiry:** – Section 12A TMA 1970 Notice Investigations. - **Self Assessment Tax Investigations:** – [Code of Practice 11 Investigation](https://web.archive.org/web/20160827075914/http://thepensionsregulator.gov.uk/docs/code-11-dispute-resolution.pdf) (Local Compliance Offices). - **VAT and PAYE Investigations:** – PAYE Audit Tax Investigation [-VAT Evasion](https://taxdisputes.co.uk/vat-evasion/) Investigation ## What is a Tax Investigation? A tax investigation is an enquiry conducted by HMRC into the tax affairs and tax payment history of any UK individual, employee, director or company. A HMRC tax investigation can come in many forms and covers a range of taxes covered under HMRC jurisdiction such as: VAT; income tax; corporation tax and capital gains tax. The type and severity of the investigation is completely dependent on the facts of any individual case. Typically, an investigation generally commences when HMRC notice irregularities in information supplied via a Self Assessment Tax return. A taxpayer will receive a letter from HMRC informing  them that an investigation has been opened into their tax affairs and may include a request for information. It is strongly recommended that you consult a tax lawyer as soon as possible to receive detailed advice on how to take control of the situation and negotiate with HMRC. ## What triggers an HMRC investigation? Typically, HMRC will not specifically detail what has initiated an investigation into your tax affairs in the letter sent by HMRC notifying you that an investigation has commenced. There is limited HMRC guidance on the criteria of a civil tax investigation, however, the following are common triggers of a government audit: - **Mistakes, Omissions or Inconsistencies** on a Company or Personal Tax Return: for example, the submission of inaccurate figures and the submission of frequent inaccuracies could cause HMRC to investigate in order to ascertain a clearer picture of your finances.- HMRC receiving a **tip-off** can be the catalyst for an investigation: examples of informers include d[isgruntled former employees and embittered divorcees](http://ig-legacy.ft.com/content/0f98bbc0-2db6-11e2-9988-00144feabdc0#axzz57qED81Px).- Part of a **HMRC target area**: HMRC regularly set up taskforces to target either geographic areas or specific job sectors thought to be at high risk of tax fraud. Job sectors such as the medical profession, those with multiple sources of income and landlords have been targeted using HMRC’s [Connect investigative software](https://www.ifa.org.uk/media/653935/Tax-HMRC-Connect-system.pdf), which provides an indication of industries where there are potential tax shortfalls.- [HMRC Campaigns](https://taxdisputes.co.uk/hmrc-voluntary-disclosure-campaigns-solicitors-london/)- **Random check**: this is unlikely but larger businesses that have undergone a rapid period of growth may attract the attention of HMRC based on this sudden change.- **Suspicious activity** that attracts the interest of HMRC: for example, the fluctuation of numbers by a large margin; years of unprofitability for a business; your figures are inconsistent with industry standards for those in the same profession; an omission of income. The triggers for a criminal investigation by HMRC are more clearly elucidated by the government [here](https://www.gov.uk/government/publications/criminal-investigation/hmrc-criminal-investigation-policy) and HMRC will generally consider starting a criminal, rather than civil investigation where: - organised criminal gangs attack the tax system or systematic frauds where losses represent a serious threat to the tax base, including conspiracy;- an individual holds a position of trust or responsibility;- materially false statements are made or materially false documents are provided in the course of a civil investigation;- pursuing an avoidance scheme, reliance is placed on a false or altered document or such reliance or material facts are misrepresented to enhance the credibility of a scheme;- deliberate concealment, deception, conspiracy or corruption is suspected;- cases involve importation or exportation breaching prohibitions and restrictions;- cases involve money laundering;- the perpetrator has committed previous offences or there is a repeated course of unlawful conduct or previous civil action; and- where there is a link to suspected wider criminality. ## How will you know if you are subject to a HMRC investigation? HMRC will notify a taxpayer in writing when it commences to examine their tax affairs. Typically, if HMRC starts a formal civil investigation, a letter will be sent requesting more information. For example, a taxpayer may receive a request for information on a property transaction or further information about a tax return from a local compliance audit. However, if HMRC suspects criminal VAT fraud or high amounts of tax evaded then it may commence criminal investigations. Typically, unlike for a civil investigation, HMRC are unlikely to notify you at the start of the process but instead you will be informed once you receive a letter requesting attendance to a voluntary interview under caution or when you are arrested. Alternatively, even where criminal tax evasion is suspected, HMRC may wish to deal with the investigation through the civil route under Code of Practice 9.  This process offers a taxpayer a civil solution for potentially criminal evasion by allowing a full disclosure under contract (Contractual Disclosure Facility). It is crucial that once under review, specialist Tax Investigation Lawyers are instructed. We regularly liaise with HMRC at formal meetings, agree what the scope of the disclosure should be and prepare the report on your behalf and reach a civil settlement with HMRC.  We have wide-ranging experience in assisting those facing a COP 9 investigation whilst helping to navigate the rigid time-limits and strict rules. ## How far back can HMRC investigate tax returns? An investigation will often start by enquiring into last year’s tax return and the time HMRC can go back into your tax affairs varies depending on the seriousness of the charge against you. The tables of time limits in HMRC’s Compliance Handbook provides a [full summary](https://www.gov.uk/hmrc-internal-manuals/compliance-handbook/ch56000). The time limits for Captial Gains Tax, Corporation Tax, Income Tax, PAYE and VAT are all the same. Instead, the amount of time HMRC can go back depends on whether the mistake made was innocent, careless or deliberate according to the [Taxes Management Act 1970](http://www.legislation.gov.uk/ukpga/1970/9/contents/enacted). HMRC will first investigate the most recent tax return. If they find no mistakes, then the investigation will be closed. If HMRC find a mistake was made innocently, then the investigation is permitted to go back 4 years. If HMRC decides the mistake was due to negligence or careless behaviour then the investigation can go back 6 years. If the mistake is construed as a deliberate attempt to avoid the payment of tax, then the investigation can go back 20 years. In any investigation, especially one scrutinising tax returns over many years, it is important to obtain professional legal advice at an early stage. We ensure that you make the right decisions at every stage and challenge HMRC’s requests if appropriate in the circumstances. ## How long will a tax investigation last? It depends on the scope and nature of the HMRC investigation. The opening letter issued by the HMRC is usually a good guide on the potential length of any investigation. Some tax investigations finish after one letter; other investigations can take months with HMRC consistently requesting more information; and some investigations can be extending to longer than a year if involving complex tax structures or large businesses. It is important to engage professional advice early on to minimise the length of any investigation as we identify any problems quickly and efficiently to get to the heart of the matter. ## Can you appeal against a tax investigation? No, unfortunately you cannot appeal against an investigation being opened. However, once HMRC have concluded their investigation and issued a penalty, then you have 30 days to appeal the decision. You can appeal in writing by giving [Notice of Appeal to HMRC](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/). HMRC will either confirm their first decision, amend their decision or agree with your assessment. If your position cannot be agreed with HMRC then two further options are available. HMRC could offer an[ internal review](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/) of the disputed decision (or you can request this procedure at any time). The review is an entirely internal procedure completed not by the original HMRC decision maker but by a different HMRC officer. You could also [appeal to the First Tier Tax Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) if you cannot agree your position following the review. The independent tribunal will make a determination on the case. A further appeal is permitted if you do not agree with the decision. We have a proven track record of successfully contesting disputed tax assessments and penalties with HMRC. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one.The tax authorities have lost many cases that are appealed through negotiation, internal review or through the Tax Tribunal. Detailed advice on HMRC Tax Appeals can be found [here](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/). ## Expert London HMRC Penalty Disputes Lawyers If you need HMRC Penalty Dispute advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. --- # HMRC relaxes late filing penalty for Self Assessment tax returns Source: https://taxdisputes.co.uk/2021/01/hmrc-relaxes-late-filing-penalty-for-self-assessment-tax-returns/ *[HMRC have confirmed](https://www.gov.uk/government/news/no-self-assessment-late-filing-penalty-for-those-who-file-online-by-28-february) that Self Assessment customers will not receive a penalty for their late online tax return if they file by 28 February 2021. Given the COVID-19 pandemic anyone who cannot file their return by the 31 January 2021 deadline will not receive a late filing penalty if they file online by 28 February 2021. However, taxpayers are still obliged to pay their bill by 31 January 2021. Interest will be charged from 1 February on any outstanding liabilities.* *[Our London Tax Solicitors and Barristers](https://taxdisputes.co.uk/expert-advice/) have vast experience of tax laws and first hand commercial, litigation and advocacy experience . We have a proven track record of successfully contesting disputed tax assessments and penalties with HMRC. The tax authorities have lost many cases that are appealed through negotiation, internal review or through the Tax Tribunal.* ## Late filing penalties waived for Self Assessment tax returns Ordinarily, [late filing penalties](https://taxdisputes.co.uk/hmrc-penalties/) are applied to all returns filed after the 31 January 2021 deadline. Those penalties can be appealed if the taxpayer has a reasonable excuse for filing late. However, this year HMRC is not issuing late filing penalties for a month to help taxpayers and agents who are unable to meet the deadline. Late filing penalties will not be issued for online tax returns received by 28 February 2021. HMRC's chief executive Jim Harra states: > We recognise the immense pressure that many people are facing in these unprecedented times and it has become increasingly clear that some people will not be able to file their return by 31 January. Not charging late filing penalties for late online tax returns submitted in February will give them the breathing space they need to complete and file their returns, without worrying about receiving a penalty. We can reasonably assume most of these people will have a valid reason for filing late, caused by the pandemic. > > HMRC’s Chief Executive, Jim Harra ## Penalties for late filing or late payment [Penalties for late filing](https://taxdisputes.co.uk/hmrc-penalties/) of returns and paperwork or late payment can be applied to any of these types of taxes: - Self Assessment Tax Return deadlines and penalties;- PAYE/National Insurance payments and deadlines;- PAYE late payment penalties;- Missed VAT deadlines- penalties and surcharges;- Late returns and late return penalties under CIS; and- Corporation Tax penalties. ## How do I appeal a late filing penalty? If a taxpayer disagrees with HMRC, the taxpayer has the following options: **Stage 1**: **Request a HMRC review**: A taxpayer can appeal in writing within 30 days of HMRC’s notice of their decision. HMRC can offer an internal review of the disputed decision (or the taxpayer can request this procedure at any time). The review is an entirely internal procedure completed not by the original HMRC decision maker but by a different HMRC officer. **Stage 2**: **Appeal to the Tax Tribunal**: A taxpayer can [appeal to the First Tier Tax Tribunal](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) if the taxpayer cannot agree their position following the review. The independent tribunal will make a determination on the case. A further appeal is permitted if a taxpayer does not agree with the decision. There are strict time limits for appealing to the Tax Tribunal and you should seek legal advice as soon as possible. ## What is a reasonable excuse? [Schedule 55](https://www.legislation.gov.uk/ukpga/2009/10/schedule/55) provides that penalties do not arise where the taxpayer is able to show that they had a reasonable excuse for failing to comply with a tax requirement such as: - Late filing of returns- Failing to make a payment on time- Failing to file online- Failing to notify chargeability Reasonable excuse is expressly stated to exclude where the taxpayer relied on a third party to do anything i.e. third party defence therefore reliance on an accountant or [tax adviser](https://professionalnegligenceclaimsolicitors.co.uk/bad-hmrc-finance-advice-sue-advisor/) is unlikely to be a ground of defence. ## How do I appeal a First Tier Tax Tribunal decision? Any appeals against HMRC’s decisions must first be made to the First Tier Tax Tribunal. Upon receipt of the outcome, if you do not agree with the decision of the First Tier Tax Tribunal, you can [appeal to the Upper Tier Tax Tribunal ](https://www.gov.uk/tax-upper-tribunal)however you must obtain permission from the First Tier Tax Tribunal. If you do not receive permission, you will need to request permission from the Upper Tier Tax Tribunal. There are strict time limits for submitting an appeal, usually 56 days from the date of the Tribunal decision. If you do not have permission, then you must seek permission within 30 days of the refusal letter. ## My accountant failed to file my tax return in time Whilst there may not be a third party defence in an[ appeal ](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/)against a tax assessment or penalty, if your tax agent, [accountant](https://professionalnegligenceclaimsolicitors.co.uk/compensation-negligent-accountants-financial-tax-advisors/) or [tax adviser](https://professionalnegligenceclaimsolicitors.co.uk/bad-hmrc-finance-advice-sue-advisor/) has failed to carry out your instructions i.e. file a tax return, prepared incorrect calculations, you may have a valid complaint or potential negligence claim against the individual or company. Our professional negligence claim can assist and advise you on the suitable course of action. ## Expert London HMRC Penalty Disputes Lawyers If you need HMRC Penalty Dispute advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. --- # Robert Don Hunter Dougan v HMRC: FTT cancels discovery assessments and late filing penalties Source: https://taxdisputes.co.uk/2022/09/robert-don-hunter-dougan-v-hmrc-ftt-cancels-discovery-assessments-and-late-filing-penalties/ *In the recent case of [Robert Don Hunter Dougan v HMRC [2022] UKFTT 00140 (TC)](https://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j12421/TC%2008471%20AMENDED.pdf), the First Tier Triunal (FTT) cancelled certain discovery assessments issued to a taxpayer by HMRC on the basis that they were issued out of time because the taxpayer's behaviour was careless rather than deliberate. FTT also cancelled various late filing penalties and late payment surcharges issued by HMRC on the basis that the notices were not validly served on the taxpayer.* *Our [Taxation practice](http://taxdisputes.co.uk/) is at the core of the firm.* *Got a dispute with HMRC?* *Our tax team is made up of specialist [tax lawyers](http://taxdisputes.co.uk/expert-advice/) who can assist you to resolve your tax dispute. Our ex-HMRC lawyers will guide you on complex tax legislation to get you the best possible result.* *We have years of experience [negotiating with HMRC](http://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) and handling tax appeals at the [Tax Tribunals](http://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) and in the High Court dealing with contentious tax disputes.* ## Background of the case Mr Dougan was an Australian national who lived and worked in the UK under the terms of a visa and was a successful music composer/producer who operated a music business as a sole trader in the relevant tax years. At all material times, Mr Dougan was resident in the UK for income tax purposes and carried on business as a musician, first as a sole trader and then through an incorporated business. He was also a partner in a partnership known as Partnership Lindfield. Mr Dougan failed to file various tax returns on time. HMRC issued discovery assessments to Mr Dougan in respect of the 2004/05, 2005/06, 2006/07 and 2007/08 tax years, pursuant to [section 29 of Taxes Management Act 1970](https://www.legislation.gov.uk/ukpga/1970/9/section/29) (the discovery assessments), as well as various late filing penalties and late payment surcharges (the Penalties). Mr Dougan appealed the discovery assessments and the penalties to the FTT. ## Judgement of the FTT The FTT found that Mr Dougan did not address his tax responsibilities and that his focus was on his new wine business, young family and litigation in relation to his music business. Although Mr Dougan had a history of late filing, he had periodically caught up with his UK tax filing in the past and the FTT found that this was his intention in relation to the years under appeal. In the view of the FTT, Mr Dougan's claim that he did not receive the penalties was supported by his credible and consistent evidence that he had not received notice of the Penalties. Mr Dougan had identified several discrepancies in HMRC's records of his address and although the FTT accepted that other documents had been received and actioned, it considered that given his method of dealing with demands from HMRC, he would have paid the penalties as and when they were received. ## What does this case highlight? This decision provides an interesting discussion of the important issue of when a taxpayer's behaviour is careless or deliberate. The decision is also notable for its discussion of what constitutes valid service of a penalty notice. Both these issues are of general significance to many taxpayers. ## Why instruct our tax experts? Our[ team of solicitors and barristers](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) represent your interests at all times. We start off with a customized strategy for each client. We can provide you with the best representation in negotiations with[ HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) and defend all forms of [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)enquiries and investigations. Our [specialist Tax Solicitors and Barristers](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) deliver expert technical knowledge which ensures best results for our clients. We are based in legal epicentre of London, just across the road from the [Royal Courts of Justice](https://www.find-court-tribunal.service.gov.uk/courts/royal-courts-of-justice). If you think you have a case, get in touch with our [team of professional tax lawyers](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) who can assist you in understanding the merits of your claim and advise you in your best interest. We are in it with you, from start to finish and will manage the entire process on your behalf. --- # HMRC targets HNW taxpayers for “pre-filing discussions” Source: https://taxdisputes.co.uk/2022/09/hmrc-targets-hnw-taxpayers-for-pre-filing-discussions/ *In a novel pilot scheme, [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) has targeted up to 1,000 individuals with income exceeding £200,000 & assets of at least £2 million to have a voluntary phone call with[ HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) in what they claim is a bid to help prevent errors in tax filings before they occur. We warn taxpayers to take care and take advice before engaging in such "pre-filing discussions" which could lead to tax disputes.* *Our[ team of solicitors and barristers](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) represent your interests at all times. We start off with a customised strategy for each client. We can provide you with the best representation in negotiations with HMRC and defend all forms of HMRC enquiries and investigations. * ## HMRC's "Pre-filing discussions" scheme The call for pre-filing conversations is targeted at high earners with complex tax affairs, regardless of whether the taxpayer already has an adviser or a customer compliance manager at HMRC. HMRC told one of the sources that the discussions would help them and the customer in ensuring that they pay the right tax by discussing unusual or one-off transactions which may have an impact on their tax affairs. ## Should you take part in HMRC's call for "pre-filing discussions"? However, we as experts would warn HNW (high net worth) taxpayers that if they end up disclosing something that [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) does not agree with, they will most likely risk higher penalties. A disputed tax liability carries a penalty of 15-30% of the tax owed and hence it is encouraged to stick to the traditional route of submitting a tax return and an explanatory note. If taxpayers are invited to attend these meetings with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs), it is recommended they do so with a [competent legal advisor](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/). The [Chartered Institute of Taxation's](https://www.tax.org.uk/) technical policy and oversight committee has described this move of HMRC as a subtle undermining of the relationship between the adviser and the client. The[ Institute of Chartered Accountants in England and Wales](https://www.icaew.com/) recommended that if a taxpayer wished to take up HMRC's offer, there should be a pre-discussion with the authority to clarify what topics are going to be covered, who will attend from HMRC and what are the expectations about next steps on both sides. Ideally a specialist tax solicitor should attend. All discussions with a tax solicitor are confidential due to client confidentiality rules enshrined in the laws of the UK (these do not apply to tax discussions with non-lawyers such as accountants or other tax advisers that are not solicitors). ## Why instruct our expert legal counsel? Our[ team of solicitors and barristers](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) represent your interests at all times. We start off with a customized strategy for each client. We can provide you with the best and confidential representation in negotiations with[ HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) and defend all forms of [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)enquiries and investigations. Our [specialist Tax Solicitors and Barristers](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) deliver expert technical knowledge which ensures best results for our clients. We are based in legal epi-centre of London, just across the road from the [Royal Courts of Justice](https://www.find-court-tribunal.service.gov.uk/courts/royal-courts-of-justice). --- # Draft tax legislation sees UK residential property developers bearing the cost of the cladding crisis Source: https://taxdisputes.co.uk/2021/09/draft-tax-legislation-sees-uk-residential-property-developers-bearing-the-cost-of-the-cladding-crisis/ *After the public consultation which happened earlier this year, draft legislation for a new residential property developer tax has been published by HM Treasury. The target is to help fund the growing costs of cladding renovation works. However the details on how exactly that will be put in place are yet to be made clear. Regardless of the nature of their residential portfolios, all residential developers may be subject to the new tax.* *Our [London Tax Solicitors and Barristers](https://taxdisputes.co.uk/) have vast experience of tax laws and first hand commercial, litigation and advocacy experience. We have a proven track record of successfully contesting disputed tax assessments and penalties with HMRC. The tax authorities have lost many cases that are appealed through negotiation, internal review or through the Tax Tribunal.* ## How will residential property developers be affected by the proposed taxation? Initially, the UK government proposed the residential property developer tax in an effort to respond to growing concerns over the costs for cladding repairs, and the potential burden on leaseholders, and details have finally been set out in draft legislation published as part of a technical public consultation earlier this week.  Some fundamental features, including the rate of tax, and a company’s threshold level of residential property development profit before the tax becomes payable (the ‘allowance’), remain unconfirmed.  In addition it is understood a final policy decision is yet to be made on whether it will apply to build-to-rent developers. ## Who will be liable for the property developer tax? The government appears to have cast the net widely, with the proposed tax to be applied to any residential property developers (RP Developers). This covers any company that is ‘within the charge to corporation tax’, and which ‘undertakes residential property development activities’ (‘RPD activities’).  Further provisions consider ‘related companies’ to deal with situations where the land interest is split from the development activity in the case of group companies and joint ventures, but companies simply acting as development contractors on third party land are outside the charge. ## What are residential property development activities? To meet this criteria, such activities must be on, or in connection with, land in the UK in which the RP Developer has a qualifying land interest, and which forms or has formed part of its trading stock of a trade  A non-exhaustive list has been included to assist in determining whether land is held for the purposes of, or in connection with, the development of residential property, and includes dealing, designing, constructing or adapting residential property, but also includes ‘seeking planning permission in relation to it’. RP developers with the relevant level of profits may therefore be caught by the tax where they have an interest in land even if a planning application has yet to be determined, has been granted but not yet implemented, or the residential development is in the course of construction. ## How will the tax be applied? RD developers are to be subject to tax on trading profits specific to the RPD activities in relation to a chargeable accounting period, with the intention that it will start with periods ending on or after 1 April 2022, with provisions for apportionment where an accounting period straddles this date. However, the government confirms that the intention of the tax is ‘ensure that the largest developers make a fair contribution to help fund the government’s cladding remediation costs’. It is understood this will be applied towards works to be governed by the Fire Safety Act 2021 and the Building Safety Bill. ## The next step? The UK government has provided explanatory notes and there is a chance to comment on the details in the draft until 15 October 2021. The chancellor will eventually set out the final details in the autumn budget. It will include the rate of tax and the specific allowances. ## Expert Tax Disputes Lawyers If you need [HMRC Penalty Dispute advice](https://taxdisputes.co.uk/legal-representation/), we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. --- # HMRC waives IR35 penalties for 12 months for employers showing reasonable care Source: https://taxdisputes.co.uk/2021/02/hmrc-waives-ir35-penalties-for-12-months-employers-contractors-reasonable-care/ *HMRC has published [guidance](https://www.gov.uk/government/publications/hmrc-issue-briefing-supporting-organisations-to-comply-with-changes-to-the-off-payroll-working-rules-ir35/hmrc-issue-briefing-supporting-organisations-to-comply-with-changes-to-the-off-payroll-working-rules-ir35) on how it intends to support companies seeking to comply with the upcoming IR35 changes including waiving penalties for accidental inaccuracies for the first 12 months. * It will be mandatory for employers to assess a contractor's employment status for tax purposes. If employers fail to do so, they may face a hefty fine. In the first 12 months however, penalties for "accidental" inaccuracies will be waived if they have taken reasonable care to apply the rules correctly, unless there's clear evidence of deliberate non-compliance. This is to encourage businesses to get their affairs in order and comply with tax rules. With the majority of businesses wishing to correct their tax affairs, this will filter out the "deliberate defaulters" and those contractors who engage in artificial employment arrangements. Penalties will still however be imposed on companies who fail to demonstrate reasonable care. The government will not be determining [employment status](https://www.gov.uk/hmrc-internal-manuals/employment-status-manual) however they will provide support and advice on best practice to help businesses fulfil their obligations. ## What is IR35? [HMRC introduced IR35 in 1999](https://webarchive.nationalarchives.gov.uk/20140206165106tf_/http://www.hmrc.gov.uk/ir35/seprelease.htm). The intention was to tackle “disguised employment” and prevent individuals working in a manner which was effectively the same as employees, but under the guise of limited companies. Companies engage contractors through an intermediary, often a personal services company. These self-employed individuals do not have to pay national insurance and and benefit from lower income tax. HMRC claim that currently only 1 in 10 contractors, who should be paying these taxes are doing so and that these changes will bring in an additional £3.1bn in additional tax revenue between [2020 and 2024.](https://www.gov.uk/topic/business-tax/ir35) ## Who is affected by IR35 upcoming rules? The new [IR35 rules](https://taxdisputes.co.uk/hmrc-ir35/) come into effect from 6 April 2021. • Contractors providing services to medium and large businesses; • Fee-payers in the recruitment sector; and • Medium and large businesses in private sector that are end user of the worker’s services. [Originally, the onus was on individuals](https://taxdisputes.co.uk/hmrc-ir35/) to assess and then declare to HMRC that they fell under IR35. However, HMRC are now tightening the net on these self*–*employed workers by shifting that onus to businesses to determine the status of their contractors. ## Do the IR35 rules affect my company? Companies will not have to comply with the new IR35 legislation if they satisfy two or more of the following criteria: (a) an annual turnover of not more than 10.2 million; (b) balance sheet total of not more than 5.1 million; and (c) number of employees of not more than 50. ## How has Covid-19 impacted IR35? In the midst of the [current global pandemic](https://lexlaw.co.uk/corona-coronavirus-covid-19-legal-litigation-insolvency-tax-employment-dispute-advice/) caused by the [Coronavirus](https://lexlaw.co.uk/wp-content/uploads/2020/03/The-Health-Protection-Coronavirus-Restrictions-England-Regulations-2020.pdf), the UK Government delayed the implementation of their controversial IR35. Contractors have said that this brief reprieve has granted them temporary relief in times of great job uncertainty, particularly where contractors are often the first overhead to be cut from businesses as they handle the aftermath of the pandemic and its financial impact. This may drive many contractors to seek full employment within their companies to ensure job security moving forward. ## What is a tax penalty? Tax penalties are incurred if you fail to declare tax correctly, on time, complete the right tax returns or pay tax when it is due. HMRC will determine the level of penalty to be charged depending on the taxpayer's conduct. ## How the inaccuracy penalty is calculated If a penalty arises because of a lack of reasonable care, the level of the penalty will depend on the amount of the extra tax due and the reasons for the error. For example: - If a penalty arises because of a lack of reasonable care, the level of the penalty will depend on the amount of the extra tax due and the reasons for the error. If the error is careless, the penalty will be between 0 and 30% of the extra tax due.- If the error is deliberate, the penalty will be between 20 and 70% of the extra tax due.- If the error is deliberate and concealed, the penalty will be between 30 and 70% of the extra tax due. The penalty can be reduced if you tell HMRC about the error. HMRC may make further reductions depending on the quality of the disclosure. Penalties can be reduced by: - telling HMRC about the errors;- helping HMRC work out what extra tax is due; and/or- giving HMRC access to check the figures. ## How do I appeal a tax penalty? If a taxpayer disagrees with HMRC, the taxpayer has the following options: **Stage 1**: **Request a HMRC review**: A taxpayer can appeal in writing within 30 days of HMRC’s notice of their decision. HMRC can offer an internal review of the disputed decision (or the taxpayer can request this procedure at any time). The review is an entirely internal procedure completed not by the original HMRC decision maker but by a different HMRC officer. **Stage 2**: **Appeal to the Tax Tribunal**: A taxpayer can [appeal to the First Tier Tax Tribunal](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) if the taxpayer cannot agree their position following the review. The independent tribunal will make a determination on the case. A further appeal is permitted if a taxpayer does not agree with the decision. There are strict time limits for appealing to the Tax Tribunal and you should seek legal advice as soon as possible. ## What can we do for you? Our expert tax litigation team can: - assess the employment status of your current contractor workforce and produce a status determination statement for each contractor as to whether they fell under IR35- review your contractual terms to ensure the business has all the protection required- assist with drafting communications with contractors and their line managers- assist with liaising with HMRC where necessary ## Expert London Tax Investigation Lawyers If you need HMRC Tax Investigation advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist[ Tax Solicitors](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. --- # Uncertainty for freelance workers: Sky Sports Commentator Alan Parry Loses Tax Appeal Against HMRC Source: https://taxdisputes.co.uk/2022/07/uncertainty-for-freelance-workers-sky-sports-commentator-alan-parry-loses-tax-appeal-against-hmrc/ *Contracts between freelance workers and their employers are set for another round of scrutiny by HMRC following Sky Sports commentator Alan Parry losing an appeal against a £356,000 tax bill before the First-Tier Tribunal.* ## The Background According to [IR35 Rules](https://taxdisputes.co.uk/2021/02/hmrc-waives-ir35-penalties-for-12-months-employers-contractors-reasonable-care/), any contractor seen as not being genuinely self-employed but as a “disguised employee” for tax purposes is liable for income tax and national contributions. The Rules essentially operate to curb purported contractors and freelance workers seeking to hide their status when they are actually employees. ## The Case The football commentator had appealed a HMRC claim where the latter had contested that the contracts held between Alan Parry’s company, Alan Parry Productions Ltd, and BSkyB between the tax years of 2013/14 to 2018/19 amounted to a employment relationship and not self-employment. Classing the relationship under the former would mean that Mr Parry would have been liable to pay income tax and national contributions for the relevant years. ## The Judgment The First-Tier Tribunal found that the terms of the relationship between Mr Parry’s company and Sky were ones that reflected a relationship of employment as opposed to self-employment. Holding that IR35 Rules did apply to the concerned tax years means that Mr Parry is now left with a payable tax bill of £356,420.37. Observing the factors of the relationship, the Tribunal found that the level of control by Sky over Mr Parry was one greater than would usually be under the rules and freedom afforded to a freelance worker. The Tribunal noted how, amongst other things, Mr Parry was obliged to work under Sky’s directions which encompassed decisions such as which matches Mr Parry commented on and where from. Other factors which made the relationship akin to employment was the fact that Mr Parry had to seek consent from Sky before he could undertake any additional work for clients. In such circumstances, the Tribunal found that Mr Parry was a ‘disguised employee’ for Sky and, thus, was liable under the IR35 Rules; his appeal was dismissed.  ## The Implications Whilst Mr Parry is able to appeal to the Upper Tribunal within 56 days, the case does, notwithstanding, highlight the need to comply with IR35 rules and guidelines. Failure to do so, as has been seen over the past few years in similar cases, may lead to tax battles resulting in large sums of tax liabilities. ## Download the Judgment [![](https://taxdisputes.co.uk/wp-content/uploads/2022/07/parry.png)](https://taxdisputes.co.uk/wp-content/uploads/2022/07/HMRC-IR35-Rules-Freelance-Worker-Tax-Disputes-Solicitors.pdf) ## Expert London Tax Investigation Lawyers If you need HMRC Tax Investigation advice, we are available to aid you at every stage of the HMRC investigation process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation.  Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. --- # Gary Lineker facing £4.9m tax bill Source: https://taxdisputes.co.uk/2021/05/gary-lineker-facing-5m-tax-bill/ *The Match of The Day host has been told by HMRC that he is not a freelancer but rather an employee of the BBC and BT Sports and could face a tax liability of £4.9 million. * Amongst other celebrity broadcasters, Gary Lineker has been listed to be investigated by HMRC to which the matter will move on to a full hearing. [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)is now pursuing him for £4.9 million that should have been paid on income between the period of 2013 and 2018 comprising of £3,621,735.90 in income tax and a further £1,307,160.46 in NI contributions. Gary insists that all taxes were paid on the income via a partnership Gary Lineker Media (GLM) in the sum of around £600,000 and the company is appealing against the assessments. This meaning that the star can avoid paying employers national insurance contributions but would be liable to pay the same if the appeal is unsuccessful. As HMRC are going to classify that his extensive work for [BT Sport](https://www.bt.com/sport) and [BBC ](https://www.bbc.co.uk/)should make him an employee for tax purposes, this would mean that the HMRC would need to prove the two sports entertainment companies had control over him or he had editorial independence. The rules from the HMRC go back more than 20 years with the Government clamping down on freelancers by encouraging their bosses to set up individual trading companies. The rules are set so that employers have to pay [National insurance](https://www.gov.uk/national-insurance), [holiday pay](https://www.gov.uk/government/publications/calculating-holiday-entitlement-for-workers) and other benefit payments. Otherwise, as being a self-employed individual to the business could be paid out as dividends so as a result have a lower tax rate. The BBC have been under scrutiny as seen on a National Audit Office report in 2018. This led to an HMRC investigation in which the BBC, this being the reason why there are currently many cases coming before the tribunals. ## Previous attempts with celebrity hosts Other attempts for broadcasters and [ITV presenters](https://taxdisputes.co.uk/2020/10/many-including-itv-presenters-to-fight-hmrc-on-ir35/) such as Lorraine Kelly ([Good Morning Britain](https://www.itv.com/goodmorningbritain)) and Kaye Adams ([ITV](https://www.itv.com/)). It should be noted that both hosts ended up winning. Due to the complex nature of the topic and the wide interpretation that could be strung together from it. This is why HMRC frequently loses at the tribunal. In the case of Lorraine Kelly, she won her case on the basis by arguing she was a performer with a high degree of control over her show. As it was explained that "HMRC are on very uncertain ground here ". In addition, the case of Kaye Adams where the tax tribunal decided in favour of the presenter could also be used in the favour of Lineker as it was determined that her business interest were wide and varied. ## How our firm can assist you with a tax investigation HMRC will investigate fully your tax affairs if it is discovered that you are part of a tax avoidance scheme. In addition, HMRC may also: - **Require upfront payment of the tax avoided: **You may receive a tax bill called an [accelerated payment notice](https://www.gov.uk/government/publications/ten-things-about-accelerated-payment-notices). This is a requirement to pay the full amount of tax HMRC calculates as being due, upfront and within 90 days.- **Take legal action**- **Treat you as a high-risk taxpayer: **HMRC will closely scrutinise all your tax affairs in future, not just your use of the avoidance scheme. If you are implicated in a tax avoidance scheme, it is imperative to seek legal advice early. The implications for tax avoidance are serious, potentially leading to a prison sentence. [Contact](https://taxdisputes.co.uk/) our dedicated team of London Tax Solicitors and Barristers today for urgent and confidential advice. ## Expert London Tax Investigation Lawyers If you need HMRC Tax Investigation advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist[ Tax Solicitors](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. --- # HMRC steps up tax debt collection Source: https://taxdisputes.co.uk/2021/07/hmrc-steps-up-tax-debt-collection-winding-up-petition-statutory-demand-advice/ *[Her Majesty's Revenue and Customs](https://www.gov.uk/government/organisations/hm-revenue-customs) have announced that following the majority of restrictions being lifted in the UK that tax debt collection work will restart. This means that taxpayers who don't pay their tax debts may be subject to HMRC's tools of enforcement including taking control of goods, summary warrants and insolvency court action such as issuing statutory demands, [bankruptcy petitions](https://bankruptcypetitionandannulmentlaw.co.uk/bankruptcy-annulment-case-studies/) and [winding up petitions](https://windinguppetitionsolicitors.co.uk/). * *Our London Tax Solicitors and Barristers have vast experience of tax laws and first hand commercial, litigation and advocacy experience. We have a proven track record of successfully contesting disputed tax assessments and penalties with HMRC. The tax authorities have lost many cases that are appealed through negotiation, internal review or through the Tax Tribunal.* ## HMRC tax debt enforcement [Her Majesty's Revenue and Customs (HMRC)](https://www.gov.uk/government/organisations/hm-revenue-customs) have announced it will restart contacting customers who have fallen behind on their tax payments. [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) have also gone on to say that, it will be considerate to help businesses with temporary cash-flow issues to survive as the economy grows, but where businesses have little chance of recovery they have the responsibility to act as allowing unsustainable debt to build up, wouldn't be beneficial to anyone. [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)have lead with a simple message "if you can pay your taxes then you should do so, but if you’re struggling, we want to work with you to agree a plan based on your financial position". Download HMRC's policy announcement on collecting tax debts as we emerge from coronavirus (COVID-19) [here](https://www.gov.uk/government/publications/hmrc-issue-briefing-collecting-tax-debts-as-we-emerge-from-coronavirus-covid-19/collecting-tax-debts-as-we-emerge-from-coronavirus-covid-19). ## Can I challenge a winding-up petition from HMRC? In short yes. If your company has been served with a winding-up petition from HMRC, you have the right to challenge it if any of the following grounds apply: - The debt alleged in the petition is genuinely disputed on substantial grounds by the company;- The company has a genuine right to set-off against the creditor which exceeds the amount of monies claimed in the petition; or- Certain other limited circumstances (for example where the Company is likely to become insolvent or there has been a procedural error or delay). ## Can you represent me at my Winding-up petition hearing? [Yes.](https://lexlaw.co.uk/winding-up-petition-court-hearing-representation-advocacy-solicitors-london/) The rules surrounding insolvency are technical and it is unlikely that a someone not versed in personal insolvency laws will achieve a successful outcome. [Winding up](https://lexlaw.co.uk/winding-up-petition-court-hearing-representation-advocacy-solicitors-london/) particularly and insolvency in general is a niche practice area – indeed many solicitors in general practice will rarely have experience in this discipline. Do not underestimate the severe consequences that winding up a company entails. It is likely that [seeking the advice of a specialist insolvency lawyer](https://lexlaw.co.uk/winding-up-petition-court-hearing-representation-advocacy-solicitors-london/) will be of far more benefit to you than ignoring impending proceedings or seeking to conduct the litigation yourself as a layman. [Our team](https://taxdisputes.co.uk/contact-us/) is made of highly experienced and tough negotiators that will fight to get the best results for our clients. We have years of experience of negotiating with creditors and debtors alike from large multi-million pound cases to smaller matters with equally large consequences for the person involved. ## HMRC Petition Advice If you have received a HMRC winding up petition we are able to provide urgent help, advice or representation. We provide expert legal advice from our team of leading HMRC Petition Solicitors or Barristers. *Please note: If you have been warned about your file being passed to HM Revenue & Customs’ Solicitor’s Office or have been served a statutory demand or petition do not delay in contacting us as your matter can be handled more effectively the sooner you contact us. * ## HMRC Enforcement Action [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) can enforce tax debts in a number of ways and it is imperative that you seek legal advice at the earliest opportunity to protect your position. If you have received a [statutory demand](https://windinguppetitionsolicitors.co.uk/debt-recovery-claims-pre-action-protocol/), you must act quickly (usually within 18 days) if you hope to avoid HMRC bankrupting you as an individual or applying for a winding up petition if you are a company. With debt enforcement by HMRC it is inevitable that unless action is taken the demand will eventually lead to the presentation of a[ winding up](https://windinguppetitionsolicitors.co.uk/) or [bankruptcy petition](https://windinguppetitionsolicitors.co.uk/debt-recovery-claims-pre-action-protocol/). Our tax team work closely with our [insolvency team](https://windinguppetitionsolicitors.co.uk/expert-advice/) to manage the HMRC enforcement process for you. Many specialist tax firms cannot offer dual expertise in both practice areas, but our firm can provide a bespoke solution to your individual circumstances be it with tax advice or insolvency solutions. ## Expert London Tax Lawyers If you need [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)Tax Investigation advice, we are available to aid you at every stage of the [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs). We can provide you with the very best representation in negotiations with [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)and defending all forms of [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)fraud, tax inquiry, tax fraud investigation, criminal tax evasion and [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. --- # Tribunal directs HMRC to end its enquiry Source: https://taxdisputes.co.uk/2023/01/tribunal-directs-hmrc-to-end-its-enquiry/ [The First-tier Tribunal (FTT)](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) granted the taxpayer's request for a direction requiring HMRC to issue a closure notice in the case of [Newpier Charity Ltd v. HMRC [2022] UKFTT 373 (TC)](https://www.bailii.org/uk/cases/UKFTT/TC/2022/TC08622.pdf) on the basis that there were no justifiable grounds to continue HMRC's investigation into the taxpayer's claim to charity tax relief. Our taxation practice is the foundation of the firm. Have a conflict with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs)? Our tax team is composed of knowledgeable tax lawyers who can help you handle your tax issues. For the best outcome, our ex-HRMC lawyers will advise you on intricate tax laws. We have years of expertise in dealing with complex tax problems, including negotiating with HMRC and handling [tax appeals before Tax Tribunals](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/) and in the High Court. ## Newpier Charity’s history and problems with HMRC Newpier Charity Ltd (NCL) is a registered charity that in 1988 purchased shares in Berisford International plc using a loan from Citibank NA. When the loan was called in, the Berisford shares were sold for less than the amount owed, and the difference was settled by third-party guarantors. In June 2018, NCL filed its corporation tax return for the accounting period ended 30 June 2017, which included payments made to one of the guarantors, Ambertown Ltd, that NCL's trustees viewed as being made for charitable purposes and therefore eligible for tax relief. In June 2019, HMRC opened an enquiry into the return and requested information about the payments and the nature of the expenditure. NCL claimed that the requested information was unavailable or irrelevant, arguing that it was unreasonable for HMRC to expect information and documentation from more than 20 years earlier to be available and that, as HMRC had no power to assess for such periods, the documents and information could not be reasonably required. As a result, in February 2022, NCL submitted an application to the FTT seeking a directive under section 28A(4) of the Taxes Management Act 1970 for HMRC to stop its inquiry. ## What did the FTT decide? The FTT accepted that HMRC had concerns about the legitimacy of NCL's claim to charity tax relief and that some of those concerns were reasonable. However, the FTT also noted NCL's contention that the further information and documentation requested was not available and applied the balancing exercise referred to in Frosh & Another v HMRC [2017] UKUT 320 (TCC) to determine that there were no reasonable grounds to maintain the enquiry. The FTT directed that HMRC issue a closure notice within four weeks and commented that if HMRC considered, in the absence of the further information and documentation, that its concerns justified a conclusion that the payments were not eligible for charity tax relief, it could close the enquiry on that basis. ## What did the case highlight? This case highlights the importance of a taxpayer being able to provide requested information and documentation to HMRC during an enquiry and shows that if a taxpayer can demonstrate that the information is unavailable, the FTT may find that there are no reasonable grounds to maintain the enquiry. ## Expert Tax Investigation Lawyers If you need[ HMRC Tax Investigation advice](https://windinguppetitionsolicitors.co.uk/expert-advice/), we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and[ investigations](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/). Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. [Our specialist Tax Solicitors and Barristers](https://lexlaw.co.uk/our-people/) deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email contact@lexlaw.co.uk. --- # Tribunal Allows Taxpayers’ Appeal Against HMRC’s Excessive Delay Source: https://taxdisputes.co.uk/2023/02/tribunal-allows-taxpayers-appeal-against-hmrcs-excessive-delay/ *In the case of [Clive Kingdon & Ors v HMRC [2022] UKFTT 407 (TC)](https://taxdisputes.co.uk/wp-content/uploads/2023/02/Clive-Kingdon-Ors-v-HMRC-2022-UKFTT-407-TC.pdf), the First-tier Tribunal (FTT) allowed the appeals of taxpayers against discovery determinations and penalties imposed by HMRC. The case centered around the company's acquisition of a partnership business that occurred earlier than when HMRC believed it did.* Our [taxation practice](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) is the foundation of the firm. Have a conflict with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs)? Our tax team is composed of knowledgeable tax lawyers who can help you handle your tax issues. For the best outcome, our ex-HMRC lawyers will [advise](https://taxdisputes.co.uk/expert-advice/) you on intricate tax laws. We have years of expertise in dealing with complex tax problems, including negotiating with HMRC and handling [tax appeals before Tax Tribunals](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/) and in the High Court. ## History between Rota Rod and HMRC The case involved income tax and was brought to the attention of the FTT in 2022. In 1993, three individuals, Clive Kingdon, Terry Stead, and Anne Kingdom established a partnership called Rota Rod. The following year, the partnership engaged the services of Christopher Lunn & Co (CLC) to act as its accountants. In 2003, the three individuals incorporated Rota Environmental Services Ltd (the Company) and transferred the partnership business to the company on the advice of CLC. The Partnership's return for 2005/2006 was amended by HMRC to reflect additional income earned by the partnership in that tax year. The taxpayers argued that the transfer of the partnership business to the company took place either on March 31, 2005 or April 1, 2005. Therefore, there was no partnership income for the 2005/06 tax year. However, HMRC believed that the transfer took place on August 2, 2005 and that the partnership's profits between April 6, 2005 and August 1, 2005 should have been returned on the partnership's return for that year. HMRC also imposed penalties on the taxpayers. ## Delay caused by HMRC The FTT remarked that in this instance, HMRC had excessively delayed the process. For instance, when the Company's accountants wrote to HMRC in 2011, they did not hear back in a meaningful way until almost 7 years later, in February 2018. The Appellants' oral testimony was of little use to the FTT because to the lengthy delay, and the documentation evidence was essentially nonexistent.  The FTT stated that the Appellants were unable to recall all the specifics of the transfer due to the [delay caused by HMRC](https://taxdisputes.co.uk/2022/11/how-to-deal-with-delays-by-hmrc/), and as a result, were denied a fair trial. The documents that the Appellants used to support the earlier date of transfer were more recent than those that HMRC used. Therefore, such evidence was preferred to the HMRC-cited evidence.  ## What did the FTT decide? The FTT ultimately allowed the appeals of the taxpayers. The taxpayers submitted that the transfer of the partnership's business took place in March/April 2005, while HMRC claimed it took place in August 2005. The FTT noted that there had been a significant delay on the part of HMRC in this case, which prevented the taxpayers from having a fair trial. The documents relied on by the taxpayers to demonstrate the earlier date of transfer were more contemporaneous than those relied on by HMRC and were therefore preferred. The FTT concluded that it was more likely than not that the transfer took place in March/April 2005. Issues around delay and abuse of process have recently been revisited in the FTT. In this case, the FTT confirmed that it has jurisdiction to consider an argument of abuse of process on the basis of delay by HMRC. This decision may prompt other taxpayers to rely on such an argument in appropriate cases. ## Download The Judgement here [![](https://taxdisputes.co.uk/wp-content/uploads/2023/02/Clive-Kingdon-Ors-v-HMRC-2022-UKFTT-407-TC-724x1024.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2023/02/Clive-Kingdon-Ors-v-HMRC-2022-UKFTT-407-TC.pdf) ## Expert Tax Investigation Lawyers If you need[ HMRC Tax Investigation advice](https://windinguppetitionsolicitors.co.uk/expert-advice/), we are available to aid you at every stage of the HMRC investigation process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and[ investigations](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/). Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. [Our specialist Tax Solicitors and Barristers](https://lexlaw.co.uk/our-people/) deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. We provide urgent [advice](https://taxdisputes.co.uk/expert-advice/) and representation to clients from our unique expert team of established [Tax and Duties specialist solicitors and barristers](https://taxdisputes.co.uk/) with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email contact@lexlaw.co.uk. --- # HMRC targets UK Gig Economy: Airbnb, Amazon, Deliveroo, Ebay, Fiverr, Upwork, Uber, Uber Eats etc Source: https://taxdisputes.co.uk/2023/10/hmrc-targets-uk-gig-economy-airbnb-amazon-deliveroo-ebay-fiverr-upwork-uber-uber-eats-etc/ [His Majesty's Revenue and Customs (HMRC)](https://www.gov.uk/government/organisations/hm-revenue-customs) recently introduced updated guidance on its[ 'selling online and paying taxes' rules](https://www.gov.uk/government/publications/selling-online-and-paying-taxes/selling-online-and-paying-taxes-information-sheet) that directly impact side hustles and gig workers - specifically those selling products and services on well-known digital platforms such as [Airbnb](https://www.airbnb.co.uk/), [Ebay](https://www.ebay.co.uk/), [Fiverr](https://www.fiverr.com/), [Upwork](https://www.upwork.com/), [Uber](https://en.wikipedia.org/wiki/Uber), [Uber Eats](https://www.ubereats.com/gb), [Deliveroo](https://deliveroo.co.uk/), [Amazon ](https://www.amazon.co.uk/)and [Etsy](https://www.etsy.com/uk/). These gig worker platforms will record the income earned by individuals selling their services through these platforms and share this data with HMRC. HMRC's goal is to ensure full recovery of income, reducing the risk of tax evasion. To achieve this, HMRC has forced information release from gig economy platforms. These gig economy platforms are now obliged to record your income and share this data with HMRC. HMRC has allocated a substantial £36.69 million investment to enforce these measures and has employed a team of 24 full-time staff to ensure compliance from the 0.5m UK gig workers. Those who earn more than £1,000 before deducting expenses through their gig economy or other trading, will need to declare and pay Income Tax on this. We're here to provide [expert legal guidance](https://taxdisputes.co.uk/), ensuring that your work activity remains financially rewarding without the burden of legal complications. Just [book an initial conference](https://taxdisputes.co.uk/contact-us/) with our leading tax counsel (former HMRC in-house tax barrister and Head of Indirect Tax Litigation at Deloitte and National Tax Litigation Director at PWC) and our Senior Partner who worked at KMPG, Goldman Sachs and ING Barings and is dual-qualified as a Barrister and Solicitor-Advocate. Both lawyers will be available to you at the outset in your first advice conference. Call 02071830529 to book a video meeting. ## Tax Rules for the Self Employed Gig Worker It's essential to understand the impact of HMRC's tax rules on side hustles and gig workers. HMRC's objective is to boost compliance with tax regulations among individuals engaged in self-employment, freelancing, and side hustles. Accurate reporting of income is crucial. By collaborating with digital platforms, HMRC aims to minimise tax evasion. The direct involvement of platforms ensures that income is tracked more rigorously, leaving less room for discrepancies. The takeaway here is that with direct access to income data from platforms, HMRC can launch tax investigations more efficiently and effectively when income reported on tax returns doesn't match platform records. The changes seek to ensure that everyone contributing to the UK's economy pays their fair share of taxes. The tax rules aim to level the playing field for taxpayers. ## Is Your Self Employment Gig Income Taxable? Income is considered self-employment if it's generated with a profit motive, is regular and ongoing for several months. One-time or casual work might be treated as miscellaneous income. HMRC offers guidance to determine if you're engaged in [self-employment](https://www.gov.uk/working-for-yourself/what-counts-as-self-employed). Self-employed individuals are responsible for reporting and paying their own taxes and National Insurance Contributions (NICs) via a [Self-Assessment](https://taxdisputes.co.uk/2021/03/self-assessment-tax-returns-take-action-to-avoid-late-filing-penalties/) tax return. Keeping accurate records is crucial. The tax return includes sections for reporting self-employment income and expenses. Our [taxation practice](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) is the foundation of the firm. Have a conflict with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs)? Our tax team is composed of knowledgeable tax lawyers who can help you handle your tax issues. For the best outcome, our ex-HMRC lawyers will [advise](https://taxdisputes.co.uk/expert-advice/) you on intricate tax laws. We have years of expertise in dealing with complex tax problems, including negotiating with HMRC and handling [tax appeals before Tax Tribunals](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/) and in the High Court. ## How to understand the HMRC Tax Rules on Gigs and Side Hustles? Navigating the intricacies of these new tax rules can be challenging, and compliance is not something to be taken lightly. To protect your side hustle and ensure that it remains a source of financial gain rather than a legal burden, you need a trusted legal partner by your side and here’s why [Lexlaw Solicitors & Barristers](https://taxdisputes.co.uk/) is the right choice for tax advice: - **Expertise in Tax Regulations:** Our team comprises experts well-versed in tax regulations, ensuring that you receive accurate and up-to-date guidance. - **[Tailored Advice](https://taxdisputes.co.uk/expert-advice/): **We provide personalised advice and strategies to fit your unique situation, whether you're an Airbnb host, a freelancer on Upwork or Fiverr, an Uber or Deliveroo driver, or an Etsy seller. - **Proactive Compliance: **Stay ahead of the curve with our proactive approach to tax compliance. We help you understand your obligations and liabilities. - **Avoid Penalties: **With our assistance, you can avoid the stress and financial burden of unexpected tax investigations and penalties. ## How these HMRC Rules may impact your Tax Liability? One essential aspect of the new tax rules is the Minimum Trading Allowance, set at £1,000 per year. This allowance represents the threshold at which you should begin considering your tax liability. If your income through self-employment surpasses this threshold and exceeds your personal allowance, it's time to think about your tax obligations. Our [law firm](https://taxdisputes.co.uk/) specialises in helping you understand the implications of exceeding the Minimum Trading Allowance and provides the necessary guidance to navigate your tax responsibilities efficiently. By being proactive, you can manage your taxes effectively and prevent legal complications down the road. ## Taxation on Gig and Self-Employed Workers The gig economy has witnessed remarkable growth in recent years, with approximately 0.5m million gig workers estimated in the UK; some reports suggest that the number is much higher. It's ben estimated that one in six adults engages in gig work at least once a week. This sector offers flexibility, convenience, and additional income opportunities. However, the rise of the gig economy has also brought about the need for greater oversight and compliance, which HMRC's tax rules aim to address. Given the substantial number of individuals involved in gig work, the impact of these new regulations is far-reaching. Potentially millions of people are affected, making it vital for anyone with a side hustle or self-employment income to be aware of the changes and take the necessary steps to ensure compliance. ## Why HMRC Compliance Matters for Gig Workers? Ensuring tax compliance is not only a legal obligation but also a means to safeguard your financial well-being. When you comply with tax regulations, you: - Avoid [penalties](https://taxdisputes.co.uk/hmrc-penalties/) and legal repercussions including criminal prosecution. - Protect your hard-earned income. - Maintain your financial security - Build a solid financial future Non-compliance, on the other hand, can lead to financial stress, unexpected [tax investigations](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/), hefty penalties, and potential prosecution for example for cheating the revenue, which could erode your income and disrupt your life and financial stability. In the ever-evolving world of side hustles and gig work, staying compliant with tax regulations is paramount. HMRC's new tax rules have ushered in a new era of transparency and accountability for side hustlers in the UK. To ensure that you're well-prepared and fully compliant, reach out to our law firm today. We have a [proven track record](https://taxdisputes.co.uk/success/) of helping individuals like you navigate the complexities of tax regulations and legal compliance. With our guidance, you can protect your side hustle, secure your income, and focus on achieving your financial goals without the worry of tax complications. Don't wait until you're facing an unexpected tax investigation or penalties. Take control of your financial future by partnering with our experienced legal team. We provide urgent [advice](https://taxdisputes.co.uk/expert-advice/) and representation to clients from our unique expert team of established [Tax and Duties specialist solicitors and barristers](https://taxdisputes.co.uk/) with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk). --- # HMRC’s Crackdown on Umbrella Companies Source: https://taxdisputes.co.uk/2022/12/hmrcs-crackdown-on-umbrella-companies/ *HMRC (His Majesty's Revenue & Customs) is cracking down on umbrella companies used by contractors to pay their taxes, with 10,000 tribunal cases pending. The number of individual incidents increased sevenfold in a year from the 1,200 documented at the end of June 2021 to over 10,000 at the end of June 2022.* If HMRC determines that you have engaged in tax avoidance by using an umbrella company, they may take enforcement action against you. This could include the assessment and recovery of any unpaid taxes and National Insurance contributions, plus interest and penalties. They may also investigate the umbrella company to ensure that it is operating within the law. Additionally, if HMRC believes that you have deliberately avoided tax, they may consider pursuing criminal charges. It's important to respond to HMRC's letter and seek professional advice to understand your options and potential risks. Our taxation practice is the foundation of the firm. Our tax team is composed of knowledgeable tax lawyers who can help you handle your tax issues. For the best outcome, our*** ex-HRMC ***lawyers will advise you on intricate tax laws. We have years of expertise in dealing with complex tax problems, including negotiating with HMRC and handling tax appeals before Tax Tribunals and in the High Court. ## Umbrella Companies & the Tax Tribunal Backlog An umbrella company handles payroll and reduces tax costs for contractors on temporary contracts. The tax tribunal backlog has significantly increased in a relatively short period of time due to the enormous number of umbrella companies suspected of VAT avoidance. If a contractor is considering joining an umbrella company, they should be aware that it's likely the umbrella company will have to pay VAT. Any assertions to the contrary will be treated suspiciously by HMRC. The adoption of IR35 tax reforms by the government in April 2021 rendered businesses that use freelancers liable for the tax their contractors should pay. As a result, the use of umbrella companies by freelancers, especially tech hands-for-hire, has skyrocketed. Umbrella firms operate as intermediaries for temporary contractors and employers, processing their pay and providing payroll, tax, and other back-office services. According to the Association of Independent Professionals and the Self-Employed, more than a third (34%) of freelancers are employed through umbrella businesses. ## HMRC’s Crackdown In order to reduce the backlog of tribunal cases, HMRC and the tribunal are working rapidly. HMRC is confident they will prevail and will begin collecting the VAT it feels it is owed. The tax affairs of contractors is one area where HMRC believes it is missing out on a significant amount of unpaid tax. It has made umbrella corporations their focus now. A spokesperson at HMRC told The Register, a technology news publication, “We are challenging those responsible for Mini Umbrella Company (MUC) fraud using both civil and criminal powers. This includes deregistering tens of thousands of MUCs that we suspect were taking advantage of the VAT Flat Rate Scheme and denying them access to the Employment Allowance.” “When it is shown that a business in the supply chain knew about the fraud or should have known about it, we have made a number of arrests in connection with MUC fraud and also taken action to recover input tax in those circumstances.” ## Expert Tax Investigation Lawyers If you need HMRC Tax Investigation advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email contact@lexlaw.co.uk. --- # HMRC Alert on LLP Mortgage Interest Tax Avoidance Schemes Source: https://taxdisputes.co.uk/2023/10/hmrc-alert-on-llp-mortgage-interest-tax-avoidance-scheme/ On October 4, 2023, HMRC issued an important alert that property landlords and individuals with property rental businesses should pay close attention to. This alert, known as "[Spotlight 63](https://www.gov.uk/guidance/property-business-arrangements-involving-hybrid-partnerships-spotlight-63)," shines a red light on tax avoidance schemes namely, Less Tax for Landlords and Property 118 that have been making rounds in the buy-to-let property industry. These schemes involve transferring property businesses to a unique type of [Limited Liability Partnership (LLP)](https://www.gov.uk/guidance/set-up-and-run-a-limited-liability-partnership-llp) – often referred to as a "hybrid" LLP due to its incorporation of corporate members. The primary goal of this scheme is to sidestep mortgage interest relief restrictions and secure significant tax reductions on profits, Capital Gains Tax (CGT), and even inheritance tax. These scheme promoters have sold many hundreds of tax avoidance schemes to UK landlords and HMRC will now go after landlords who have been a victim of such schemes to recover unpaid taxes. ## Professional HMRC Tax Litigation Advice Our tax barristers and solicitors provide the very best representation in negotiations, throughout the HMRC internal review process and in front of the [Tax Tribunal.](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect including developing a strategy. Our ex-HMRC team provide [advice](https://taxdisputes.co.uk/expert-advice/) in relation to: - Appealing against a tax assessment; - Appealing against a tax penalty; - Negotiating with HMRC; - Navigating the HMRC internal review process; and - Advising on statutory tax appeals within the Tax Tribunal. If you want to challenge a decision made by HMRC, we can help you understand the issues raised, gather necessary information, and ensure a comprehensive and accurate response to HMRC. Just book an initial conference with our leading tax counsel (former HMRC in-house tax barrister and Head of Indirect Tax Litigation at Deloitte and National Tax Litigation Director at PWC) and our Senior Partner who worked at KMPG, Goldman Sachs and ING Barings and is dual-qualified as a Barrister and Solicitor-Advocate. Both lawyers will be available to you at the outset in your first advice conference. ## Understanding the Scheme At its core, these schemes unfold when property landlords, or individuals with property rental businesses, establish a Limited Liability Partnership (LLP) that includes a corporate member. This corporate member is often set up by the landlords themselves or their family members. The properties owned by the individual landlords are then transferred to this newly formed LLP and the profits generated by the LLP are consequently allocated in a discretionary manner. The primary aim is to ensure that the individual landlords remain classified as basic rate taxpayers, while the surplus profits are directed to the corporate member. The scheme promoters claim that property landlords can enjoy a series of tax advantages under these arrangements that include the following: - **No Upfront Tax Costs:** Property transfer to the LLP is touted as having no initial tax costs. Additionally, the base costs of these properties are uplifted to their market value at the time of transfer. This arrangement claims to be designed to minimise future Capital Gains Tax (CGT) obligations upon property sales. - **Basic Rate Taxpayer Status: **The tax status of individual landlords as basic rate taxpayers is said to be preserved, effectively avoiding the impact of finance cost restrictions. - **Full Finance Cost Deductions:** The corporate member within the LLP is advertised to be able to claim full deductions for finance costs, such as mortgage interest. Unlike individual landlords, finance cost restrictions do not apply to corporate members. - **Corporation Tax Advantages:** The corporate member is subject to Corporation Tax on its net profit share. This often results in a lower tax rate compared to the higher or additional income tax rates that would be applicable to individual landlords but it does not apply in most cases. - **Inheritance Tax Relief:** In some cases, Business Property Relief (BPR) can be claimed for the hybrid structure, resulting in no Inheritance Tax being due when landlords pass away but there are several hurdles that need to be avoided to make that happen. ## HMRC Spotlight 63: What It Means for Landlords Spotlight 63 is a wake-up call for property landlords and individuals involved in property rental businesses. HMRC has raised significant concerns about the compliance and legality of these tax avoidance schemes. Specifically, in the scheme, Less Tax for Landlords, a Limited Company is incorporated but the property ownership is never transferred to the Limited Company in order to avoid Capital Gains Tax and Stamp Duty Taxes. Additionally, the tax avoidance scheme promoters advertise setting up a partnership, a Limited Liability Partnership to keep landlords as Basic Rate Taxpayers so that they are not subject to [Section 24 of the ](https://www.legislation.gov.uk/ukpga/2015/33/section/24#:~:text=(1)Where%20a%20deduction%20is,allowed%20apart%20from%20this%20section.)[Finance](https://www.legislation.gov.uk/ukpga/2015/33/section/24#:~:text=(1)Where%20a%20deduction%20is,allowed%20apart%20from%20this%20section.)[ Act 2015](https://www.legislation.gov.uk/ukpga/2015/33/section/24#:~:text=(1)Where%20a%20deduction%20is,allowed%20apart%20from%20this%20section.) changes. In accordance with this scheme, the mortgage payments are to be reimbursed by the Limited Company to the landlords. HMRC's view on these schemes is clear: *it does not achieve the promised tax savings*; *it is a failed tax planning strategy*. HMRC contends that these schemes fall under various anti-avoidance legislations. These include: - **Mixed Member Partnership Legislation: **This legislation reallocates any excess profits of a corporate member within a hybrid LLP back to individual members. - **Disposal of Income Streams through Partnerships Rules:** These rules ensure that the income of the corporate member is charged to the transferor of the income stream, in this case, the landlord. - **Taxation of Chargeable Gains Act:** According to this act, dealings in chargeable assets by an LLP are treated as if they were made by individual members. This means that the base cost of properties remains unchanged following their contribution to the LLP. - **Business Property Relief (BPR) Exclusions:** HMRC maintains that a property rental business is likely to fall within the automatic exclusion for "making or holding investments" under inheritance tax law. The use of the hybrid business model does not alter the availability of this relief. Therefore, it's crucial for those who may have engaged in these arrangements to take immediate action. If you believe that you have been a victim to such a scheme or wish to mitigate any future concerns with the HMRC, we advise voluntary disclosure, under the supervision and expertise of our solicitors, to initiate negotiations of penalties or liabilities. ## HMRC Voluntary Disclosure Opportunity (VDO) In order to allow companies and individuals a way out of their financial predicaments when it comes to taxation, the HMRC runs campaigns to encourage individuals with undeclared income to voluntarily disclose their financial information to settle tax matters. In return, HMRC offers leniency on penalties. These campaigns target various industries, such as electricians, doctors, and landlords, aiming to bring tax affairs up to date and prevent future errors. Current campaigns include: - Credit Card Sales Campaign, focusing on undeclared income from card transactions, - Let Property Campaign, allowing landlords to disclose rental income. - The Worldwide Disclosure Facility is available for offshore tax issues. Benefits of [voluntary disclosure](https://taxdisputes.co.uk/hmrc-voluntary-disclosure-campaigns-solicitors-london/) include avoiding harsh penalties and investigations. HMRC uses various means to detect non-compliance, making professional legal advice crucial. ## How can a Tax Disputes Law Firm help? Navigating the complexities of property business arrangements involving hybrid partnerships and tax planning schemes as highlighted in Spotlight 63 requires expert legal guidance. [Our specialist Tax Solicitors and Barristers](https://lexlaw.co.uk/our-people/) possess expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. We specialise in providing tailored solutions for property landlords, ensuring compliance with HMRC regulations while optimising your tax position. Our experienced team can assist you in: - **Ensuring Compliance:** We stay up to date with the latest tax regulations and will help ensure your business remains compliant with HMRC's guidelines. - **Strategic Planning: **We'll work closely with you to develop a strategic tax plan that aligns with your business goals, optimising your tax efficiency. - **Risk Mitigation**: Identify potential risks and address them proactively, protecting your business from unexpected tax liabilities. - **Audit Representation: **If your property business faces an audit, our legal representation will ensure a fair assessment of your tax position. HMRC assesses penalties based on factors like lost revenue, taxpayer behaviour, and disclosure promptness. Our legal team can help [negotiate penalties](https://taxdisputes.co.uk/hmrc-penalties/) with HMRC. Disclosing financial information voluntarily is advised, as HMRC may impose harsher penalties later. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and[ investigations](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/). Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. We provide [urgent advice ](https://taxdisputes.co.uk/contact-us/)and representation to clients from our unique expert team of established [Tax and Duties specialist solicitors and barristers](https://taxdisputes.co.uk/) with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk?subject=Tax%20Enquiry). --- # Gary Lineker’s Ongoing IR35 Tax Dispute with HMRC Source: https://taxdisputes.co.uk/2023/03/gary-linekers-ongoing-ir35-tax-dispute-with-hmrc/ *Former England footballer and current Match of the Day presenter, Gary Lineker, is currently embroiled in an ongoing tax dispute with HM Revenue & Customs (HMRC) over his use of a company called Gary Lineker Media (GLM) to channel his earnings. Lineker, who is said to have earned millions of pounds during his footballing career and subsequent media work, has denied any wrongdoing, stating that GLM was set up for legitimate reasons and that he has always paid the appropriate amount of tax.* Our [taxation practice](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) is the foundation of the firm. Have a conflict with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs)? Our tax team is composed of knowledgeable tax lawyers who can help you handle your tax issues. For the best outcome, our ex-HMRC lawyers will [advise](https://taxdisputes.co.uk/expert-advice/) you on intricate tax laws. We have years of expertise in dealing with complex tax problems, including negotiating with HMRC and handling [tax appeals before Tax Tribunals](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/) and in the High Court. ## The IR35 Rules and Lineker's Case Lineker's lawyers have argued that HMRC is misinterpreting the law when it comes to investigating GLM. They claim that HMRC is attempting to apply a law known as the "IR35" rules to Lineker's case, when in fact these rules are designed to apply to contractors rather than employees. The IR35 rules were introduced in 2000 to prevent "disguised employment", where workers set themselves up as limited companies in order to avoid paying income tax and National Insurance contributions. However, Lineker's lawyers argue that he was not a contractor but rather an employee of the BBC and other media organisations, and therefore the IR35 rules should not apply. ## Lineker's Past Tax Issues This is not the first time that Lineker has been involved in a tax dispute with HMRC. In 2012, he was forced to pay £4.9 million in back taxes after being found to have used a tax avoidance scheme. Lineker has stated that he regrets using the scheme and has since taken steps to ensure that he pays his fair share of tax. ## The Larger Issue of Tax Avoidance The ongoing dispute between Lineker and HMRC highlights the larger issue of tax avoidance in the UK. According to a 2019 report by the Tax Justice Network, the UK is one of the world's worst enablers of corporate tax abuse. The report estimated that the UK's "tax haven network" costs other countries at least $300 billion a year in lost tax revenue. While Lineker has denied any wrongdoing, the case raises important questions about the effectiveness of current tax laws and the need for greater transparency and accountability when it comes to paying taxes. ## What does the case highlight? The ongoing tax dispute between Gary Lineker and HMRC is a complex issue that touches on a number of important questions about tax avoidance and the role of current tax laws. While Lineker's lawyers argue that HMRC is looking in the wrong place when it comes to investigating his tax affairs, the case highlights the need for greater transparency and accountability when it comes to paying taxes. As the UK continues to grapple with issues of inequality and economic uncertainty, ensuring that everyone pays their fair share of tax is more important than ever. ## Expert Tax Investigation Lawyers If you need[ HMRC Tax Investigation advice](https://windinguppetitionsolicitors.co.uk/expert-advice/), we are available to aid you at every stage of the HMRC investigation process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and[ investigations](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/). Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. [Our specialist Tax Solicitors and Barristers](https://lexlaw.co.uk/our-people/) deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. We provide urgent [advice](https://taxdisputes.co.uk/expert-advice/) and representation to clients from our unique expert team of established [Tax and Duties specialist solicitors and barristers](https://taxdisputes.co.uk/) with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email contact@lexlaw.co.uk. --- # HMRC Recover £6 Billion: Investigations into Small Businesses & Individuals Source: https://taxdisputes.co.uk/2023/04/hmrc-recover-6-billion-investigations-into-small-businesses-individuals/ *In recent years, HM Revenue & Customs (HMRC) has ramped up its investigations into small businesses and individuals suspected of tax evasion and avoidance. According to recent statistics, these investigations have generated nearly £6 billion in tax revenue, highlighting the importance of compliance with tax regulations.* Our [taxation practice](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) is the foundation of the firm. Have a conflict with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs)? Our tax team is composed of knowledgeable tax lawyers who can help you handle your tax issues. For the best outcome, our ex-HMRC lawyers will [advise](https://taxdisputes.co.uk/expert-advice/) you on intricate tax laws. We have years of expertise in dealing with complex tax problems, including negotiating with HMRC and handling [tax appeals before Tax Tribunals](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/) and in the High Court. ## The Scale of HMRC Investigations In the 2020/21 financial year, HMRC carried out 9,824 investigations into small businesses and individuals, a slight decrease from the previous year. Despite this decrease, the investigations generated £5.7 billion in tax revenue, up from £5.1 billion in the previous year. This demonstrates the effectiveness of HMRC's approach to investigating tax avoidance and evasion. ## Importance of Accurate Record-Keeping One of the main reasons for HMRC investigations into small businesses and individuals is inaccurate record-keeping. It is essential for businesses to keep accurate records of all financial transactions and report their income and expenses accurately on their tax returns. Failure to do so can result in severe penalties, including hefty fines and even criminal charges. Therefore, it is crucial to maintain accurate and up-to-date financial records. ## The Consequences of Non-Compliance The consequences of non-compliance with tax regulations can be severe. Those found to have deliberately avoided paying their taxes can face fines and even criminal charges. Furthermore, HMRC has the power to seize assets and freeze bank accounts in order to recover the unpaid tax. ## Avoiding Tax Evasion Tax evasion is a significant concern for HMRC, and they are cracking down on businesses and individuals who are suspected of evading taxes. There are several ways in which businesses and individuals can avoid falling foul of HMRC regulations. Firstly, it is important to ensure that all income is reported accurately and that all expenses are genuine and legitimate. Secondly, businesses and individuals should seek professional advice on tax matters, including the use of tax reliefs and allowances. Finally, it is crucial to file tax returns on time and pay any tax due promptly. ## The Importance of Seeking Professional Advice For small businesses and individuals, navigating the complex world of tax regulations can be challenging. Seeking professional advice can help ensure compliance with tax regulations and avoid the risk of investigation by HMRC. Tax advisors can help identify potential areas of concern and provide guidance on how to address them. ## The Role of HMRC Investigations HMRC investigations into small businesses and individuals play a crucial role in ensuring tax compliance and preventing tax evasion. The revenue generated from these investigations is used to fund public services and essential infrastructure. Therefore, it is important for businesses and individuals to cooperate with HMRC investigations and provide all the information requested promptly. ## What does this mean for Small Businesses and Individuals? Accurate record-keeping, tax compliance, and seeking professional advice on tax matters are essential for small businesses and individuals to avoid falling foul of HMRC regulations. HMRC investigations play a crucial role in ensuring tax compliance and preventing tax evasion. By following the rules and regulations, businesses and individuals can avoid severe penalties and contribute to the overall welfare of the society. ## Expert Tax Investigation Lawyers If you need[ HMRC Tax Investigation advice](https://windinguppetitionsolicitors.co.uk/expert-advice/), we are available to aid you at every stage of the HMRC investigation process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and[ investigations](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/). Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. [Our specialist Tax Solicitors and Barristers](https://lexlaw.co.uk/our-people/) deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. We provide urgent [advice](https://taxdisputes.co.uk/expert-advice/) and representation to clients from our unique expert team of established [Tax and Duties specialist solicitors and barristers](https://taxdisputes.co.uk/) with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email contact@lexlaw.co.uk. --- # Specific Professional Fees not deductible for Corporation Tax Source: https://taxdisputes.co.uk/2023/01/court-of-appeal-rejects-pecific-professional-fees-as-deductibles-for-corporation-tax-in-the-uk/ The Court of Appeal (CoA) in the case of [HMRC v Centrica Overseas Holdings Ltd [2022] EWCA Civ 1520](https://taxdisputes.co.uk/wp-content/uploads/2023/01/HMRC-v-Centrica-Overseas-Holdings-Ltd.pdf) made an important decision regarding the deductibility of expenses incurred in the process of disposing of a subsidiary. The case involved Centrica Overseas Holdings Ltd (COHL), a holding company that incurred professional fees while disposing of one of its subsidiaries. Our [taxation](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) practice is the foundation of the firm. Have a conflict with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs)? Our tax team is composed of knowledgeable tax lawyers who can help you handle your tax issues. For the best outcome, our ex-HRMC lawyers will advise you on intricate tax laws. We have years of expertise in dealing with complex tax problems, including negotiating with HMRC and handling [tax appeals before Tax Tribunals](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/) and in the High Court. ##   ## What is meant by Corporation Tax? You are required to pay Corporation Tax on the profits earned from business activities as a limited company, any foreign company with a UK branch or office, or a club, co-operative or other unincorporated association (such as a community group or sports club). You are responsible for calculating, paying, and reporting your tax, and will not receive a bill for it. ##   ## How can I pay Corporation Tax? You must register for Corporation Tax when you start or restart a dormant business in the UK. You need to prepare your records and Company Tax Return to determine the amount of tax to pay, pay the tax or report if none is due by the deadline, which is typically 9 months and 1 day after the end of your accounting period, and file the Company Tax Return by the deadline, which is usually 12 months after the end of your accounting period. If you are an unincorporated association, you must write to HMRC for registration. ##   ## What are Deductibles for Corporate Tax? There is no definitive list of corporate tax deductibles that qualify for tax relief through capital allowances, and it is important to consider tax legislation, case law, and HMRC guidance when identifying qualifying expenditure. UK corporations are subject to corporation tax on their taxable profits by HMRC, the tax authority. To calculate the taxable profit, businesses can deduct certain expenses that they incur in the course of their operations. These include the cost of goods sold, wages and salaries, rent, interest, depreciation, insurance, repairs and maintenance, professional fees, pension contributions, donations to charity, and research and development (R&D) expenditure. ## What are Professional fees? Professional fees are the fees paid to accountants, lawyers, and other professionals for services rendered to the company. Legal and other professional fees can be disallowed by HM Revenue and Customs if they are of a capital nature, or not wholly and exclusively incurred for the purpose of the trade. Even where an item of expenditure is found to be revenue rather than capital in nature, it still needs to be shown that it also meets the wholly exclusive test. This simply means that the HM Revenue and Customs needs to be satisfied that the sole purpose for incurring the expense is for the purposes of trade, profession or vocation. ##   ## Can I deduct Professional fees/ management expenses for Corporate Tax purposes? Certain professional fees as a result of management expenses may not qualify for corporate tax deduction if found to be capital in nature as opposed to income that is considered to be of a revenue nature. The recent Court of Appeal decision in a tax dispute between Centrica Oversees Holding Ltd (COHL) and HM Revenue & Customs has clarified that not all professional fees may qualify for corporate tax deduction. In July 2005, COHL acquired a Dutch company named Oxxio BV, which had four subsidiaries. During the process of disposing the subsidiary, COHL incurred expenses for professional services from Deutsche Bank AG London, PwC and De Brauw Blackstone Westbroek, which totalled £2,529,697. COHL claimed relief for these expenses on its company tax return for the accounting period ending December 31, 2011. However, HM Revenue and Customs (HMRC) denied the claim and issued a closure notice amending the company's tax return, stating that the expenses were not deductible under the Corporation Tax Act 2009. COHL appealed the decision, but it was dismissed by the First-tier Tribunal (FTT). COHL then appealed to the Upper Tribunal (UT), which allowed the appeal. HMRC then took the case to the CoA. ## What is the outcome of HMRC v Centrica Overseas Holdings Ltd [2022]? The CoA allowed the appeal, agreeing with HMRC that the expenses being professional fees which were incurred as a result of management expenses were not deductible under the *Corporation Tax Act, 2009*. The CoA held that although they were expenses of management, they were also capital in nature, which means that they are not deductible for tax purposes. This case shows how complex it can be to determine the deductibility of expenses incurred in the process of disposing of a subsidiary and how important it is to have[ professional advice](https://lexlaw.co.uk/hmrc-tax-dispute-lawyers/) when dealing with such matters to avoid any legal and tax issues. ## Download the Judgement here [![](https://taxdisputes.co.uk/wp-content/uploads/2023/01/HMRC-v-Centrica-Overseas-Holdings-Ltd-2022-EWCA-Civ-1520-724x1024.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2023/01/HMRC-v-Centrica-Overseas-Holdings-Ltd.pdf) ## What is the Corporation Tax rate for 2022 and 2023? The normal rate of corporation tax currently stands at **19%** for the financial year beginning 1 April 2022, however, this is set to increase to **25%** for the financial year 2023. From 1 April 2023, there will no longer be a single Corporation Tax rate for non-ring fence profits. From 1 April 2023 the Corporation Tax rate changes to: - 19% for taxable profits below £50,000 (small profit rate) - 25% for taxable profits above £250,000 (main rate) ##   ## What is Marginal Relief for Corporation Tax rate? If your company has a profit that falls between the main rate and small profit rate, you may be eligible for Marginal Relief. This means that the rate of Corporation Tax you have to pay will be reduced instead of being at the standard 25%. However, if your company's accounting period is shorter than a year or if your company is associated with other companies, the profit range will be adjusted accordingly. It's also important to note that if your company is non-UK resident, a close investment holding company, or has profits over £250,000, you will not be able to claim Marginal Relief. ## Expert Tax Investigation Lawyers If you need[ HMRC Tax Investigation advice](https://windinguppetitionsolicitors.co.uk/expert-advice/), we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and[ investigations](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/). Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. [Our specialist Tax Solicitors and Barristers](https://lexlaw.co.uk/our-people/) deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email contact@lexlaw.co.uk. --- # FTT Confirms Appellant’s Holding in Another Company Constituted a ‘Structural Asset’ Source: https://taxdisputes.co.uk/2022/11/ftt-confirms-appellants-holding-in-another-company-constituted-a-structural-asset/ *In the First-tier Tribunal (“**FTT**”) case of [Guardian Assurance Ltd v HMRC [2022] UKFTT 234 (TC)](https://www.bailii.org/uk/cases/UKFTT/TC/2022/TC08555.pdf), taxpayer’s appeal was allowed against HMRC’s determination that Guardian Assurance Ltd.'s majority stake in another insurance company did not qualify as a "structural asset" for the purposes of section 137 of the Finance Act 2012 (“**FA 2012**”).* The FTT upheld the Guardian Assurance Ltd.’s (“**Guardian**”) appeal after concluding that one of its shareholdings constituted a structural asset employed in the company's operations and that relief could be claimed upon sale. Therefore, dividend income and capital gains were not subject to taxation as trading earnings*.* Our taxation practice is the foundation of the firm. Have a conflict with HMRC? Our tax team is composed of knowledgeable tax lawyers who can help you handle your tax issues. For the best outcome, our ex-HRMC lawyers will advise you on intricate tax laws. We have years of expertise in dealing with complex tax problems, including negotiating with HMRC and handling tax appeals before Tax Tribunals and in the High Court. ## History between Guardian and ELFC Guardian is a leading life insurance company, established in 1821. Guardian bought a stake in Montreal Life Insurance Company (“**Montreal**”), a Canadian life insurance company in 1980. After 3 years in 1983, this ownership had expanded to 99% of Montreal's shares. In 1986, Guardian and Empire Life Financial Services Corporation (“**ELFC**”) formed a joint venture. Empire Life Insurance Company (“**ELIC**”) was owned by ELFC. As part of their joint venture, Guardian and ELFC concurred to combine Montreal and ELIC to create Empire Life Financial Services Limited (“**ELFS**”), a new holding company. According to the shareholders agreement, Guardian would hold its equity in ELFS through a distinct fund. On the grounds that it was long-term company fixed capital, Guardian excluded receipts, expenses, and changes in capital value resulting from this holding from the calculation of trading profits. According to HMRC, this wasn't a structural asset of the company. Guardian's tax returns for the years 2013, 2014, and 2015 were modified by HMRC's closure notice, which was issued on August 30, 2018, in connection with an investigation into Guardian's tax issues. ## Closure Notice and Guardian’s Appeal According to the closure notice, Guardian's profits due to corporation tax were boosted by £2.7 million in dividend income and £96.4 million in higher share value. Also, HMRC made two consequential amendments: (i) to the return for the period ending December 31, 2014, HMRC added additional dividend income of £3.4 million and a share value increase of £19 million; and (ii) to the return for the period ending December 31, 2015, HMRC added a loss on disposal of £63.9 million and a gain from currency hedging of £17.8 million. **Guardian made an appeal to the FTT regarding the closure notice.** The main question on appeal was whether Guardian's ownership of ELFS during the relevant time qualified as a "structural asset" and, consequently, as "long-term business fixed capital" under section 137 of FA 2012. ## Decision of the FTT The Guardian won in the FTT decision. The holding was put at risk for usage in the business. It operated in a sector that was strikingly similar to that of the taxpayer company. The claim that the shareholding was a structural asset gained support from the fact that it had been held for almost 30 years. Due to the lack of case law defining "structural asset," the FTT used the files from the Finance Bill 2007's Committee Stage, where a minister defined structural assets as "assets owned by an insurance firm as part of its trading structure." HMRC argued that the shareholding was "at risk" in the company and that any investment income should be viewed as trading income, this was rejected by the FTT. In evaluating whether the asset was structural, FTT did not find HMRC's argument worthwhile, that the Guardian's policyholders benefited from the asset more than its shareholders. The FTT believed that Guardian's power to choose board members showed control and influence over ELFS and that this implied the shareholding was a "structural asset." The FTT also mentioned that Guardian owned the shares for a considerable amount of time (around 30 years) and that they were in a company that was quite similar to its own. Both of these elements were relevant in the FTT's eyes, and they supported Guardian's claim that the shareholding was a structural asset. **The appeal was allowed.** ## What did the Case Highlight Regarding “Structural Assets”? According to the FTT, a "structural asset" is defined as a holding that is a part of the trading structure of the relevant insurance company for the purposes of section 137 of FA 2012. Although not all fixed capital assets will be "structural" assets, the decision gives some assurance that such an asset will consist of fixed capital as opposed to circulating capital. It's interesting to note that the FTT stated that comparing capital vs revenue spending introduced an unneeded layer of complication and took attention away from section 137's true wording. It's helpful that the FTT listed a few elements that it thought were crucial in establishing whether an asset was "structural," like the duration of ownership and the type of business. ### Expert Tax Investigation Lawyers If you need HMRC Tax Investigation advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. **We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk).** --- # Case Study: Adam Johnson – HMRC Tax Investigation and settlement of £0.5m Source: https://taxdisputes.co.uk/2023/04/understanding-the-importance-of-settling-tax-bills-with-hmrc/ The core purpose of HMRC is to ensure that individuals and businesses pay the correct amount of tax to the UK government. The level of scrutiny from HM Revenue and Customs (HMRC) is constantly increased to guard against those who fail to comply with tax regulations. Failure to comply can lead to investigation, significant fines and penalties, as well as a range of other legal action(s) both civil and criminal. In this post, we will focus on the recent case of Adam Johnson Promotions Limited. *Need a second opinion on your insolvency litigation? Our specialist solicitors & barristers can help by assessing your case prospects and whether a [winding-up petition](https://lexlaw.co.uk/practice-areas/winding-up-petitions-solicitors-london/) is the right tool. We have highly experienced dual-qualified lawyers, so if our view is your case has limited merit or high risk, we can advise you of the best strategy in our first meeting.* ## Importance of settling tax bills with HMRC It is essential to settle tax bills with HMRC to avoid potential penalties and legal action. Failure to pay the correct amount of tax can result in significant fines and penalties, including interest charges and potential legal action. Furthermore, non-compliance can damage an individual or company's reputation and make it challenging to do business in the future. ## Case study: Adam Johnson Promotions Limited settling a £0.5m bill with HMRC Adam Johnson Promotions Limited is a UK-based company that provides sports marketing services to its clients i.e., the footballer Adam Johnson, who was sent to jail with a sentence of 6 years in 2016. His company recently settled a pounds half-million bill with HMRC related to unpaid taxes. Adam Johnson Promotions Limited's case with HMRC began in 2018 when HMRC opened an investigation into the company's tax affairs. The investigation revealed that the company had underpaid taxes and owed HMRC a significant amount of money. HMRC issued tax assessment(s) to Adam Johnson Promotions Limited, which the company disputed. The directors sought professional advice from an accountant and a lawyer to assist them with the negotiations. The accountant helped to prepare the company's financial statements and demonstrated to HMRC that the company had the ability to pay the outstanding tax bills over a more extended period. The lawyer helped to negotiate with HMRC and presented the company's case to the court. They argued that the company had a good track record of paying its taxes and had faced financial difficulties due to unforeseen circumstances. However, after prolonged negotiations, Adam Johnson Promotions Limited agreed to settle the tax bill with HMRC. The settlement was reached in early 2021, and the company paid half a million pounds to HMRC to settle the dispute. This case study illustrates the importance of prompt action and cooperation when dealing with HMRC. Failure to comply with tax regulations and settle tax bills promptly can lead to prolonged disputes and legal action, which can be costly and damaging to a business's reputation. ## How to settle a tax bill with HMRC If you receive a tax bill from HMRC, it is essential to take prompt action to avoid potential penalties and legal action. The following steps can help you settle a tax bill with HMRC effectively: ##### Step 1: Review the Tax Bill When you receive a tax bill from HMRC, review it carefully to ensure that it is accurate. If you believe there is an error, contact HMRC promptly to rectify the issue. Ignoring the bill or disputing it without proper grounds can lead to additional penalties and legal action. ##### Step 2: Contact HMRC If you agree with the tax bill, contact HMRC promptly to arrange payment. HMRC offers various payment options, including online payments, bank transfers, and direct debit. It is essential to pay the tax bill promptly to avoid additional interest charges and potential legal action. ##### Step 3: Negotiate with HMRC If you are unable to pay the full tax bill promptly, you may be able to negotiate a payment plan with HMRC. HMRC offers various payment plans, including instalment plans and TTP time-to-pay arrangements, to help taxpayers who are unable to pay their tax bills promptly. It is important to contact HMRC as soon as possible to arrange a payment plan and avoid additional interest charges and penalties. ##### Step 4: Seek Professional Advice If you are unable to pay the tax bill or are disputing it, it may be advisable to seek professional advice from a tax advisor or accountant. A tax advisor or accountant can help you navigate the complex tax regulations and negotiate with HMRC on your behalf. ## Expert Tax Investigation lawyers If you need[ HMRC Tax Investigation advice](https://windinguppetitionsolicitors.co.uk/expert-advice/), we are available to aid you at every stage of the HMRC investigation process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and[ investigations](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/). Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. [Our specialist Tax Solicitors and Barristers](https://lexlaw.co.uk/our-people/) deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. We provide urgent [advice](https://taxdisputes.co.uk/expert-advice/) and representation to clients from our unique expert team of established [Tax and Duties specialist solicitors and barristers](https://taxdisputes.co.uk/) with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email contact@lexlaw.co.uk. --- # Obtaining HMRC Time to Pay Agreements (TTP) Source: https://taxdisputes.co.uk/2023/10/obtaining-hmrc-time-to-pay-agreements-ttp/ *A guide to HMRC's Time to Pay (TTP) agreements, which will help viable businesses navigate financial issues. The guide delves into what TTP agreements entail, discusses their bespoke nature tailored to individual businesses and how best to get one agreed with HMRC. Early engagement with HMRC is critical as well as seeking reasonable repayment timeframes and honouring TTP terms and ongoing tax liabilities.* *We regularly assist in securing TTP arrangements.* If your business owes money to HMRC ([His Majesty's Revenue and Customs](https://en.wikipedia.org/wiki/HM_Revenue_and_Customs#:~:text=HMRC%20was%20formed%20by%20the,effect%20on%2018%20April%202005.)) that it can't pay immediately you will probably wish to pay overdue taxes by instalments. This guide provides an essential insight into how our legal team can use their experience and secure your business a favourable [Time to Pay agreement from HMRC](https://www.gov.uk/guidance/find-out-how-to-pay-a-debt-to-hmrc-with-a-time-to-pay-arrangement), which is a key step in preserving financial stability and warding off HMRC Debt Management threats of insolvency (such as a [HMRC Statutory Demand](https://taxdisputes.co.uk/hmrc-statutory-demand/), Bankruptcy or a [HMRC Winding-up Petition](https://lexlaw.co.uk/practice-areas/winding-up-petitions-solicitors-london/hmrc-petition-winding-up/)). Our leading tax experts with years of experience of handling HMRC officers can be instructed to deal with HMRC on your behalf, ensuring a smooth and confident process. In recent times, the landscape of tax compliance has seen significant changes, with HMRC taking a more proactive stance to tax debt collection. They have expanded their compliance team, and the number of [winding up petitions issued by HMRC](https://taxdisputes.co.uk/hmrc-winding-up-petitions/) has [surged in 2023](https://windinguppetitionsolicitors.co.uk/insolvency-lawyers-london/post-pandemic-surge-in-company-insolvencies/). This increased scrutiny has put pressure on businesses, particularly those grappling with COVID-related tax deferrals or financial challenges resulting from recent economic turbulence in the UK. Simultaneously, the cost of late payments being made to HMRC has risen substantially, with interest charges tied to the Bank of England's base rate. As a result, many businesses are now exploring the possibility of negotiating [Time to Pay (TTP) agreements with HMRC](https://www.gov.uk/hmrc-internal-manuals/debt-management-and-banking/dmbm800040) to better manage cash flow and tax payment arrears. ## What is a HMRC Time to Pay Agreement? [HMRC's Time to Pay agreements](https://www.gov.uk/guidance/find-out-how-to-pay-a-debt-to-hmrc-with-a-time-to-pay-arrangement) are structured plans that enable business owners to repay their arrears typically of PAYE, NICs, VAT, or Corporation Tax over an agreed reasonable timeframe. These agreements provide an effective means of addressing cash flow pressures and HMRC liabilities, ensuring businesses can manage their repayments over a manageable period. Crucially, TTP arrangements are tailored to the specific financial circumstances of each business, meaning there's no one-size-fits-all solution. Instead, the terms are customarily designed to suit the business's financial capacity and needs. This means that businesses have to negotiate with HMRC to obtain a TTP agreement; our lawyers have many [decades of experience in obtaining TTP installment agreements](https://taxdisputes.co.uk/2023/04/understanding-the-importance-of-settling-tax-bills-with-hmrc/) with HMRC. ## Financial Challenges in the Current Tax Landscape The [Covid-19 pandemic](https://taxdisputes.co.uk/2020/05/covid-19-coronavirus-hmrc-time-to-pay-arrangements-tax-solicitors-advice/) led to the standardisation of three-year or longer Time to Pay agreements. However, as the [pandemic's economic impacts](https://taxdisputes.co.uk/2020/05/covid-19-coronavirus-hmrc-time-to-pay-arrangements-tax-solicitors-advice/) continue to recede, HMRC has taken a more [proactive approach to tax collection](https://taxdisputes.co.uk/2022/06/dealing-with-a-hmrc-7-day-letter-before-winding-up-action/). As a result, it's vital for businesses to engage with HMRC early and negotiate a reasonable repayment period. HMRC's debt owed by corporates reportedly reached £72 billion in 2020, leading to an increased urgency now, post-pandemic, to recover these funds. Therefore, securing the right TTP agreement, tailored to your cash flow and spanning the longest reasonable timeframe, is crucial. ## Key Features of a Time to Pay (TTP) Agreement) A Time to Pay (TTP) agreement with HMRC is a structured plan outlining the terms for repaying outstanding tax arrears, such as [PAYE](https://taxdisputes.co.uk/paye-tax-investigation-disputes/), [VAT](https://taxdisputes.co.uk/repayment-fraud/), or Corporation Tax, over a specified period. While the exact contents of a TTP agreement can vary, the typical elements include: The specific terms of a TTP agreement are highly flexible and tailored to the business's financial situation. Close collaboration with HMRC, early engagement, and a clear rationale for the TTP agreement are key to securing favourable terms and our firm can assist you with exactly that. Our team has experience in dealings with HMRC and we can help you secure a TTP Agreement tailored specifically to your requirements. - **Tax Arrears Details**: Specifics about the type of tax arrears and the total amount owed are clearly stated. - **Repayment Schedule**: The agreement outlines the agreed-upon repayment plan, including payment amounts, frequency, and the overall duration. - **Interest and Penalties**: The agreement may address any accrued interest and penalties, potentially specifying whether these will be reduced, waived, or included in the repayment plan. - **Terms and Conditions**: Both the business and HMRC must adhere to specified terms and conditions. These may cover consequences for missed payments or failure to meet agreed terms. - **Confidentiality**: A confidentiality clause may be included to protect sensitive financial information shared during the negotiation. - **Review and Modification**: Provisions for reviewing and modifying the agreement in case of changing financial circumstances. - **Default Provisions**: Consequences of defaulting on the agreement are outlined, including potential enforcement actions by HMRC. ## Negotiating Time to Pay (TTP) with HMRC While HMRC is generally open to agreeing to payment plans, they do so with the expectation of full compliance. Businesses must provide a clear reason for their inability to meet tax payments on time and demonstrate a genuine commitment to making payments as agreed. Failure to honour the terms of the agreement or meet ongoing HMRC liabilities may lead to a more aggressive approach. [HMRC's Time to Pay agreements](https://www.gov.uk/guidance/find-out-how-to-pay-a-debt-to-hmrc-with-a-time-to-pay-arrangement) can be a valuable lifeline for businesses facing financial difficulties, especially in turbulent economic times. The key is to approach HMRC with a clear rationale, be prepared to negotiate terms, and demonstrate a firm commitment to meeting your financial obligations. Engaging with HMRC early, being transparent about your financial situation, and presenting a well-thought-out plan can build a positive working relationship and increase the likelihood of reaching a mutually beneficial agreement and [our firm](https://taxdisputes.co.uk/) can help you do that. ## Requirements of a Time to Pay (TTP) Agreement? When applying for an HMRC Time to Pay (TTP) arrangement, it's essential to build a compelling case for an extension. A strong case involves presenting a realistic proposal, supported by key evidence, to demonstrate your ability to meet financial obligations. This evidence should include: - **Sales and Cash Flow Forecasts**: Provide detailed forecasts for sales and cash flow over the next six months or longer to showcase your financial planning. - **Cost Reduction Plan**: Develop a clear plan outlining how you intend to reduce costs, freeing up extra cash for repayments. - **Determination for Repayments**: Convey your unwavering commitment to consistently meeting your financial obligations and repayments. HMRC generally prefers shorter TTP arrangements with higher repayments to expedite money recovery. However, it's imperative to offer only what your business can realistically afford and ensure it can meet the obligations outlined in the plan before final agreement. Dealing with HMRC can be complex and time consuming, which is why many clients opt for the assistance of [authorised and regulated tax solicitors](https://windinguppetitionsolicitors.co.uk/) who can negotiate on their behalf and [our firm](https://taxdisputes.co.uk/) can do exactly that. Our expertise can streamline the process and increase the likelihood of securing a favourable TTP arrangement. ## How can Tax Disputes Lawyers help deal with HMRC? Navigating the complexities of HMRC’s Time to Pay agreement can be challenging. [Our specialist Tax Solicitors and Barristers](https://taxdisputes.co.uk/) possess expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. We specialise in providing tailored solutions for negotiating TTP with HMRC, ensuring compliance with HMRC regulations while optimising your tax position. [Our experienced team](https://taxdisputes.co.uk/) can assist you in: - **Ensuring Compliance**: We stay up to date with the latest tax regulations and will help ensure your business remains compliant with HMRC's guidelines. - **Strategic Planning**: We'll work closely with you to develop a strategic tax plan that aligns with your business goals, optimising your tax efficiency. - **Risk Mitigation**: Identify potential risks and address them proactively, protecting your business from unexpected tax liabilities. - **Audit Representation**: If your property business faces an audit, our legal representation will ensure a fair assessment of your tax position. ## Contact Our Tax Solicitors & Barristers HMRC assesses penalties based on factors like lost revenue, taxpayer behaviour, and disclosure promptness. Our legal team can help [negotiate penalties](https://taxdisputes.co.uk/hmrc-penalties/) with HMRC. Disclosing financial information voluntarily is advised, as HMRC may impose harsher penalties later. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and[ investigations](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/). Our team specialises in successfully challenging HMRC decisions and will assist you every step of the way. We provide [urgent advice ](https://taxdisputes.co.uk/contact-us/)and representation to clients from our unique expert team of established [Tax and Duties specialist solicitors and barristers](https://taxdisputes.co.uk/) with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk?subject=Tax%20Enquiry). --- # Paradise Wildlife Park vs. HMRC: Charitable Tax Exemption Source: https://taxdisputes.co.uk/2023/03/paradise-wildlife-park-vs-hmrc-charitable-tax-exemption/ *Paradise Wildlife Park Limited (“PWP”) has recently lost its appeal in the First Tier Tribunal (“FTT”) over whether the construction costs for its walk-through dinosaur exhibit and lion enclosure were eligible for VAT exemption. The FTT rejected PWP's claim that the costs incurred in the construction of these exhibits were eligible for zero-rated VAT, as they were not intended solely for use for a charitable purpose and did not qualify as buildings.* Our [tax litigation practice](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) is the foundation of the firm. Have a conflict with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs)? Our tax team is composed of knowledgeable tax lawyers who can help you handle your tax issues. For the best outcome, our ex-HMRC lawyers will [advise](https://taxdisputes.co.uk/expert-advice/) you on intricate tax laws. We have years of expertise in dealing with complex tax problems, including negotiating with HMRC and handling [tax appeals before Tax Tribunals](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/) and in the High Court. ## History between PWP and HMRC The case stems from a 2017 project in which the Zoological Society of Hertfordshire (ZSH) hired PWP to build a lion enclosure, a shop, and an outdoor dinosaur exhibition at the Paradise Wildlife Park in Hertfordshire. PWP claimed that the construction services were eligible for VAT exemption as they were part of the construction of a building intended solely for a relevant charitable purpose. However, HMRC assessed the construction services as standard-rated, arguing that ZSH was carrying on a business that used the new constructions. PWP conceded that the shop construction should have been standard rated but appealed the assessment for the lion enclosure and dinosaur exhibit. The FTT examined the case law on business activity and the definition of a building, particularly Wakefield College v HMRC. The decision highlights the importance of understanding the rules for VAT exemption and when businesses should register for VAT. Starting a business can be a daunting process, and one of the first decisions that must be made is whether or not to register for VAT. This decision can have significant financial implications, as it affects the VAT that must be paid on goods and services. Land and property owners should also be aware of the VAT rules for relevant residential and charitable purposes. Understanding these rules can help businesses avoid claw back provisions and ensure compliance with VAT regulations. ## What did the Tax Tribunal Decide? The corporation argued that the arrangement was legitimate and that it was entitled to the tax benefits that it had claimed. However, the UK First-tier Tribunal (FTT) found in favor of the tax authorities. The FTT held that the arrangement was designed to exploit loopholes in the tax code, rather than to reflect the true economic realities of the company's operations. The FTT held that ZSH was carrying on a business, and that the lion enclosure and dinosaur exhibit were intended for use in the business at least in part. The FTT also ruled that the dinosaur exhibit was not a building, despite being a permanent structure. Therefore, the appeal was dismissed on the following grounds: - **Purpose of the building** The FTT while deciding the case held that in Order to qualify for zero-rating of construction services, the buildings must be intended exclusively for non-business purposes. However, the lions' den and the dinosaur exhibit, while serving conservation and educational purposes respectively, also contribute to the park's appeal and therefore have a business function. - **Was the outside exhibit a building?** Additionally, the FTT deliberated whether the dinosaur exhibit constituted a building, given that the term is not explicitly defined in statute. Despite being a permanent structure, the FTT ruled that the exhibit did not qualify as a building. - **Was ZSH carrying on a business?** According to the FTT's findings, ZSH was engaged in a business, and the enclosure and exhibit were intended to be used, at least in part, for business purposes. Consequently, the construction services supplied by ZSH were ineligible for zero-rating and were subject to VAT at the standard rate. ## Tax Exemptions Available for Buildings The main tax exemptions available for buildings built for charitable, educational or conservational purposes are: **Zero-rated VAT** When a building is constructed for a "relevant charitable purpose," it may be eligible for zero-rated VAT. This means that no VAT is charged on the construction costs, and the organization may be able to claim back VAT paid on certain expenses, such as equipment and supplies. To be eligible for zero-rated VAT, the building must be used for a purpose that is recognised as charitable by law. This includes, but is not limited to, the advancement of education, the relief of poverty, the advancement of religion, and the promotion of health. **Business rates relief** Charitable organizations may also be eligible for business rates relief on the buildings they occupy. Business rates are a tax on non-domestic properties, such as shops, offices, and warehouses. Charities may be entitled to a discount or exemption on their business rates, depending on the type of property and its use. **Gift Aid** Gift Aid is a tax relief that allows charities to claim back the basic rate of income tax on donations made by UK taxpayers. This can significantly increase the value of donations, as the charity can claim an extra 25p for every £1 donated. Gift Aid can be claimed on donations made for the general purposes of the charity, or for specific projects or campaigns. It is important for charities to keep accurate records of donations and to provide donors with a Gift Aid declaration form. **Capital gains tax relief** Charitable organizations may also be eligible for capital gains tax relief on the sale of buildings or land. This means that they do not have to pay capital gains tax on any profit made from the sale, as long as the proceeds are used for charitable purposes. ## What is the Eligibility Criteria for Tax Exemptions? To be eligible for tax exemptions, buildings built for charitable purposes must meet certain criteria. These criteria include: - The building must be used for a purpose that is recognised as charitable by law. This includes, but is not limited to, the advancement of education, the relief of poverty, the advancement of religion, and the promotion of health. - The building must be used solely for charitable purposes. This means that it cannot be used for commercial purposes or rented out for profit. - The organization must be a registered charity or a non-profit organization. This includes charities registered with the Charity Commission, community interest companies (CICs), and charitable incorporated organizations (CIOs). - In addition, to be eligible for zero-rated VAT, the building must meet certain criteria related to its design and construction. For example, it must be designed to meet the needs of the charitable purpose and must not be used for any other purpose. ## Requirements for a building built for charitable purposes in the UK **Registered charity status:** The organization must have registered charity status with the Charity Commission for England and Wales, the Charity Commission for Northern Ireland, or the Office of the Scottish Charity Regulator. **Public benefit:** The building must be used to provide public benefit in the UK, such as for religious worship, education, or the advancement of health or social welfare. **Solely for charitable purposes:** The building must be used solely for charitable purposes, which means that it cannot be used for any other purpose that is not related to the charitable aims of the organization. **No private benefit:** The building cannot be used to provide private benefit to any individual, such as providing accommodation for the trustees of the charity or their families. ## Tax Exemptions: What qualifies as a building? To qualify for tax exemptions, the facility must be a building and not a temporary structure or a piece of land. In general, a building is defined as a permanent structure that is attached to the ground, has a roof and walls, and provides shelter or accommodation for people or animals. Examples of buildings that may qualify for tax exemptions include: - **Community centres:** Buildings used for community activities such as meetings, classes, and events. - **Places of worship:** Buildings used for religious worship, such as churches, mosques, and synagogues. - **Residential homes:** Buildings used to provide accommodation and care for people who are elderly, disabled, or vulnerable. - **Educational facilities:** Buildings used for educational purposes, such as schools, colleges, and universities. - **Health facilities**: Buildings used for medical or health-related purposes, such as hospitals, clinics, and care homes. In contrast, temporary structures such as marquees or tents, and land without any permanent structures do not qualify for tax exemptions for buildings built for charitable purposes. ## Download the Tax Litigation Judgment Here [![](https://taxdisputes.co.uk/wp-content/uploads/2023/03/PWP-v-HMRC-724x1024.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2023/03/TC08729.pdf) ## Tax Exemptions - Case Conclusion Tax exemptions in the UK can provide significant financial benefits to charities and non-profit organizations. By encouraging the construction and operation of facilities that benefit the public, these exemptions can help to improve the lives of people across the country. To be eligible for tax exemptions, organizations must meet certain eligibility criteria and follow certain procedures. By taking the time to understand these requirements and seeking professional advice when necessary, charities and non-profit organizations can maximise their tax savings and better serve their communities. ## Expert UK Tax Litigation Lawyers If you need[ HMRC advice](https://windinguppetitionsolicitors.co.uk/expert-advice/), we are available to aid you at every stage of the HMRC investigation or appeal process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries, appeals and[ investigations](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/). Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. [Our specialist Tax Solicitors and Barristers](https://lexlaw.co.uk/our-people/) deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. We provide urgent [advice](https://taxdisputes.co.uk/expert-advice/) and representation to clients from our unique expert team of established [Tax and Duties specialist solicitors and barristers](https://taxdisputes.co.uk/) with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email contact@lexlaw.co.uk. --- # Tax Tribunal Denies HMRC’s Application to Dismiss Appeal Source: https://taxdisputes.co.uk/2023/06/tax-tribunal-denies-hmrcs-application-to-dismiss-appeal/ HMRC sought to strike out and dismiss the taxpayer's appeal in *[Phu Hung Ltd v HMRC [2023] UKFTT 00224 (TC)](https://taxdisputes.co.uk/wp-content/uploads/2023/06/Phu-Hung-Ltd-v-HMRC-2023-UKFTT-00224-TC.pdf)* however the [First-tier Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) ("**FTT**") has ruled against HMRC. The FTT concluded that HMRC was unable to prove that the taxpayer's appeal over a VAT registration date lacked a reasonable chances of success. Our tax barristers and solicitors provide the very best representation in negotiations, throughout the HMRC internal review process and in front of the [Tax Tribunal.](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect including developing a strategy. Our ex-HMRC team provide [advice](https://taxdisputes.co.uk/expert-advice/) in relation to: - Appealing against a tax assessment; - Appealing against a tax penalty; - Negotiating with HMRC; - Navigating the HMRC internal review process; and - Advising on statutory tax appeals within the Tax Tribunal. If you want to challenge a decision made by HMRC, we can help you understand the issues raised, gather necessary information, and ensure a comprehensive and accurate response to HMRC. Just book an initial conference with our leading tax counsel (former HMRC in-house tax barrister and Head of Indirect Tax Litigation at Deloitte and National Tax Litigation Director at PWC) and our Senior Partner who worked at KMPG, Goldman Sachs and ING Barings and is dual-qualified as a Barrister and Solicitor-Advocate. Both lawyers will be available to you at the outset in your first advice conference. Our [taxation practice](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) is the foundation of the firm. Have a conflict with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs)? Our tax team is composed of knowledgeable tax lawyers who can help you handle your tax issues. For the best outcome, our ex-HMRC lawyers will [advise](https://taxdisputes.co.uk/expert-advice/) you on intricate tax laws. We have years of expertise in dealing with complex tax problems, including negotiating with HMRC and handling [tax appeals before Tax Tribunals](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/) and in the High Court. ## HMRC's Decision and PHL's Appeal The dispute between Phu Hung Ltd ("**PHL**") and HMRC arose when HMRC issued a review decision in August 2021, affirming a previous decision to change the effective date of registration for Value Added Tax (VAT) for PHL. The reviewing officer, in the review decision, took into account the relevant background information, including the discussions between the original officer and PHL's representative. Initially, PHL registered for VAT in July 2019, with an effective date of 1 May 2019. However, the reviewing officer upheld the decision to modify the effective date of registration to 1 July 2017, based on PHL's turnover figures that displayed a consistent increase until June 2019, followed by a more significant increase thereafter. Displeased with HMRC's decision, PHL chose to file an appeal. In their grounds of appeal, PHL acknowledged that their record-keeping had been insufficient in the past but contested HMRC's calculation methodology. They proposed an alternative approach that would yield an effective date of registration of 1 August 2018. ## HMRC's Attempt to Strike Out the Appeal Initially, HMRC applied to the FTT to strike out PHL's appeal, arguing that PHL had not paid the disputed VAT amount and had not applied for hardship relief. However, HMRC later withdrew the hardship relief issue. They caused a delay in the Tribunal proceedings by taking such action which is a growing and unfair tactic deployed by HMRC Solicitor's Office litigators. Subsequently, HMRC claimed that PHL's grounds of appeal were insufficient and requested directions from the FTT to compel PHL to provide better grounds of appeal. Additionally, HMRC sought an extension of time to file its formal statement of case pleading (perhaps the real reason for the delaying applications?). The FTT rejected HMRC's application, finding it unnecessary and unwarranted. ## Dismissal of HMRC's Application The FTT dismissed HMRC's application to strike out PHL's appeal. The tribunal concluded that HMRC had failed to demonstrate, on the balance of probabilities, that PHL had no prospects of success in their appeal. Moreover, the FTT highlighted that if PHL could provide evidence supporting their turnover figures, their appeal could potentially succeed. Additionally, as the appeal was still in its early stages and no directions had been issued for the parties to present evidence, HMRC's application was premature. Alongside dismissing the application, the FTT directed HMRC to promptly file and serve its statement of case. ## FTT's Approach to Strike Out Applications This decision serves as a reminder of the FTT's approach when considering strike out applications. The FTT does not conduct a "mini-trial" and places the burden on the applicant to demonstrate that the opposing party has no reasonable prospects of success. In cases where factual determinations and examination of documentary and/or witness evidence are necessary, a strike out application is unlikely to succeed if the proceedings have not advanced sufficiently to allow the parties to present such evidence or at least confirm that no such evidence will be presented. ## What does the case highlight? In the *Phu Hung Ltd v HMRC* case, HMRC's attempt to strike out PHL's appeal failed. The FTT rejected HMRC's application, emphasising that HMRC had not shown that PHL had no reasonable prospects of success. This decision highlights the importance of evidence and the progression of proceedings in strike out applications. It serves as a valuable precedent for future cases and reminds parties involved in tax disputes to present their evidence adequately to support their claims. ## Download the Phu Hung v HMRC Judgment: [![](https://taxdisputes.co.uk/wp-content/uploads/2023/06/Cover-Page-Phu-Hung-Ltd-v-HMRC-2023-UKFTT-00224-TC-724x1024.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2023/06/Phu-Hung-Ltd-v-HMRC-2023-UKFTT-00224-TC.pdf) ## Commencing Proceedings at the First Tier Tax Tribunal To commence proceedings, the Appellant must notify the appeal to the Tax Tribunal. An appellant or their legal representative can [appeal to the Tax Tribunal online](https://appeal-tax-tribunal.service.gov.uk/) or fill in a [T240 notice of appeal form](https://assets.publishing.service.gov.uk/media/669e61a8a3c2a28abb50d45a/T240_0724_save.pdf). Proceedings will commence once the Appellant has sent a notice of appeal to the tribunal within the specific time limits as set out by the particular Act. The [First Tier Tribunal Rules 2009](https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/357075/tax-chamber-tribunal-procedure-rules.pdf) sets out that the notice of appeal must include: *“(a) the name and address of the appellant; (b) the name and address of the appellant’s representative (if any); (c) an address where documents for the appellant may be sent or delivered; (d) details of the decision appealed against; (e) the result the appellant is seeking; and (f) the grounds for making the appeal.”* *[[Rule 20(2), FTR 2009](https://www.legislation.gov.uk/uksi/2009/273/article/20/made)]* and: *“The appellant must provide with the notice of appeal a copy of any written record of any decision appealed against, and any statement of reasons for that decision, that the appellant has or can reasonably obtain.”* *[[Rule 20(3), FTR 2009](https://www.legislation.gov.uk/uksi/2009/273/article/20/made)]* Following this step, the First Tier Tax Tribunal will give notice of the proceedings to HMRC ([rule 20(5)](https://www.legislation.gov.uk/uksi/2009/273/article/20/made), FTR 2009). If the notice of appeal is served out of time, a request for an extension of time must be included with the notice ([rule 20(4)](https://www.legislation.gov.uk/uksi/2009/273/article/20/made), FTR 2009). The Tax Tribunal has discretion whether to admit late appeal notices by generally considering: - the purpose of the time limit; - the length of the delay; - whether there was a good explanation for the delay; and - the consequences for the parties of an extension or non-extension of time. In any event, it is recommended that legal advice is sought as soon as you become involved in a HMRC dispute to prevent a situation where a potential claim becomes time-barred. ## Expert Tax Investigation Lawyers If you need[ HMRC Tax Investigation advice](https://windinguppetitionsolicitors.co.uk/expert-advice/), we are available to aid you at every stage of the HMRC investigation process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and[ investigations](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/). Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. [Our specialist Tax Solicitors and Barristers](https://lexlaw.co.uk/our-people/) deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. We provide urgent [advice](https://taxdisputes.co.uk/expert-advice/) and representation to clients from our unique expert team of established [Tax and Duties specialist solicitors and barristers](https://taxdisputes.co.uk/) with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email contact@lexlaw.co.uk. --- # Agricultural Show Wins £292k VAT Appeal – A Victory for Farming Businesses Source: https://taxdisputes.co.uk/2023/05/agricultural-show-wins-292k-vat-appeal-a-victory-for-farming-businesses/ *The Yorkshire Agricultural Society is a charitable company that runs the annual agricultural show, the Great Yorkshire Show since 1838. The Society disputed an assessment of £90,776 in VAT payments, and a refusal by HMRC to allow net VAT repayment of £201,949, as HMRC claimed that the show should have been subject to VAT as it was not run for charitable purposes. A judge has criticised the Revenue officials for taking an agricultural show to court over a tax amount of hundreds of thousands of pounds, which the show did not actually owe.* Our [taxation practice](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) is the foundation of the firm. Have a conflict with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs)? Our tax team is composed of knowledgeable tax lawyers who can help you handle your tax issues. For the best outcome, our ex-HMRC lawyers will [advise](https://taxdisputes.co.uk/expert-advice/) you on intricate tax laws. We have years of expertise in dealing with complex tax problems, including negotiating with HMRC and handling [tax appeals before Tax Tribunals](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/) and in the High Court. ## The Great Yorkshire Show v HMRC The Great Yorkshire Show, located in Harrogate and held during the month of July, usually yields a sum of £3 million to £4 million. Roughly 35,000 individuals attend the event each day to observe various farm animals such as cattle, sheep, pigs, and goats. In addition, there are also demonstrations of showjumping and sheep shearing, exhibits aimed at educating children about food production, and a farmers' market. ## The VAT Tax Tribunal Appeal HMRC took Yorkshire Agricultural Society to the First-Tier Tax Tribunal, claiming that it owed £292,725 from the takings of the Great Yorkshire Show, UK’s biggest. The Society argued that the show was in fact run for charitable purposes and should therefore be exempt from VAT. The Tribunal ruled in favour of the Society. ## Legal Basis of the Tax Appeal The Society's appeal was based on the VAT Act 1994, which provides exemptions for "certain cultural services" provided by non-profit making organizations. The Society argued that its agricultural show was a cultural service that was provided for charitable purposes and should therefore be exempt from VAT. ## What did the Tax Tribunal Decide? Christopher McNall, the judge, called HMRC’s case ‘unattractive’ and dismissed it. The judge concluded that the case had no merit because the Great Yorkshire Show is a charitable event that raises funds, making its profits exempt from VAT. Additionally, the judge noted that the tax officials were mistaken in bringing the demand because it was made out of time. The Tribunal agreed with the Society, stating that the agricultural show was "not run with a view to profit" and was therefore exempt from VAT. The Tribunal also noted that the show had a number of charitable objectives, including the promotion of agriculture and horticulture, and the support of education and research in these areas. ## Implications for charities and non-profit organizations This decision has important implications for charities and non-profit organizations that run similar events. It confirms that certain cultural services can be exempt from VAT when run for charitable purposes. The ruling also emphasizes the need for organizations to have a clear understanding of VAT exemptions and to ensure that events are run for charitable purposes where appropriate. It further highlights the importance of appealing decisions made by HMRC where there is a strong legal basis for doing so. ## Implications for HMRC The ruling of the tribunal is especially frustrating for HMRC during the week of the King's coronation as he has a close association with the Great Yorkshire Show, with his mother having been a patron for 45 years. In 2021, the King and the then Duchess of Cornwall visited the event and observed cattle sheds, sheep judging, and South Devon cattle. The judge criticized the HMRC officials for the pursuing the case, raising serious questions over why it wasted tens of thousands of pounds of taxpayers’ money pursuing it. ## What did the VAT appeal case highlight? Yorkshire Agricultural Society's successful appeal against HMRC's decision to charge VAT on its agricultural show is a significant win for the organization and others like it. The Tribunal's decision provides important guidance on the interpretation of VAT exemptions for non-profit making organizations providing cultural services. It emphasizes the importance of organizations having a clear understanding of VAT exemptions and ensuring that their events are run for charitable purposes where appropriate. ## Expert Tax Investigation Lawyers If you need[ HMRC Tax Investigation advice](https://windinguppetitionsolicitors.co.uk/expert-advice/), we are available to aid you at every stage of the HMRC investigation process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and[ investigations](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/). Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. [Our specialist Tax Solicitors and Barristers](https://lexlaw.co.uk/our-people/) deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. We provide urgent [advice](https://taxdisputes.co.uk/expert-advice/) and representation to clients from our unique expert team of established [Tax and Duties specialist solicitors and barristers](https://taxdisputes.co.uk/) with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email contact@lexlaw.co.uk. --- # Dealing with HMRC delays Source: https://taxdisputes.co.uk/2022/11/how-to-deal-with-delays-by-hmrc/ *If you recently attempted to contact HMRC via phone or mail, you may have experienced long delays in speaking to someone on their telephone hotline or obtaining a reply by email / post.* We have recently been instructed on a case where delays in the HMRC department paying valid R&D Tax Credits have resulted in another department threatening to impose a future [Security Notice](https://taxdisputes.co.uk/legal-representation/hmrc-notice-requirement-tribunal-appeals-solicitor-legal-advice/#:~:text=What%20is%20a%20HMRC%20Notice,from%20by%20a%20specified%20date.) for a PAYE/NIC late payment; which is clearly unreasonable but could lead to a criminal offence by a Director served personally with such a [Notice of Requirement to pay a Security](https://taxdisputes.co.uk/legal-representation/hmrc-notice-requirement-tribunal-appeals-solicitor-legal-advice/). HMRC is required by law in some cases to respond to some enquiries within 30 days however often fail to meet their own deadlines. In other cases there are no deadlines set by legislation, and often this is where the majority of delays take place. Our taxation practice is the foundation of the firm and our tax team is composed of knowledgeable tax lawyers (some of whom worked at HMRC) who can help you handle your tax issues. For the best outcome, our ex-HRMC lawyers will advise you on the UK's intricate tax laws. We have years of expertise in dealing with complex tax problems, including negotiating with HMRC and handling tax appeals before Tax Tribunals and in the High Court. ## Why is HMRC taking so long? HMRC established goals for how they wanted to interact with the general public. These service levels deteriorated in 2020, which is understandable given the Covid-19 pandemic. There is a misperception that tax agents can contact HMRC directly; this is untrue albeit there is a dedicated agent call centre. The reality is that HMRC is still underfunded and suffering from Covid-19's lasting impacts, which included a huge backlog caused by outdated technology that wasn't designed for remote work. ## What to do when HMRC is taking too long to answer your query? How quickly your enquiry should be resolved is set out in the [HMRC enquiry manual](https://www.gov.uk/hmrc-internal-manuals/enquiry-manual) and published response guide. If your enquiry hasn't been answered by HMRC by the given date, you can utilise the enquiry manual and the response guide and complain to HMRC to check. The guidance also includes a scheduled response time for each department. The [HMRC Charter](https://www.gov.uk/government/publications/hmrc-charter), which outlines how HMRC thinks taxpayers and agents should act in a reasonable manner toward one another, is also published by HMRC. It is helpful to know and mention when communicating with HMRC about your enquiry that if an answer is not given in accordance with the HMRC inquiry handbook, HMRC may not be abiding by the charter. If necessary, you can file a formal complaint. Without an escalated enquiry, delays frequently linger many months or longer. ## HMRC Service Dashboard HMRC has developed a service dashboard to aid taxpayers in understanding which services are currently being delayed. This can be used to determine the probable timeline HMRC is currently working with for a variety of situations. ## Check when you can expect a reply from HMRC The HMRC has also created a feature called "Check when you can expect a reply from HMRC". Similar to the service dashboard, this tool allows you to enter the date that you sent your claim or correspondence, and it will provide you with an estimated date by which you should expect a response. Currently, this tool can only predict the date of a response for the following issues: - **Income tax: ** - Marriage allowance claims - P87 refund of employment expenses (postal and online claims) - Refund of tax paid from an employment or pension (postal and online claims) ** **2. **Self-Assessment:** - Registration for Self-Assessment (postal and online) - Paper Self-Assessment tax return submission - Amendment to a Self-Assessment tax return - Refund from an online or paper Self-Assessment tax return - Penalty appeals (post and online) 3. **Tax Credits:** - Report a change of circumstances (postal and online) - Request an award notice - Dispute a tax credit overpayment 4. **Child benefit:** - Report a change of circumstances (postal and online) - Request a proof of entitlement letter 5. **VAT:** - VAT registration or deregistration 6. **Corporation Tax:** - Repayment due to loss carry back ## Use Accurate HMRC Telephone Numbers HMRC has a number of distinct departments with advisors that deal with a variety of difficulties. Therefore, you can save time by calling the appropriate number for your enquiry rather than the general contact number to avoid being sent from side to side or becoming lost in the menus. The following are a few of the various phone numbers for the various departments you might need to contact: Self-Assessment helpline: 0300 200 3310 Child Benefits helpline: 0300 200 3100 Employer helpline: 0300 200 3200 Income Tax helpline: 0300 200 3300 National Insurance helpline: 0300 200 3500 HMRC online services helpdesk: 0300 200 3600 Online debit and credit card payment support: 0300 200 3601 VAT general enquiries: 0300 200 3700 Tax Credits helpline: 0345 300 3900 You can find more numbers on the [contact HMRC](https://www.gov.uk/contact-hmrc) page. ## Expert Tax Investigation Lawyers If you need HMRC Tax Investigation advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email contact@lexlaw.co.uk. --- # Buyer receives Stamp Duty refund following lengthy battle with HMRC Source: https://taxdisputes.co.uk/2022/11/after-a-fierce-battle-with-hmrc-buyer-receives-a-20000-stamp-duty-refund/ *After a seven-year battle with HMRC, the home care company Marcus & Marcus prevailed and was given a £20,000 refund for overpaying stamp duty.* *This decision has emerged as a precedent for the tax tribunal's methodology for allocating the purchase price to various buildings in a "just and fair" manner for SDLT purposes.* In order to apply the 15% higher rate of SDLT, HMRC attempted to divide the purchase price of a property with three homes used to care for adults with autism and learning disabilities such that the main home would be treated as having a value of more than £500,000. However, the tax tribunal agreed with the taxpayer company and HMRC's argument was defeated. Our taxation practice is the foundation of the firm. Have a conflict with HMRC? Our tax team is composed of knowledgeable tax solicitors and barristers who can help you handle your tax issues. For the best outcome, our ex-HRMC lawyers will advise you on intricate tax laws. We have years of expertise in dealing with complex tax problems, including negotiating with HMRC and handling tax appeals before Tax Tribunals and in the High Court. ## History between Marcus & Marcus and HMRC The business bought a property with multiple structures on it in 2015, including a main house, an annexe, and a summerhouse. Marcus & Marcus were the focus of an HMRC investigation after submitting an SDLT return and paying £33,750. The tax authorities determined that the property was subject to SDLT of 15%, or £131,250, which would have increased the tax by £97,500, or 289%. As a result, the tax authority issued a closure notice. In 2018, Marcus & Marcus hired Cornerstone Tax, and after further discussions between the two parties that year, it was decided that a new computation known as Multiple Dwellings Relief (MDR) would be applicable and would be done on the basis of a "fair and reasonable apportionment." The primary residence, an office, and a summerhouse (two separate buildings on the property) were all included in HMRC's assessment. The valuation of what HMRC determined to be the "principal house," according to the agreed-upon parameters, increased to £537,000 as a result, exceeding £500,000 and so being disregarded in the MDR calculation. Marcus & Marcus and Cornerstone Tax, on the other hand, argued that the office and summerhouse were a component of the annexe and thus continued to be distinct from the main house. According to the agreed-upon parameters, this would make the primary residence's proportionate worth £404,867 and subject to MDR. ## What did the FTT decide? In April 2022, after being unable to come to an agreement, the parties took the case before the First Tier Tax Tribunal. The judge determined that the office was a part of the residences in the annexe and that the summer house was used along with the main residence. The total amount of SDLT that should have been owed at the time of purchase was found to be £13,749. As a result, Marcus & Marcus was entitled to a $20,001 refund from HMRC. ## Expert Tax Investigation Lawyers If you need HMRC Tax Investigation advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email contact@lexlaw.co.uk. --- # Gary Lineker Wins Battle with HMRC Over £4.9m Tax Bill Source: https://taxdisputes.co.uk/2023/03/gary-lineker-wins-battle-with-hmrc-over-4-9m-tax-bill/ *Former England footballer and Match of the Day presenter Gary Lineker has won a significant victory in his [long-running battle with HM Revenue and Customs (HMRC)](https://taxdisputes.co.uk/2023/03/gary-linekers-ongoing-ir35-tax-dispute-with-hmrc/) over a £4.9m tax bill. The dispute arose after HMRC claimed that Lineker had incorrectly classified himself as a self-employed freelancer, rather than an employee of the BBC and his other clients.* Our [taxation practice](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) is the foundation of the firm. Have a conflict with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs)? Our tax team is composed of knowledgeable tax lawyers who can help you handle your tax issues. For the best outcome, our ex-HMRC lawyers will [advise](https://taxdisputes.co.uk/expert-advice/) you on intricate tax laws. We have years of expertise in dealing with complex tax problems, including negotiating with HMRC and handling [tax appeals before Tax Tribunals](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/) and in the High Court. ## Income Tax - Preliminary Issues The case centred on the UK's income tax legislation and specifically the intermediaries legislation, commonly known as IR35. This legislation is designed to ensure that individuals who work through their own limited company or other intermediary, such as a partnership, are not able to avoid paying income tax and national insurance contributions by falsely claiming to be self-employed. ## Intermediaries Legislation (IR35) HMRC argued that IR35 applied to Lineker's work for the BBC and other clients, and that he should therefore have paid income tax and national insurance contributions as if he were an employee. Lineker maintained that he was legitimately self-employed and that the IR35 legislation did not apply to his situation. ## Whether Applicable Where an Individual’s Services are Supplied through a General Partnership A key issue in the case was whether the IR35 legislation applied where an individual's services were supplied through a general partnership, as was the case with Lineker's work for the BBC. HMRC argued that it did, but Lineker disputed this. ## Whether, on the Facts, There was a General Partnership The tribunal had to consider whether, on the facts, there was a general partnership in place. HMRC argued that there was, based on the terms of Lineker's contracts and the way in which he provided his services. Lineker denied that there was a partnership and argued that he was simply providing his services as a self-employed individual. ## Whether Direct Contract with Individual The tribunal also had to consider whether Lineker had a direct contract with the BBC and his other clients, or whether his services were provided through an intermediary. HMRC argued that Lineker's contracts were with his personal service company, which was an intermediary for the purposes of the IR35 legislation. Lineker maintained that he had a direct contract with each of his clients. ## Section 49(1)(b) Income Tax (Earnings and Pensions) Act 2003 Considered The tribunal ultimately concluded that Lineker was not an employee of the BBC or any of his other clients, and that the IR35 legislation did not apply to his work. In reaching this decision, the tribunal considered a number of factors, including the terms of Lineker's contracts, the way in which he provided his services, and the level of control exercised by his clients over his work. The tribunal also considered section 49(1)(b) of the Income Tax (Earnings and Pensions) Act 2003, which sets out the conditions that must be met for the IR35 legislation to apply. ## Appeal Allowed The outcome of the case will be welcomed by other freelance workers and self-employed individuals who have been affected by the IR35 legislation. Lineker expressed his relief and satisfaction on Twitter, stating that he had always believed that he was "self-employed and not an employee". The ruling also highlights the importance of carefully considering the terms of contracts and the way in which services are provided, to ensure that the correct employment status is established. ## Expert Tax Investigation Lawyers If you need[ HMRC Tax Investigation advice](https://windinguppetitionsolicitors.co.uk/expert-advice/), we are available to aid you at every stage of the HMRC investigation process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and[ investigations](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/). Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. [Our specialist Tax Solicitors and Barristers](https://lexlaw.co.uk/our-people/) deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. We provide urgent [advice](https://taxdisputes.co.uk/expert-advice/) and representation to clients from our unique expert team of established [Tax and Duties specialist solicitors and barristers](https://taxdisputes.co.uk/) with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email contact@lexlaw.co.uk. --- # Eamonn Holmes Appeals FTT’s decision over ‘Employee’ Status Source: https://taxdisputes.co.uk/2023/01/eamonn-holmes-challenges-tax-tribunal-over-employee-status/ Television presenter Eamonn Holmes is challenging a recent ruling by the [First Tier Tax Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) that he should be considered an employee of ITV under [IR35 rules](https://taxdisputes.co.uk/hmrc-ir35/), for tax purposes when he hosted the popular show "This Morning." The ruling would mean that Holmes, who argues that he should be considered a self-employed contractor, would now be responsible for paying taxes on his earnings from the program, rather than ITV handling those taxes as a self-employed contractor. Our [taxation practice](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) is the foundation of the firm. Have a conflict with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs)? Our tax team is composed of knowledgeable tax lawyers who can help you handle your tax issues. For the best outcome, our ex-HMRC lawyers will [advise](https://taxdisputes.co.uk/expert-advice/) you on intricate tax laws. We have years of expertise in dealing with complex tax problems, including negotiating with HMRC and handling [tax appeals before Tax Tribunals](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/) and in the High Court. ## Previous battle with HMRC As opposed to being self-employed for income tax reasons, Mr. Holmes was determined by a specialized judge at the First Tier Tribunal to fall under the[ IR35 rules](https://taxdisputes.co.uk/hmrc-ir35/) in 2020. The former ITV host, whose exit from This Morning after more than ten years was announced in November 2021, is currently challenging this decision at the Upper Tribunal in London. ## Employee vs. Self Employed Contractor                   Holmes is arguing that the ruling is incorrect and that he should not be classified as an employee. He feels that he should be considered a self-employed contractor and that the tax implications of being classified as an employee would be significant. As a self-employed contractor, he had more control over his work schedule, more autonomy in his work, and more control over the fees he charges. Holmes is now appealing to the Upper Tribunal ## Tax Implications for Freelance Workers The outcome of the challenge will have implications not just for Eamonn Holmes but also for other freelance workers in the television industry, as it could set a precedent for how they are classified for tax purposes. If the ruling is upheld, it could mean that other freelance workers in the industry would be reclassified as employees and would be responsible for paying taxes on their earnings, which could lead to significant changes in the industry and how freelance workers are treated. The case is ongoing and a decision is yet to be made. It will be closely watched by other freelance workers in the television industry, tax authorities, and policymakers. The outcome of this case will be crucial for the entire freelance community and the way they are treated by tax authorities. It's important to note that this case raises questions about the fairness of the tax system for freelance workers and the need for clear guidelines for determining employee vs self-employed status. ## Expert Tax Investigation Lawyers If you need[ HMRC Tax Investigation advice](https://windinguppetitionsolicitors.co.uk/expert-advice/), we are available to aid you at every stage of the HMRC investigation process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and[ investigations](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/). Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. [Our specialist Tax Solicitors and Barristers](https://lexlaw.co.uk/our-people/) deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. We provide urgent [advice](https://taxdisputes.co.uk/expert-advice/) and representation to clients from our unique expert team of established [Tax and Duties specialist solicitors and barristers](https://taxdisputes.co.uk/) with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email contact@lexlaw.co.uk. --- # HMRC ‘Check of Tax Position’ Letters Source: https://taxdisputes.co.uk/2023/06/hmrc-check-of-tax-position-letters/ The HM Revenue and Customs (HMRC) 'Check of Tax Position' letter is a well-known nudge type communication sent by to individuals or businesses nudging them to get their tax affairs in order. It is typically sent when HMRC identifies potential discrepancies or requires further information to assess tax compliance. The frequency of these letters varies based on HMRC's compliance activities and their focus on specific areas or individuals. The letter is sent directly to taxpayers who are being reviewed. If you receive a 'Check of Tax Position' letter, it is crucial to take it seriously and respond promptly ideally seeking professional assistance and representation from a tax lawyer. We can help you understand the issues raised, gather necessary information, and ensure a comprehensive and accurate response to HMRC. Just book an initial conference with our leading tax counsel (former HMRC in-house tax barrister and Head of Indirect Tax Litigation at Deloitte and National Tax Litigation Director at PWC) and our Senior Partner who worked at KMPG, Goldman Sachs and ING Barings and is dual-qualified as a Barrister and Solicitor-Advocate. Both lawyers will be available to you at the outset in your first advice conference. Our [taxation practice](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) is the foundation of the firm. Have a conflict with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs)? Our tax team is composed of knowledgeable tax lawyers who can help you handle your tax issues. For the best outcome, our ex-HMRC lawyers will [advise](https://taxdisputes.co.uk/expert-advice/) you on intricate tax laws. We have years of expertise in dealing with complex tax problems, including negotiating with HMRC and handling [tax appeals before Tax Tribunals](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/) and in the High Court. ## What is HMRC's 'Check of Tax Position' Letter? HMRC's 'Check of Tax Position' letter is a demand for information from the taxpayer. It is part of HMRC's compliance activities aimed at ensuring accurate tax reporting and addressing potential discrepancies. This letter signifies that HMRC is conducting a review of your tax position and may require additional information to assess your compliance with tax laws. The letter will outline the specific issues under review and may request documents, records, or explanations regarding specific transactions, income sources, expenses, or other relevant details related to your tax affairs. HMRC's objective is to verify the accuracy and completeness of your tax returns and ensure compliance with tax legislation. ## Help with the 'Check of Tax Position' Letter Dealing with HMRC's 'Check of Tax Position' letter can be overwhelming, but our experienced tax lawyers are here to assist you every step of the way. Here's how we can help: - **Thorough Review and Analysis:** Upon receiving the 'Check of Tax Position' letter, our team will conduct a detailed review of your tax affairs, including the issues raised by HMRC. We will analyse your records, transactions, and any relevant supporting documents to assess the accuracy and completeness of your tax position. - **Expert Guidance and Advice: **[Our tax lawyers](https://lexlaw.co.uk/our-people/) will provide you with personalised advice and guidance tailored to your specific circumstances. We will explain the legal aspects of the issues raised by HMRC and help you understand your rights, obligations, and options moving forward. - **Communication and Representation: **We will act as your representative in all communications with HMRC. Our team will draft responses to the 'Check of Tax Position' letter, ensuring that they address HMRC's concerns adequately and in a manner that supports your position. We will handle all correspondence, negotiations, and discussions with HMRC on your behalf. - **Dispute Resolution and Appeals: **If disagreements arise during the 'Check of Tax Position' process, our firm has the expertise to handle disputes and challenge decisions made by HMRC. We will explore all available legal avenues to protect your interests and ensure a fair resolution, including appeals, negotiations, and alternative dispute resolution methods. ## How to deal with a HMRC Tax Position Check? If you have received a HMRC Tax Position Check letter, it means that HM Revenue and Customs (HMRC) wants to review your tax affairs. This letter is typically sent when HMRC has identified a potential discrepancy or inconsistency in your tax returns or other related information. Dealing with a Tax Position Check letter can be a bit stressful, but it's important to respond promptly and provide accurate information. Here are some steps to help you handle the situation: - Read the letter carefully: Start by thoroughly reading the letter to understand why HMRC is conducting the review and what specific information or documents they require from you. Take note of any deadlines mentioned in the letter. - Gather relevant documents: Collect all the relevant documents that support your tax returns, such as income statements, expense receipts, bank statements, and any other supporting records. Ensure that these documents are organised and readily accessible. - Review your tax returns: Go through your tax returns for the relevant period and cross-reference them with the information requested by HMRC. Identify any discrepancies or errors that may have triggered the review. It's important to be honest and transparent in your assessment. - Seek professional legal advice: If you're unsure about how to respond or need assistance in dealing with the Tax Position Check, it may be helpful to consult a tax disputes solicitor. They can provide confidential guidance and ensure that your response is accurate and comprehensive. Advice from accountants or tax advisers is not confidential therefor eyou should appoint a solicitor. - Respond within the deadline: Adhere to the timeline provided in the letter and submit your response before the deadline. If you require additional time due to genuine reasons, contact HMRC and request an extension. Late or incomplete responses can lead to penalties or further scrutiny. - Provide a detailed and clear response: When responding to HMRC, be concise, factual, and address all the points raised in the letter. Include any explanations or justifications for discrepancies, providing supporting evidence wherever possible. It's important to maintain a professional and cooperative tone in your communication. - Keep copies of all correspondence: Make copies of all the documents you send to HMRC and keep a record of your communication, including dates and names of HMRC representatives you speak to. This will help you in case of any future disputes or clarifications. - Follow up and be patient: After submitting your response, HMRC may take some time to review your information and reach a decision. If you don't hear back within a reasonable period, you can follow up with HMRC to inquire about the status of your case. Remember that each tax case is unique, and it's important to tailor your response to the specific circumstances outlined in the Tax Position Check letter. If you're unsure or overwhelmed, seeking professional legal advice can be invaluable in navigating the process effectively. ## How much time do I have to respond to the letter? The specific time frame for responding to a HMRC Tax Position Check letter should be mentioned in the letter itself. HMRC typically provides a deadline by which they expect to receive your response. It is crucial to adhere to this deadline to avoid any potential penalties or complications. Remember, it's crucial to respond within the provided timeframe or any agreed-upon extension to maintain a cooperative approach and avoid unnecessary complications in your tax affairs. We recommend seeking our professional assistance as soon as possible to ensure a timely response. ## What happens if I don't respond to HMRC's letter? Failure to respond to HMRC's 'Check of Tax Position' letter can have serious consequences. HMRC may proceed with their assessment based on the information available to them, which can lead to additional tax liabilities, penalties, and potential legal action. It is crucial to address the letter promptly and accurately. ## Handling the 'Check of Tax Position' process on my own? Handling the "Check of Tax Position" process on your own is possible, especially for straightforward cases where you are confident in your understanding of tax laws and regulations. However, in more complex situations or if you are uncertain about your tax position, engaging a tax disputes solicitor can provide several benefits: - **Expertise and knowledge: **Tax disputes solicitors specialize in tax law and have a deep understanding of the complexities of the tax system. They can navigate through intricate tax legislation, case law, and HMRC guidelines, ensuring that your rights are protected and that you have the best possible chance of achieving a favourable outcome. - **Strategic advice: **A tax disputes solicitor can provide strategic advice tailored to your specific circumstances. They can analyse your case, identify potential weaknesses or areas of concern, and develop a comprehensive strategy to present your position effectively. They can also provide guidance on the best approach to communicate and negotiate with HMRC. - **Handling complex procedures:** Tax disputes can involve intricate procedures and legal requirements. A tax disputes solicitor is well-versed in these procedures and can guide you through each step, including preparing and submitting documentation, responding to HMRC queries, and attending meetings or hearings if necessary. Their expertise can help streamline the process and ensure compliance with procedural rules. - **Representation and advocacy:** In situations where the dispute escalates and legal proceedings become necessary, a tax disputes solicitor can represent you and act as your advocate. They have experience in presenting cases before tax tribunals or courts, cross-examining witnesses, and making legal arguments on your behalf. - **Mitigating risks and penalties:** By engaging a tax disputes solicitor, you can mitigate the risks associated with non-compliance or inadequate representation. They can help you understand the potential consequences, navigate the negotiation process, and work towards minimising penalties, fines, or additional tax liabilities. - **Peace of mind: **Dealing with a tax dispute can be stressful and time-consuming. Engaging a tax disputes solicitor can alleviate some of that burden. They can handle the legal aspects of your case, communicate with HMRC on your behalf, and provide you with peace of mind knowing that a qualified professional is advocating for your interests. It's important to note that hiring a tax disputes solicitor involves costs. However, considering the potential financial implications and the complexities of tax law, their assistance can be invaluable in achieving a favourable resolution to your tax position check. When selecting a tax disputes solicitor, it's advisable to choose someone with relevant experience and a track record of success in handling similar cases. Be careful of using tax accountants or advisers who cannot provide a confidential legal service as they have no right to assert solicitor-client privilege to HMRC. ## What if I don't comply with the 'Check of Tax Position' letter? If you fail to comply with a HMRC Tax Position Check letter, it can have serious consequences. HMRC has the authority to take various actions to ensure compliance with tax obligations. Here are some potential consequences of not responding to the letter: - Penalties and fines: HMRC may impose penalties and fines for non-compliance. The amount of the penalty can vary depending on the nature and severity of the non-compliance. The longer you delay or fail to respond, the higher the potential penalties may be. - Increased scrutiny: Non-compliance or failure to respond to a Tax Position Check letter can raise red flags and lead to further scrutiny of your tax affairs. HMRC may conduct a more detailed investigation into your tax records and transactions, potentially covering multiple tax years. This can be time-consuming, stressful, and may result in additional penalties and interest if irregularities are discovered. - Assumptions and estimates: If you do not provide the requested information, HMRC may make assumptions or estimates based on the available information they have. This can lead to a higher tax liability being assessed, as HMRC will not have the benefit of accurate and complete information from you. - Legal action: In extreme cases of persistent non-compliance or deliberate evasion, HMRC may take legal action against you. This can involve civil or criminal proceedings, which can result in severe financial penalties, potential imprisonment, or other legal consequences. It's crucial to take a HMRC Tax Position Check letter seriously and respond within the provided timeframe. If you are unable to comply or require additional time, it is advisable to contact HMRC as soon as possible to explain your situation and request an extension, providing a valid justification for the delay. If you are unsure about how to respond or need assistance in dealing with the letter, consider seeking professional advice from a solicitor who can guide you through the process and help ensure compliance with HMRC's requirements. Our law firm will work diligently to mitigate these risks and protect your interests. ## Can I challenge decisions made by HMRC? Yes, if you disagree with the decisions or assessments made by HMRC, you have the right to challenge them. Our tax lawyers have extensive experience in handling disputes and can assist you in navigating the appeals process and seeking a fair resolution. Receiving a 'Check of Tax Position' letter from HMRC can be a stressful experience, but with the assistance of our experienced tax lawyers, you can navigate the process confidently and protect your interests. Our law firm is dedicated to providing expert advice, effective representation, and tailored solutions to address any issues raised by HMRC. Contact us today to ensure your tax position is accurately assessed and your rights are protected. ## Expert Tax Investigation Lawyers If you need[ HMRC Tax Investigation advice](https://windinguppetitionsolicitors.co.uk/expert-advice/), we are available to aid you at every stage of the HMRC investigation process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and[ investigations](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/). Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. [Our specialist Tax Solicitors and Barristers](https://lexlaw.co.uk/our-people/) deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. We provide urgent [advice](https://taxdisputes.co.uk/expert-advice/) and representation to clients from our unique expert team of established [Tax and Duties specialist solicitors and barristers](https://taxdisputes.co.uk/) with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email contact@lexlaw.co.uk. --- # Tax Bill for a Quarter of a Million Pounds for IR35 Breach Source: https://taxdisputes.co.uk/2022/12/tax-bill-for-a-quarter-of-a-million-pounds-for-ir35-breach/ Michael Lynagh, the Sports Commentator and former professional rugby player, through his company MPTL, has been embroiled in a dispute with the HMRC since 2020. This dispute arose a tax bill over breach of IR35 rules. Sports commentators are expected to submit their monthly earnings with their tax returns as self-employed individuals. ## How we can help? As a leading specialist tax law firm with a track record of success, you can be assured your tax matter is in safe hands. Our success rate is a result of the dedication of our tax team who will diligently review your matter so it has the best possible chance of success from the outset when it matters the most. Our experienced lawyers regularly carry out work in many tax disputes areas, from advising clients on whether HMRC have followed the correct procedures to successfully challenging HMRC’s policies. We have specialist knowledge in HMRC internal processes as well as ensuring that we are able to successfully challenge HMRC decisions in the Tax Tribunals. ## Background Michael Lynagh’s has recently had his appeal against the HMRC rejected.  Interestingly, a tribunal hearing on 7th December 2022 ended with the Judge ruling that Michael Lynagh had lost entitlement to appeal the HMRC tax bill served on his company MPTL to the tune of £230,000 as the tax accountants had failed to file an appeal before the prescribed deadline. According to the tribunal judge, there was an ‘absence of any good reason’ to justify the delay. MPTL argued that the delay was caused by their enquiry officer being on sick-leave which failed to satisfy the tribunal. In recent times there has been a slew of high profile IR35 tax cases. Both Alan parry and Dave Clark lost their appeals against the HMRC leaving them with hefty tax bills to pay. ## What is the meaning of IR35? To put it simply, IR35 is another name for the off-payroll working rules. This term ‘IR35’ refers to the initial press release that announced the legislation for the first time in the year 1999. These rules were designed to work out whether a contractor is someone who’s genuinely self-employed rather than a ‘disguised’ employee, for the purposes of paying tax. When an individual providing services as a contractor is a ‘disguised’ employee, the individual is essentially seeking to take advantage of the tax efficiency of working through a limited company or partnership, as the case may be, but otherwise they should be classed as an employee. ## Who these rules apply to? The IR35 Rules are applicable if an individual provides their services to a client through an intermediary, but would be classed as an employee if they were contracted directly. These rules apply to contracts regardless of whether the agreement was made in writing, orally or implied agreement between the parties. The rules apply on a contract to contract basis so they may apply to some contracts while excluding the others based on the above distinction. These off-payroll working rules (IR35) may apply to you if you are providing your services through your own limited company or another type of intermediary to your client. An intermediary will usually be the worker’s own personal service company, but could also be any of the following: - a partnership - a personal service company - an individual ## What is the Test for Employment Status? When considering whether or not these rules apply to you and your contractual arrangement, the first step is to work out your employment status as the service provider. If the service provider would be classified as an employee save for their intermediary (often called ‘personal service company) these rules will apply and you could be faced with significantly large tax bill. The factors taken into account are supervision, direction and control. However, in reality, IR35 status is wholly dependent upon the IR35 case law and employment legislation, which is itself largely reliant on decades of employment tests heard by the UK courts. If you want specialist legal advice from a HMRC Tax Disputes Lawyer in London, we invite you to contact us so we can assess your claim. We can subsequently provide urgent help, advice or representation to clients from our expert legal team of leading Tax Dispute solicitors and barristers. Just call or email us now for an initial consultation; our legal team are waiting to help. If you have a dispute with HMRC and find yourself hitting a ‘brick wall’ or even if you are unsure of how to deal with correspondence and/or demands you have received from HMRC  then you should contact us immediately to ascertain how we can assist you in your matter. --- # Multiple Dwellings Relief Source: https://taxdisputes.co.uk/2022/11/multiple-dwellings-relief/ HMRC charges Stamp Duty Land Tax (SDLT) on all property transactions in the United Kingdom where the value is more than certain thresholds. Some transactions qualify for reliefs that reduce the amount of tax you pay, or that you do not pay Stamp Duty Land Tax. MDR or Multiple Dwellings Relief is one such relief which you may be able to claim for reduction in the amount of tax payable to you if the subject of the transaction exceeds one dwelling. Any reduction which could be claimed by the way of MDR are matters best dealt by an experienced and professional Lawyer who can not only assist with regulatory compliance but also protect your best interests efficiently by saving additional costs and time. ## What are the thresholds of SDLT? The threshold is where SDLT starts to apply. If you buy a property for less than the threshold, there’s no SDLT to pay. The current SDLT thresholds are: - £250,000 for residential properties - £425,000 for first-time buyers buying a residential property worth £625,000 or less - £150,000 for non-residential land and properties Cases where the buyers are wrongly advised into applying for relief under Multiple Dwellings Relief where the transaction is ineligible are a common occurrence as well as those cases where such qualifying transactions are executed to completion without the buyer being aware of their eligibility. In the latter case, the Buyer may then seek to claim back their tax payment from the HMRC. These complex matters require the expertise of a specialist team.[ Lexlaw](https://lexlaw.co.uk/hmrc-tax-dispute-lawyers/#:~:text=To%20contact%20us%20about%20your,%40lexlaw.co.uk.) comprises of dedicated Barristers and Solicitors who specialise in tax advice and litigation at the highest level. ## What qualifies as a dwelling for eligibility of MDR? The definition of a ‘dwelling’ as given under The Finance Act 2003 Schedule 6B states that ‘a building or part of a building counts as a dwelling if – - It is used or suitable for use as a single dwelling, or - It is in the process of being constructed or adapted for such use. As this definition is not very specific in regards to the facilities which are necessary for a living space to constitute a ‘dwelling’ such as interlocking doors, kitchen, separate utility meters etc. All of the stated facilities may be relevant for the purposes of relief under MDR. Land that is, or is to be, occupied or enjoyed with a dwelling for example a garden or grounds is included as is land that or is to subsist for the benefit of a dwelling (The Finance Act 2003, Schedule 6B, para 7). This definition of ‘dwelling’ is based on, and for material purposes, the same as the definition of ‘residential property’ in the Finance Act 2003, s 116 except those acquisitions of land where construction or adoption of a single dwelling has not yet commenced at the time of substantial performance can also be included (FA 2003, Schedule 6B, para 7(5)). HMRC published fresh guidance, on 1 October 2019, on the meaning of ‘dwelling’ as SDLTM00410 – SDLTM0430. Although in the author’s experience, HMRC tends to not always follow their guidance in enquiries and in tax tribunal appeal hearings dependent upon whether or not the guidance supports their desired outcome in any particular case. A Tax Tribunal in the case of *Bewley Ltd v HMRC [2019]* emphasised that the bungalow was not a suitable dwelling. The bungalow was not being used as a dwelling at the date of purchase due to its state and the presence of asbestos prevented any repairs and alterations. Accordingly, the Tribunal held that not only did the 3% higher rates not apply to the purchase price of £200,000 but that SDLT was chargeable under Table B for the non-residential property at £1,000 and not the £1,500 paid by the appellant taxpayer under Table A. ## Does an Annexe or 'Granny Flat' qualify for Multiple Dwelling Relief? In certain circumstances, an annexe or “granny flat” may qualify for MDR if it is a “subsidiary” of the main dwelling. This means that the annexe or granny flat must be on the same grounds as the main dwelling or attached to it and the main dwelling must be worth on a just and reasonable basis, at least two-thirds of the total purchase price of the two dwellings. The annexe or granny flat must also be a separate single dwelling in its own right and afford the means for the occupant to lead a private domestic existence. ## When does Multiple Dwellings Relief apply? Multiple Dwelling Relief or MDR can apply to property transactions where the subject of a single or in a series of linked transactions consists of two or more dwellings. In such cases, tax savings could be significant where the buyer intends to purchase several properties at the same time; one large property divided into multiple dwellings for example a house with a granny annexe. It can also save additional costs and taxes for landlords purchasing properties which are ‘off-plan’ at the time of the transaction. ## What is a Linked Transaction for the purposes of SDLT? A Linked Transaction is where a number of property transaction are carried out between the same buyer and seller or persons connected with them for that transaction. Buyers should be aware that the value of all properties in a series of linked transactions is added together before the rate of SDLT is calculated or applied, carrying a potentially higher tax rate than on each individual property. As MRD applies to linked transactions, it reduces the applicable tax charged by taking the average price of each dwelling and only applying rates applicable to the average price to legitimise the SDLT savings for the buyer. ## What is 3% SDLT Surcharge? In case you are a homeowner already, a 3% SDLT surcharge is charged on each residential property you purchase. There are however exceptions, for example, buying a home to replace your current residential abode (for example during a separation or divorce). Additionally, if the added residential properties have a commercial aspect (e.g. flats above shops or residential properties with offices), they are exempt from the 3% SDLT surcharge. ## Expert Tax Investigation Lawyers If you need Tax Investigation advice, we are available to aid you at every stage of the process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. **We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk).** --- # HMRC Left Feeling Dejected After Receiving Harsh Criticism from the Tribunal Source: https://taxdisputes.co.uk/2023/01/hmrc-left-feeling-dejected-after-receiving-harsh-criticism-from-the-tribunal/ [The First-tier Tribunal (FTT)](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) upheld a series of appeals against HMRC decisions relating to non-payment of VAT, excise duty, and associated penalties, including personal liability notices (PLNs) and a director's liability notice (DLN), in [Sintra Global Inc and Parul Malde v HMRC [2022] UKFTT 00365 (TC)](https://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j12559/TC%2008615.pdf), and criticised HMRC's evidence and investigation. Our taxation practice is the foundation of the firm. Have a conflict with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs)? Our tax team is composed of knowledgeable tax lawyers who can help you handle your tax issues. For the best outcome, our ex-HRMC lawyers will advise you on intricate tax laws. We have years of expertise in dealing with complex tax problems, including negotiating with HMRC and handling [tax appeals before Tax Tribunals](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/) and in the High Court. ## History between Sintra Global Inc, Paruk Malde and HMRC Sintra Global Inc. (Global), and Parul Malde, appealed HMRC's decisions regarding the failure to pay VAT, excise duty, and related penalties, including PLNs and a DLN. HMRC claimed that these decisions resulted from the fraudulent importation of alcohol into the UK from the European Union and subsequent sale of that alcohol in the UK by Global and a business that was incorporated in Belize, Sintra SA. HMRC claimed both companies were controlled by Parul Malde HMRC had conducted investigations into inward diversion fraud involving a number of enterprises with which organisations affiliated with Mr Malde had done business. As a result of these investigations, criminal convictions for tax evasion and money laundering were obtained against a number of third parties. ## How was the Fraud Committed? The fraud committed by these other companies entailed the supply of duty-free alcohol from the United Kingdom to warehouses in Europe (principally in France). Despite being released for consumption in other European countries and duty paid at lower rates, some of the alcohol was returned to the UK while still subject to duty suspension under an Administrative Reference Code (ARC) (required for movements of suspense goods within the Excise Movement Control Scheme (EMCS)). Several consignments of alcohol (mirror loads) would be transported to the UK under the same ARC (which remained valid for a while) until the ARC expired or a consignment was caught by HMRC. The mirror loads were often sold for cash shortly after their arrival in the UK, a practise known as slaughtering, and UK consumers created fraudulent paper trails to give the impression that the alcohol had been obtained legally. ## Paruk Malde’s previous conflicts with HMRC HMRC issued a series of assessments and accompanying Personal Penalty Notices of up to £25 million against Mr Malde in 2015. This was in relation to alcohol that was allegedly trafficked into the UK between 2004 and 2014 by two firms registered in Belize and Panama, Sintra SA and Sintra Global. HMRC secured a freezing order against Mr Malde in the High Court in 2015 on the premise that it had 'proven' that a third party had moved alcohol from its UK warehouse to its warehouse in France, after which it would be sold to SA and smuggled back into the UK by SA or Corkteck Ltd. (a company associated with Mr Malde). ## HMRC’s Claim HMRC claimed that the appellants were involved in an inward diversion fraud involving SA. It ruled that Global was required to register for VAT during the relevant period because it 'slaughtered' the loads in the UK (and received significant cash payments that HMRC claimed were related to UK alcohol sales), and imposed penalties for failing to do so and handling goods subject to unpaid excise duty. In addition, it issued PLNs and DLNs to Mr Malde for these fines. Sintra Global and Paruk Malde appealed to the FTT. ## What did the FTT Conclude? The [FTT](https://www.gov.uk/courts-tribunals/first-tier-tribunal-tax) stated that HMRC bore the burden of proof in both the penalty assessments and the claims of fraud. HMRC had to establish its case on the balance of probabilities (rather than to the criminal standard of beyond reasonable doubt). According to the FTT, SA was the owner of part of the alcohol smuggled into and supplied in the UK and thus should have been registered for VAT. However, there was no proof that Global possessed items that were supplied in the United Kingdom. Even if Global had been deliberately implicated in crime by selling alcohol in the EU to UK traders or individuals Global knew were planning to smuggle the items, this was insufficient to warrant the fines imposed by HMRC. According to the FTT, other corporate organisations held the seized alcohol and provided the alcohol sold in the UK through supply chains in which Global was involved. The FTT determined that Global was not required to register for VAT, and thus all penalties imposed on Global and the associated DLNs and PLNs were lifted. Based on the facts presented, the FTT decided that Mr Malde controlled SA. However, according to the FTT, HMRC in general, and Mr Foster (the main HMRC investigating officer) in particular, made a conscious decision to disregard bank statements relating to one of the firms implicated in the alleged fraud. The FTT saw this failure as a serious blunder. Counsel for the appellants stated that the failure was due to HMRC's narrow approach to the investigation, in which they developed an opinion and overlooked information that contradicted that opinion. ## Criticism for HMRC The FTT's finding that "had HMRC, and Mr Foster in particular, taken a less myopic approach to this case, particularly with regard to Mr Malde, we may well have reached entirely different conclusions" is a serious criticism that should have systemic implications for HMRC's investigative practise and approach to evidence before the FTT. ## Expert Tax Investigation Lawyers If you need[ HMRC Tax Investigation advice](https://windinguppetitionsolicitors.co.uk/expert-advice/), we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and[ investigations](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/). Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. [Our specialist Tax Solicitors and Barristers](https://lexlaw.co.uk/our-people/) deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email contact@lexlaw.co.uk. --- # Rise in Businesses’ Disputes with HMRC Source: https://taxdisputes.co.uk/2023/08/rise-in-businesses-disputes-with-hmrc/ In the intricate landscape of the UK's taxation system, mid-sized firms find themselves entangled in a web of disputes with the tax authorities. According to a [recent survey](https://www.bdo.co.uk/en-gb/news/2023/over-60-of-businesses-stuck-in-a-tax-dispute-lasting-more-than-a-year) conducted by BDO, a prominent consultancy firm, over 61% of the 500 surveyed companies are currently embroiled in tax disputes with Her Majesty's Revenue and Customs (HMRC). This escalating trend sheds light on the challenges that businesses encounter as they attempt to decipher the convoluted network of levies and regulations, illustrating a dire need for simplification and modernisation of the system. Our tax barristers and solicitors provide the very best representation in negotiations, throughout the HMRC internal review process and in front of the [Tax Tribunal.](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect including developing a strategy. Our ex-HMRC team provide [advice](https://taxdisputes.co.uk/expert-advice/) in relation to: - Appealing against a tax assessment; - Appealing against a tax penalty; - Negotiating with HMRC; - Navigating the HMRC internal review process; and - Advising on statutory tax appeals within the Tax Tribunal. If you want to challenge a decision made by HMRC, we can help you understand the issues raised, gather necessary information, and ensure a comprehensive and accurate response to HMRC. Just book an initial conference with our leading tax counsel (former HMRC in-house tax barrister and Head of Indirect Tax Litigation at Deloitte and National Tax Litigation Director at PWC) and our Senior Partner who worked at KMPG, Goldman Sachs and ING Barings and is dual-qualified as a Barrister and Solicitor-Advocate. Both lawyers will be available to you at the outset in your first advice conference. Our [taxation practice](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) is the foundation of the firm. Have a conflict with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs)? Our tax team is composed of knowledgeable tax lawyers who can help you handle your tax issues. For the best outcome, our ex-HMRC lawyers will [advise](https://taxdisputes.co.uk/expert-advice/) you on intricate tax laws. We have years of expertise in dealing with complex tax problems, including negotiating with HMRC and handling [tax appeals before Tax Tribunals](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/) and in the High Court. ## The Anatomy of Tax Disputes Tax disputes are notorious for their prolonged processes, which drain resources from both businesses and tax authorities. In HMRC's annual report, it was revealed that large businesses on average spend 36 months to resolve an inquiry. This staggering time frame not only consumes significant time and energy but also leads to increased expenses for both parties involved. Adding to the complexity, there were approximately 39,500 open tax tribunal appeals at the close of March, marking an 8% surge from the previous year. This accumulation of unresolved cases further exacerbates the issue, underscoring the need for swifter and more efficient resolution mechanisms. ## Complexity of Britain’s Tax System The proliferation of tax disputes among mid-sized businesses can be attributed to the intricate nature of Britain's tax system. Critics argue that the complexity of the tax regime often leads to unintentional non-compliance, as companies struggle to comprehend the numerous levies they are subjected to. Simplifying the system is touted as a potential solution that would not only reduce the strain on businesses but also alleviate the burden on HMRC staff, who currently grapple with an overwhelming workload. ## The Burden of Rising Tax Rates As if navigating the complex tax system isn't challenging enough, mid-sized firms now face the additional burden of higher tax rates. The corporation tax, imposed on company profits, surged from 19% to 25% in April, placing more pressure on businesses to manage their finances efficiently. This elevation in tax rates further highlights the urgency of streamlining the tax system and resolving disputes promptly. ## Solution for Quicker Resolutions Experts suggest that allocating more resources and personnel to HMRC could expedite the resolution of cases. With investigations into potential unpaid taxes yielding £34 billion last year – a significant increase from the previous year's £30 billion – it becomes apparent that investing in HMRC's capacity could result in more efficient revenue collection. This, in turn, would benefit both the tax authority and businesses, allowing them to focus on their core operations rather than being entangled in protracted disputes. ## Proposals for Change Talia Greenbaum, a partner at BDO, underscores the need for simplification and modernisation of the tax system. She advocates for a system that is easier to navigate, reducing the likelihood of unintentional non-compliance and disputes. Additionally, Greenbaum emphasises the importance of empowering HMRC with additional resources to enhance its services to small and medium-sized businesses, which form the backbone of the UK's economy. ## Alternative Dispute Resolution Amidst the complexities of tax disputes, a glimmer of hope emerges in the form of Alternative Dispute Resolution (ADR). Both companies and individuals have the option to collaborate with HMRC officers overseeing their disputes, exploring innovative and efficient ways to resolve inquiries. This approach holds the potential to streamline the resolution process, providing a more favorable outcome for all parties involved. ## HMRC's Commitment to Mid-sized Businesses Recognising the pivotal role mid-sized businesses play in the UK economy, HMRC has acknowledged the need to better understand the challenges these entities face. Through enhanced customer insight initiatives, HMRC aims to tailor its services to cater to the unique needs of this diverse group, fostering a more constructive and efficient tax dispute resolution process. In conclusion, the surge in tax disputes among British mid-sized firms sheds light on the inherent complexities of the UK's tax system. The prolonged resolution processes, intricate regulations, and rising tax rates pose significant challenges to businesses and tax authorities alike. As the need for a simplified and modernised tax system becomes increasingly evident, the allocation of additional resources to HMRC and the adoption of Alternative Dispute Resolution mechanisms offer promising avenues toward efficiency and fairness in resolving tax disputes. ## Expert Tax Investigation Lawyers If you need[ HMRC Tax Investigation advice](https://windinguppetitionsolicitors.co.uk/expert-advice/), we are available to aid you at every stage of the HMRC investigation process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and[ investigations](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/). Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. [Our specialist Tax Solicitors and Barristers](https://lexlaw.co.uk/our-people/) deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. We provide urgent [advice](https://taxdisputes.co.uk/expert-advice/) and representation to clients from our unique expert team of established [Tax and Duties specialist solicitors and barristers](https://taxdisputes.co.uk/) with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email contact@lexlaw.co.uk. --- # What is the HMRC Fraud Investigation Service (FIS)? Source: https://taxdisputes.co.uk/2022/11/what-is-the-hmrc-fraud-investigation-service-fis/ The Fraud Investigation Service (“**FIS**”), an elite unit within [HM Revenue and Customs (HMRC)](https://www.gov.uk/government/organisations/hm-revenue-customs), was established in 2015 after the merger of the Special Investigations Unit and the Criminal Investigations Unit. It is responsible for looking into cases of suspected serious tax evasion, tax fraud, and aggressive tax avoidance. Most tax payers pay what is due but some consciously strive to pay less than the exact amount or take advantage of a scheme or device to lower a tax bill. If HMRC believes this, they will investigate under Code of Practice 8 to determine the facts to recover any tax, interest and penalties due. Fraud Investigation Service will not conduct investigation with the intention of filing a criminal complaint, but they reserve the right to change course if they suspect or discover proof of fraud at any point. After that, FIS may handle the inquiry in accordance with Code of Practice 9. Or, if a criminal investigation is being done, it will be done in accordance with the *Criminal Procedure and Investigation Act of 1996*, the *Police and Criminal Evidence Act of 1984*, and their associated Codes of Practice. Our taxation practice is the foundation of the firm. Have a conflict with HMRC? Our tax team is composed of knowledgeable tax lawyers who can help you handle your tax issues. For the best outcome, our ex-HRMC lawyers will advise you on intricate tax laws. We have years of expertise in dealing with complex tax problems, including negotiating with HMRC and handling tax appeals before Tax Tribunals and in the High Court. ## What does the FIS do? Any instance where FIS suspects there may be a large loss of tax will be looked into. This comprises all taxes, charges, levies, and contributions for which HMRC is responsible, as well as the tax affairs of individuals, partnerships, limited liability partnerships (LLPs), firms, and trusts. FIS may take over control of compliance inspections initiated by other HMRC divisions as well as launch their own investigations. ## Different departments within FIS **FIS Prosecutions team** The 600-agent tax investigations and prosecutions team of HMRC focuses on taxpayers who may be engaging in serious early-stage tax avoidance. Almost all of the prosecutions that this team pursues are civil, not criminal; in 2018, there were 1,000 people who were mostly charged with "cheating" under common law. The investigators successfully prosecuted the offenders they found guilty, they were convicted and a Money Laundering Regulations confiscation order was obtained against them in the majority of cases. The prosecutions division of the HMRC focuses on VAT fraud as well. Because it is a transaction-based tax and must be reported on each sale you make, this tax is really one of the most difficult to hide or avoid. HMRC can assess whether underreporting and underpayment may be occurring by comparing the financial records of the company they have suspicions about to the records other businesses in the same industry. **Bootle branch of FIS** Where there are no known overseas or offshore bank accounts or assets involved, taxpayers under investigation by the Bootle department of FIS are likely to be suspected of serious tax fraud. The personnel of this department, which is in charge of UK-based tax investigations, focus primarily on suspected cases of major domestic fraud. Contrary to popular assumption, the majority of tax fraud does not involve people or businesses with money, property, or assets located offshore. **FIS task force** The task force's responsibility is to show up unexpectedly to business locations to look into whether various taxes, including VAT, National Minimum Wages, income tax, and corporation tax, have been correctly reported and paid. Their thorough investigations can take days or weeks to complete. If this happens to you, you should request that your accountant be there while the Task Force is at your company's location. ## Types of Investigations conducted by FIS There are 3 types of investigations: - Full: where HMRC considers there is a high risk of fraud, they will conduct a thorough examination into the directors' and owners' personal and business financial records to search for signs of wrongdoing; - Aspect:  focuses on a specific areas of concern in a person's or business' financial and tax records - Random: As the name implies, a random tax inquiry is conducted on a firm without regard to any particular cause, while anecdotal information shows that enterprises who operate on cash and those that send and receive overseas VAT invoices are more likely to be targeted than others. ## What is the Code of Practice 8 (COPD8) and Code of Practice 9 (COPD9)? The primary civil investigations for which FIS is best recognised are those under: - Code of Conduct 9 (where fraud or dishonesty is suspected and may involve large amounts of tax) - Code of Conduct 8 (which involves bespoke tax avoidance and or where COP9 is not considered appropriate). Regardless of the Code of Practice that is issued, it is always a potentially very severe situation where FIS are involved, and it is strongly advised to seek the opinion of a qualified professional. In fact, the COP9 pamphlet from HMRC strongly suggests that a taxpayer seek out independent professional counsel. Since the establishment of HMRC, the civil investigations division of FIS has grown both in terms of people and scope, adding the Labor Providers Unit, an insolvency division, VAT fraud work, and Inland Detection to its list of assignments (fuel duty, alcohol & tobacco duty). Cases presented under COPD8 are those in which: - It is suspected tax fraud or tax avoidance may have occurred - They do not believe that the tax fraud or avoidance was done on purpose. - They believe you owe them a sizable sum of tax, which they are attempting to recoup from you. While tax fraud is still a concern in cases presented under Code of Practice 9 (COPD9), you will be given a choice known as a Contractual Disclosure Facility (CDF). ## What is Contractual Disclosure Facility (CDF)? If the officers handling the tax investigation/enquiry into your affairs give you the Contractual Disclosure Facility, you will be required to: Make a full admission of purposeful tax evasion or avoidance; all anomalies, mistakes, and omissions must be fully and completely disclosed; and you must also promise to fully comply with HMRC's enquiries. The disclosure form must be returned within 60 days, failing which the offer is said to have been rejected. Depending on the outcome of the FIS investigation, you might be prosecuted in this situation. Although this offer may seem alluring at first, we highly advise you to seek expert counsel since agreeing to comply under COPD9 at an officer's invitation is an admission of guilt in and of itself. This admission of guilt typically entails harsher punishments for your activities once the investigation is over and a verdict has been rendered. You are not required to accept a COPD8 or COPD9 offer made by FIS investigators. ## Expert Tax Investigation Lawyers If you need [HMRC Tax Investigation advice](https://lexlaw.co.uk/hmrc-tax-dispute-lawyers/#:~:text=To%20contact%20us%20about%20your,%40lexlaw.co.uk.), we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our [specialist Tax Solicitors and Barristers](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email contact@lexlaw.co.uk. --- # Taxpayer Appeal Allowed – FTT Highlights Importance of Expert Evidence Source: https://taxdisputes.co.uk/2024/02/taxpayer-appeal-allowed-ftt-highlights-importance-of-expert-evidence/ In a recent landmark tax dispute case, [Graham Chisnall and Others v HMRC [2023] UKFTT 857 (TC)](https://taxdisputes.co.uk/wp-content/uploads/2024/02/Graham-Chisnall-and-Others-v-HMRC-2023-UKFTT-857-TC.pdf), the [First-tier Tribunal (FTT)](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/) delivered a significant ruling underscoring the pivotal role of expert evidence in resolving tax matters. The FTT concluded that the evidence derived from the sale price of shares on the [Alternative Investment Market](https://www.londonstockexchange.com/raise-finance/equity/aim) (AIM) held greater reliability compared to evidence presented by an expert valuer employed by [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs), ultimately resulting in the allowance of the taxpayers' appeals. ## Graham Chisnall and Others v HMRC Graham Chisnall, Frank Cocker, and Neil Mcarther (the Appellants) made charitable gifts of shares listed on the Alternative Investment Market (AIM) during the 2004/05 tax year. Among these shares were those of Frenkel Topping plc (Frenkel) and Vista Group plc (Vista). The Appellants claimed income tax deductions under section 587B, Income and Corporation Taxes Act 1988, based on their valuations of the shares. HMRC conducted enquiries into the valuations, leading to disagreements over the share values and subsequent appeals to the FTT. The Appellants also sought an order from the FTT, under Rule 8 of the Tribunal Rules, based on HMRC's alleged inordinate and inexcusable delay. ## UK Tax Tribunal’s Decision The FTT ruled in favor of the Appellants, emphasising the reliability of evidence derived from the actual share prices on the AIM over HMRC's expert reports. Despite the HMRC-employed expert's testimony, the FTT questioned the credibility of their evidence, particularly regarding the valuation process. The FTT ultimately favoured the valuations provided by the Appellants in their tax returns, highlighting the importance of transparent and justifiable expert opinions in such disputes. The FTT's decision serves as a cautionary tale for HMRC regarding the impartiality and credibility of expert evidence in tax disputes. By highlighting the need for clear justifications and consistency in valuation methodologies, the case underscores the importance of rigorous scrutiny in tax proceedings. The FTT referenced *McArthur and Bloxham v HMRC [2021] UKFTT 237 (TC)* at [15] and *Netley v HMRC [2017] UKFTT 442 (TC)* at [203] in its decision, providing additional context on the determination of market value and setting precedents for future cases involving expert testimony. ## Download the Tax Tribunal Judgment [![](https://taxdisputes.co.uk/wp-content/uploads/2024/02/Graham-Chisnall-and-Others-v-HMRC-2023-UKFTT-857-TC-724x1024.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2024/02/Graham-Chisnall-and-Others-v-HMRC-2023-UKFTT-857-TC.pdf) ## How LEXLAW Help with Tax Disputes At LEXLAW, we specialise in navigating complex tax disputes and providing tailored solutions to protect our clients' interests. With our experienced legal team, we offer comprehensive support in valuation disputes, HMRC enquiries, and appeals, ensuring our clients receive strategic guidance and effective representation throughout the process. Whether you're facing challenges with tax valuations or HMRC investigations, our firm is dedicated to delivering favourable outcomes and safeguarding our clients' financial interests. ## Expert Evidence in HMRC Tax Disputes The *Graham Chisnall and Others v HMRC* case highlights the critical role of expert evidence in resolving tax disputes. As taxpayers and HMRC navigate valuation disagreements, the decision underscores the need for robust evidence and rigorous scrutiny in tax proceedings. By staying informed and seeking experienced legal counsel, taxpayers can effectively navigate complex tax disputes and protect their interests in the face of HMRC scrutiny. ## Expert London Tax Lawyers If you need [HMRC Tax Disputes advice](https://taxdisputes.co.uk/), we are available to aid you at every stage of the HMRC appeals process. Members of [our legal team](https://lexlaw.co.uk/) have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the HMRC internal review process and in front of the Tax Tribunal. [Our team](https://taxdisputes.co.uk/) specialises in successfully [challenging HMRC decisions](https://taxdisputes.co.uk/hmrc-tax-appeals/) and will assist you in every aspect including developing a strategy. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with [a proven track record](https://taxdisputes.co.uk/success/) of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk?subject=Tax%20Query). --- # HMRC Lose Tax Tribunal Appeal in Strachan v HMRC Source: https://taxdisputes.co.uk/2023/11/hmrc-lose-tax-tribunal-appeal-in-strachan-v-hmrc/ *In [Strachan v HMRC [2023] UKFTT 617 (TC)](https://taxdisputes.co.uk/wp-content/uploads/2023/10/Strachan-v-HMRC-.pdf), Mr. Strachan submitted tax returns for the five-year period up to 2015/16 based on a chosen domicile in Massachusetts, USA. HMRC contested this and issued discovery assessments and closure notices. With a tax liability of just over £420,000 at stake, the FTT was tasked with resolving the questions of domicile and extended time limits for carelessness. If the tax loss wasn't attributable to carelessness, two years would no longer be subject to assessment. The taxpayer appealed to the First-tier Tax Tribunal which granted the taxpayer's appeal. The First-tier Tribunal (FTT) determined that although the taxpayer was unable to establish a domicile of choice in Massachusetts, considering all pertinent factors, HMRC did not succeed in proving a tax loss due to carelessness.* *While he couldn't substantiate his chosen domicile, HMRC was unable to demonstrate any tax loss resulting from his alleged carelessness.* The case, heard before the [First-tier Tribunal (FTT)](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/) in the United Kingdom, dealt with issues of domicile, carelessness, and the burden of proof in [tax assessment appeals](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/). Ian Charles Strachan, the taxpayer in question, challenged assessments by His Majesty's Revenue and Customs (HMRC) for the tax years 2011/12 to 2015/16, claiming that he was domiciled in Massachusetts while [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) asserted he was domiciled in England. This article provides a comprehensive analysis of the case and its implications. Our [London Tax Solicitors and Barristers ](https://taxdisputes.co.uk/expert-advice/)have vast experience of tax laws and first hand commercial, litigation and advocacy experience. We have a proven track record of successfully contesting [disputed tax assessments](mailto:https://taxdisputes.co.uk/2021/03/self-assessment-tax-returns-take-action-to-avoid-late-filing-penalties/) and [penalties with HMRC](mailto:https://taxdisputes.co.uk/hmrc-penalties/). The tax authorities have lost many cases that are appealed through negotiation, [internal review](mailto:https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/) or through the [Tax Tribunal](https://www.gov.uk/tax-tribunal). ## Domicile Determination One of the central elements of the [Strachan case](https://taxdisputes.co.uk/wp-content/uploads/2023/10/Strachan-v-HMRC-.pdf) was the determination of Mr. Strachan's domicile. The legal concept of domicile is critical in tax matters, as it often determines an individual's tax liability in a given jurisdiction. The case tackled three aspects of domicile: - **Domicile of Origin:** The FTT found that Mr. Strachan had an English domicile of origin, grounded in his place of birth. This forms a pivotal foundation for understanding his domicile status. - **Domicile of Choice in Connecticut:** The FTT held that Mr. Strachan had not acquired a domicile of choice in Connecticut during the relevant period. A domicile of choice is attained by living in a particular place with the intention to make it one's permanent home. Mr. Strachan's inability to establish domicile of choice in Connecticut was a significant factor in the case. - **Domicile of Choice in Massachusetts:** The central question revolved around whether Mr. Strachan had successfully established a domicile of choice in Massachusetts from 2006 onwards. This determination hinged on the interpretation of the term "chief residence." The FTT clarified that "chief residence" necessitates consideration of all relevant factors, beyond merely owning a home and having the intention to reside there indefinitely. This interpretation underscores the complexity of establishing domicile in legal contexts. ## Carelessness and the Burden of Proof Another critical aspect of the [Strachan case](https://taxdisputes.co.uk/wp-content/uploads/2023/10/Strachan-v-HMRC-.pdf) was the question of carelessness in Mr. Strachan's [self-assessment tax returns](https://taxdisputes.co.uk/2021/03/self-assessment-tax-returns-take-action-to-avoid-late-filing-penalties/) for the tax years 2011/12 and 2012/13. It was found that he had been careless in these returns due to significant changes in his domicile status since 1987. Mr. Strachan had not sought professional advice during this time, and this lack of professional guidance contributed to his carelessness. However, a key legal issue was the burden of proof. The FTT ruled that HMRC bore the burden of proving that Mr. Strachan's carelessness resulted in the loss of tax. This means that HMRC had to demonstrate that had Mr. Strachan sought [professional advice](mailto:https://taxdisputes.co.uk/) before filing his earlier tax returns, that advice would have supported HMRC's position on his domicile. HMRC was unable to meet this burden in the case. ## Implications of Tribunal’s Judgment The [Strachan v HMRC case](https://taxdisputes.co.uk/wp-content/uploads/2023/10/Strachan-v-HMRC-.pdf) has significant implications for both taxpayers and tax authorities, as well as the broader field of tax law: - **Clarity on Domicile**: The case provides a detailed discussion of the legal principles surrounding the concept of "domicile of choice." This clarification is invaluable to individuals and professionals dealing with the complexities of domicile issues in tax matters. It underscores the need to consider all relevant factors when determining domicile and offers insights into how the legal system interprets the "chief residence" concept. - **Burden of Proof**: The determination regarding the burden of proof in tax assessment appeals carries important implications. The FTT decision that the burden of proof does not shift to the taxpayer once carelessness is proven may be a disappointment for HMRC. This decision challenges the conventional approach to [tax disputes](https://taxdisputes.co.uk/) and could potentially lead to further litigation. - **Legal Precedent:** Strachan v HMRC serves as a legal precedent for future cases involving domicile issues, carelessness, and the burden of proof in tax assessment appeals. It offers guidance to both taxpayers and tax authorities on how these issues should be approached in a legal context. ## Download Judgment Here [![](https://taxdisputes.co.uk/wp-content/uploads/2023/10/Strachan-v-HMRC-.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2023/10/Strachan-v-HMRC-.pdf) ## What is the HMRC Tax Appeal Process? There is a 2-stage process for a taxpayer to [dispute a HMRC decision](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/): **Stage 1:** Give notice of appeal to HMRC. A taxpayer can appeal in writing within 30 days of HMRC’s notice of their decision. HMRC will confirm their first decision, amend their decision or agree with the taxpayer’s assessment. HMRC will conduct an [internal review of the disputed decision](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/). The review is an entirely internal procedure completed not by the original HMRC decision maker but by a different HMRC officer. **Stage 2:** Appeal to the Tax Tribunal. If the taxpayer’s position cannot be agreed with HMRC in stage 1 then a taxpayer can appeal to the First Tier Tax Tribunal if the taxpayer cannot agree their position following the review. The independent tribunal will make a determination on the case. A further appeal is permitted if a taxpayer does not agree with the decision. Some decisions (e.g. VAT assessments or security notices) can be appealed directly to the First-tier tax Tribunal however HMRC prefers an internal review first. The purpose of the internal review is for HMRC to quash any unreasonable decisions as early as possible however on the vast majority of occasions the decision is upheld. ## What is the Importance of Strachan v HMRC? Strachan v HMRC [2023] UKFTT 617 (TC) sheds significant light on the intricate nuances surrounding [the concept of 'domicile of choice' in UK tax law](https://assets.publishing.service.gov.uk/media/5a7abba640f0b66eab99c445/statutory_residence_test.pdf.pdf). The First-tier Tribunal's decision to allow the taxpayer's appeal hinged on HMRC's failure to demonstrate that the loss of tax was directly attributable to Mr. Strachan's carelessness. Despite finding him careless in completing his tax returns due to substantial changes in his circumstances, the burden of proof remained squarely on HMRC to establish this causal link. This ruling sets a notable precedent, affirming that once carelessness is proven, the responsibility to demonstrate its direct impact on tax loss lies with the tax authority. This verdict may potentially prompt further legal discourse on this matter in the future. If you currently reside abroad and are facing requests from HMRC for specific tax returns and payments, [LEXLAW](https://lexlaw.co.uk/) is here to offer our expertise in challenging HMRC's determination of your eligibility for relevant tax reductions. Our experienced team can provide assistance in managing your financial matters while you are living abroad, ensuring that your financial interests are safeguarded. ## Expert London Tax Lawyers If you need [HMRC Tax Disputes advice](https://taxdisputes.co.uk/), we are available to aid you at every stage of the HMRC appeals process. Members of [our legal team](https://lexlaw.co.uk/) have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the HMRC internal review process and in front of the Tax Tribunal. [Our team](https://taxdisputes.co.uk/) specialises in successfully challenging HMRC decisions and will assist you in every aspect including developing a strategy. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with a [proven track record ](https://taxdisputes.co.uk/success/)of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk?subject=Tax%20Enquiry). --- # R&D Tax Credits: HMRC’s Clawback Demands Source: https://taxdisputes.co.uk/2024/04/rd-tax-credits-hmrcs-clawback-demands/ Many SME businesses, which previously were able to apply for and receive Research and Development (R&D) tax breaks from HMRC for their innovative endeavours, find themselves now being pursued by HMRC to reimburse the funds received. [HM Revenue and Customs](https://www.gov.uk/government/organisations/hm-revenue-customs) ([HMRC](https://en.wikipedia.org/wiki/HM_Revenue_and_Customs)) is re-evaluating past claims for [research and development (R&D) tax relief](https://www.gov.uk/guidance/corporation-tax-research-and-development-rd-relief), prompted by a realisation of significant levels of error and fraud that have persisted over several years. HMRC asserts its obligation to ensure that claimants meet the criteria for the reliefs they have sought. The intensifying scrutiny by HMRC on research & development (R&D) tax credit claims has left many businesses grappling with the implications and complexities of compliance. The revelation of significant inaccuracies in past claims underscores the urgency for businesses to carefully address and respond to HMRC's demands for repayment with the benefit of considered and independent legal advice. ## Research and Development (R&D) Tax Relief Since its establishment in 2000, Research and Development (R&D) tax credits have aimed to support startup companies by providing tax relief for their investments in innovation. This initiative encourages businesses to pursue groundbreaking research and development projects. However, recent years have revealed a concerning trend where certain companies have abused the system, deviating from its intended purpose. This misuse has raised questions about the effectiveness and integrity of the R&D tax credit program. HMRC has emphasised the seriousness of the situation, estimating that over £1 billion was lost due to errors and fraudulent activities in tax relief for smaller businesses during the peak of the pandemic in 2020-21. This significant loss highlights the urgent need for thorough reassessment and stronger enforcement measures to preserve the integrity of the system. As HMRC strives to ensure accountability and fairness, addressing these issues is crucial to maintain the R&D tax credits' role in promoting innovation and aiding the growth of small businesses. ## The Legal Framework HMRC can revisit historic claims upon "discovering" potential errors, leading to demands for repayment, interest, and penalties. Notably, HMRC can pursue taxpayers for "carelessness" in their claims, potentially resulting in additional penalties. ## Responding Strategically to HMRC In response to HMRC's demands, businesses have several avenues to consider. They may choose to concede the claim on a "without prejudice" basis, negotiating a repayment schedule while mitigating further penalties. Alternatively, contesting HMRC's assertions requires expert advice and meticulous analysis of the original claim. ## Expert Guidance and Support Seeking assistance from reputable advisers is crucial in navigating this intricate terrain. Expert advisers can assess the validity of the original R&D claim, analyse incurred costs, and provide strategic counsel on contesting HMRC's demands. [Contact us](https://lexlaw.co.uk/contact-us/) to arrange a conference with our [tax team](https://lexlaw.co.uk/our-people/) today. ## Leveraging Good Behaviour Importantly, businesses demonstrating "good behaviour" may have opportunities to mitigate penalties. By cooperating with HMRC and showing willingness to rectify errors, companies can potentially negotiate favourable outcomes, including suspensions of careless error penalties. ## Specialist UK Tax Advice At [LEXLAW](https://lexlaw.co.uk/), we specialise in guiding businesses through complex tax matters, including challenges with HMRC. Our experienced team of lawyers can provide expert advice, strategic representation, and negotiation support to help clients navigate HMRC's demands effectively. Contact us today to discuss how we can safeguard your interests and achieve optimal outcomes in this challenging situation. ## Advice for Taxpayers Navigating HMRC's demand to return R&D tax credit cash requires a strategic and informed approach. By understanding the legal landscape, leveraging expert guidance, and demonstrating cooperation with HMRC, businesses can effectively manage this challenge and protect their financial interests. ## Expert Tax Investigation Lawyers If you need[ HMRC Tax Investigation advice](https://windinguppetitionsolicitors.co.uk/expert-advice/), we are available to aid you at every stage of the HMRC investigation process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and[ investigations](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/). Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. [Our specialist Tax Solicitors and Barristers](https://lexlaw.co.uk/our-people/) deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. We provide urgent [advice](https://taxdisputes.co.uk/expert-advice/) and representation to clients from our unique expert team of established [Tax and Duties specialist solicitors and barristers](https://taxdisputes.co.uk/) with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email contact@lexlaw.co.uk. --- # Honest Burgers Ltd – HMRC Winding-up Petition Source: https://taxdisputes.co.uk/2023/12/honest-burgers-facing-hmrc-winding-up-petition/ Fast-food giant [Honest Burgers Ltd](https://www.honestburgers.co.uk/) recently faced a HMRC winding-up petition after the tax authority rejected the extension of repayment terms for a substantial tax bill. This unexpected turn of events led to a winding-up petition being issued against the popular restaurant chain, putting it at risk of compulsory liquidation. In this article, we delve into the legal intricacies of the situation, shed light on HMRC's evolving approach to Time to Pay (TTP) agreements, and provide insights into proactive financial strategies for businesses facing similar challenges. If your business owes money to HMRC ([His Majesty’s Revenue and Customs](https://en.wikipedia.org/wiki/HM_Revenue_and_Customs#:~:text=HMRC%20was%20formed%20by%20the,effect%20on%2018%20April%202005.)) that it can’t pay immediately you will probably wish to pay overdue taxes by instalments. Our legal team can use their experience and secure your business a favourable [Time to Pay agreement from HMRC](https://www.gov.uk/guidance/find-out-how-to-pay-a-debt-to-hmrc-with-a-time-to-pay-arrangement), which is a key step in preserving financial stability and warding off HMRC Debt Management threats of insolvency (such as a [HMRC Statutory Demand](https://taxdisputes.co.uk/hmrc-statutory-demand/), Bankruptcy or a [HMRC Winding-up Petition](https://lexlaw.co.uk/practice-areas/winding-up-petitions-solicitors-london/hmrc-petition-winding-up/)). Our leading tax experts with years of experience of handling HMRC officers can be instructed to deal with HMRC on your behalf, ensuring a smooth and confident process. ## Facing a HMRC Winding-up petition Honest Burgers, boasting 40 outlets and approximately 700 employees, found itself grappling with HMRC's abrupt issuance of a winding-up petition. Despite ongoing negotiations for a TTP agreement renewal, the tax authority accelerated legal proceedings, catching the business off guard. Prompt action was taken by Honest Burgers, which paid the outstanding tax in full within two days, highlighting the need for businesses to be vigilant in the face of evolving legal landscapes. ## Why HMRC issue Winding-up Petitions HMRC, in response to criticisms from Honest Burgers, emphasised its commitment to protecting taxpayers' money. The tax authority acknowledged an increased focus on clamping down on TTP deals, especially in cases where debts originated during the pandemic. As officials work through a backlog of unpaid bills, it is crucial for businesses to understand the shifting dynamics and potential risks associated with negotiations with HMRC. ## HMRC Time to Pay (TTP) Arrangements In the face of mounting financial pressures, [TTP arrangements](https://taxdisputes.co.uk/2023/10/obtaining-hmrc-time-to-pay-agreements-ttp/) have been a lifeline for businesses seeking to manage and repay tax debts over a specified period. Navigating the intricacies of [TTP agreements](https://taxdisputes.co.uk/2023/10/obtaining-hmrc-time-to-pay-agreements-ttp/) is essential for businesses aiming to secure favourable terms and avoid the pitfalls of winding-up petitions. ## Basics of Time to Pay (TTP) Agreements [TTP arrangements](https://taxdisputes.co.uk/2023/10/obtaining-hmrc-time-to-pay-agreements-ttp/) provide businesses with a structured framework to repay HMRC over an agreed-upon period, typically up to 12 months. This flexibility can be invaluable for businesses facing temporary financial hardships, allowing them to maintain operations while meeting their tax obligations. ## Negotiating TTP Arrangements with HMRC Negotiating [TTP arrangements ](https://taxdisputes.co.uk/2023/10/obtaining-hmrc-time-to-pay-agreements-ttp/)with HMRC requires a strategic and well-informed approach. As a business owner, understanding the dynamics of these negotiations is crucial for securing favourable terms and avoiding the potential escalation to winding-up petitions. ## HMRC's Perspective on TTP Arrangements HMRC, as the creditor, holds a pivotal role in determining the feasibility of TTP arrangements. It is essential to grasp HMRC's perspective, including its criteria for accepting or rejecting proposed repayment plans. Engaging with HMRC transparently and proactively can significantly impact the success of these negotiations. ## Experienced Insolvency Solicitors Navigating the legal intricacies of [TTP arrangements](https://taxdisputes.co.uk/2023/10/obtaining-hmrc-time-to-pay-agreements-ttp/) and potential winding-up petitions requires a deep understanding of tax law and negotiation strategies. An experienced solicitor can assess your business's unique circumstances, formulate a robust negotiation strategy, and advocate on your behalf to achieve the best possible outcome. Legal experts bring a wealth of knowledge and experience to [TTP negotiations](https://taxdisputes.co.uk/2023/10/obtaining-hmrc-time-to-pay-agreements-ttp/), ensuring that your proposed repayment plan aligns with legal requirements and stands the best chance of acceptance by HMRC. From crafting persuasive arguments to anticipating potential challenges, solicitors play a pivotal role in safeguarding your business interests. ## HMRC's Increasing Vigilance: The Sunday Times reports HMRC's intensified scrutiny on [TTP deals](https://taxdisputes.co.uk/2023/10/obtaining-hmrc-time-to-pay-agreements-ttp/), particularly those stemming from pandemic-related debts. As officials work through a backlog of unpaid bills, businesses should be cognisant of the changing dynamics and potential risks associated with engaging in negotiations with HMRC. ## Surge in Winding-Up Petitions: A notable trend has emerged with HMRC's increased issuance of winding-up petitions, as highlighted by Honest Burgers' experience. The surprising acceleration of legal proceedings during ongoing negotiations raises concerns about the potential impact on businesses, emphasising the need for a nuanced understanding of the legal landscape. ## Expert Opinions on HMRC's Approach: Insolvency experts’ express bewilderment at HMRC's aggressive stance, questioning the logic behind potentially jeopardising jobs during negotiations. As the tax authority seemingly intensifies its efforts, businesses facing similar challenges are advised to seek the counsel of experienced solicitors to navigate the complexities of negotiations and protect their interests. ## Strategic Financial Planning: In light of these developments, businesses should consider proactive financial strategies to pre-emptively address tax challenges. Offering a detailed written repayment plan, along with supporting documents such as cashflow forecasts, enhances the chances of negotiating favourable terms with HMRC. Transparent communication about financial constraints and realistic monthly payments is crucial for securing viable agreements. ## Evolving Legal Landscape: The timing of HMRC's intensified enforcement drive poses challenges for the restaurant and hospitality sector, compounded by a 40% drop in Christmas bookings and ongoing industry struggles. As businesses navigate the economic fallout from the pandemic, Brexit staffing challenges, and the cost-of-living crisis, proactive financial strategies, legal expertise, and transparent communication with tax authorities become paramount. ## Contact Our Tax Solicitors & Barristers In conclusion, navigating HMRC's winding-up petitions and TTP arrangements requires a multifaceted approach that combines legal expertise, proactive financial planning, and a deep understanding of the evolving legal landscape. As a business owner, being proactive in seeking legal counsel, understanding the intricacies of TTP negotiations, and implementing robust financial strategies can empower you to overcome challenges and secure the future success of your enterprise. In the face of increasing legal complexities, enlisting the support of a [reputable law firm specialising in tax law](https://taxdisputes.co.uk/) and insolvency is not just a strategic move but a crucial step in safeguarding your business's interests. By staying informed, being proactive, and leveraging the expertise of legal professionals, you can navigate the challenges posed by winding-up petitions and TTP arrangements with confidence and resilience. We provide a no cost initial discussion by phone call (02071830529) to establish whether or not we can help you by organising a discounted fixed fee advice conference for you with and ex-HMRC barrister and our experienced solicitors. We are a specialist [City of London](https://web.archive.org/web/20200622210953/https:/www.cityoflondon.gov.uk/Pages/default.aspx) law firm made up of Solicitors & Barristers and based in the [Middle Temple Inn of Court](https://www.middletemple.org.uk/) adjacent to the Royal Courts of Justice.  We are experts in dealing with matters surrounding insolvency in particular issues. Our team have unparalleled experience at serving statutory demands, negotiating with debtors/creditors, setting aside statutory demands and both issuing and defending winding up petitions vigorously at the [Royal Courts of Justice](https://www.find-court-tribunal.service.gov.uk/courts/royal-courts-of-justice) (Rolls Building), or the relevant High Court District Registry or County Court with jurisdiction under the [Insolvency Rules](https://www.legislation.gov.uk/uksi/2016/1024/contents/made).  --- # HMRC’s Tax Dispute with Squibb Group Source: https://taxdisputes.co.uk/2024/01/hmrcs-tax-dispute-with-squibb-group/ Squibb Group's clash with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) stands as a cautionary tale illustrating the consequences of alleged tax irregularities. The firm faced accusations of improper payments by its directors, supposedly using company funds for personal expenses. The subsequent imposition of a hefty charge and allegations of underpaid taxes spanning several years led to [a winding-up order](https://windinguppetitionsolicitors.co.uk/) by the High Court. Squibb Group denies these allegations and had appealed to the [First Tier Tribunal](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/) (Tax Chamber) prior to the winding-up. > Our [*Taxation practice*](http://taxdisputes.co.uk/) is at the core of the firm. Got a dispute with HMRC? Our tax team is made up of specialist [*tax lawyers*](http://taxdisputes.co.uk/expert-advice/) who can assist you to resolve your tax dispute. Our ex-HMRC lawyers will guide you on complex tax legislation to get you the best possible result. ## Understanding the Troubles Faced by Squibb The case of Squibb Group underscores the complexities and potential pitfalls of managing finances, especially in relation to tax compliance. Their alleged misuse of company funds for personal expenses, improper expense claims, and disputed deductions for business expenses served as the catalyst for HMRC's pursuit. HMRC's court submission contested the assertion that certain payments were exclusively for trade purposes, expressing disbelief in their legitimacy as genuine business expenses due to insufficient evidence. Additionally, HMRC questioned the authenticity of some submitted invoices. The tax body's assessments span from 30th June 2003 to 31st January 2015, encompassing corporation tax and VAT sums. HMRC provided a detailed list to the court, highlighting over £4 million that directors were purportedly deemed to have inappropriately extracted or spent. Furthermore, HMRC hinted at potential additional claims, linking to their allegations of the company incorrectly claiming deductions for business expenses and understating its income. ## HMRC's Allegations against Squibb Group HMRC's investigations pointed to various discrepancies in Squibb Group's financial dealings, including allegations of: - **Improper Cash Extraction:** Former directors allegedly withdrew cash from the company for personal reasons, not duly recorded in the director's loan account. - **Misuse of Company Funds:** Company finances were purportedly used for personal and private expenses, involving extravagant costs such as constructing a home swimming pool with a slide and a lavish family holiday at the Gleneagles Hotel, invoicing a staggering £31,771.50. HMRC challenged these expenses, contending that they were not exclusively for trade purposes and lacked substantial evidence to validate their legitimacy as genuine business expenses. HMRC's assessments, spanning from 30 June 2003 to 31 January 2015, encompassed corporation tax and VAT, totalling more than £16.5 million. HMRC is pursuing an additional amount of £1,654,771.63 from Squibb Group concerning PAYE, National Insurance, student loan repayment, and Construction Industry Scheme payments that the tax body alleges the company did not fulfill. ## Squibb Group's Defence and Ongoing Dispute Squibb Group vehemently refuted these claims, contesting the assessments and penalties imposed by HMRC. Despite appeals and reviews against HMRC's findings, Squibb Group faced increased assessments and penalties, prolonging the arduous nine-year-long dispute. The company continues to appeal to the First Tier Tribunal (Tax), aiming to challenge HMRC's allegations, asserting that the[ tax investigation](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) has created immense strain on the firm and its stakeholders. ## How we can help your business appeal to the FTT The procedural rules governing the First Tier Tribunal are found in the [*Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273)*](https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/357075/tax-chamber-tribunal-procedure-rules.pdf). The Tax Tribunal is completely independent of HMRC and is governed by an overriding objective to deal with cases fairly and justly ([rule 2, First Tier Tribunal Rules (FTR 2009)](https://www.legislation.gov.uk/uksi/2009/273/article/2/made)). The Tribunal will consider the evidence of both parties, equally whilst the judge heavily relies on previous case law. We can lodge an appeal to the [First-tier Tribunal (Tax Chamber)](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) on behalf of your business against [HMRC’s penalty decisions](https://taxdisputes.co.uk/hmrc-penalties/) by taking the following steps - **Initiating the Appeal:** As a business, if you disagree with a decision made by HM Revenue and Customs (HMRC), the initial step is to file a formal Notice of Appeal with the First-tier Tribunal (Tax Chamber). This notice must articulate the grounds for the appeal, specifics of the decision being challenged, and include any pertinent supporting evidence. - **Adhering to Time Limits:** Ensure strict compliance with the appeal time frame, typically set within 30 days from the date of HMRC's decision. Missing this deadline might jeopardize the eligibility of the appeal. - **Completing the Appeal Form:** Businesses need to complete the relevant appeal form pertinent to the tax matter under dispute. These forms are accessible on the Tribunal's official website or obtainable directly from the Tribunal office. - **Presenting Grounds for Appeal:** Clearly articulate the reasons for disagreement with HMRC's decision. This involves providing strong arguments and substantial evidence to bolster your case. Essential documentation, financial records, and correspondence exchanged with HMRC should be included to support your claims. - **Thorough Case Preparation:** Devote significant effort to prepare for the tribunal hearing. This encompasses collecting and organizing supporting documents, preparing comprehensive witness statements, and arranging legal representation, if deemed necessary for a robust defence. - **Participation in Tribunal Hearing:** The case will be heard before a judge at the First-tier Tribunal (Tax Chamber). Both the business (appellant) and HMRC will present their respective cases, provide evidence, and offer arguments. The judge will impartially assess the evidence and arguments before issuing a decision. - **Receiving the Tribunal Decision:** The Tribunal will deliver its decision in writing, outlining the verdict and rationale behind it. ## Protecting Your Business To prevent finding yourself in a similar predicament, here are crucial steps to consider: **1. Transparent Financial Records:** Maintain clear, accurate financial records that adhere to tax laws. Ensure personal expenses are distinct from company finances. **2. Compliant Expense Claims:** Scrutinize business-related expenses meticulously. All expense claims should be legitimate and directly connected to business activities. **3. Vigilant Compliance:** Regularly review tax submissions to ensure accuracy and compliance with HMRC regulations. Timely rectify any discrepancies or errors identified. **4. Seek Expert Guidance:** Consult tax professionals or legal experts to ensure your business operations align with tax laws. Experts can offer invaluable insights and prevent potential pitfalls. ## What Sets Us Apart? 1. In-Depth Knowledge: Our seasoned team possesses a comprehensive understanding of tax laws, regulations, and HMRC's protocols, enabling us to craft robust legal strategies tailored to each unique case. 2. Proven Success Stories: We pride ourselves on a stellar track record of achieving positive outcomes in tax disputes. Our history of securing favourable resolutions for clients stands testament to our commitment and expertise. 3. Tailored Legal Solutions: Every case is unique, and so are our solutions. We provide bespoke legal guidance, meticulously tailored to address the intricacies of each dispute, ensuring our clients' interests are protected. 4. Vigorous Representation: When it comes to litigation, we advocate fiercely on behalf of our clients, leveraging our expertise to navigate legal proceedings and pursue the most advantageous outcome. ## Expert London Tax Lawyers We understand the stress and complexities surrounding [tax disputes](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/). That's why, at Lexlaw, we are dedicated to partnering with our clients, guiding them through the intricate maze of tax regulations, and tirelessly working towards achieving the results they desire. We have years of experience [negotiating with HMRC](http://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) and handling tax appeals at the [Tax Tribunals](http://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) and in the High Court dealing with contentious tax disputes. We also work extensively with Accountants, Tax Investigation practices and former HMRC Officers to ensure your matter is handled correctly. The depth of our combined capabilities allows us to represent clients in a variety of situations, whether advising private or corporate clients during tax audits, pursuing administrative appeals, or litigating tax matters at the Tax Tribunal, Court or in tax appeals. Clients hire us because of our [extensive experience in all areas](http://taxdisputes.co.uk/success/), and especially because of our litigation experience – when necessary, we know when to go to the Tax Tribunal and we know how to litigate. --- # FTT Appeal against HMRC allowed, Magic Carpets not careless enough Source: https://taxdisputes.co.uk/2023/11/ftt-appeal-against-hmrc-allowed-magic-carpets-not-careless-enough/ *In [Magic Carpets (Commercial) Ltd v HMRC [2023] TC08892](https://taxdisputes.co.uk/wp-content/uploads/2023/10/Magic-Carpets-Commercial-Ltd-v-HMRC-2023.pdf), the [First-tier Tribunal (FTT)](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/) determined that despite the taxpayer's carelessness in implementing a tax planning scheme that included an employee benefit trust (EBT), this carelessness did not result in a loss of tax. As a result, HMRC's determinations were deemed to have been issued beyond the standard four-year limitation period and were therefore considered untimely.* ## Magic Carpets Ltd v HMRC Magic Carpets (Commercial) Ltd employed a tax planning strategy involving an EBT to compensate key personnel. The arrangement was structured through a consultancy, Herald, which consistently recommended making payments into an offshore EBT. While Magic Carpets claimed deductions for these payments, they failed to account for [PAYE (Pay As You Earn) income tax](https://www.gov.uk/income-tax/how-you-pay-income-tax#:~:text=Pay%20As%20You%20Earn%20(%20PAYE,employer%20how%20much%20to%20deduct.) or [National Insurance](https://www.gov.uk/national-insurance/how-much-you-pay) contributions on the amounts loaned to employees. ## What is PAYE Income Tax? [PAYE income tax](https://www.gov.uk/income-tax/how-you-pay-income-tax#:~:text=Pay%20As%20You%20Earn%20(%20PAYE,employer%20how%20much%20to%20deduct.), short for "Pay As You Earn," is a system employed by various countries, including the United Kingdom, for the collection of income tax. Under PAYE, employers deduct income tax directly from their employees' wages or salaries before paying them. This deduction is based on the employee's tax code, which factors in their personal allowance, deductions, and other income sources. Employees receive a payslip detailing the gross pay, tax deductions, and net pay for transparency. The tax withheld is then submitted to the relevant tax authority, i.e. HMRC in the UK. At the end of the tax year, employees receive a summary statement, called a [P60](https://www.gov.uk/paye-forms-p45-p60-p11d/p60), which provides a comprehensive view of their earnings and tax deductions for [self-assessment](https://taxdisputes.co.uk/2021/03/self-assessment-tax-returns-take-action-to-avoid-late-filing-penalties/) and tax return purposes. [PAYE income tax](https://taxdisputes.co.uk/paye-tax-investigation-disputes/) ensures a consistent and predictable collection of income tax throughout the year, preventing the need for a substantial lump-sum payment at year-end. It also promotes tax compliance and efficient revenue management. To ensure accuracy, employees should regularly review their tax codes and notify their employers or tax authorities of any significant changes in their financial circumstances, as incorrect codes can lead to overpayment or underpayment of income tax, requiring adjustments or potential repayments. ## HMRC Determinations and Timing In these FTT proceedings, HMRC issued determinations for [unpaid PAYE income tax](https://taxdisputes.co.uk/paye-tax-investigation-disputes/) for the tax years 2009/10 and 2010/11, accompanied by [penalty assessments](https://taxdisputes.co.uk/hmrc-penalties/) under Schedule 24. The critical question was whether these determinations fell within the statutory time limits. ## The Legislation and Carelessness The case's legal foundation is established by key tax legislation, including Regulation 80(5), Section 34, and Section 36 of the [Taxes Management Act 1970](https://taxdisputes.co.uk/wp-content/uploads/2023/10/Taxes-Management-Act-1970.pdf), along with Paragraph 1 of Schedule 24, which addresses penalties for inaccuracies in tax documents. The crux of the matter was the taxpayer's alleged carelessness in implementing the EBT arrangement and whether this carelessness led to a loss of tax. ## The Standard of a Reasonable Taxpayer The FTT evaluated the conduct of Magic Carpets against the benchmark of a hypothetical "prudent and reasonable taxpayer" as established in *HMRC v Hicks [2020] UKUT 0012 (TC)*. Generally, taxpayers can rely on professional advisors when preparing tax returns without being considered negligent. ## Assessing Magic Carpets' Conduct While Magic Carpets had engaged independent professional advisors, the FTT identified shortcomings in their conduct. The directors of the company failed to comprehensively understand the complex EBT arrangement. They signed documents with inaccuracies and were aware that the arrangement lacked substance. Despite their limited tax sophistication, the FTT believed they should have made further inquiries. However, upon further insight into the case it was seem that the negligence of Magic Carpets did not directly lead to the loss of tax. It was HMRC's responsibility to establish this causal link, a task they failed to accomplish. ## The Tribunal's Decision Due to the FTT's finding that the negligence of Magic Carpets did not cause the loss of tax, HMRC's determinations were issued outside the statutory time limits. Consequently, the FTT allowed the taxpayer's appeals. The [Magic Carpets case](https://taxdisputes.co.uk/wp-content/uploads/2023/10/Magic-Carpets-Commercial-Ltd-v-HMRC-2023.pdf) serves as a stark reminder of the complexities involved in tax disputes and the critical importance of establishing the connection between a taxpayer's actions and the resulting tax loss. It underscores that negligence, while significant, is not on its own sufficient to establish the timeliness of determinations. This ruling also highlights the necessity for tax authorities, such as HMRC, to rigorously establish the link between a taxpayer's actions and the resulting tax loss when making determinations and assessments. In the intricate world of tax planning and disputes, causation and the burden of proof play a pivotal role in determining the case's outcome. If you require guidance or representation in [HMRC tax disputes](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/), our legal team is available to provide expert assistance at every stage of the process. Our team has in-depth knowledge of tax law and experience with HMRC procedures, ensuring that you receive the best representation and advice to navigate these complex issues successfully. ## Download Judgment Here [![](https://taxdisputes.co.uk/wp-content/uploads/2023/10/Magic-Carpets-Commercial-Ltd-v-HMRC-2023.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2023/10/Magic-Carpets-Commercial-Ltd-v-HMRC-2023.pdf) ## Professional HMRC Tax Appeal Litigation Advice [Our tax barristers and solicitors](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) provide the very best representation in negotiations and in litigation in front of the Tax Tribunal. [Our team](https://lexlaw.co.uk/our-people/) specialises in successfully challenging HMRC decisions and will assist you in every aspect including developing a strategy. Our ex-HMRC team provide advice in relation to: - [Appealing against a tax assessment](https://taxdisputes.co.uk/hmrc-tax-appeals/); - [Appealing against a tax penalty](https://taxdisputes.co.uk/hmrc-penalties/); - Negotiating with HMRC; - [Navigating the HMRC internal review process](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/); and - Advising on statutory tax appeals within the Tax Tribunal. If you want to challenge a decision made by HMRC or appeal to the Tax Tribunal, we can help you understand the issues raised, gather necessary information, and ensure a comprehensive and accurate response to HMRC. Just book an initial conference with our leading tax counsel (former HMRC in-house tax barrister and Head of Indirect Tax Litigation at Deloitte and National Tax Litigation Director at PWC) and our Senior Partner who worked at KMPG, Goldman Sachs and ING Barings and is dual-qualified as a Barrister and Solicitor-Advocate. Both lawyers will be available to you at the outset in your first advice conference. ## Expert London Tax Lawyers If you need [HMRC Tax Disputes advice](https://taxdisputes.co.uk/), we are available to aid you at every stage of the HMRC appeals process. Members of [our legal team](https://lexlaw.co.uk/) have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the HMRC internal review process and in front of the Tax Tribunal. [Our team](https://taxdisputes.co.uk/) specialises in successfully [challenging HMRC decisions](https://taxdisputes.co.uk/hmrc-tax-appeals/) and will assist you in every aspect including developing a strategy. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with [a proven track record](https://taxdisputes.co.uk/success/) of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk?subject=Tax%20Query). --- # Case Study: HMRC Enquiry Notice Deemed Out of Time Source: https://taxdisputes.co.uk/2024/04/case-study-hmrc-enquiry-notice-deemed-out-of-time/ In the recent case of Richard Monks v HMRC [2023] UKFTT 853 (TC), the[ First-tier Tribunal ](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/)(FTT) made a significant ruling regarding the validity of HMRC's enquiry into the taxpayer's tax returns. This article explores the background of the case, the FTT decision, and the implications it holds for taxpayers facing similar circumstances. ## HMRC Enquiry Notice Richard Monks, a taxpayer, filed his tax return for the 2019/20 financial year on 29 January 2021. [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) initiated an enquiry under section 9A, [Taxes Management Act 1970](https://www.legislation.gov.uk/id/ukpga/1970/9), into his return by posting him a letter on 27 January 2022, within the statutory time limit. However, Mr Monks claimed he did not receive the letter until after the deadline, rendering the [enquiry notice](https://www.gov.uk/hmrc-internal-manuals/enquiry-manual/em1500) out of time. Additionally, HMRC issued an [information notice](https://www.gov.uk/hmrc-internal-manuals/compliance-handbook/ch23000) in accordance with paragraph 1, Schedule 36, [Finance Act 2008](https://www.legislation.gov.uk/ukpga/2008/9/contents) on 3 March 2022, further complicating the matter. ## What is HMRC Enquiry Notice? An [HMRC enquiry](https://www.gov.uk/tax-compliance-checks) typically commences with a letter containing an official notice informing you of the initiation of the enquiry process. HMRC is not obligated to provide a specific reason for launching the enquiry. However, it is essential that a valid enquiry notice is issued within 12 months of submitting the Tax Return to HMRC, except for late returns. It is advisable to verify the validity of the notice received. The letter will also specify a suggested deadline for your written response, typically within 30-35 days. ## HMRC Enquiry Notice Dispute: Mr. Monks' Challenge Mr. Monks contested the [timeliness of the enquiry notice](https://www.gov.uk/hmrc-internal-manuals/enquiry-manual/em1505), arguing it was received after the deadline on February 1, 2022, and questioned the necessity of HMRC's requested information. He appealed both notices to the FTT, citing HMRC's failure to adhere to its own guidelines regarding notice timing and pre-enquiry communication with taxpayers. ## FTT Decision on Mr. Monks' Appeal The [appeal](https://www.gov.uk/tax-tribunal) before the FTT was allowed in part. The FTT determined that while the enquiry was deemed out of time, the information notice remained valid. ## Enquiry Notice Validity Challenge During the proceedings, HMRC presented evidence of postage for the enquiry notice, contending it affirmed the validity of the enquiry. Additionally, HMRC argued the necessity of the requested documents and information, suspecting Mr. Monks had not declared his entire  income.  ## Tax Tribunal Findings Upon review, the FTT determined that the enquiry notice failed to meet the time requirement, rendering it invalid. Mr. Monks provided evidence, including photographs taken upon receipt of the notice on February 1, 2022, which supported his claim of delayed delivery. Moreover, Mr. Monks demonstrated a prompt response upon receiving the notice, further corroborating his assertion. ## Download the Judgment here [![](https://taxdisputes.co.uk/wp-content/uploads/2024/04/Monks-v-HMRC-724x1024.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2024/04/Monks-v-HMRC.pdf) ## Information Notice Validity Assessment Concerning the information notice, the FTT concluded that HMRC had reasonable grounds to question the accuracy of Mr. Monks' self-assessment. Consequently, HMRC's request for information was deemed proportionate and reasonably required to assess Mr. Monks' tax position effectively. ## Tax Litigation UK Implications and Commentary This case emphasises the importance of scrutinising HMRC notices to ensure compliance with statutory time limits. It also highlights the necessity of maintaining current evidence to challenge presumed delivery dates. Taxpayers must be vigilant in protecting their rights and interests when dealing with HMRC enquiries.  ## Expert London Tax Lawyers If you need [HMRC Tax Disputes advice](https://taxdisputes.co.uk/), we are available to aid you at every stage of the HMRC appeals process. Members of [our legal team](https://lexlaw.co.uk/) have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the HMRC internal review process and in front of the Tax Tribunal. [Our team](https://taxdisputes.co.uk/) specialises in successfully [challenging HMRC decisions](https://taxdisputes.co.uk/hmrc-tax-appeals/) and will assist you in every aspect including developing a strategy. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with [a proven track record](https://taxdisputes.co.uk/success/) of delivering authoritative results. Just call us on 0207 1830 529, or email contact@lexlaw.co.uk. --- # HMRC & UK Border Force Notice of Seizure FAQS: Answered by Solicitors Source: https://taxdisputes.co.uk/2024/06/hmrc-uk-border-force-notice-of-seizure-faqs-answered-by-solicitors/ Receiving a Notice of Seizure can be a daunting experience, signifying that [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [UK Border Force](https://www.gov.uk/government/organisations/border-force) has confiscated your goods. This formal document outlines the reasons for the seizure and initiates a process that can lead to significant legal and financial consequences. Understanding the implications and knowing how to respond is crucial for protecting your rights and potentially recovering your assets. With expert legal insights and practical advice, we aim to help you navigate the complexities of customs seizures effectively. Table of Contents - 1. What is a Notice of Seizure and How Does It Affect Me?- 2. Common Reasons for Seizures: Why Did HMRC or UK Border Force Seize My Goods?- 3. What Should I Do Upon Receiving a Notice of Seizure?- 4. Can I Recover My Seized Items and How?- 5. What are the Time Limits for Challenging the Seizure of My Property?- 6. How Can I Challenge HMRC or UK Border Force's Legal Right to Seize My Goods?- 7. What Information Should I Include in the Notice of Claim?- 8. How Can Your Solicitors Help in Challenging a Seizure?- 9. What Happens if My Goods Are Seized by HMRC?- 10. What Should I Do if HMRC or Border Control Seizes My Goods? ## 1. What is a Notice of Seizure and How Does It Affect Me? A Notice of Seizure is a formal document issued by [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [UK Border Force](https://www.gov.uk/government/organisations/border-force), indicating the confiscation of goods during import or export processes. Upon receiving this notice, individuals may experience significant ramifications, including potential loss of valuable items and legal challenges. Understanding the implications of a Notice of Seizure is crucial to navigate the ensuing procedures effectively. The notice serves as official communication regarding the seizure of goods and outlines the reasons behind the confiscation. Whether the seizure occurred during travel or through postal means, individuals must address the notice promptly to protect their rights and explore options for recovery. ## 2. Common Reasons for Seizures: Why Did HMRC or UK Border Force Seize My Goods? Seizures by HMRC or UK Border Force occur due to various reasons, including unpaid duties or VAT, importation of prohibited or restricted items, possession of counterfeit goods, or inconsistencies in declarations. Recognising these common triggers can help individuals assess their situations and take appropriate action to address the seizure. Additionally, goods may be seized if they are suspected to be connected to criminal activities or if they violate customs laws and regulations. Understanding the specific grounds for seizure outlined in the notice is essential for determining the appropriate course of action. ## 3. What Should I Do Upon Receiving a Notice of Seizure? Upon receiving a Notice of Seizure, it is imperative to act swiftly and seek legal advice. The notice typically specifies a deadline for response, and understanding your rights and options is crucial. Consulting with experienced solicitors can provide personalised guidance tailored to your specific circumstances, ensuring you navigate the process effectively. Individuals should gather all relevant documents related to the seized goods, including customs declarations, receipts, and any communication received from HMRC or UK Border Force. This information will be essential for assessing the legality of the seizure and formulating a strategy for recovery. ## 4. Can I Recover My Seized Items and How? Recovering seized items is possible in certain circumstances. Options for recovery may include requesting restoration, paying the required duty or penalty, or lodging a formal challenge through a Notice of Claim. Seeking assistance from knowledgeable solicitors can facilitate the process, guiding individuals through the necessary steps to reclaim their seized goods. When exploring options for recovery, it is essential to consider the specific circumstances surrounding the seizure and assess the viability of each approach. Solicitors specialising in customs seizures can provide invaluable expertise and representation throughout the recovery process. ## 5. What are the Time Limits for Challenging the Seizure of My Property? When challenging the seizure of property, it is essential to adhere to specific time limits set by [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or UK Border Force. Notices of Claim must be submitted within one calendar month from the date of seizure to dispute the legality of the seizure effectively. Failing to meet these time frames can result in forfeiting the right to challenge the seizure. Individuals should carefully review the notice received from HMRC or UK Border Force to determine the deadline for submitting a Notice of Claim. Seeking legal advice promptly can ensure compliance with the time limits and maximise the chances of a successful challenge. ## 6. How Can I Challenge HMRC or UK Border Force's Legal Right to Seize My Goods? Challenging the legality of a seizure involves submitting a Notice of Claim to HMRC or UK Border Force. This formal process requires individuals to present evidence and arguments disputing the lawfulness of the seizure. Seeking assistance from solicitors experienced in customs seizures can enhance the chances of a successful challenge. A thorough understanding of customs laws and regulations is essential when formulating arguments to [challenge the seizure](https://taxdisputes.co.uk/notice-12a-steps-to-take-if-goods-have-been-seized-by-hmrc-ukba/). Solicitors specialising in customs seizures can provide invaluable guidance and representation throughout the legal proceedings, increasing the likelihood of a favorable outcome. ## 7. What Information Should I Include in the Notice of Claim? When submitting a Notice of Claim, including comprehensive information is essential. This may involve detailing the seized items, providing relevant documentation such as receipts or ownership proof, and presenting arguments as to why the seizure was unlawful. Solicitors specialising in customs seizures can assist in preparing a thorough Notice of Claim. In addition to providing detailed information about the seized goods, individuals should include any supporting evidence or legal arguments that challenge the legality of the seizure. Solicitors can review the Notice of Claim to ensure its completeness and effectiveness in contesting the seizure. ## 8. How Can Your Solicitors Help in Challenging a Seizure? Our solicitors at [LEXLAW](https://lexlaw.co.uk/contact-us/) specialise in customs seizures and offer expert legal assistance in [challenging seizures by HMRC or UK Border Force](https://taxdisputes.co.uk/notice-12a-steps-to-take-if-goods-have-been-seized-by-hmrc-ukba/). We provide personalised guidance, analyse individual cases, and formulate effective strategies to challenge the legality of seizures. With our support, individuals can navigate the complex process with confidence. Our solicitors have extensive experience representing clients in customs seizure cases and possess in-depth knowledge of customs laws and regulations. We work tirelessly to protect the rights of our clients and pursue favorable outcomes in challenging seizure proceedings. ## 9. What Happens if My Goods Are Seized by HMRC? If your goods are seized by HMRC, you will receive a customs seizure letter detailing the reasons for the seizure and providing contact information for HMRC. Understanding the procedures and legal options available is essential in responding effectively to the seizure. Seeking legal advice can help individuals protect their rights and pursue avenues for recovery. HMRC may initiate condemnation proceedings to determine the legality of the seizure, during which individuals have the opportunity to challenge the confiscation and seek restoration of their goods. Our solicitors can provide expert guidance and representation throughout the legal proceedings, ensuring the best possible outcome for our clients. ## 10. What Should I Do if HMRC or Border Control Seizes My Goods? In the event of goods being seized by HMRC or UK Border Force, individuals should take prompt action to protect their interests. This may involve seeking legal advice, understanding the reasons for the seizure, and exploring options for recovery. Our solicitors specialise in customs seizures and can provide tailored guidance ## Expert London Tax Lawyers If you need [HMRC Tax Disputes advice](https://taxdisputes.co.uk/), we are available to aid you at every stage of the HMRC appeals process. Members of [our legal team](https://lexlaw.co.uk/) have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the HMRC internal review process and in front of the Tax Tribunal. [Our team](https://taxdisputes.co.uk/) specialises in successfully [challenging HMRC decisions](https://taxdisputes.co.uk/hmrc-tax-appeals/) and will assist you in every aspect including developing a strategy. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with [a proven track record](https://taxdisputes.co.uk/success/) of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk?subject=Tax%20Query). --- # Taxpayer Appeal Allowed – HMRC’s Approach to Penalties Criticised Source: https://taxdisputes.co.uk/2024/03/taxpayer-appeal-allowed-hmrcs-approach-to-penalties-criticised/ In a recent dispute between* [H&H Contract Scaffolding Limited (H&H) and HM Revenue & Customs (HMRC) [2024] UKFTT 00151 (TC)](https://taxdisputes.co.uk/wp-content/uploads/2024/03/TC-09082.pdf)*, concerning a research and development (R&D) tax relief claim, significant insights were revealed into [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs)'s approach to [penalties](https://taxdisputes.co.uk/hmrc-penalties/). The case sheds light on the complexities surrounding penalties for alleged "careless behaviour" and raises questions about HMRC's default stance in such matters. ## H&H Contract Scaffolding Limited (H&H) v The Commissioners for HM Revenue & Customs (HMRC) H&H engaged advisers to prepare an R&D tax relief claim, which HMRC disputed. Ultimately, H&H accepted the claim as invalid, leading to a dispute over a penalty imposed by HMRC for alleged careless behaviour. The crux of the issue lay in HMRC's contention that H&H had acted carelessly by failing to qualify for the R&D tax relief. The tribunal sought to decide whether it was appropriate to impose a penalty of £6,632.01 for 'careless behaviour'. ## Tribunal's Decision While the tribunal did not delve into the details of the R&D claim, it focused on whether the penalty was justified. The judge criticised HMRC's assertion that the mere existence of an inaccuracy indicated careless behaviour. Instead, the tribunal sought evidence to ascertain whether H&H had taken reasonable care in engaging professional advice. The judge ruled in favour of H&H, noting that the taxpayer had acted prudently by relying on competent advisers experienced in submitting R&D tax relief claims. ## Download the Judgment Here [![](https://taxdisputes.co.uk/wp-content/uploads/2024/03/HH-Contract-Scaffolding-Limited-HH-and-HM-Revenue-Customs-HMRC-2024-UKFTT-00151-TC-724x1024.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2024/03/TC-09082.pdf) ## HMRC's Blanket Approach This case reflects HMRC's tendency to adopt a blanket approach to [penalties](https://taxdisputes.co.uk/hmrc-penalties/), particularly evident in its handling of R&D enquiries. [The Chartered Institute of Taxation](https://www.tax.org.uk/) highlighted HMRC's aggressive stance in an open letter, prompting HMRC to defend its position. However, cases like H&H's suggest discrepancies between HMRC's rhetoric and its actual practices. ## Impact on Taxpayers HMRC's aggressive pursuit of penalties can burden taxpayers with significant time and financial costs, often leading them to accept penalties to conclude matters swiftly. This approach can adversely affect legitimate businesses, impacting their operations and viability. Moreover, HMRC's aggressive tactics contribute to additional uncertainty and costs for clients involved in the dispute resolution process. ## HMRC's Response and Future Steps While HMRC acknowledges shortcomings in penalty assessments, its standard approach persists. Further training for staff is underway, but questions linger over whether the default position stems from misunderstanding, overzealousness, or revenue-raising motives. ## Expert HMRC Tax Disputes Lawyers At [LEXLAW](https://lexlaw.co.uk/), we specialise in assisting clients facing disputes with HMRC. Our experienced team navigates complex tax matters, offering expert guidance to ensure fair treatment and favourable outcomes for our clients. Whether contesting penalties or defending against aggressive tax assessments, we provide strategic advocacy and tailored solutions to protect our clients' interests. By addressing the nuances of each case and leveraging our in-depth understanding of tax laws and regulations, we strive to achieve optimal results for our clients, mitigating the impact of HMRC's aggressive tactics and safeguarding their financial well-being. In conclusion, the H&H case underscores the importance of vigilance and proactive representation in disputes with HMRC. With our firm's expertise and dedication, clients can trust us to advocate effectively on their behalf, delivering peace of mind and tangible results in challenging tax disputes. ## Expert London Tax Lawyers If you need [HMRC Tax Disputes advice](https://taxdisputes.co.uk/), we are available to aid you at every stage of the HMRC appeals process. Members of [our legal team](https://lexlaw.co.uk/) have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the HMRC internal review process and in front of the Tax Tribunal. [Our team](https://taxdisputes.co.uk/) specialises in successfully [challenging HMRC decisions](https://taxdisputes.co.uk/hmrc-tax-appeals/) and will assist you in every aspect including developing a strategy. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with [a proven track record](https://taxdisputes.co.uk/success/) of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk?subject=Tax%20Query). --- # HMRC Excise Duty Assessment on Importation of Tobacco into UK Source: https://taxdisputes.co.uk/2024/06/hmrc-excise-duty-assessment-on-importation-of-tobacco-from-eu-to-uk/ *The case of [Eveleigh v HMRC [2023] UKFTT 356 (TC)](https://taxdisputes.co.uk/wp-content/uploads/2023/10/Eveleigh-v-HMRC-2023-UKFTT-356-TC.pdf) has reaffirmed the resilience of [excise duty assessments](https://lexlaw.co.uk/glossary-a-to-z-key-common-legal-lawyer-terms-phrases-terminology/), emphasising their validity even in the face of criminal sanctions and forfeiture.* *The FTT upheld a significant excise duty assessment despite concurrent criminal charges and seizures. The appellant was found liable for smuggling 1,160 kg of undeclared tobacco into the UK, resulting in an 18-month suspended sentence. The decision reinforced the principles underpinning excise duty assessments, underscoring the importance of strict liability and the non-disproportionate nature of such levies, even when combined with other penalties. High quality legal representation in this area remains crucial.* ## What is Excise Duty? Excise duty, or excise tax, is an [indirect tax applied to specific goods](https://www.gov.uk/government/publications/uk-trade-tariff-excise-duties-reliefs-drawbacks-and-allowances/uk-trade-tariff-excise-duties-reliefs-drawbacks-and-allowances#introduction), such as tobacco, alcohol, and gasoline. It is collected from manufacturers, producers, or importers but is ultimately paid by consumers through higher product prices. This tax serves multiple purposes, including revenue generation for government funding, discouraging the use of harmful or luxury items, and regulating certain industries and environmental concerns. The complexity of excise duty lies in varying tax rates for different products and its use as a regulatory tool. It can also be applied to imported goods, ensuring consistent tax treatment. Excise tax revenue may be earmarked for specific purposes, depending on government policies. It's essential for businesses and consumers to stay informed about regional excise tax regulations, which can differ significantly from one country to another. ## Eveleigh v HMRC [Eveleigh v HMRC](https://taxdisputes.co.uk/wp-content/uploads/2023/10/Eveleigh-v-HMRC-2023-UKFTT-356-TC.pdf) was a high-stakes legal encounter where the appellant challenged HMRC's decision to impose a substantial [excise duty assessment](https://www.gov.uk/hmrc-internal-manuals/excise-assessments-interim-guidance/eaig2100#:~:text=Excise%20assessments%20are%20provided%20for,debt%20due%20to%20the%20Crown.) of £121,666. This assessment arose from the appellant's importation of a substantial 1,160 kg of tobacco from France into the United Kingdom. However, the narrative took a dramatic turn when UK Border Force intercepted the appellant's vehicle at the UK Zone Coquelles. Inside the vehicle, they discovered a significant quantity of undeclared tobacco, prompting an investigation. The appellant found himself liable for half of the assessed duty, with another passenger held accountable for the remaining half. The tobacco and the vehicle were seized under section 139 of the [Customs and Excise Management Act 1979](https://taxdisputes.co.uk/wp-content/uploads/2023/10/Customs-and-Excise-Management-Act-1979.pdf), as it was believed that the tobacco was intended for commercial purposes. Furthermore, criminal charges were brought against the appellant for knowingly participating in the [fraudulent evasion of excise duty](https://taxdisputes.co.uk/hmrc-duty-evasion-fraud/), and on April 24, 2018, he pleaded guilty to these charges, resulting in an 18-month suspended prison sentence. ## What is an Excise Duty Assessment? An [excise duty assessment](https://www.gov.uk/hmrc-internal-manuals/excise-assessments-interim-guidance/eaig2300) is an official calculation made by a government tax authority (i.e. HMRC) to determine the amount of excise duty owed by an individual or business. The assessment involves calculating the amount of tax owed based on predetermined rates and notifying the taxpayer of their obligation to pay. Taxpayers must adhere to the assessment, maintain records of relevant activities, and have the option to appeal if they disagree with the assessment. Excise duty assessments are crucial for governments to collect taxes on specific goods and regulate their consumption while generating revenue. ## HMRC Excise Duty Evasion Dispute At the heart of the appellant's argument was the assertion that issuing an excise duty assessment after criminal penalties had already been imposed was disproportionate. The argument was grounded in the contention that, while chargeability to excise duty is mandated by [Council Directive 2008/118/EC](https://taxdisputes.co.uk/wp-content/uploads/2023/10/Council-Directive-2008118EC.pdf), the manner of levy and collection is within the discretion of the Member State. The pivotal wording in Section 12 of the [Finance Act 1994](https://taxdisputes.co.uk/wp-content/uploads/2023/10/Finance-Act-1994-.pdf) stated that "*the Commissioners may assess the amount of duty due from that person and notify that amount to that person*." The appellant argued that Parliament's use of "*may*" instead of "*shall*" meant that [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) had the discretion to assess and had the power to waive collection if doing so would result in disproportionality. ## The First-tier Tribunal (FTT) Ruling Despite the appellant's compelling arguments, the [FTT](https://www.gov.uk/courts-tribunals/first-tier-tribunal-tax) dismissed the appeal, referencing the precedent set in *HMRC v Perfect [2019] EWCA Civ 465*. This pivotal case affirmed several key principles: - HMRC must assess the person found to be holding the goods when that is the only excise duty point that can be established. - The public interest in ensuring excise duty payment may necessitate strict liability for anyone holding the goods. - Strict liability is an accepted feature of the excise duty regime. - Fairness and proportionality are foundational in EU law and common law, but they do not automatically exclude the imposition of strict liability. The [FTT](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/) also drew upon *Kevan Denley v HMRC (2017) UKUT 340 (TCC)*, wherein the Upper Tribunal noted that the cumulative effect of forfeiture, assessment, and penalty might be relevant in exceptional cases but not in ordinary ones. In their view, this case did not qualify as an exceptional one, as the appellant had engaged in smuggling for financial gain, and the law was designed to deter such activities. ## The Significance of the Decision The decision in [Eveleigh v HMRC](https://taxdisputes.co.uk/wp-content/uploads/2023/10/Eveleigh-v-HMRC-2023-UKFTT-356-TC.pdf) carries profound significance for the field of [excise duty](https://taxdisputes.co.uk/hmrc-duty-evasion-fraud/) and [taxation law](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/). It reiterates that criminal sanctions, the forfeiture of goods, and the seizure of property do not render an excise duty assessment disproportionate or invalid. This ruling emphasises that strict liability remains a cornerstone of the excise duty system, a principle that has been affirmed time and again in jurisprudence. Moreover, the decision clarifies that proportionality is a relevant factor when assessing penalties, but it does not apply to the duty itself. This nuanced understanding separates the core excise duty from the associated penalties, underlining the importance of legal precision in this complex field. This case underscores the need for careful and precise legal representation in matters of excise duty, and it serves as a beacon of clarity in a complex and evolving area of law. The outcome of this case is a reminder that legal precision and an understanding of the core legal principles are essential in navigating the intricacies of excise duty law. It is exactly the type of precision and understanding our lawyers at [LEXLAW](https://lexlaw.co.uk/) have to assist you with your excise or any other duty taxes. ## Expert London Duty Evasion Lawyers If you need [HMRC Duty Evasion advice](https://taxdisputes.co.uk/hmrc-duty-evasion-fraud/), we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and [HMRC enquiries and investigations](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/). [Our team](https://lexlaw.co.uk/our-people/) specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our [specialist Tax Solicitors and Barristers](https://lexlaw.co.uk/our-people/) deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. *HAVE YOU BEEN CHARGED WITH DUTY EVASION FRAUD? *We provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk). --- # Dyslexia and Tax Compliance: Charles Collier v HMRC Source: https://taxdisputes.co.uk/2024/04/dyslexia-and-tax-compliance-charles-collier-v-hmrc/ In the case of [Charles Collier and others v HMRC [2023] UKFTT 00993 (TC)](https://taxdisputes.co.uk/wp-content/uploads/2024/04/Charles-Collier-and-others-v-HMRC-2023-UKFTT-00993-TC.pdf), the [First-tier Tribunal (FTT)](https://www.gov.uk/courts-tribunals/first-tier-tribunal-tax) examined the impact of dyslexia on a taxpayer's ability to comply with tax obligations. The decision sheds light on the complexities surrounding deliberate behaviour in tax assessments and the role of disabilities in such circumstances. ## HMRC’s Power to Raise Assessments [HMRC's power](https://taxdisputes.co.uk/2024/02/hmrcs-assessment-powers/) to make [discovery assessments](https://www.gov.uk/hmrc-internal-manuals/enquiry-manual/em3251) is governed by specific conditions, including time limits. Deliberate errors, resulting in extended time limits for assessment, are defined by the intention of the taxpayer to provide inaccurate information knowingly. This subjective test includes scenarios where taxpayers display "blind-eye" knowledge or recklessness. In the case at hand, Mr. Collier, the individual taxpayer, and his partnership faced assessments by [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) due to errors in their tax returns. ## Dyslexia and Reliance on Accountants Mr. Collier's diagnosis of dyslexia, coupled with a reading age of 12 years, significantly impacted his ability to independently review tax returns. Relying heavily on the services of a trusted accountant for tax compliance, Mr. Collier's situation changed when personal tragedy led to a decline in his accountant's performance, resulting in erroneous submissions. ## First-tier Tax Tribunal’s Decision [HMRC](https://en.wikipedia.org/wiki/HM_Revenue_and_Customs) alleged deliberate behaviour on Mr. Collier's part, contending that he should have been aware of the errors in his returns. However, the FTT ruled in favour of Mr. Collier, emphasising the lack of reliable evidence to support HMRC's claims of deliberate conduct. The tribunal considered Mr. Collier's dyslexia diagnosis and the significance of the omitted amounts, ultimately concluding that the errors stemmed from carelessness rather than deliberate action. During the proceedings, the FTT heard testimonies from various witnesses, including Mr. Collier, Ms. Topham, Mr. King, and Mr. Baines. While the tribunal found Mr. Collier and his associates credible, it deemed HMRC's evidence of limited value, particularly due to the absence of direct involvement from Mr. Baines in the initial inquiries. Subsequently, the FTT made key factual findings, emphasising Mr. Collier's dyslexia diagnosis, his reliance on trusted professionals for tax matters, and the decline in the accountant's work standards following a personal tragedy. ### Deliberate Conduct and Conclusion The pivotal question before the FTT focused on whether the assessed loss of tax resulted from deliberate actions. Relying on legal precedents and subjective tests, the tribunal scrutinised Mr. Collier's intentions in providing tax documents to HMRC. Despite HMRC's arguments, the FTT determined that Mr. Collier did not knowingly cause the tax loss and had not exhibited blind-eye knowledge or recklessness. Ultimately, HMRC failed to discharge its burden of proof, leading to the invalidation of the assessments and amendments. Consequently, associated penalty assessments and determinations were also deemed invalid by the tribunal ## Download the Judgment Here [![](https://taxdisputes.co.uk/wp-content/uploads/2024/04/Charles-Collier-and-others-v-HMRC-2023-UKFTT-00993-TC-724x1024.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2024/04/Charles-Collier-and-others-v-HMRC-2023-UKFTT-00993-TC.pdf) ## HMRC Tax Disputes Lawyers Understanding the nuances of tax compliance, especially in cases involving disabilities, requires expert legal guidance. [LEXLAW](https://lexlaw.co.uk/) specialises in providing comprehensive assistance to taxpayers facing challenges in tax assessments. Whether it's navigating complex legal frameworks, advocating for fair treatment, or defending against allegations of deliberate behaviour, our experienced team is dedicated to safeguarding your rights and interests. In conclusion, the case of Charles Collier highlights the importance of recognising the impact of disabilities on tax compliance. While taxpayers are responsible for ensuring the accuracy of their returns, mitigating circumstances such as dyslexia should be taken into account. With [LEXLAW](https://lexlaw.co.uk/contact-us/)'s support, taxpayers can navigate the intricacies of tax law with confidence and advocate for fair treatment in legal proceedings. ## Expert London Tax Lawyers If you need [HMRC Tax Disputes advice](https://taxdisputes.co.uk/), we are available to aid you at every stage of the HMRC appeals process. Members of [our legal team](https://lexlaw.co.uk/) have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the HMRC internal review process and in front of the Tax Tribunal. [Our team](https://taxdisputes.co.uk/) specialises in successfully [challenging HMRC decisions](https://taxdisputes.co.uk/hmrc-tax-appeals/) and will assist you in every aspect including developing a strategy. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with [a proven track record](https://taxdisputes.co.uk/success/) of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk?subject=Tax%20Query). --- # Tax Tribunal Demands Compelling Evidence for PPR Tax Relief   Source: https://taxdisputes.co.uk/2024/05/tax-tribunal-demands-compelling-evidence-for-ppr-tax-relief/ *In Sabbir Patwary v HMRC [2024] TC09035, the taxpayer gave 'remarkably little' evidence to demonstrate that he occupied a property as his only or main residence. Consequently, his claim for £43,000 GBP Capital Gains Tax (CGT) Private Residence Relief (PRR) was denied.* The statutory provision known as the [Principal Private Residence (PPR) relief](https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet), which is mainly governed by the [Taxation of Chargeable Gains Act 1992](https://www.legislation.gov.uk/ukpga/1992/12/contents/enacted), is intended to lessen the impact of [Capital Gains Tax](https://www.gov.uk/capital-gains-tax) on the sale or other disposal of a person's principal residence. If certain requirements are satisfied, the relief releases the [taxpayer](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) from paying Capital Gains Tax. These requirements state, among other things, that the subject property must have been the individual's only or primary residence for the entirety of the ownership term, without being rented out or used only for business, and within predetermined size limits. If these requirements are not met, there may be a partial or complete Capital Gains Tax liability. In the case of [Mr. Sabbir Patwary vs. HMRC](https://taxdisputes.co.uk/wp-content/uploads/2024/04/Sabbir-Patwary-vs.-HMRC-UKFTT-TC-2022-02533.pdf) the [First-Tier Tribunal Tax Chamber](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/) underscored the importance for taxpayers to furnish compelling evidence to substantiate claims for PPR relief. The ruling serves as a cautionary tale, highlighting the necessity for meticulous record-keeping to bolster one's position in tax disputes. This article seeks to explore the pertinent facts of Mr. Patwary’s case, the legal principles and exceptions surrounding the PPR relief rule. ## HMRC’s Assessment against Mr. Patwary The Appellant, Mr. Patwary purchased a property at 19 Emmott Close, London, on 9 April 2010. He alleged to have lived at this property from April 2010 to October 2013, along with his then-girlfriend (now ex-wife) and a co-tenant, and thereafter claimed both PPR and letting reliefs upon the disposal of the Property. The property was sold on 26 February 2016, prior to which it was occupied by a sub-tenant since October 2013, while Mr. Patwary moved back to live with his parents. The main dispute revolved around whether the house was the only or main residence of Mr. Patwary. HMRC does not provide specific guidelines regarding the duration required for a property to be considered a taxpayer's sole or primary residence. Instead, HMRC evaluates each case based on its individual circumstances and facts. For example, a short period of occupancy immediately after purchase may not suffice, whereas returning to a property after a previous occupation may be deemed a resumption of residency. It is essential for taxpayers to demonstrate to HMRC that they resided in the property during the brief period in question. [Case law](https://library.croneri.co.uk/cch_uk/taxweekly/wkid-202402071454060444-72886667) indicates that HMRC assesses the quality of occupation rather than its duration. The [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) disallowed the PPR claim and passed the [assessment](https://taxdisputes.co.uk/2024/02/hmrcs-assessment-powers/), on the basis of the fact that Mr. Patwary did not use the said property as his main residence, leading to a tax stake of **£43,199.80** on a gain of **£202,170**. ## Tribunal’s focus - Whether PPR applied The central issue for the Tribunal revolved around the applicability of the PPR relief to the disposal of the property in question. In the instant case, the crux of the matter was whether the property in question qualified as Mr. Patwary’s principal residence during the relevant period. The determination of this issue hinged on a thorough examination of the facts and circumstances surrounding Mr. Patwary’s occupancy of the property. The Tribunal needed to ascertain whether Mr. Patwary had indeed resided at the property as his main home, as opposed to merely owning it or occasionally occupying it. The Tribunal's analysis extended beyond mere legal interpretations and delved into the factual matrix of Mr. Patwary’s occupancy, including the duration and nature of his residence, any evidence of his intention to treat the property as his principal residence, and any indications of alternative uses of the property during the relevant period. Moreover, the Tribunal's decision on this central issue had significant implications for both Mr. Patwary and the HMRC. If the Tribunal determined that the property did qualify as Mr. Patwary’s principal residence, he would be entitled to claim the PPR relief, thereby exempting him from Capital Gains Tax on the disposal of the property. Conversely, if the Tribunal concluded otherwise, Mr. Patwary would be liable for Capital Gains Tax on the gains arising from the disposal of the property. Therefore, the central issue before the Tribunal carried substantial legal and financial ramifications, underscoring the importance of a thorough and meticulous examination of the evidence and legal principles governing the application of the PPR relief. ## Limitation Period for Appeals against HMRC’s Assessments In legal proceedings, [limitation](https://lexlaw.co.uk/limitation-periods-time-limits-bar-statute-expired-start-claim-litigation-legal-advice/#:~:text=A%20limitation%20period%20is%20the,type%20of%20claim%20being%20made.) is of paramount importance. However, in the instant case, Mr. Patwary’s Appeal was submitted after the prescribed statutory limit as stipulated by the [Taxes Management Act 1970](https://www.legislation.gov.uk/ukpga/1970/9/contents). The submission of documents and arguments beyond the stipulated timeframe can potentially jeopardise the admissibility of the appeal and may adversely impact the proceedings. However, the HMRC did not raise any objections to the late submission of Mr. Patwary’s Appeal, which may be construed as an acknowledgment of the Tribunal's discretionary authority to admit late submissions under certain circumstances. The Tribunal exercised its discretion and opted to admit the Appeal for adjudication, which reflected the Tribunal's recognition of the need for fairness and impartiality in the administration of justice. Moreover, the Tribunal's decision to admit the Appeal signified its willingness to consider the case on its merits rather than strictly adhering to procedural formalities. This approach further aligns with the principles of natural justice and due process, which prioritises the [substantive rights](https://www.lsd.law/define/substantive-right) of the parties over technicalities. However, it is essential to note that the Tribunal's decision to admit a late submission does not absolve an appellant of the consequences of non-compliance with procedural requirements. While the Tribunal may exercise discretion in certain instances, parties are generally expected to comply with procedural rules to ensure the efficient and orderly conduct of proceedings. ## Evidence furnished by Mr. Patwary to establish proof of residence Along with his [witness statement](https://lexlaw.co.uk/preparing-witness-evidence-litigation-solicitors-london/), Mr. Patwary presented various documents, including mortgage statements, a letter from a shower company, water bills, a bill relating to leasehold services and a letter about an electricity prepayment meter. However, the Tribunal found the evidence insufficient to prove that Mr. Patwary lived at the property. ## HMRC’s Assessment upheld by the Tribunal against Mr. Patwary Following a meticulous review of the evidence presented by both parties, the Tribunal arrived at the determination that Mr. Patwary had not adequately discharged the burden of proof essential to establish his residency at the property in question. The Tribunal's decision was rooted in the fundamental legal principle that in matters of tax litigation, the burden of proof rests squarely on the taxpayer to substantiate their claims. Despite Mr. Patwary’s assertions and the documents he submitted, the Tribunal found the evidence to be insufficient in demonstrating continuous and substantive residency at the property throughout the relevant period. Moreover, the Tribunal emphasised that the evidentiary threshold required to establish residency is substantive, necessitating documentation and testimony that convincingly support the taxpayer's assertions. However, in this instance, the evidence provided by Mr. Patwary failed to meet this standard, as it did not sufficiently corroborate his purported residency at the property. The case also highlights that the determination of residence is not prescriptive and can depend on various factors. The Tribunal agreed that where bank statements are sent, particularly where information is more readily accessed online, is not determinative of residence. ## Download the Judgment here: [![](https://taxdisputes.co.uk/wp-content/uploads/2024/04/UKFTT-TC202202533.png)](https://taxdisputes.co.uk/wp-content/uploads/2024/04/Sabbir-Patwary-vs.-HMRC-UKFTT-TC-2022-02533.pdf) [](https://assets.caselaw.nationalarchives.gov.uk/ukftt/tc/2024/53/ukftt_tc_2024_53.pdf) ## Exceptions to the PPR relief rule While the decision was held to be against Mr. Patwary in the instant case, it is also important to note a few exceptions to the PPR relief rule. If a property was once the homeowner’s primary residence but is not any longer, the last 9 months of ownership may still qualify for PPR. Further, homeowners may be eligible for Lettings Relief**,** if they have let out part or all of their property. In addition to this some accommodation provided by employers may qualify for the relief as well. However, at the same time, it is imperative to be vary that even if you meet all the conditions for PPR relief, you will not be eligible for PPR if you dispose of all or part of your garden after you have disposed of your home and/or acquire either a dwelling house or spend money on it, or both, in order to obtain a gain on its disposal. ## Tribunal Ruling's Impact on Tax Litigation in the UK The ruling in Mr. Patwary’s case emphasises the significance of strong evidence in supporting petitions for PPR relief. The Tribunal's ruling to reject Mr. Patwary’s appeal highlights the need for careful record-keeping to support residency claims and reinforces the idea that taxpayers have the burden of evidence in tax disputes. This case may serve as a reminder to taxpayers to keep thorough records in order to support their claims before the court. Furthermore, the case also demonstrates the Tribunal's dedication to maintaining the integrity of the tax system by making sure that relief provisions are utilised sensibly and legally. ## Expert London Tax Lawyers If you need [HMRC Tax Disputes advice](https://taxdisputes.co.uk/), we are available to aid you at every stage of the HMRC appeals process. Members of [our legal team](https://lexlaw.co.uk/) have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the HMRC internal review process and in front of the Tax Tribunal. [Our team](https://taxdisputes.co.uk/) specialises in successfully [challenging HMRC decisions](https://taxdisputes.co.uk/hmrc-tax-appeals/) and will assist you in every aspect including developing a strategy. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with [a proven track record](https://taxdisputes.co.uk/success/) of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk?subject=Tax%20Query). --- # IR35 and its Impact on Freelancers Source: https://taxdisputes.co.uk/2024/04/ir35-and-its-impact-on-freelancers/ In the realm of self-employment, tax legislation can often be a maze of complexity, with legal battles highlighting the challenges faced by freelancers. Renowned TV presenters like [Kaye Adams](https://taxdisputes.co.uk/2024/02/kaye-adams-triumphs-over-hmrc-in-9-year-ir35-tax-dispute/), [Gary Lineker](https://taxdisputes.co.uk/2023/03/gary-lineker-wins-battle-with-hmrc-over-4-9m-tax-bill/), and Lorraine Kelly have been at the forefront of the fight against the controversial [IR35 tax rule](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35). Here, we delve into the intricacies of IR35 and its recent implications, shedding light on key cases and the ongoing debate surrounding this issue. Our [taxation practice](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) is the foundation of the firm. Have a conflict with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs)? Our tax team is composed of knowledgeable tax lawyers who can help you handle your tax issues. For the best outcome, our ex-HMRC lawyers will [advise](https://taxdisputes.co.uk/expert-advice/) you on intricate tax laws. We have years of expertise in dealing with complex tax problems, including negotiating with HMRC and handling [tax appeals before Tax Tribunals](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/) and in the High Court. ## The Battle Against IR35: Kaye Adams' Victory and HMRC's Pursuit Kaye Adams, the esteemed journalist and Loose Women panellist, recently emerged [victorious in a decade-long struggle against a £124,000 tax bill](https://taxdisputes.co.uk/2024/02/kaye-adams-triumphs-over-hmrc-in-9-year-ir35-tax-dispute/), sparking renewed scrutiny of [HM Revenue & Customs' (HMRC)](https://www.gov.uk/government/organisations/hm-revenue-customs) approach to self-employment taxation. Adams, alongside other high-profile figures like Richard Alcock, has challenged HMRC's classification of freelancers as employees, arguing against the imposition of hefty tax liabilities. ## Richard Alcock's IR35 Dispute Richard Alcock, an IT contractor, found himself embroiled in a legal battle with HMRC over a staggering £243,000 tax liability. Despite initially prevailing in the First-Tier Tribunal in 2019, a recent decision by the Upper Tribunal overturned the judgment, necessitating a fresh hearing. Alcock's case mirrors the struggles of many contractors ensnared by the ambiguities of IR35, underscoring the need for clarity in self-employment taxation. ## How Alcock's IR35 Case Unfolded Alcock's legal saga highlights the complexities of IR35, with his victory at the First-Tier Tribunal followed by a reversal at the [Upper Tribunal](https://www.judiciary.uk/courts-and-tribunals/tribunals/upper-tribunal/upper-tribunal-tax-and-chancery-chamber/). The crux of his argument rested on the absence of "mutuality of obligation" between himself and his clients, a hallmark of self-employment. However, HMRC's successful appeal underscores the need for precise legal reasoning in navigating IR35 disputes. ## What is HMRC’s IR35? (Off-payroll working rules) [HMRC’s IR35](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35), off-payroll working rules, govern the tax status of self-employed individuals providing services through intermediaries such as limited companies. The classification is pivotal for tax considerations, distinguishing between self-employed workers and regular employees. ## Understanding IR35 At the heart of IR35 lies the distinction between freelancers and employees, a distinction often blurred by nuanced contractual arrangements. Freelancers, including TV personalities like Adams, Lineker, and Kelly, have faced relentless pursuit by HMRC, challenging the interpretation of employment status. The lack of clear legal definitions further complicates matters, leaving contractors vulnerable to tax disputes and prolonged litigation. ## Controversies surrounding IR35 The controversies surrounding IR35, initially introduced by Gordon Brown to tackle tax evasion, have sparked significant debate, particularly due to its impact on numerous media figures and employees of major broadcasters like the BBC. Also referred to as the "[off-payroll working rules](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35)," IR35 has been a contentious topic in the United Kingdom for years. Implemented by HM Revenue and Customs (HMRC) to counter tax avoidance, especially by individuals providing services through intermediaries like limited companies, IR35 faces several contentious issues: - Complexity and Uncertainty: One major critique of IR35 is its intricate nature, leading to confusion among contractors, businesses, and even HMRC itself. Determining whether a worker falls under IR35 involves evaluating factors such as control, substitution, and obligations in the working relationship, posing significant challenges. - Inconsistent Application: Critics argue that HMRC's enforcement of IR35 lacks consistency and sometimes appears arbitrary. Instances where contractors under similar circumstances receive different treatment raise concerns of fairness and clarity in rule application. - Impact on Self-Employed Workers: Those classified as "inside IR35" face substantial financial consequences, including loss of tax benefits and increased National Insurance contributions, diminishing their earnings. - Restriction of Contractor Autonomy: IR35 has been criticised for limiting the flexibility and autonomy of contractors. Some believe it dissuades businesses from hiring contractors and freelancers due to administrative complexities and potential tax liabilities. - Administrative Challenges: Complying with IR35 places a significant administrative burden on businesses, particularly SMEs. Assessing contractors' employment status demands time and resources, affecting operational efficiency. - Hindrance to Innovation and Economic Growth: Critics argue that IR35 impedes innovation and economic progress by deterring entrepreneurship and investment. Startups and small businesses may struggle to attract talent if contractors are dissuaded by IR35 complexities. - Unforeseen Consequences: There are concerns that IR35 may lead skilled workers to seek opportunities abroad or engage in underground economic activities to avoid its implications, potentially harming the UK economy. Overall, IR35 remains a contentious issue in the UK, with ongoing discussions regarding its efficacy, fairness, and impact on the labour market and economy. Despite efforts to reform or replace it, finding a consensus that satisfies all stakeholders proves challenging. ## Mitigating IR35 Risks: Strategies for Freelancers For freelancers navigating the treacherous waters of IR35, strategic measures can mitigate tax liabilities and legal challenges. Demonstrating autonomy in client engagements, diversifying client portfolios, and investing in professional development are crucial steps in establishing self-employment status. Additionally, seeking legal counsel from experienced professionals can provide invaluable guidance in navigating IR35 complexities. ## IR35 Tax Disputes lawyers At [LEXLAW](https://lexlaw.co.uk/), we understand the challenges faced by freelancers in the ever-evolving landscape of self-employment taxation. Our team of legal experts specialises in IR35 compliance, offering tailored solutions to protect your interests and safeguard against tax disputes. Whether you're a seasoned freelancer or navigating self-employment for the first time, we're here to provide comprehensive legal support tailored to your unique needs. The battle against IR35 rages on, with freelancers like Adams and Alcock at the forefront of a larger debate surrounding self-employment taxation. As legal complexities persist, strategic foresight and expert guidance are paramount in safeguarding the rights and interests of freelancers navigating the murky waters of IR35. ## Expert Tax Investigation Lawyers If you need[ HMRC Tax Investigation advice](https://windinguppetitionsolicitors.co.uk/expert-advice/), we are available to aid you at every stage of the HMRC investigation process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and[ investigations](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/). Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. [Our specialist Tax Solicitors and Barristers](https://lexlaw.co.uk/our-people/) deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. We provide urgent [advice](https://taxdisputes.co.uk/expert-advice/) and representation to clients from our unique expert team of established [Tax and Duties specialist solicitors and barristers](https://taxdisputes.co.uk/) with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email contact@lexlaw.co.uk. --- # HMRC Decision Withdrawal for Double Cab Pick Ups (DCPUs) Source: https://taxdisputes.co.uk/2024/02/hmrc-decision-withdrawal-for-double-cab-pick-ups-dcpus/ In a significant [reversal](https://www.gov.uk/government/news/update-on-hmrc-double-cab-pick-up-guidance), [HM Revenue & Customs (HMRC)](https://www.gov.uk/government/organisations/hm-revenue-customs) announced on Monday, 19 February 2024, that it will withdraw its updated guidance regarding the tax treatment of Double Cab Pick Ups (DCPUs). The original decision follows a 2020 Court of Appeal judgment which initially led to the guidance change. The updated guidance, slated to take effect from 1 July 2024, would have categorised DCPUs with a payload of one tonne or more as cars rather than goods vehicles for capital allowances and benefit-in-kind purposes. HMRC withdrew its updated guidance during the afternoon of Monday 19 February 2024. ## Payne & Ors (Coca-Cola) v R & C Commrs (2020) (BTC19) In the case of [Payne & Ors (Coca-Cola) v R & C Commrs (2020) (BTC19)](https://taxdisputes.co.uk/wp-content/uploads/2024/02/HMRC-v-Payne-Ors-Approved-Judgment-002.pdf), the Court of Appeal established that the majority of multi-purpose vehicles, including Double Cab Pick Ups (DCPUs), are to be classified as cars. The legal dispute was initiated by Coca-Cola, wherein the company argued that the four-seat crew-cab versions of the Vauxhall Vivaro and Volkswagen Transporter vans within its fleet should be subject to commercial vehicle taxation for [Benefit-in-Kind (BIK)](https://www.gov.uk/hmrc-internal-manuals/tax-credits-technical-manual/tctm04103#:~:text=Benefits%20in%20kind%20(BiK)%20are,received%20in%20a%20tax%20year.) purposes. Subsequently, the Court of Appeal sided with HMRC's determination to classify these vehicles as private cars, thereby laying the groundwork for the recent revision in rules that occurred last week. [The arrangements outlined by HMRC on 12 February 2024](https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/updates), aimed at assisting DCPU owners in adjusting to the proposed guidance alterations, are now deemed unnecessary. This is because the intended alteration in tax treatment, which these arrangements were designed to accommodate, is no longer taking place, as clarified by HMRC. ## Government Response to Industry Concerns The government, having listened to feedback from stakeholders in the farming and motoring sectors, recognised potential adverse impacts stemming from the proposed tax-treatment change. In response to concerns raised, [Nigel Huddleston](https://www.gov.uk/government/people/nigel-huddleston), Financial Secretary to the Treasury, affirmed the government's commitment to supporting businesses, including vital motoring and farming industries. ## Legislative Action for Tax Treatment Consistency In light of industry feedback and the potential economic ramifications, HMRC has announced its intention to legislate, ensuring DCPUs are consistently treated as goods vehicles for tax purposes. The government will introduce the necessary legislation in the upcoming Finance Bill, following a consultation period to refine the draft legislation and ensure alignment with desired outcomes. ## Tax Benefits for Businesses and Individuals With the withdrawal of the updated guidance, DCPUs will continue to be treated as goods vehicles, preserving historic tax treatment. This decision ensures that employers providing these vehicles to employees will not face increased benefit-in-kind taxes, and businesses purchasing DCPUs for trade purposes will retain full capital allowances in the first year of use. ## Expert UK Tax Law Advice At LEXLAW, we understand the complexities of tax law and the implications of regulatory changes on businesses and individuals. Our team of experienced lawyers can provide tailored advice and support to navigate tax regulations, ensuring compliance and optimising tax strategies. Contact us today to learn how we can help protect your interests in an evolving legal landscape. ## HMRC Reversal - Useful for Taxpayers HMRC's decision to maintain the current tax treatment of DCPUs underscores the government's responsiveness to industry concerns and commitment to supporting key sectors of the economy. As legislative measures are pursued to solidify this tax treatment, businesses and individuals can continue to benefit from consistent and favourable tax arrangements. ## Expert London Tax Lawyers If you need [HMRC Tax Disputes advice](https://taxdisputes.co.uk/), we are available to aid you at every stage of the HMRC appeals process. Members of [our legal team](https://lexlaw.co.uk/) have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the HMRC internal review process and in front of the Tax Tribunal. [Our team](https://taxdisputes.co.uk/) specialises in successfully [challenging HMRC decisions](https://taxdisputes.co.uk/hmrc-tax-appeals/) and will assist you in every aspect including developing a strategy. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with [a proven track record](https://taxdisputes.co.uk/success/) of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk?subject=Tax%20Query). --- # Adrian Chiles’ 9-year £1.7m IR35 Tax Battle with HMRC Source: https://taxdisputes.co.uk/2024/02/adrian-chiles-1-7m-ir35-hmrc-tax-dispute/ Following the decision in *[The Commissioners for HMRC v Basic Broadcasting Limited [2024] UKUT 165 (TCC)](https://taxdisputes.co.uk/wp-content/uploads/2024/06/The-Commissioners-for-HMRC-v-Basic-Broadcasting-Limited-Upper-Tier-Tax-Tribunal-Decision-Lexlaw-Tax-Litigation-Solicitors-Barristers-London-UK.pdf)*, broadcaster [Adrian Chiles](https://en.wikipedia.org/wiki/Adrian_Chiles) continues to navigate a protracted legal dispute with UK Tax Authority [HM Revenue and Customs (HMRC)](https://www.gov.uk/government/organisations/hm-revenue-customs) over alleged tax liabilities of £1.7 million. The case revolves around Chiles' work for both the [BBC](https://www.bbc.co.uk/) and [ITV](https://www.itv.com/) through his personal company, [Basic Broadcasting Limited](https://find-and-update.company-information.service.gov.uk/company/03180257). The [First-tier Tax Tribunal](https://www.gov.uk/courts-tribunals/first-tier-tribunal-tax) ruled in Chiles' favour in case [[2022] UKFTT 00048 (TC)](https://taxdisputes.co.uk/wp-content/uploads/2024/06/Basic-Broadcasting-Limited-v-HMRC-2022-UKFTT-00048-TC-TC-08400-LEXLAW-TAX-LITIGATION-LAWYERS-UK-LONDON.pdf), but HMRC appealed to the [Upper Tier Tax Tribunal](https://www.gov.uk/courts-tribunals/upper-tribunal-tax-and-chancery-chamber) arguing the FTT's ruling was legally flawed. The UTT agreed with HMRC and remitted the case back to the FTT to be redetermined; therefore the case continues and Mr Chiles faces a fresh Tribunal hearing - at least the 3rd full tribunal hearing he has faced since the tax battle began 9 years ago. This is a similar predicament the taxpayer faces in the [Richard Alcock IR35 case](https://taxdisputes.co.uk/2024/06/ir35-disputes-richard-alcock-back-to-the-drawing-board/) also. These cases highlight [complexities in employment classification under IR35 rules](https://taxdisputes.co.uk/2024/04/ir35-and-its-impact-on-freelancers/) due to the highly subjective nature of the Inland Revenue 35 rules and the lack of any statutory definition of an employee. > “Whether an individual is, in law, an employee could depend on which test the court or tribunal chose to apply. This cannot be, or certainly should not be, the state of the law.” > > > Mr Justice Richards, [Court of Appeal](https://www.judiciary.uk/courts-and-tribunals/court-of-appeal-home/) in HMRC v Atholl House Productions Ltd ([Kaye Adams](https://www.instagram.com/kayeadamsofficial/?hl=en)) Our [taxation practice](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) is the foundation of the firm. Have a conflict with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs)? Our tax team is composed of knowledgeable tax lawyers who can help you handle your tax issues. [We are specialists in managing IR35 tax litigation against HMRC](https://taxdisputes.co.uk/2024/05/managing-hmrc-tax-enquiry-investigations/). For the best outcome, our ex-HMRC lawyers will [advise](https://taxdisputes.co.uk/expert-advice/) you on intricate tax laws. We have years of expertise in dealing with complex tax problems, including negotiating with HMRC and handling [tax appeals before Tax Tribunals](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/) and in the High Court. ## Adrian Chiles, HMRC and IR35 Tax Rules Adrian Chiles commenced his tenure at the BBC in 1992. Around 1996, he transitioned to providing his services through his company, [Basic Broadcasting Limited (BBL)](https://find-and-update.company-information.service.gov.uk/company/03180257), as per BBC's requirement. By 2010, BBL facilitated Chiles' contributions to various BBC programs, including The One Show and Match of the Day. Subsequently, in June 2010, BBL's association with the BBC concluded, and it proceeded to engage with ITV for Chiles' services, maintaining this contractual arrangement until 2015. Additionally, in 2013, BBL extended its services to include Mr. Chiles' contributions to BBC radio, a relationship that endured throughout the relevant period. HMRC issued determinations under the IR35 legislation regarding two contracts with ITV and three contracts with the BBC, spanning the tax years from 2012-2013 to 2016-2017. These determinations were based on the HMRC assertion that Chiles was considered an employee under each individual contract with ITV and the BBC. HMRC is effectively alleging that Chiles is abusing the system and wrongly claiming to be self-employed when in reality the relationship is employment based. HMRC believes that Chiles should have been paying income tax and national insurance contributions as an employee. The dispute stems from HMRC's contention that payments made by ITV and BBC to Chiles' personal service company, [Basic Broadcasting Limited (BBL)](https://find-and-update.company-information.service.gov.uk/company/03180257), should be subject to Income Tax and National Insurance Contributions (NICs). The tax authorities claim that BBL owes £1,249,433 in Income Tax and £460,739 in National Insurance Contributions for contracts spanning between 2012 and 2017. HMRC argues that under [IR35 tax rules](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35), which target disguised employees using limited companies, Chiles should be treated as an employee of the broadcasters, thereby necessitating sizeable tax payments from BBL to HMRC. The prolonged legal battle has reportedly taken a toll on Chiles' mental health, highlighting the personal ramifications of protracted litigation. Adrian Chiles' ongoing tax dispute underscores the complexities of employment classification in the broadcasting industry and the significant legal and personal implications of such disputes. ## What is HMRC’s IR35? (Off-payroll working rules) [HMRC’s IR35](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35), off-payroll working rules, govern the tax status of self-employed individuals providing services through intermediaries such as limited companies. The classification is pivotal for tax considerations, distinguishing between self-employed workers and regular employees. HMRC claim that BBL owes £1,249,433 in Income Tax and £460,739 in National Insurance Contributions due on the money ITV and BBC paid to Chiles’ personal service company, BBL ## Tax Tribunal: Basic Broadcasting Limited v HMRC In February 2022, the [First Tier Tribunal](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/) (FTT) ruled in favour of Chiles, in the case *Basic Broadcasting Limited v HMRC [2022] TC08400*, determining that he operated as a self-employed contractor rather than an employee under contractual agreements with BBC and ITV. The First-tier Tribunal (FTT) determined that although the significant broadcasting agreements with the BBC and ITV bore resemblances to employment contracts, they were integral components of Adrian Chiles' broader career as a television presenter. Consequently, the application of the IR35 intermediaries legislation was deemed inapplicable, leading to a favourable outcome for the taxpayer upon appeal. HMRC has appealed to the Upper Tribunal, alleging legal errors and advocating for Chiles' classification as an employee based on the broadcasters' purported control over his work. ## Upper Tribunal IR35 Tax Appeal Hearing The appeal hearing took place in London on Tuesday, 6 February 2024 before Mr Justice Meade and Upper Tribunal Judge Thomas Scott at the [Upper-tier Tribunal (UT)](https://www.judiciary.uk/courts-and-tribunals/tribunals/upper-tribunal/upper-tribunal-tax-and-chancery-chamber/).  Lawyers for HMRC asserted that the First-tier Tribunal's decision was flawed, emphasising the broadcasters' control over Chiles' work as indicative of an employer-employee relationship. Chiles' legal team defended the First-tier Tribunal's ruling, arguing that BBL's incorporation in 1996 was at the BBC's insistence and that subsequent services were provided to numerous third parties. A ruling on the appeal is pending, with both parties awaiting the Tribunal's decision. ## IR35 Tax Disputes Lawyers We understand the complexities and challenges associated with tax disputes, especially in cases involving employment classification and IR35 regulations. Our team of experienced tax lawyers specialises in navigating complex tax regulations and advocating for our clients' interests in disputes with tax authorities. We possess in-depth knowledge of IR35 rules and employment tax laws, enabling us to provide strategic guidance tailored to each client's unique situation. We offer comprehensive litigation support, representing clients in tribunal proceedings, appeals, and negotiations with HMRC. Our lawyers are skilled at crafting compelling legal arguments and defending our clients' positions effectively in court. Recognising the personal and financial stakes involved in tax disputes, we prioritise personalised service and tailor our legal strategies to achieve the best possible outcomes for our clients. We work closely with our clients to understand their goals and concerns, providing proactive legal guidance and support throughout the dispute resolution process. ## Expert Tax Investigation Lawyers If you need[ HMRC Tax Investigation advice](https://windinguppetitionsolicitors.co.uk/expert-advice/), we are available to aid you at every stage of the HMRC investigation process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and[ investigations](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/). Our [tax disputes team](https://lexlaw.co.uk/?s=tax) specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. [Our specialist Tax Solicitors and Barristers](https://lexlaw.co.uk/our-people/) deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. We provide urgent [advice](https://taxdisputes.co.uk/expert-advice/) and representation to clients from our unique expert team of established [Tax and Duties specialist solicitors and barristers](https://taxdisputes.co.uk/) with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email contact@lexlaw.co.uk. --- # HMRC’s 6 Month Tax Helpline Closure Paused Source: https://taxdisputes.co.uk/2024/03/hmrcs-6-month-tax-helpline-closure-paused/ In a significant shift in its service delivery model, [HM Revenue and Customs](https://www.gov.uk/government/organisations/hm-revenue-customs) ([HMRC](https://en.wikipedia.org/wiki/HM_Revenue_and_Customs)) announced on 19 March 2024, the closure of its self-assessment helpline for almost six months every year, compelling taxpayers to navigate their enquiries through online channels. This decision, intended to make the best use of resources and improve assistance for complex tax queries, has resulted in mixed responses and raised concerns about accessibility and effectiveness. HMRC has now [announced](https://www.gov.uk/government/news/hmrc-helpline-changes-halted) that it is pausing its plans to close the helpline in response to the feedback and is actively engaging with stakeholders to ensure that all taxpayers' needs, including those of small businesses, are adequately addressed as HMRC transitions more individuals to online self-service in the long term. ## Closure of HMRC Helpline HMRC had announced that commencing from 8th April to 30th September annually, HMRC's[ self-assessment helpline](https://www.gov.uk/government/organisations/hm-revenue-customs/contact/self-assessment) will be unavailable, leaving taxpayers reliant on digital platforms for assistance. The decision stems from HMRC's assertion that the majority of helpline calls involve routine or simple enquiries, which can be efficiently addressed through online resources. While the closure aligns with HMRC's strategy to encourage self-service, concerns linger regarding its impact on taxpayers' ability to seek timely and accurate guidance. ## Navigating HMRC Queries With the closure of the [self-assessment helpline](https://www.gov.uk/government/organisations/hm-revenue-customs/contact/self-assessment), taxpayers will be directed to utilise HMRC's online services for enquiries related to self-assessment, PAYE, and VAT. The VAT helpline will operate for a limited duration each month preceding the VAT return deadline. Callers will receive tailored recorded messages, guiding them towards online resources for query resolution. Additionally, HMRC assures the provision of clear information to facilitate a seamless transition to online assistance. ## Support Mechanisms for Taxpayers Recognising the diverse needs of taxpayers, HMRC pledges to allocate additional resources to its webchat and [Online Services Helpdesk (OSH)](https://www.tax.service.gov.uk/ask-hmrc/chat/online-services-helpdesk). The webchat platform enables individuals to engage with advisors for queries not resolved through online channels, while the OSH caters to customers requiring specialised support due to health or personal reasons. This includes individuals with disabilities, mental health conditions, or unique circumstances necessitating personalised assistance. ## Exceptions and Special Considerations Despite the broad transition to online services, a helpline reserved for [Members of Parliament (MPs)](https://members.parliament.uk/members/commons) remains unaffected, ensuring continued support for parliamentarians managing personal tax queries. HMRC emphasises the importance of this specialised helpline in providing a greater level of protection for individuals based on their identity or job role. Additionally, HMRC's decision to allocate "additional resources" to its webchat and OSH reflects its commitment to addressing the needs of vulnerable individuals, including those with disabilities, mental health conditions, or personal circumstances necessitating specialised assistance. ## Criticism to HMRC’s decision HMRC's decision has drawn criticism from various quarters, with concerns raised regarding the readiness of taxpayers to adapt to digital-centric assistance. While HMRC defends its strategy as a cost-effective means to improve service levels, critics argue that the move may exacerbate challenges for individuals grappling with the complexities of the tax system. [Harriett Baldwin](https://www.harriettbaldwin.com/about), [Treasury Select Committee](https://committees.parliament.uk/committee/158/treasury-committee) chair, expressed reservations about HMRC's decision, emphasising the need for evidence demonstrating the readiness of taxpayers to transition to online assistance effectively. Critics assert that HMRC's customer service record remains a point of contention, urging the tax authority to prioritise accessibility and support for taxpayers navigating the intricacies of the tax system. The changes to the Self Assessment, VAT and PAYE helplines announced by HMRC will all be paused while HMRC engages with stakeholders. This means the phone lines will remain open between April and September. ## Expert HMRC Tax Dispute Lawyers At [LEXLAW](https://lexlaw.co.uk/), we recognise the importance of navigating tax obligations effectively amidst evolving HMRC procedures. Our team of experienced tax solicitors and barristers is dedicated to providing personalised guidance and support, ensuring compliance with regulatory requirements and minimising the risk of errors in tax filings. Whether you require clarification on tax laws, assistance with self-assessment submissions, or representation in dealings with HMRC, we offer comprehensive solutions tailored to your needs. ## Challenge for Taxpayers As HMRC implements sweeping changes to its service delivery, taxpayers must familiarise themselves with revised procedures and embrace digital platforms for assistance. While concerns persist regarding accessibility and support for vulnerable individuals, proactive engagement with online resources and specialised assistance channels can facilitate a smoother transition. By partnering with a trusted firm like [LEXLAW](https://lexlaw.co.uk/), taxpayers can navigate these changes confidently, safeguarding their interests and ensuring compliance with tax regulations. ## Expert Tax Investigation Lawyers If you need[ HMRC Tax Investigation advice](https://windinguppetitionsolicitors.co.uk/expert-advice/), we are available to aid you at every stage of the HMRC investigation process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and[ investigations](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/). Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. [Our specialist Tax Solicitors and Barristers](https://lexlaw.co.uk/our-people/) deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. We provide urgent [advice](https://taxdisputes.co.uk/expert-advice/) and representation to clients from our unique expert team of established [Tax and Duties specialist solicitors and barristers](https://taxdisputes.co.uk/) with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email contact@lexlaw.co.uk. --- # HMRC’s Assessment Powers Source: https://taxdisputes.co.uk/2024/02/hmrcs-assessment-powers/ [HM Revenue & Customs (](https://www.gov.uk/government/organisations/hm-revenue-customs)[HMRC](https://en.wikipedia.org/wiki/HM_Revenue_and_Customs)[) ](https://www.gov.uk/government/organisations/hm-revenue-customs)has the power to raise tax assessments and may only exercise these powers to aid tax compliance and must do so fairly in accordance with established guidelines. Understanding HMRC's assessment powers and the key stages is crucial in order to be in a position to successfully challenge any such assessment, as our [team of tax litigators](https://lexlaw.co.uk/hmrc-tax-dispute-lawyers/) often do before the [Tax Tribunal](https://www.gov.uk/courts-tribunals/first-tier-tribunal-tax). Lord Dunedin's framework, outlined nearly a century ago in *[Whitney v IRC [1926] AC 37](https://www.iclr.co.uk/document/1921000635/casereport_54611/html)*, defines three key stages in tax administration: 'liability,' 'assessment,' and 'recovery.' In today's era of self-assessment, taxpayers play a vital role in determining their tax liabilities, but errors are prevalent. This article explores the role of self-assessment, HMRC's assessment powers, and the complexities of tax assessments, providing insight for taxpayers navigating tax compliance. ## Lord Dunedin's Explanation of Assessment Nearly a century ago, Lord Dunedin observed in *Whitney v IRC [1926] AC 37* that there were invariably three stages in administering a tax. The first of these – ‘liability’ – was rather abstract in nature and followed ‘the statute which determines what persons in respect of what property are liable’. ‘Assessment’, the second stage, was very different and much more tangible. ‘Liability does not depend on assessment’, he observed. ‘That, ex hypothesi, has already been fixed. But assessment particularises the exact sum which a person liable has to pay.’ Only once a sum had been assessed would it be possible to move to the third stage: ‘recovery’. ## Role of Self-Assessment & HMRC's Powers In the era of [self-assessment](https://www.gov.uk/self-assessment-tax-returns), taxpayers primarily determine their own tax liability. However, erroneous calculations are not uncommon. Self-assessment is a mechanism employed by HM Revenue and Customs (HMRC) for the collection of Income Tax. Typically, taxes are deducted directly from wages and pensions. However, individuals and businesses receiving other income (including COVID-19 grants and support payments) are required to declare it in a tax return. HMRC estimates indicate a significant prevalence of under-declarations in self-assessment returns, underscoring the agency's paramount power: assessment. This power allows HMRC to rectify inaccuracies, ensuring tax compliance. ## Enquiry Powers - Income Tax, Capital Gains Tax, and Corporation Tax HMRC typically utilises the enquiry process as the primary method to review and potentially replace a taxpayer's self-assessment. This process is initiated when HMRC opens an enquiry into the taxpayer's self-assessment return within the 12-month 'enquiry window.' It serves as an inherent check within the self-assessment system, allowing HMRC to scrutinise and, if necessary, amend the taxpayer's assessment through a closure notice. Notably, taxpayers also have the opportunity to amend their own assessment during this period. Following the closure of the enquiry window, the taxpayer's assessment remains unchanged unless HMRC is able to issue a new assessment through a subsequent discovery, provided that statutory requirements are met. HMRC is responsible for demonstrating its ability to issue a discovery assessment before the burden shifts to the taxpayer to challenge the assessment's validity. ## HMRC's Assessment Powers In tax administration, HMRC employs assessments to address non-compliance when formal enquiry powers are unavailable or when the enquiry period has lapsed. These assessments are also utilised in cases where taxpayers fail to submit their required tax returns. Time limits for assessments vary depending on the specific tax regime under consideration. For instance, in the case of Value Added Tax (VAT), HMRC typically has a two-year window from the end of the relevant accounting period to issue an assessment for any additional tax owed. This time frame can be extended to four years if HMRC gathers sufficient evidence of the facts within the initial year. However, in situations where deliberate behavior leads to tax loss, the time limit extends to 20 years, contingent upon HMRC's timely acquisition of evidence. Similarly, in tax regimes such as Income Tax Self-Assessment (ITSA) and Corporation Tax Self-Assessment (CTSA), where HMRC identifies tax losses outside the standard enquiry window, they leverage discovery provisions to rectify inaccuracies through assessments. The usual time limit for discovery assessments in such cases is four years after the relevant tax period. However, this period can be extended to six or twenty years for careless or deliberate behavior, respectively. ## HMRC Discovery Assessment In tax assessment, a [discovery assessment](https://www.gov.uk/hmrc-internal-manuals/enquiry-manual/em3250) revolves around an officer identifying tax underpayments, which isn't necessarily difficult. It's about the officer realising there's been an undercharge without needing new facts (*Hargreaves v HMRC [2014] UKUT 395 (TCC)*). This assessment remains valid despite time delays, and different officers can make successive discoveries (*HMRC v Tooth [2021] UKSC 17*). If a discovery is made for one or more years, HMRC might use the 'presumption of continuity' to infer further discoveries. However, concrete evidence is needed beyond this presumption (HMRC’s Enquiry Manual at EM3236). Taxpayers are shielded from discovery assessments if their errors align with prevailing practices (Taxes Management Act 1970 s 29(2)). HMRC can issue a discovery assessment if they prove either a hypothetical officer couldn't have reasonably detected the underpayment or if careless/deliberate behaviour by the taxpayer or their agent led to the underpayment ('the hypothetical officer condition' and 'the conduct condition'). These conditions matter because HMRC's window to issue a discovery assessment is limited: four years under the hypothetical officer condition and six or twenty years under the conduct condition for careless or deliberate behaviour, respectively. ## HMRC's Hypothetical Officer Condition [The hypothetical officer condition](https://www.gov.uk/hmrc-internal-manuals/enquiry-manual/em3233) focuses on the information provided in the taxpayer's tax return for the relevant year to determine if HMRC could have reasonably detected any underpayment. This often relies on what is disclosed in the 'white space' of the return. The hypothetical officer, while not a specific individual, is a legal construct with basic legal, accounting, and practical knowledge (*Pattulo v HMRC [2016] UKUT 270 (TCC)*). Their awareness mainly depends on the information disclosed in the return, aiming to identify any under-assessment. It's not necessary for the disclosed information to resolve every aspect of the underpayment, especially in complex cases where an explanation of the relevant laws and the taxpayer's position may be required (*Langham v Veltema [2004] EWCA Civ 193*). ## HMRC's Conduct Condition HMRC holds the authority to issue discovery assessments for extended periods when tax underpayment results from careless or deliberate actions by the taxpayer or their representative. This terminology, replacing previous terms like 'negligent' and 'fraudulent' conduct, necessitates a clear causal link between the tax loss and the behaviour in question. Taxpayers who exercise reasonable care are shielded from discovery assessments. Their conduct is evaluated against that of a 'prudent and reasonable taxpayer' in similar circumstances (*Hicks v HMRC [2020] UKUT 12 (TCC)*). Seeking professional advice from qualified professionals, like accountants or lawyers, often plays a crucial role in determining the taxpayer's level of diligence. However, it's essential to ensure that the advisor's role remains purely advisory, as their careless or deliberate conduct could implicate the taxpayer (*Trustees of the Bessie Taube Discretionary Settlement Trust v HMRC [2010] UKFTT 473 (TC)*). Carelessness encompasses a broad spectrum of behaviour, ranging from unfounded beliefs to outright recklessness. Statutes deem providing inaccurate information without subsequent correction as careless (TMA 1970 s 118(6)). Deliberate conduct, on the other hand, involves knowingly or intentionally taking actions leading to tax loss, requiring an element of dishonesty (*HMRC v Tooth [2021] UKSC 17*). While the question of whether recklessness constitutes deliberate conduct remains open, it's crucial to distinguish between carelessness and deliberate actions based on the taxpayer's intention (*Suttle v HMRC [2023] UKFTT 873 (TC)*). ## Other Special Regimes and Assessment Parameters Where the taxpayer has failed to file a tax return, HMRC are able to issue a discovery assessment within 20 years unless there is a reasonable excuse for the failure (*Hextall v HMRC [2023] UKFTT 390 (TC)*). A 20-year time period also applies where the loss of tax is attributable to the taxpayer using an avoidance scheme notifiable under DOTAS where the taxpayer has failed to notify HMRC of their use of the scheme. Offshore personal tax cases are subject to a specific regime which allows HMRC to bring an assessment within 12 years. This produces a somewhat unfair scenario in which a diligent taxpayer with income or gains from abroad is potentially in a less favourable position than a careless taxpayer whose economic interests are purely domestic. ## Expert UK Tax Law Advice Navigating the complexities of tax assessments requires expert guidance. At [LEXLAW](https://lexlaw.co.uk/), we specialise in providing comprehensive counsel to clients facing HMRC assessments. Our experienced team offers tailored solutions, ensuring adherence to tax laws while safeguarding clients' interests. Whether addressing self-assessment discrepancies or challenging HMRC assessments, we're committed to delivering strategic guidance and advocacy. In conclusion, HMRC's assessment powers are pivotal in maintaining tax compliance and fairness. Understanding the nuances of these powers and seeking expert guidance when needed empowers taxpayers to navigate tax administration with confidence. For further insights and assistance on tax assessments, contact [LEXLAW](https://lexlaw.co.uk/contact-us/) today. ## Expert Tax Investigation Lawyers If you need[ HMRC Tax Investigation advice](https://windinguppetitionsolicitors.co.uk/expert-advice/), we are available to aid you at every stage of the HMRC investigation process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and[ investigations](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/). Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. [Our specialist Tax Solicitors and Barristers](https://lexlaw.co.uk/our-people/) deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. We provide urgent [advice](https://taxdisputes.co.uk/expert-advice/) and representation to clients from our unique expert team of established [Tax and Duties specialist solicitors and barristers](https://taxdisputes.co.uk/) with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email contact@lexlaw.co.uk. --- # Managing HMRC Tax Enquiry Investigations Source: https://taxdisputes.co.uk/2024/05/managing-hmrc-tax-enquiry-investigations/ When [HMRC](https://www.gov.uk/guidance/penalties-an-overview-for-agents-and-advisers) initiates an enquiry, they'll send you a letter notifying you of the investigation, without necessarily providing a reason. This enquiry notice must be issued within 12 months of submitting your[ Tax Return ](https://www.gov.uk/self-assessment-tax-returns)to HMRC, excluding late submissions. It's wise to verify the validity of this notice. The letter will also include a suggested response deadline, typically within 30-35 days, which must be in writing. HMRC conducts two [types of enquiries](https://www.gov.uk/hmrc-internal-manuals/enquiry-manual/em0091): Aspect enquiries, which focus on specific entries in your tax return, and full enquiries, which indicate broader concerns and may require access to all your business records for the year in question.  ## Why does HMRC start a Tax Enquiry? There are several factors that can prompt a [tax enquiry](https://www.gov.uk/hmrc-internal-manuals/enquiry-manual). HMRC conducts risk assessments using a plethora of data sources consolidated in their Connect computer system. This includes information from your annual returns, data from financial institutions, land registry checks, DVLA records, and even publicly available social media data. It's essential to be cautious about the information you share publicly, as it could raise red flags. While HMRC isn't obligated to provide a reason for initiating an enquiry, understanding potential triggers can be helpful. These may include errors or inconsistencies in tax returns, business results deviating from industry norms, significant year-on-year changes, low proprietor drawings, or specific types of business activities prone to scrutiny, such as cash trades. Recognizing these triggers and being proactive can help you navigate tax enquiries more effectively.  ## What information can HMRC request in a Tax Enquiry? During a tax enquiry, HMRC may request various [documents](https://www.gov.uk/hmrc-internal-manuals/enquiry-manual/em1561) to assess your tax affairs thoroughly. These documents typically include bank statements, cheque books, credit card statements, sales invoices, VAT records, payroll records, and more. Maintaining organised and accurate records can streamline the enquiry process and ensure you meet HMRC's requirements effectively. Fulfilling these documentation requests in a timely manner is essential to avoid penalties and expedite the enquiry process. ## How to engage with HMRC Tax Enquiry? In the event of a delayed response, the inspector holds the authority to issue a [Schedule 36 FA 2008](https://www.legislation.gov.uk/ukpga/2008/9/schedule/36) information notice, compelling the submission of documents and particulars to HMRC. Failure to comply with this notice may result in monetary penalties. Furthermore, the inspector may repeatedly issue notices for each subsequent delay. Should you perceive the request as unjustified, you retain the right to appeal. While it's reasonable to anticipate HMRC's responses within similar timelines as those required of taxpayers, this may not always be the case. In instances of prolonged delays or if HMRC's demands seem unreasonable, avenues for challenge exist, including the submission of a closure notice application to the Tribunal if deemed appropriate. ## How to Comply with HMRC Tax Enquiry? In navigating the HMRC[ enquiry process](https://www.gov.uk/hmrc-internal-manuals/enquiry-manual), it's vital to keep track of important dates and deadlines. From receiving the HMRC Enquiry Notice to providing requested documents and responses, adhering to timelines is crucial to prevent penalties and maintain a seamless process. A recent case, Richard Monks v HMRC [2023] UKFTT 853 (TC), saw the[ First-tier Tribunal (FTT)](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/) issue a noteworthy judgement regarding the timeliness of HMRC's enquiry into the taxpayer's tax returns, determining the enquiry notice to be out of time. ## How to respond to a HMRC Enquiry? Effective [communication](https://www.gov.uk/hmrc-internal-manuals/enquiry-manual/em1601) with HMRC during an enquiry is paramount. Understanding your rights can help protect your interests throughout the process. Responding within the specified timeframe and addressing unreasonable requests are critical aspects of effective communication. Additionally, appealing decisions when necessary ensures that your concerns are heard and addressed appropriately. Leveraging expert guidance can help navigate these communication dynamics and ensure productive interactions with HMRC representatives. HMRC possesses the authority to investigate the personal finances and circumstances of directors in cases of concern. However, it's crucial to note that directors are distinct legal entities from their companies. Consequently, the company cannot be compelled to provide directors' personal financial records without valid justification. It's not unusual for HMRC to request bank statements from proprietors. However, it's advisable to resist such requests unless HMRC can provide clear evidence of their necessity for reviewing the tax return under examination. [Our tax barristers and solicitors](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) provide the very best representation in negotiations and in litigation in front of the Tax Tribunal. [Our team](https://lexlaw.co.uk/our-people/) specialises in successfully challenging HMRC decisions and will assist you in every aspect including developing a strategy.  ## How long do HMRC have to open an Enquiry? The duration of an enquiry is contingent upon several factors: - The scope of the enquiry - The volume of information HMRC needs to review - The specific area of taxation being investigated - The scale of your business On average, full enquiries typically span around 18 months, while aspect enquiries usually last between three and six months. However, in cases involving complex matters or disputed valuations, enquiries can extend much longer. It's important to note that only one enquiry can be conducted per tax year. Once a closure notice is issued, no further questions can be raised regarding that return, unless HMRC uncovers irregularities at a later stage. Nonetheless, this does not preclude the possibility of an enquiry being initiated into subsequent returns. ## HMRC Penalties for Errors and Failures to Comply HMRC imposes penalties for late submission of returns and documentation, or delayed payment, across various [tax categories.](https://lexlaw.co.uk/hmrc-tax-penalty-appeal-solicitor-london/) The penalty system is determined by the behaviour of the taxpayer and considers various factors: - The nature of the error or omission. - Whether professional advice was sought before taking action. - The level of awareness regarding the issue; for instance, if HMRC highlighted the issue but no action was taken. - Cooperation with the enquiry and the willingness to provide information voluntarily or if prompt was needed. When documents containing[ errors ](https://lexlaw.co.uk/hmrc-tax-penalty-appeal-solicitor-london/)are submitted to HMRC, penalties may be imposed on the inaccuracies. Similarly, failure to inform HMRC of changes that impact tax, VAT, or other duties can lead to [penalties ](https://lexlaw.co.uk/hmrc-tax-penalty-appeal-solicitor-london/)known as 'failure to notify' penalties. The severity of the error determines the level of penalty, with errors despite reasonable care potentially avoiding penalties, while deliberate actions with concealment can result in significant penalties. The severity of the penalty is associated with the cause of the error, with more serious reasons warranting higher maximum penalties. Furthermore, penalties may be enforced for the submission of incorrect returns, which can encompass fines for late tax payments or fixed percentage fines for outstanding tax repayments. ## Conclusion and Appeal Process Following Enquiry Proceedings Upon completion of the enquiry proceedings: - If HMRC determines that your original self-assessment return was accurate, the enquiry will be closed without further action. - However, if errors or omissions result in additional tax liabilities, interest will be levied on the unpaid tax due to the delay in payment. Furthermore, the inspector may consider imposing a penalty, as outlined in detail below. Take advantage of the end of a tax enquiry to reflect on and evaluate your business profit reporting practices. Implement measures to prevent similar issues from arising in the future. Following an enquiry where adjustments are proposed by HMRC, you have a 30-day window to contest their decision through the [appeals process](https://lexlaw.co.uk/hmrc-tax-penalty-appeal-solicitor-london/). We offer guidance and advocacy regarding the strategic methods for appealing penalties imposed by HMRC. Our team possesses firsthand knowledge of HMRC's internal processes and the most effective approaches to contest penalties. This includes negotiating and reaching settlements with HMRC, as well as pursuing litigation in the First Tier Tax Tribunal when necessary. ## Expert Tax Investigation Lawyers If you need[ HMRC Tax Investigation advice](https://windinguppetitionsolicitors.co.uk/expert-advice/), we are available to aid you at every stage of the HMRC investigation process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and[ investigations](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/). Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. [Our specialist Tax Solicitors and Barristers](https://lexlaw.co.uk/our-people/) deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. We provide urgent [advice](https://taxdisputes.co.uk/expert-advice/) and representation to clients from our unique expert team of established [Tax and Duties specialist solicitors and barristers](https://taxdisputes.co.uk/) with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email contact@lexlaw.co.uk. --- # HMRC’s Customer Service Crisis – Government Injects £51m to Address Soaring Wait Times Source: https://taxdisputes.co.uk/2024/05/hmrcs-customer-service-crisis-government-injects-51m-to-address-soaring-wait-times/ In March earlier this year, [HM Revenue and Customs](https://www.gov.uk/government/organisations/hm-revenue-customs) ([HMRC](https://en.wikipedia.org/wiki/HM_Revenue_and_Customs)) faced a public relations debacle when it [announced the closure of several helplines, only to reverse the decision the next day](https://taxdisputes.co.uk/2024/03/hmrcs-6-month-tax-helpline-closure-paused/). This incident, although embarrassing for the involved parties, including pre-informed ministers, resulted in a positive outcome for both HMRC and taxpayers. The government has now allocated an additional £51 million to HMRC to improve its phone line service levels, targeting an 85% call answer rate. ## The Funding Challenge: Improving HMRC's Phone Service The immediate challenge lies in how HMRC will utilise the additional £51 million. Performance improvements will take time, requiring not just an increase in staff but also enhanced training and support. HMRC staff receive weeks of tax training before handling public queries, depending on the complexity of their role. ## Taxpayers Left Waiting The [National Audit Office](https://www.nao.org.uk/) (NAO) recently highlighted the severity of HMRC’s customer service issues. According to the NAO, taxpayers collectively spent nearly 800 years (7 million hours) on hold in 2022-23, a staggering increase from 3.2 million hours in 2019-20. Average call waiting times have surged by over 350% in five years, with only 67.2% of callers reaching an advisor in the first 11 months of the 2023-24 tax year, far below the 85% target. ## HMRC's Shortage of Staff The [NAO report](https://www.nao.org.uk/reports/hmrc-customer-service/) attributes HMRC’s declining performance to funding pressures, job cuts, and an over-reliance on digital services. Customer service staff numbers fell by 9% between 2019-20 and 2023-24. Despite spending £881 million on customer service in 2022-23, HMRC faced a 6% real-terms budget cut since 2019-20 and was expected to make further savings of £149 million annually. This led to plans for a 14% reduction in customer service staff by 2024-25. ## HMRC's Digital Services While HMRC encourages the use of digital services for straightforward queries, the increasing complexity of tax affairs means many taxpayers still rely on phone support. The NAO report and feedback from tax experts emphasise the need for significant improvements in digital services and the continued availability of phone and postal support. ## Expert Opinions and Recommendations Tax experts and MPs have called for a radical improvement in HMRC’s customer service. Richard Wild of the [Chartered Institute of Taxation](https://www.tax.org.uk/) noted that while the £51 million funding is welcome, it merely slows the pace of cuts. Caroline Miskin from the [Institute of Chartered Accountants of England and Wales](https://www.icaew.com/) stressed the need for HMRC to enhance its digital offerings and maintain traditional contact methods during the transition. Robert Palmer of [Tax Justice ](https://www.taxjustice.uk/)underscored the necessity of adequate funding and modern tools for HMRC to meet its service targets. MPs on the Treasury select committee echoed these sentiments, urging HMRC to better communicate its plans to move customers online. ## Expert London Tax Litigation Lawyers Navigating the complexities of HMRC’s processes and the broader tax system can be daunting, especially given the current service challenges. At [LEXLAW](https://lexlaw.co.uk/), we specialise in tax litigation services and can help you efficiently manage your tax affairs. Our expert team stays updated on HMRC policies and provides personalised support, ensuring you meet your obligations without unnecessary stress or delays. [Contact us](https://lexlaw.co.uk/contact-us/) today to learn how we can assist you with all your tax-related needs. ## Way Forward for HMRC and Taxpayers The additional £51 million in funding for HMRC marks a crucial step towards improving customer service. However, the path to reaching the desired service levels will be long and requires strategic investment in training, support, and digital infrastructure. Taxpayers and professionals alike will be closely monitoring HMRC's progress in the coming months. ## Expert Tax Investigation Lawyers If you need[ HMRC Tax Investigation advice](https://windinguppetitionsolicitors.co.uk/expert-advice/), we are available to aid you at every stage of the HMRC investigation process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and[ investigations](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/). Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. [Our specialist Tax Solicitors and Barristers](https://lexlaw.co.uk/our-people/) deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. We provide urgent [advice](https://taxdisputes.co.uk/expert-advice/) and representation to clients from our unique expert team of established [Tax and Duties specialist solicitors and barristers](https://taxdisputes.co.uk/) with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email contact@lexlaw.co.uk. --- # Kaye Adams Triumphs Over HMRC in 9-Year IR35 Tax Dispute Source: https://taxdisputes.co.uk/2024/02/kaye-adams-triumphs-over-hmrc-in-9-year-ir35-tax-dispute/ *In a landmark decision, Kaye Adams, the Loose Women television presenter, emerged victorious in a protracted nine-year dispute with the taxman. Atholl House Productions Limited (AHPL) v HMRC revolved around the classification of Adams' tax status—whether she should be treated as an employee or a self-employed contractor for her services rendered at the BBC between 2013-2014 and 2016-2017.* *HMRC finally gave up, saying it would not be proportionate to keep going.* Our [taxation practice](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) is the foundation of the firm. Have a conflict with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs)? Our tax team is composed of knowledgeable tax lawyers who can help you handle your tax issues. For the best outcome, our ex-HMRC lawyers will [advise](https://taxdisputes.co.uk/expert-advice/) you on intricate tax laws. We have years of expertise in dealing with complex tax problems, including negotiating with HMRC and handling [tax appeals before Tax Tribunals](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/) and in the High Court. ## What is HMRC's IR35? (Off-payroll working rules) [HMRC's IR35](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35), off-payroll working rules, govern the tax status of self-employed individuals providing services through intermediaries such as limited companies. The classification is pivotal for tax considerations, distinguishing between self-employed workers and regular employees. Adams, contracted through her limited company, Atholl House Productions Limited, and thereby found herself in a tax dispute with HMRC which she battled for several years. ## Controversies Surrounding IR35 Originally introduced by Gordon Brown to combat tax evasion, IR35 has faced a strong backlash especially given it affects a large number of media personalities and workers at major broadcasters such as the BBC. IR35, also known as the "[off-payroll working rules](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35)," has been a source of controversy in the United Kingdom for many years. It was introduced by HM Revenue and Customs (HMRC) to counteract tax avoidance by workers who supply their services to clients through an intermediary, such as a limited company, but who would be considered employees if the intermediary was not used. Here are some of the controversies surrounding IR35: - **Complexity and Confusion**: One of the primary criticisms of IR35 is its complexity, which has led to confusion among contractors, businesses, and even HMRC itself. Determining whether a worker falls within IR35 can be a challenging task, as it involves assessing various factors such as the level of control, substitution, and mutuality of obligations in the working relationship. - **Inconsistent Enforcement**: Critics argue that HMRC's enforcement of IR35 has been inconsistent and sometimes arbitrary. There have been cases where contractors working under similar conditions have been treated differently by HMRC, leading to accusations of unfairness and lack of clarity in the application of the rules. - **Impact on Self-Employed Workers**: IR35 can have significant financial implications for self-employed contractors who are deemed to be "inside IR35." Being classified as an employee for tax purposes means that contractors may lose certain tax benefits and have to pay higher National Insurance contributions, reducing their take-home pay. - **Contractor Flexibility and Autonomy**: IR35 has been criticised for restricting the flexibility and autonomy of contractors. Some argue that it discourages businesses from engaging contractors and freelancers, as they may prefer to hire employees to avoid the administrative burden and potential tax liabilities associated with IR35. - **Administrative Burden**: Complying with IR35 regulations can impose a significant administrative burden on businesses, particularly small and medium-sized enterprises (SMEs). Ensuring compliance requires thorough assessments of contractors' employment status, which can be time-consuming and resource-intensive. - **Impact on Innovation and Economic Growth**: Critics claim that IR35 hampers innovation and economic growth by discouraging entrepreneurship and investment. Small businesses and startups, in particular, may struggle to attract talent if contractors are deterred by the complexities and uncertainties of IR35. - **Unintended Consequences**: There are concerns that IR35 may have unintended consequences, such as driving skilled workers overseas or underground economy activities. Some contractors may choose to work abroad or operate outside the tax system altogether to avoid the implications of IR35. Overall, IR35 remains a contentious issue in the UK, with ongoing debates about its effectiveness, fairness, and impact on the labour market and economy. Efforts to reform or replace IR35 continue, but finding a solution that satisfies all stakeholders remains challenging. ## The Kaye Adams IR35 Case and Broader Implications Despite securing initial victories, Adams faced an unexpected return to court for the fourth time, courtesy of a [Court of Appeal](https://www.judiciary.uk/courts-and-tribunals/court-of-appeal-home/) decision questioning the application of previous judges' tests. The Kaye Adams IR35 case refers to a notable legal dispute involving the Scottish television and radio presenter Kaye Adams' company Atholl House Productions Limited and HM Revenue and Customs (HMRC) regarding her tax status under the IR35 legislation. Kaye Adams is a well-known media personality who has worked for various broadcasters, including the BBC and ITV. HMRC initiated its enquiry in July 2014, focusing on the Atholl House case involving a headline tax amount of £124,000, which was anticipated to decrease to approximately £70,000 after factoring in taxes previously paid by Atholl House and Adams. Adams had provided her services through her personal service company, "[Atholl House Productions Limited](https://find-and-update.company-information.service.gov.uk/company/06291946)," which is a common arrangement among freelancers and contractors in the media industry. However, HMRC argued that the nature of her working relationship with broadcasters indicated a level of control and integration that resembled that of an employee rather than an independent contractor. Following Adams's application to the [First-tier Tribunal (FTT)](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/) in March 2018, she achieved success in her initial hearing in April 2019. However, HMRC contested the Tribunal's decision, alleging legal errors, and was granted permission to appeal to the [Upper-tier Tax Tribunal (UT)](https://www.judiciary.uk/courts-and-tribunals/tribunals/upper-tribunal/upper-tribunal-tax-and-chancery-chamber/). Although adjustments were made due to identified mistakes, the outcome remained unchanged in February 2021. HMRC persisted in asserting further legal errors and obtained permission for a third hearing at the Court of Appeal. The Court of Appeal's decision in April 2022 acknowledged the errors and sent the case back for reconsideration, stating the possibility of introducing new evidence. This development led to the arrangement of a fourth hearing at the First-tier Tribunal. First-tier Tribunal yet again found in favour of of Kaye Adams. The outcome of the case was significant as it provided clarity on the application of IR35 to high-profile individuals in the media industry. It demonstrated that even well-known presenters operating through personal service companies could legitimately fall outside the scope of IR35 if they maintain sufficient control and autonomy in their working arrangements. However, it's essential to note that each IR35 case is unique, and determinations are based on the specific facts and circumstances of the individual's working relationship. The Kaye Adams case serves as a notable example but does not necessarily establish precedent for other cases. ## Kaye Adams: Tax Tribunal's IR35 Decision The Tribunal case centered on the third part of the statutory IR35 test, which assesses whether the circumstances surrounding Adams' service provision would classify her as an employee for tax and National Insurance Contribution (NIC) purposes if she directly contracted with the BBC. This test follows a three-step process: - Identifying the terms of the actual contract and the relevant circumstances during service provision. - Determining the terms of a hypothetical contract. - Assessing whether this hypothetical contract would constitute an employment contract, applying the criteria established in the Ready Mixed Concrete case. Acknowledging the complexity of the case, the Tribunal carefully weighed various factors and found that indicators favoring self-employment outweighed those favoring employment. Key indicators supporting self-employment included: - Adams' autonomy in other engagements. - The BBC's non-employee treatment towards her. - Adams' ability to leverage her skills in the broader market and her financial independence from the BBC. - Explicit statements in written agreements indicating a non-employment relationship. Consequently, the Tribunal ruled that the IR35 legislation was not applicable and upheld the appeal by AHPL (Atholl House Productions Limited). ## HMRC's Approach to IR35 Cases HM Revenue and Customs (HMRC) takes a multifaceted approach to IR35 cases, employing various strategies to ensure compliance with the legislation. In cases of believed non-compliance with IR35 rules, HMRC may impose penalties and take enforcement action against individuals and businesses. Penalties can include financial sanctions, interest on unpaid taxes, and legal proceedings to recover outstanding liabilities. Critics argue that HMRC's handling of IR35 cases merits scrutiny, with Dave Chaplin of IR35 Shield suggesting a focus on fault finding rather than fact finding. This approach, critics contend, places an emphasis on winning cases, potentially resulting in taxpayers paying more than legally required. The Kaye Adams case underscores the need for a balanced and thorough examination of the facts in IR35 disputes. In its press release, HMRC also mentioned that rulings from the First-tier Tribunal do not establish binding precedents. This could be seen as an attempt to downplay the significant precedents established by the case over its four hearings. ## 3 Parties in IR35 Disputes An inherent challenge in IR35 cases is the involvement of three parties—the service company, HMRC, and the customer. Customers often possess vital information crucial to understanding the hypothetical contract proposed by HMRC. However, as third parties, they may be reluctant to become embroiled in the dispute, creating an additional layer of complexity in resolving these tax-related issues. The Kaye Adams case illuminates the intricate complexities of IR35 and underscores the challenges individuals face when contesting tax assessments. As tax regulations continue to evolve, seeking professional legal advice becomes imperative to successfully navigate these intricate matters. ## IR35 Tax Disputes Lawyers If you find yourself entangled in an IR35 dispute or face challenges navigating tax-related issues, our experienced legal team made up of former HMRC counsel is here to help. Our solicitors and barristers specialise in providing comprehensive support, ensuring your case is thoroughly examined and fought with dedication. Contact us for expert guidance and assistance tailored to your specific situation. ## Expert Tax Investigation Lawyers If you need[ HMRC Tax Investigation advice](https://windinguppetitionsolicitors.co.uk/expert-advice/), we are available to aid you at every stage of the HMRC investigation process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and[ investigations](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/). Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. [Our specialist Tax Solicitors and Barristers](https://lexlaw.co.uk/our-people/) deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. We provide urgent [advice](https://taxdisputes.co.uk/expert-advice/) and representation to clients from our unique expert team of established [Tax and Duties specialist solicitors and barristers](https://taxdisputes.co.uk/) with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email contact@lexlaw.co.uk. --- # HMRC Follower Notices & Penalties Cancelled (Roy Baker v HMRC) Source: https://taxdisputes.co.uk/2024/05/hmrc-follower-notices-penalties-cancelled-roy-baker-v-hmrc/ In a recent legal development, the [First-tier Tribunal (FTT)](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/first-tier-tribunal-tax-chamber/) ruled in favour of the taxpayer, Roy Baker, in a case against [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) regarding [follower notice (FN)](https://www.gov.uk/guidance/follower-notices-and-accelerated-payments--2) penalties. This decision sheds light on the complexities of tax avoidance arrangements and the implications of failure to take corrective action in response to Follower Notices. ## Roy Baker & Montpelier Tax Consultants Roy Baker, an IT data analyst, found himself embroiled in a tax avoidance scheme marketed by Montpelier Tax Consultants (Isle of Man) Ltd. Relying heavily on Montpelier's advice due to his limited tax knowledge, Baker participated in an arrangement aiming to exploit double taxation arrangements between the UK and the Isle of Man. ## First-tier Tribunal’s Decision Despite HMRC's issuance of Follower Notices requiring corrective action, Baker maintained his reliance on Montpelier's advice, believing he had a strong case. Consequently, he did not take the prescribed corrective action. Upon appeal to the FTT, Baker's penalties were cancelled as the tribunal found his reliance on Montpelier's advice reasonable, considering HMRC's errors and inconsistencies in their dealings with him. ## What are Follower Notices? If you engage in a tax avoidance scheme resembling one successfully challenged by HMRC in court, HMRC will review your tax affairs and may issue you a follower notice.  A follower notice prompts you to settle your tax affairs with HMRC. Failure to do so may result in a penalty.  In addition to a follower notice, you may also be subject to an Accelerated Payment Notice (APN). If so, you must pay the accelerated payment along with resolving your tax affairs.  ## Accelerated Payment Notice You may receive an APN if there is an ongoing enquiry, dispute, or appeal related to your tax affairs, and you have either: - Received a follower notice - Utilised a Disclosure of Tax Avoidance Schemes (DOTAS) notifiable arrangement - Been issued a General Anti-Abuse Rule (GAAR) counteraction notice Upon receiving an APN, you are required to pay the disputed tax amount. HMRC will retain this sum until the conclusion of the enquiry or resolution of your appeal. Should HMRC determine that you do not owe the amount, it will be refunded to you. Failure to pay the disputed tax by the specified date on the notice may result in penalties. Partner Payment Notice: If you are a member of a partnership, you will receive a Partner Payment Notice (PPN) instead of an APN. A PPN typically functions similarly to an APN, but the specific notice you receive will outline the actions you need to take. Action Upon Receiving a Notice: The notice you receive will detail: - The reason for its issuance - Next steps required - Procedures in case of disagreement - Any applicable deadlines - Potential penalties for inaction It is imperative to follow the instructions outlined in the notice you receive. ## HMRC Penalties Failure to adhere to the instructions in a received notice may result in [penalties](https://www.gov.uk/guidance/penalties-an-overview-for-agents-and-advisers). In such a scenario, you will receive a notice of penalty assessment specifying the amount and deadline for payment, along with an explanation of how the penalty is calculated. ## Purpose and Procedure Follower notices are employed by HMRC to streamline the litigation process, aiming to reduce time, complexity, and costs associated with legal proceedings. By focusing on a few lead representative cases, HMRC aims to expedite resolution and clarify the legality of similar schemes. ## Advantages and Considerations Accepting a follower notice enables the issue to be resolved without resorting to costly court proceedings. However, compliance with a follower notice does not guarantee tax savings or the avoidance of penalties and interest. Additionally, a follower notice may be accompanied by or followed closely by an accelerated payment notice. ## Consequences of Ignoring Follower Notices Failure to respond to a follower notice and take corrective action can result in penalties if HMRC's position is upheld by the tax tribunal or court. Therefore, it's crucial for taxpayers to understand the implications of follower notices and seek appropriate legal advice when faced with such notifications. ## Implications for other similar case Taxpayers The ruling in [*R Baker v HMRC [2024] UKFTT 126 (TC)*](https://taxdisputes.co.uk/wp-content/uploads/2024/05/Roy-Baker-v-HMRC-2024-UKFTT-126-TC.pdf) highlights the significance of understanding follower notices and penalties in tax law. This is the second case in which the tribunal has allowed appeals against penalties under the follower notice regime arising from the taxpayer participating in a scheme marketed by Montpelier Tax Consultants involving the routing of earnings through Isle of Man trusts. The scheme was held to be ineffective in *Huitson v HMRC [2015] UKFTT 448 (TC)*. Taxpayers in the same position should seek independent legal advice. ## Download the Judgment Here [![](https://taxdisputes.co.uk/wp-content/uploads/2024/05/Roy-Baker-v-HMRC-2024-UKFTT-126-TC-724x1024.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2024/05/Roy-Baker-v-HMRC-2024-UKFTT-126-TC.pdf) ## Expert UK Tax Litigation Lawyers At [LEXLAW](https://lexlaw.co.uk/), we specialise in tax law and offer tailored legal solutions to navigate complex tax matters effectively. Our experienced team can provide expert advice and representation to clients facing challenges related to follower notices, HMRC penalties, and tax disputes. Contact us today for personalised assistance in safeguarding your financial interests and ensuring compliance with tax regulations. The decision in [Roy Baker v HMRC [2024] UKFTT 126 (TC)](https://taxdisputes.co.uk/wp-content/uploads/2024/05/Roy-Baker-v-HMRC-2024-UKFTT-126-TC.pdf) underscores the need for taxpayers to critically assess advice received in response to follower notices. By seeking independent legal advice, taxpayers can make informed decisions and mitigate potential penalties. ## Expert London Tax Lawyers If you need [HMRC Tax Disputes advice](https://taxdisputes.co.uk/), we are available to aid you at every stage of the HMRC appeals process. Members of [our legal team](https://lexlaw.co.uk/) have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the HMRC internal review process and in front of the Tax Tribunal. [Our team](https://taxdisputes.co.uk/) specialises in successfully [challenging HMRC decisions](https://taxdisputes.co.uk/hmrc-tax-appeals/) and will assist you in every aspect including developing a strategy. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with [a proven track record](https://taxdisputes.co.uk/success/) of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk?subject=Tax%20Query). --- # Post Office Horizon IT Scandal: HMRC’s Unjust Tax Demands Against UK Postmasters Source: https://taxdisputes.co.uk/2024/01/post-office-horizon-it-scandal-hmrcs-unjust-tax-demands-against-uk-postmasters/ In the aftermath of [Mr. Bates vs the Post Office](https://www.itv.com/watch/mr-bates-vs-the-post-office/10a0469/10a0469a0001), an additional 50 sub-postmasters have stepped forward, joining the 700 victims previously known in the [Post Office Horizon IT scandal](https://en.wikipedia.org/wiki/British_Post_Office_scandal). This miscarriage of justice falsely accused sub-postmasters of financial wrongdoing due to faults in the computerised accounting system. Unbeknownst to many, the Post Office shared this flawed information with [HMRC (Her Majesty’s Revenue and Customs)](https://www.gov.uk/government/organisations/hm-revenue-customs), allowing HMRC to impose [tax penalties and assessments](https://lexlaw.co.uk/hmrc-tax-penalty-appeal-solicitor-london/) on innocent sub-postmasters. ## HMRC's Misuse of Post Office Horizon Data Despite the scandal surfacing a decade ago and prosecutions being dropped in 2015, HMRC persisted in maintaining [tax penalties and assessments](https://taxdisputes.co.uk/hmrc-penalties/) against innocent sub-postmasters. This forced these victims to engage in a prolonged legal battle in the First Tier Tax Tribunal. HMRC, armed with a team of legal experts and unlimited resources, held their ground against sub-postmasters, who lacked similar legal and financial sophistication. ## HMRC vs Harston Post Office (Tax Appeal) The Harston Post Office found support in [M Ali Akram](https://lexlaw.co.uk/our-people/m-ali-akram/), the senior partner of [Lexlaw Solicitors](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/). In a case involving accusations of pocketing over £56,000 based on faulty Post Office data, Akram and his team took over the appeal, engaging and experienced ex-HMRC tax Barrister. After a contested application, the Tribunal reclassified the case as complex, putting pressure on HMRC, which eventually led to the withdrawal of improper tax demands. ## Ongoing Legal Battle and HMRC's Refusal to Pay Indemnity Costs Despite HMRC's acknowledgment of paying the Sub-postmaster's costs, there was a dispute over the payment basis. HMRC was reluctant to pay indemnity costs, insisting on a standard basis, which would cover only a portion of the costs. LexLaw argued that the costs should be on an indemnity basis, given the extraordinary nature of the litigation and misconduct by HMRC in maintaining tax demands against an innocent sub-postmaster using dodgy data. The hearing to determine the recoverable costs was set for January 15, 2024. ## First-tier Tax Tribunal Hearing: Harston Post Office vs HMRC (15 January 2024) The Tribunal was listed to decide on the sub-postmaster's application for indemnity costs on January 15, 2024. Despite HMRC's acceptance of paying the Sub-postmaster’s costs, the argument over the costs amount to be paid underscored the reluctance of HMRC to acknowledge the gravity of their misconduct. ## Media Interest and HMRC Post Office Scandal LexLaw invites media interest in the ongoing case, highlighting HMRC's poor litigation conduct and the substantial impact on innocent sub-postmasters. The contested hearing judgment from May 26, 2022, can be found on the British and Irish Legal Information website under appeal number TC/2018/00981. ## Update on HMRC Costs Settlement (15 January 2024): Following increased media scrutiny, HMRC did a complete U-turn, agreeing to pay indemnity costs at a record level of 97% of costs claimed. Our Senior Partner M Ali Akram expresses concern over HMRC's attempt to avoid exposure for relying on flawed Post Office data, potentially affecting numerous postmasters who may have faced flawed tax demands and [HMRC debt recovery](https://lexlaw.co.uk/hmrc-debt-enforcement-defence-statutory-demand-winding-up-peititon-solicitor-london/) actions including HMRC [bankruptcy petitions](https://windinguppetitionsolicitors.co.uk/bankruptcy-advice/). > The British Post Office Horizon IT scandal continues to unfold, catching out HMRC's unjust collusional use of Horizon Data in the wrongful pursuit of [tax penalties](https://taxdisputes.co.uk/hmrc-penalties/) against innocent sub-postmasters. This legal battle serves as a stark reminder of the need for accountability and transparency in the face of government agencies' misuse of data. Our client, the Harston Post Office, has now won a long battle in the First Tier Tax Tribunal. Despite a contested application and case reclassification, HMRC maintained improper tax demands for six years. The dispute over indemnity costs further highlights HMRC's reluctance to fully acknowledge the severity of their misconduct. There is a clear broader need for accountability in the face of governmental misuse of data and its impact on innocent hardworking individuals. > > > [M Ali Akram, Senior Partner, LEXLAW](https://uk.linkedin.com/in/lexlawlondonsolicitors) --- # Seizures by HMRC and UK Border Force Source: https://taxdisputes.co.uk/2024/12/seizures-by-hmrc-and-uk-border-force/ Seizures of goods by [His Majesty's Revenue and Customs (HMRC)](https://www.gov.uk/government/organisations/hm-revenue-customs) or the [UK Border Force (UKBF)](https://www.gov.uk/government/organisations/border-force) can be a complex and stressful experience. Whether due to unpaid duties, restricted items, or suspected criminal activities, these confiscations often carry legal and financial implications. Understanding your rights, the procedures involved, and the available options to [challenge](https://taxdisputes.co.uk/notice-12a-steps-to-take-if-goods-have-been-seized-by-hmrc-ukba/) or recover seized goods is essential to protect your interests. ## Understanding a Notice of Seizure: What It Means and How to Respond A [Notice of Seizure](https://www.gov.uk/guidance/what-you-can-do-if-things-are-seized-by-hmrc-or-border-force) is a formal document issued by [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or the [UKBF](https://www.gov.uk/government/organisations/border-force), indicating the confiscation of goods during import or export processes. It details the reasons for the seizure and outlines the steps available for individuals to respond. Notices may result in the permanent loss of goods if not promptly addressed. Acting within prescribed deadlines and seeking professional advice is crucial to protecting your rights and pursuing recovery options. Whether the seizure occurred during personal travel or via postal means, it is crucial to address the notice promptly to safeguard your rights and explore options for recovery. ## Why Do HMRC or UK Border Force Seize Goods? Goods are seized by [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [UKBF](https://www.gov.uk/government/organisations/border-force) for several reasons, including: - **Unpaid Duties or VAT:** Failure to pay applicable taxes on goods. - **Prohibited or Restricted Items:** Importing goods banned under UK law. - **Counterfeit Goods:** Possession or import of counterfeit or imitation products. - **Inaccurate Declarations:** Errors or falsifications in customs declarations. - **Suspected Criminal Activities:** Items linked to potential criminal offences. - **Customs Violations:** Breaches of customs laws and regulations. - **Incorrect Excise Duty:** Misreporting or underpayment of excise duties. - **Improper Documentation:** Missing or incomplete certificates and licences. - **Incorrect Description of Package Contents:** If the contents of a package were incorrectly described. In certain cases, goods may also be seized under the [Proceeds of Crime Act (POCA) 2002](https://www.legislation.gov.uk/ukpga/2002/29/contents) or the [Police and Criminal Evidence Act (PACE) 1984](https://www.legislation.gov.uk/ukpga/1984/60/contents) if suspected of being linked to unlawful activities. ## What Actions Should Be Taken Upon Receiving a Notice of Seizure? Upon receipt of a [Notice of Seizure](https://www.gov.uk/guidance/what-you-can-do-if-things-are-seized-by-hmrc-or-border-force), taking immediate action is essential: - **Seek Legal Advice:** Consult solicitors specialising in customs seizures. - **Review the Notice:** Identify the seizing authority ([HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [UKBF](https://www.gov.uk/government/organisations/border-force)) and reasons for seizure. - **Gather Documentation:** Compile customs declarations, receipts, and related evidence. - **Adhere to Deadlines:** Submit responses or claims within the specified timeframes. - **Determine if a Crime is suspected:** If you are suspected of a crime you may be arrested. Delays or incomplete responses can result in forfeiting goods permanently or complicating recovery efforts. ## What are the Available Options for Recovering Seized Goods? Recovering seized items is possible in certain circumstances. Recovery is possible through: - **Restoration Requests:** Accepting the seizure but requesting the return of goods. - **Payment of Duties or Penalties:** Settling financial obligations. - **Notice of Claim:** Legally challenging the seizure’s validity. [Expert legal guidance](https://taxdisputes.co.uk/success/) is invaluable in assessing the best course of action and ensuring compliance with procedural requirements. ## What Are the Time Limits for Challenging a Seizure? When disputing a seizure, adherence to prescribed time limits is crucial to ensuring that legal rights are preserved. Below is a breakdown of the relevant timeframes: - **Notice of Claim:** A Notice of Claim must be submitted within one calendar month from the date of seizure. This is a formal step to [challenge](https://taxdisputes.co.uk/notice-12a-steps-to-take-if-goods-have-been-seized-by-hmrc-ukba/) the legality of the seizure in court. Failure to comply with this deadline may result in the forfeiture of the right to contest the seizure. - **Request for Restoration:** If seeking the return of seized items, a request for restoration must be made within one calendar month of the seizure. This differs from a Notice of Claim as it is a formal request directed at Customs for the return of the goods without court intervention. - **Statutory Review:** If Customs refuse restoration, you can request a statutory review of the decision. This must be made within 45 days of the date of the restoration decision. - **Appeal to the First-tier Tribunal (Tax Chamber):** Should the statutory review uphold the decision not to restore the goods, an appeal to the [First-tier Tribunal](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/first-tier-tribunal-tax-chamber/) must be lodged within 30 days of the review decision. Each of these steps serves a distinct purpose in the legal process. While a Notice of Claim initiates court proceedings to contest the seizure's legality, a restoration request seeks the return of goods without disputing the seizure's validity. Failure to observe these time limits can severely impact your ability to recover seized items or [challenge](https://taxdisputes.co.uk/notice-12a-steps-to-take-if-goods-have-been-seized-by-hmrc-ukba/) decisions effectively. ## How Can I Challenge HMRC or UK Border Force’s Legal Right to Seize My Goods? Challenging the legality of a seizure by [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [UKBF](https://www.gov.uk/government/organisations/border-force) involves submitting a Notice of Claim. This formal legal procedure requires presenting robust evidence and compelling arguments to dispute the lawfulness of the seizure. A successful [challenge](https://taxdisputes.co.uk/notice-12a-steps-to-take-if-goods-have-been-seized-by-hmrc-ukba/) hinges on a detailed understanding of customs laws, seizure regulations, and relevant legal precedents. Seeking [expert advice](https://taxdisputes.co.uk/success/) from solicitors specialising in customs seizures can significantly enhance your prospects of success. ## What Information Should I Include in a Notice of Claim? When drafting a Notice of Claim, it is essential to include comprehensive and accurate information. This should typically comprise: - **Details of the seized items:** Specify the quantities, size, colour, brand, and other identifying features of the goods. - **Relevant documentation:** Provide receipts, invoices, or other proof of ownership to substantiate your claim. - **Reference number:** Include the seizure reference number provided by [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [UKBF](https://www.gov.uk/government/organisations/border-force) at the time of the incident. - **Reasoning for return:** Clearly explain why the goods should be returned, referencing any lawful basis for your claim. - **Arguments against the seizure:** Outline why the seizure was unlawful, citing relevant customs laws and regulations. - **Supporting evidence:** Attach any legal documents, expert opinions, or other materials that support your [challenge](https://taxdisputes.co.uk/notice-12a-steps-to-take-if-goods-have-been-seized-by-hmrc-ukba/). The Notice of Claim serves as the foundation of your legal [challenge](https://taxdisputes.co.uk/notice-12a-steps-to-take-if-goods-have-been-seized-by-hmrc-ukba/). Omissions or errors in its preparation can weaken your case. Engaging [solicitors](https://taxdisputes.co.uk/success/) with expertise in customs seizures ensures that your arguments are well-formulated, evidence is effectively presented, and deadlines are met. ## How Can Solicitors Help in Challenging a Seizure? We specialise in customs seizures and offer a wide range of services, including: - **Advice on the legality of the seizure:** Evaluating whether [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [UKBF](https://www.gov.uk/government/organisations/border-force) acted within their legal authority. - **Drafting a Notice of Claim:** Preparing a comprehensive and accurate claim to dispute the seizure's lawfulness. - **Representation at condemnation proceedings:** Advocating for you in court to argue that the seizure was unlawful. - **Advice on restoration applications:** Explaining the process and prospects for recovering seized goods. - **Drafting and submitting restoration applications:** Ensuring the application includes robust supporting evidence. - **Challenging restoration conditions:** Addressing any unreasonable terms imposed for the return of goods. - **Reviewing and advising on refusal to restore decisions:** Identifying grounds to dispute adverse decisions. - **Requesting statutory reviews:** Preparing and submitting applications for formal reviews of decisions. - **Representation at appeals:** Advocating on your behalf during appeals before the First-tier (Tax) Tribunal. - **Ensuring compliance with time limits:** Assisting clients in adhering to strict deadlines to avoid forfeiting their rights. ## What Happens If My Goods Are Seized by HMRC or Border Force? If your goods are seized by [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [UKBF](https://www.gov.uk/government/organisations/border-force), you will receive a customs seizure letter. This letter outlines the reasons for the seizure and provides contact information for further correspondence. Responding promptly and understanding your legal options are essential to protect your rights. Following the seizure, [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) may initiate [condemnation proceedings](https://www.legislation.gov.uk/ukpga/1979/2/schedule/3/crossheading/proceedings-for-condemnation-by-court) to determine whether the seizure was lawful. This provides an opportunity for you to [challenge](https://taxdisputes.co.uk/notice-12a-steps-to-take-if-goods-have-been-seized-by-hmrc-ukba/) the confiscation or seek restoration of your goods. ## What Are Condemnation Proceedings? [Condemnation proceedings](https://www.legislation.gov.uk/ukpga/1979/2/schedule/3/crossheading/proceedings-for-condemnation-by-court) are legal processes conducted after [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [UKBF](https://www.gov.uk/government/organisations/border-force) receives a Notice of Claim. These hearings typically take place at the Magistrates' Court, where the legality of the seizure is decided. During the proceedings, the owner of the goods must: - Swear on oath to confirm ownership of the seized goods. - Present evidence and arguments explaining why the seizure was unlawful. If the court rules in favour of [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [UKBF](https://www.gov.uk/government/organisations/border-force), the goods will be permanently forfeited. However, if the court finds the seizure unlawful, the goods may be restored to the owner, potentially subject to conditions imposed by the court. ## What Is a Restoration Letter? A restoration letter is a formal request submitted to [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [UKBF](https://www.gov.uk/government/organisations/border-force), seeking the return of seized goods while accepting the legality of the seizure. Unlike a Notice of Claim, the restoration process is administrative rather than judicial. Key aspects of a restoration letter include: - A detailed explanation of why the seized items should be returned. - Supporting evidence to substantiate the request. [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [UKBF](https://www.gov.uk/government/organisations/border-force) evaluates restoration requests based on their individual merits. While restoration is not guaranteed, goods may be returned in exceptional circumstances or with specific conditions. ## What Happens if a Restoration Request Is Refused? If [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [UKBF](https://www.gov.uk/government/organisations/border-force) refuses your restoration request, you have the right to request a [statutory review](https://www.legislation.gov.uk/ukpga/1979/2/schedule/3/crossheading/proceedings-for-condemnation-by-court) of the decision. This process involves a review conducted by an officer who was not previously involved in the case. The reviewing officer has the authority to: confirm the original decision; vary the terms of the decision or cancel the refusal and allow the restoration request. If the outcome of the statutory review remains unfavourable, you can appeal the decision to the [First-Tier Tribunal (Tax Chamber)](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/first-tier-tribunal-tax-chamber/). This independent judicial body will assess the merits of your case and determine whether the decision should be overturned. ## Can Goods Be Searched When Seized? Yes, [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) and [UKBF](https://www.gov.uk/government/organisations/border-force) agents are permitted to search goods when they have reasonable grounds to suspect the presence of prohibited or restricted goods or goods on which customs duty or excise duty has not been paid. Their search may extend to accompanying documentation and, in some cases, the inspection of electronic devices. ## What If My Goods Were Seized in Relation to a Crime? Goods or money may also be seized under the [Proceeds of Crime Act (POCA) 2002](https://www.legislation.gov.uk/ukpga/2002/29/contents) or the [Police and Criminal Evidence Act (PACE) 1984](https://www.legislation.gov.uk/ukpga/1984/60/contents) if authorities suspect they are evidence of criminal activity. This type of seizure often involves complex legal considerations and may lead to criminal investigations or proceedings. ## How Do I Prevent Future Seizures? Preventing future seizures by [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) or [UKBF](https://www.gov.uk/government/organisations/border-force) requires strict compliance with customs regulations and accurate documentation. To minimise the risk of seizures, consider the following: - **Ensure Payment of Excise Duty:** Confirm that all excise duties are accurately calculated and paid in full for goods liable to such taxes. - **Accurately Describe Package Contents:** Ensure that the descriptions provided on shipping documents precisely match the actual contents of the consignment. - **Avoid Importing Prohibited or Restricted Items:** Familiarise yourself with items prohibited or restricted under UK customs law, such as counterfeit goods, weapons, or controlled substances. - **Provide Correct Licences:** For goods requiring specific permissions, ensure that the relevant import or export licences are secured in advance. - **Make Accurate Export Declarations:** Submit timely and accurate export declarations to customs, detailing the nature, value, and origin of the goods being transported. - **Pay VAT, Import Taxes, and Duties:** Settle all applicable Value Added Tax (VAT), import duties, and related charges before shipment to prevent customs interventions. - **Adhere to Transport Procedures:** Comply with all prescribed shipping and transportation requirements, including proper labelling, packaging, and documentation. ## Expert London Tax Lawyers If you need [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) [Tax Disputes advice](https://taxdisputes.co.uk/), we are available to aid you at every stage of the [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) appeals process. Members of [our legal team](https://lexlaw.co.uk/our-people/) have first-hand experience and working knowledge of the internal workings of [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs). We can provide you with the very best representation in negotiations, throughout the [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) internal review process and in front of the Tax Tribunal. [Our team](https://lexlaw.co.uk/our-people/) specialises in successfully challenging [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) decisions and will assist you in every aspect including developing a strategy. --- # Rupert Grint’s £1.8m Income Tax Bill Source: https://taxdisputes.co.uk/2024/12/rupert-grints-1-8-million-tax-bill/ In a recent [First-tier Tribunal appeal](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/first-tier-tribunal-tax-chamber/), [Rupert Grint](https://en.wikipedia.org/wiki/Rupert_Grint), famous for playing Ron Weasley in [Harry Potter](https://www.harrypotter.com/) films, found himself on the losing side of a legal battle with [HM Revenue and Customs (HMRC)](https://www.gov.uk/government/organisations/hm-revenue-customs) over a £1.8 million tax bill. This case, and others like it, highlight the complexities of tax law, particularly for high-income individuals, and underscores the importance of expert legal advice in navigating such disputes. ## Rupert Grint’s HMRC Tax Dispute In 2019, [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) issued a closure notice to Rupert Grint regarding his 2011-12 tax return. [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) disputed the classification of £4.5 million Grint received from his company, [Clay 10](https://find-and-update.company-information.service.gov.uk/company/07724029), which managed his business affairs. Grint argued that this payment, which was for "likely residual income and bonuses" from the [Harry Potter films](https://en.wikipedia.org/wiki/Harry_Potter_(film_series)), was a capital asset subject to capital gains tax at a rate of 10%. [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs), however, contended that the £4.5 million should be classed as income and taxed at the higher income tax rate of 52%. ## Rupert Grint v HMRC Grint, who was 23 years old at the time of the disputed transaction and the sole shareholder of [Clay 10](https://find-and-update.company-information.service.gov.uk/company/07724029), appealed HMRC's decision. His legal team argued that the payment should be treated as a capital gain, as it represented "consideration for rights, records, and goodwill" from his work. The case was heard in the [First-Tier Tribunal](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/first-tier-tribunal-tax-chamber/) in London in November and December 2022. ## What did the FTT decide? Tribunal Judge Harriet Morgan ultimately ruled in favour of HMRC, dismissing Grint's appeal. Judge Morgan found that the sum "is taxable as income" because it "derived substantially the whole of its value from the activities of Mr Grint". She further stated that the money was "otherwise realised" as income in the 2011/12 tax year. This conclusion aligns with HMRC’s interpretation of sections 778 and 779 of the tax code, which aim to prevent individuals from avoiding income tax by selling rights to companies they control. ## Download the Judgment Here [![](https://taxdisputes.co.uk/wp-content/uploads/2024/12/Rupert-Grint-v-HMRC-2024-UKFTT-956-TC-724x1024.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2024/12/Rupert-Grint-v-HMRC-2024-UKFTT-956-TC-TC09337.pdf) ## Not Grint’s First Tax Dispute This is not the first time Grint has faced legal challenges related to his tax affairs. In 2016, he lost a separate court case regarding a £1 million tax refund. Grint had attempted to change his accounting date to shift 8 months of income from the 2010-11 tax year, when the top rate of tax rose from 40% to 50%, to the 2009-10 tax year. This would have resulted in a £1 million tax saving. However, the judge in that case rejected Grint's appeal, preventing him from using the accounting date change to reduce his tax liability. ## Implications for High-Income Individuals These cases demonstrate that tax law can be complex and that even well-intentioned individuals can make mistakes that result in significant tax liabilities. The outcomes of Grint's cases highlight the importance of: - **Understanding the nuances of tax legislation**: Different income sources can be subject to different tax treatments. It is important to understand how various income types are classified and taxed. - **Seeking expert legal advice**: Engaging experienced tax lawyers early can help individuals and businesses structure their financial affairs in a tax-efficient manner and mitigate potential liabilities. - **Maintaining accurate financial records**: Comprehensive and meticulous record-keeping is essential in defending against HMRC inquiries and ensuring compliance with tax laws. ## Expert London HMRC Tax Disputes Lawyers Navigating [tax disputes](https://taxdisputes.co.uk/) can be stressful and complex. At [LEXLAW](https://lexlaw.co.uk/), [our team](https://lexlaw.co.uk/our-people/) of expert tax solicitors and barristers can provide specialised advice and representation in all areas of [tax law](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/). We can assist with: - **Understanding your tax obligations**: Our team can provide clarity on the applicable tax rules for your specific circumstances. - **Challenging HMRC decisions**: If you disagree with HMRC's assessment, we can help you appeal the decision through the appropriate channels. - **Negotiating with HMRC**: We can engage in negotiations with HMRC on your behalf to seek a favourable resolution. - **Representing you in court**: If necessary, we can represent you in tax tribunals and courts to protect your interests. We have a proven track record of success in challenging HMRC decisions, which may be a concern for high-income individuals facing tax disputes. [Our team](https://lexlaw.co.uk/our-people/) has a proven track record of successfully challenging HMRC decisions and securing optimal outcomes for our clients. We understand the intricacies of [tax law](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) and are committed to providing robust and strategic legal advice. [Contact us](https://taxdisputes.co.uk/contact-us/) today for a consultation to discuss your case. --- # HMRC Cracking Down on Online Marketplace Sellers Source: https://taxdisputes.co.uk/2025/03/hmrc-cracking-down-on-online-marketplace-sellers/ Are you an [online marketplace seller](https://www.gov.uk/guidance/check-if-you-need-to-tell-hmrc-about-your-income-from-online-platforms) who has received a letter from [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs)? You're not alone. HMRC is increasing its scrutiny of income generated through online platforms (Amazon, eBay, Etsy, Argos, and ASOS) and has recently launched a campaign targeting individuals they suspect have been operating in the [hidden economy](https://www.gov.uk/government/publications/the-hidden-economy-in-the-united-kingdom-wave-2-2022/executive-summary) by not declaring their earnings. We break down what’s happening and explain how [our specialist tax dispute legal team](https://lexlaw.co.uk/our-people/) can help online marketplace owners like you navigate this complex situation. ## HMRC's Increased Focus on Online Marketplace Income In late 2024, the government estimated the [tax gap](https://www.gov.uk/government/collections/measuring-tax-gaps) to be a significant £39.8 billion. To reduce this gap, HMRC announced a substantial investment to recruit thousands of additional compliance officers. As a result, [HMRC compliance activity](https://www.gov.uk/guidance/hmrc-compliance-checks-help-and-support) is anticipated to be higher in 2025 and beyond. One of the key strategies [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) is employing is the use of 'one to many' campaigns' (OTM). These are not formal [compliance checks](https://www.gov.uk/guidance/hmrc-compliance-checks-help-and-support) initially, but rather serve to inform taxpayers that HMRC has information regarding their income and to prompt them to review their tax affairs. Recently, HMRC has started sending OTM letters to individuals whose data from online marketplaces suggests they have earned income that may not have been fully declared to HMRC. ## Why is HMRC Targeting Online Marketplace Sellers? New rules that came into force in January 2024 require digital platforms to report data about the income earned by their users to HMRC. The first reports were delivered to HMRC by 31 January 2025. This gives HMRC unprecedented access to information about individuals selling goods, providing services, renting out property, or creating online content through these platforms. The recent [HMRC letters](https://www.gov.uk/guidance/check-if-a-letter-youve-received-from-hmrc-is-genuine) indicate that they already have information showing income from [online marketplace sales](https://www.gov.uk/guidance/vat-overseas-businesses-using-an-online-marketplace-to-sell-goods-in-the-uk) up to the tax year ending 5 April 2023. They are now urging recipients to [declare this income](https://www.gov.uk/guidance/tell-hmrc-about-underpaid-tax-from-previous-years) as they may owe tax. ## What Happens If You Receive an HMRC 'Nudge' Letter? If you've received a letter titled "Please tell us about income you’ve earned from online marketplace sales," it's crucial to take it seriously and not ignore it. The letter states that HMRC has information indicating you've earned income and that you may owe tax. It prompts you to either [declare any underpaid tax](https://www.gov.uk/guidance/tell-hmrc-about-underpaid-tax-from-previous-years) or contact HMRC within 30 days. Failure to respond may lead to HMRC opening a formal [compliance check](https://www.gov.uk/guidance/hmrc-compliance-checks-help-and-support), potentially resulting in [penalties](https://www.gov.uk/self-assessment-tax-returns/penalties). HMRC considers you likely to be trading if you buy or make goods to sell at a profit, which means this income may be taxable. While selling personal items from your home is usually not taxable, selling personal possessions worth over £6,000 may be subject to Capital Gains Tax. ## How to Respond to an HMRC Letter About Online Marketplace Sales If HMRC has reached out about your online sales, it’s a sign they’re already aware of some activity. Ignoring the letter isn't an option — timely action can make all the difference. The letter typically includes a reference number and points you toward official channels, but navigating the process can feel overwhelming. There are deadlines to meet, specific forms to complete, and the way you present your situation could impact the penalties and interest you face. What many people don’t realise is that once HMRC contacts you, any disclosure made might be considered 'prompted,' which can influence the outcome. And because interest on unpaid tax accrues daily, every delay can add to the amount owed. The key is to approach this carefully, understanding not just what needs to be done — but how to do it strategically. With the right guidance, it’s possible to manage the situation effectively and minimise potential liabilities. Wondering what your next step should be? It might be worth exploring how a tailored approach could help you resolve things with HMRC on the best possible terms. ## How Our Tax Dispute Solicitors Can Help Online Marketplace Owners Navigating an [HMRC compliance check](https://www.gov.uk/guidance/hmrc-compliance-checks-help-and-support) or needing to make a [voluntary disclosure](https://www.gov.uk/government/publications/hmrc-your-guide-to-making-a-disclosure/your-guide-to-making-a-disclosure) can be a stressful and complex process. Our specialist [tax dispute solicitors](https://taxdisputes.co.uk/) have extensive experience in assisting individuals and businesses with [HMRC compliance checks](https://www.gov.uk/tax-compliance-checks) and tax investigations. If you've received a letter from HMRC regarding your [online marketplace sales](https://www.gov.uk/guidance/vat-overseas-businesses-using-an-online-marketplace-to-sell-goods-in-the-uk), we can provide invaluable support by: - **Communicating with HMRC on your behalf:** We can act as your point of contact, ensuring all correspondence is handled professionally and effectively, protecting you from potential pitfalls. - **Negotiating with HMRC:** We can leverage our expertise to negotiate the best possible outcome, including potential reductions in penalties and exploring [Time to Pay arrangements](https://www.gov.uk/guidance/find-out-how-to-pay-a-debt-to-hmrc-with-a-time-to-pay-arrangement) if you have outstanding tax liabilities. - **Instructing accountants on your behalf:** We can recommend and work closely with ICAEW chartered accountants to ensure your tax affairs are accurately reviewed and reported. - **Making a voluntary disclosure on your behalf:** We can guide you through the [voluntary disclosure](https://www.gov.uk/government/publications/hmrc-your-guide-to-making-a-disclosure/your-guide-to-making-a-disclosure) process, ensuring all necessary information is accurately presented to HMRC, potentially mitigating penalties and avoiding more serious consequences. - **Challenging incorrect HMRC assessments:** If you believe [HMRC's assessment](https://taxdisputes.co.uk/2024/02/hmrcs-assessment-powers/#:~:text=the%20assessment) is incorrect, we can help you understand your appeal rights and represent you in any [tax appeals](https://taxdisputes.co.uk/hmrc-tax-appeals/). Don't face HMRC scrutiny alone. [Contact](https://lexlaw.co.uk/legal-case-assessment/) our experienced tax dispute resolution team today for a confidential discussion and expert legal guidance. We are here to help [online marketplace owners](https://www.gov.uk/guidance/vat-overseas-businesses-using-an-online-marketplace-to-sell-goods-in-the-uk) understand their obligations, respond effectively to HMRC, and ensure their tax affairs are in order. --- # HICBC Tax Appeal Not Allowed – Life Challenges Not An Excuse Source: https://taxdisputes.co.uk/2024/07/hicbc-tax-appeal-not-allowed-life-challenges-not-an-excuse/ As the current Shadow Chancellor of the Exchequer, [Rachel Reeves](https://members.parliament.uk/member/4031/contact) has inherited several pressing issues from her predecessor, one of which is the contentious [High Income Child Benefit Charge](https://www.gov.uk/child-benefit-tax-charge) (HICBC). [Reeves](https://members.parliament.uk/member/4031/contact), faces the challenge of addressing the inherent inequities within the HICBC system. Despite recent budget adjustments, significant flaws in the system persist. The recent Tribunal case of [Aaron Treliving v HMRC](https://taxdisputes.co.uk/2024/07/taxpayer-allowed-entrepreneurs-relief-by-ftt-cooke-v-hmrc/) highlights these issues. The stringent application of tax laws and the necessity for clear, fair guidelines underscore the need for a reevaluation of the [HICBC](https://www.gov.uk/child-benefit-tax-charge). A major inequity is that a couple with combined earnings of £120,000 can claim full child benefits, while a household with a single earner making £80,000 cannot. ## The Need for HICBC Reform The [HICBC](https://www.gov.uk/child-benefit-tax-charge) aims to limit child benefits for high-income households. However, the current system disproportionately penalises single-income households compared to dual-income households with a higher combined income. This inequity underscores the necessity for comprehensive reform. The [HICBC](https://www.gov.uk/child-benefit-tax-charge) adds a layer of complexity to the tax system, requiring affected taxpayers to register for Self Assessment, calculate their charge, and ensure timely payment. Many taxpayers find these requirements confusing and burdensome, leading to errors, missed deadlines, and subsequent penalties. ## Aaron Treliving v HMRC In the five years leading up to 5 April, 2023, 935 cases involving the HICBC were appealed to the First-tier Tribunal (FTT), often over minor tax amounts. The recent case of *Aaron Treliving v HMRC* exemplifies the challenges taxpayers face under the current system. **Tax Years in Question**: 2014/15 to 2019/20 **Delays in Appeal**: Mr. Treliving notified HMRC of his intention to appeal nine months late. HMRC then delayed informing him of their decision to reject the late appeal for nearly 17 months. ## Tribunal's Evaluation of  Reasonable Excuses To appeal, a taxpayer must notify [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) within 30 days of receiving the assessment notice. Late appeals may be accepted if there is a reasonable excuse. Mr. Treliving presented three excuses: - **Non-receipt of Correspondence**: Claimed he did not receive the notice requiring a 30-day appeal. The tribunal evaluated this claim in the context of the various letters and notices that [HMRC](https://lexlaw.co.uk/hmrc-tax-dispute-lawyers/) had sent to him. The Tribunal found that he had indeed been made aware of the appeal requirement through multiple communications, thereby invalidating this excuse.                                     - **High-Risk Pregnancy**: His wife was pregnant with their third child, a high-risk pregnancy. He argued that the complications associated with her pregnancy and the birth of their third child had significantly impacted his ability to manage his tax affairs. The tribunal acknowledged that such a situation could provide a reasonable excuse up to the point of the child's birth. However, this excuse did not account for the extensive delay beyond this period. - **General Life Disruptions**: Argued that everyday life interfered with meeting the appeal deadline. The Tribunal concluded that general life disruptions, while understandable, do not justify ignoring tax responsibilities. The judge emphasised that it is not objectively reasonable to neglect or fail to address tax obligations due to everyday life events. This 30-day period is crucial as it establishes a clear and defined timeframe within which taxpayers must respond to avoid penalties and additional charges. The timeliness of this notification is fundamental to the appeals process, as it ensures that disputes are handled promptly and efficiently. ## Importance of the 30-Day Notification Period - **Legal Requirement:** The 30-day notification period is a statutory requirement under UK tax law. Failure to comply with this deadline can result in the automatic rejection of an appeal, barring exceptional circumstances where a reasonable excuse is accepted. This legal framework ensures that all taxpayers are treated equitably and that there is a consistent approach to handling tax disputes. - **Mitigation of Penalties:** Timely notification within the 30-day window can also mitigate additional penalties and interest that accrue on unpaid taxes. By acting promptly, taxpayers can reduce the financial burden associated with unresolved tax liabilities and avoid further complications. - **Clear Communication:** The requirement to notify [HMRC](https://lexlaw.co.uk/faqs-on-hmrc-security-notices/) within 30 days ensures clear and direct communication between taxpayers and the tax authority. It establishes a formal channel through which disputes can be raised, ensuring that both parties are aware of the issue and can take appropriate action. - **Late Appeals and Reasonable Excuses :** In instances where the 30-day deadline is missed, taxpayers may still submit a late appeal if they can demonstrate a reasonable excuse. A reasonable excuse is typically an unforeseen or unavoidable event that prevented the taxpayer from complying with the deadline. This can include serious illness, bereavement, or other significant personal circumstances. However, the burden of proof lies with the taxpayer to substantiate their claim. ## The Tribunal’s Decision The Tribunal ruled that life circumstances, while understandable, do not excuse failing to comply with tax obligations. It was determined that Mr. Treliving was aware of the requirement to appeal within 30 days from various correspondences. The Tribunal acknowledged that his wife's pregnancy might have been a reasonable excuse up until the birth of their child, but this did not justify the delay beyond that point. The general excuse of "life getting in the way" was deemed insufficient. The judge emphasised that a reasonable excuse must be one that would be expected to cause anyone in a similar position to fail to meet their tax obligations. The ruling reinforces the principle that taxpayers must prioritise their tax responsibilities despite personal challenges. This case underscores the importance of timely compliance and the limited scope of acceptable excuses for delays in tax matters. ## Download the FTT Tax Judgment: [![](https://taxdisputes.co.uk/wp-content/uploads/2024/07/Aaron-Treliving-v-HMRC-UKFTT-00591-TC-Cover-724x1024.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2024/07/Aaron-Treliving-v-HMRC-UKFTT-00591-TC.pdf) ## Tax Tribunal previous case law The Tribunal’s decision aligns with previous cases such as *Thorne v HMRC* and *Smith v HMRC*. In these cases, personal challenges, though acknowledged, did not excuse non-compliance with tax rules. These decisions highlight the stringent standards applied in determining what constitutes a reasonable excuse. The decision emphasised that while personal hardships can be significant, they do not absolve taxpayers of their obligations. The objective standard applied by the Tribunal necessitates that taxpayers prioritise their tax responsibilities, regardless of personal difficulties. The ruling reaffirmed that life’s challenges, no matter how severe, cannot justify prolonged non-compliance with tax obligations. This decision serves as a crucial reminder that maintaining compliance with tax laws is paramount, and personal issues, although understandable, do not provide sufficient grounds for failing to meet these duties. ## Objective Standards for HMRC Reasonable Excuses and Tax Compliance In determining what constitutes a reasonable excuse, HMRC and the Tribunal apply an objective standard, considering what a reasonable person in the same circumstances would have done. This standard underscores the importance of proactive management of tax affairs, even amidst personal difficulties. For instance, serious illness or bereavement may provide temporary relief, but taxpayers are expected to take reasonable steps to comply with their obligations once the immediate impact of such events has subsided. The ruling in Aaron Treliving's case serves as a stern reminder that taxpayers are expected to manage their responsibilities diligently and seek timely assistance if needed. ## Expert Tax Disputes Solicitors and Barristers We are a specialist City of London law firm made up of Solicitors & Barristers and are [based in the legal heart of London](https://lexlaw.co.uk/contact-us/) in [Middle Temple](https://www.middletemple.org.uk/) (one of the four prestigious barristers’ Inns of Court) adjacent to the Royal Courts of Justice. Navigating the complexities of the [HICBC](https://www.gov.uk/child-benefit-tax-charge) can be daunting. Our law firm specialises in tax litigation and compliance, offering expert guidance to ensure you meet your tax obligations while exploring potential avenues for appeal or relief. We understand the nuances of the [HICBC](https://www.gov.uk/child-benefit-tax-charge) and can assist in managing correspondence with HMRC, preparing appeals, and advising on tax litigation to mitigate the impact of the charge. Our expertise helps you avoid common pitfalls and achieve the best possible outcome in your tax disputes. Understanding recent tribunal cases and navigating your rights and obligations can help you manage your tax situation more effectively. For expert guidance, reach out to our law firm for personalised assistance. ## Expert London Tax Lawyers If you need [HMRC Tax Disputes advice](https://taxdisputes.co.uk/), we are available to aid you at every stage of the HMRC appeals process. Members of [our legal team](https://lexlaw.co.uk/) have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the HMRC internal review process and in front of the Tax Tribunal. [Our team](https://taxdisputes.co.uk/) specialises in successfully [challenging HMRC decisions](https://taxdisputes.co.uk/hmrc-tax-appeals/) and will assist you in every aspect including developing a strategy. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with [a proven track record](https://taxdisputes.co.uk/success/) of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk?subject=Tax%20Query). --- # Mullens v HMRC: £40 Million Tax Dispute – Income or gifts? Source: https://taxdisputes.co.uk/2025/02/mullens-v-hmrc-40-million-tax-dispute/ The legal face-off between Stephen Mullens and [HM Revenue & Customs](https://www.gov.uk/government/organisations/hm-revenue-customs) ([HMRC](https://en.wikipedia.org/wiki/HM_Revenue_and_Customs)) unfolded, centring on approximately £40 million in payments and the critical question of whether these funds constituted taxable income or non-taxable gifts. HMRC alleged tax avoidance and fraudulent omissions in self-assessment returns, leading to a penalty assessment and a rigorous HMRC investigation under [Section 36 of the Taxes Management Act (TMA)](https://taxdisputes.co.uk/wp-content/uploads/2025/02/Section-36-Taxes-Management-Act-1970.pdf). The tribunals grappled with the burden of proof concerning discovery assessments made outside the standard time limit, further complicated by Mr. Mullens' association with the Ecclestone family. The core legal issue revolved around culpable conduct and whether HMRC sufficiently demonstrated a loss of tax revenue due to deliberate actions. Ultimately, the [First-Tier Tribunal (FTT)](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/first-tier-tribunal-tax-chamber/) and [Upper Tribunal (UT)](https://www.judiciary.uk/courts-and-tribunals/tribunals/upper-tribunal/upper-tribunal-tax-and-chancery-chamber/) sided with HMRC, affirming that Mr. Mullens had deliberately failed to report income. ## Stephen Mullens v HMRC Stephen Mullens, a solicitor who advised the [Ecclestone](https://en.wikipedia.org/wiki/Bernie_Ecclestone) family ([Formula One](https://www.formula1.com/)), received approximately **£40 million over a period of years**. HMRC took the position that these funds were compensation for his services and, therefore, subject to taxation. Mr. Mullens countered that the payments were gifts, which are not taxable under UK law. The specific payments under scrutiny included: - **£2.25 million** intended to encourage his departure from a law firm. - **£36 million** received from Mrs. Ecclestone. - **£187,000** allocated for a family vacation to Mauritius. ## Navigating the Key Legal Questions The tribunals were tasked with answering several critical legal questions: - **Burden of Proof**: Did the [First-Tier Tribunal (FTT)](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/first-tier-tribunal-tax-chamber/) correctly apply the burden of proof concerning assessments made outside the standard time limit, as governed by [Section 36 of the Taxes Management Act (TMA)](https://taxdisputes.co.uk/wp-content/uploads/2025/02/Section-36-Taxes-Management-Act-1970.pdf)? - **HMRC’s Obligation**: Was [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) required to definitively prove a loss of tax revenue when issuing a penalty assessment, even if a previous appeal against the initial tax assessment had been unsuccessful? ## First-tier Tribunal and Upper Tribunal’s Decisions The [First-Tier Tribunal (FTT)](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/first-tier-tribunal-tax-chamber/) ruled in favour of [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs), determining that Mr. Mullens had deliberately failed to report income. This decision was upheld by the [Upper Tribunal](https://www.judiciary.uk/courts-and-tribunals/tribunals/upper-tribunal/upper-tribunal-tax-and-chancery-chamber/), which agreed that HMRC had presented sufficient evidence to support its assessment. In simpler terms, the courts concluded that: - Mr. Mullens was aware of his obligation to declare the income. - HMRC had adequately met its burden of proof without needing to satisfy additional requirements. ## Understanding the "Burden of Proof" in Tax Law The "burden of proof" refers to the obligation to present sufficient evidence to convince a court or tribunal that certain facts are true. In tax disputes, this often falls on HMRC to demonstrate that a taxpayer has not complied with their legal obligations. However, the burden can shift to the taxpayer to disprove HMRC’s claims or demonstrate errors in the assessment. In the *Mullens vs. HMRC* case, the Upper Tribunal clarified that to satisfy the [Section 36](https://taxdisputes.co.uk/wp-content/uploads/2025/02/Section-36-Taxes-Management-Act-1970.pdf) Burden (related to extended time limits for assessments due to suspected fraud or negligence), HMRC only needed to meet the requirements of their [Section 29(4)](https://taxdisputes.co.uk/wp-content/uploads/2025/02/Section-29-Taxes-Management-Act-1970.pdf) Burden. This means HMRC had to show that the under-reporting of income was due to Mr. Mullens' deliberate actions. ## Extended Time Limits and Culpable Conduct - The general time limit for making a discovery assessment is four years from the end of the relevant assessment year. - However, [Section 36 of TMA](https://taxdisputes.co.uk/wp-content/uploads/2025/02/Section-36-Taxes-Management-Act-1970.pdf) extends this limit where there has been **culpable conduct** (careless or deliberate behaviour) on the part of the taxpayer. Assessments can be made up to **six years** after the end of the assessment year for careless conduct. - Assessments can be made up to **20 years** after the end of the assessment year for deliberate conduct. ## Upper Tribunal's Decision The [Upper Tribunal](https://www.judiciary.uk/courts-and-tribunals/tribunals/upper-tribunal/upper-tribunal-tax-and-chancery-chamber/) emphasised several key principles essential for understanding tax disputes. One of the primary considerations is information asymmetry, as taxpayers typically possess more detailed knowledge of their financial affairs than tax authorities. This imbalance often places HMRC at a disadvantage when investigating potential discrepancies, making full disclosure from taxpayers critical during inquiries. Another important principle is the requirement for a sufficient link. HMRC must demonstrate that the taxpayer's conduct meets the relevant culpability standard and that this conduct is directly connected to the tax being assessed. This ensures that assessments are not made arbitrarily but are grounded in clear evidence of non-compliance. The Tribunal also clarified that there is no need for specific constituents in HMRC’s case. The law does not require the tax authority to establish the presence of particular elements or components to prove wrongdoing. This broadens HMRC's ability to act on general patterns of conduct without being restricted by rigid legal formulas. Finally, the principle of taxpayer responsibility plays a crucial role. Once HMRC establishes that the conditions for a discovery assessment are met, the burden of proof shifts to the taxpayer. It then becomes the taxpayer’s responsibility to provide evidence that the assessment is incorrect, reinforcing the importance of maintaining accurate and transparent financial records. ## Download the Judgment Here [![](https://taxdisputes.co.uk/wp-content/uploads/2025/02/Stephen-Mullens-v-HMRC-2023-UKUT-00244-TCC-724x1024.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2025/02/Stephen-Mullens-v-HMRC-2023-UKUT-00244-TCC.pdf) ## Implications for Taxpayers The *[Mullens vs. HMRC](https://taxdisputes.co.uk/wp-content/uploads/2025/02/Stephen-Mullens-v-HMRC-2023-UKUT-00244-TCC.pdf)* case serves as a reminder of several critical aspects of tax compliance: - **Transparency and Accuracy**: Honest and transparent reporting of all income is essential. - **Consequences of Omissions**: Deliberately omitting income from tax returns can lead to severe penalties and legal challenges. - **HMRC's Powers**: [HMRC has significant powers](https://taxdisputes.co.uk/2024/02/hmrcs-assessment-powers/) to investigate and assess tax liabilities, particularly when there is suspicion of deliberate conduct. - **Importance of Evidence**: Taxpayers must maintain thorough records and be prepared to provide evidence to support their tax positions. ## Expert London Tax Litigation Lawyers [Tax disputes with HMRC](https://taxdisputes.co.uk/) can be incredibly complex and stressful. We offer expert guidance and robust representation across all facets of tax litigation. Our services are designed to provide you with comprehensive support and peace of mind: - **Detailed Assessment**: We provide a thorough evaluation of your tax obligations, ensuring you understand your responsibilities and potential liabilities. - **Challenging HMRC Decisions**: Our experienced team is skilled at [challenging HMRC’s decisions](https://taxdisputes.co.uk/hmrc-tax-appeals/), using our in-depth knowledge of tax law to build a strong defence. - **Strategic Negotiation**: We excel in negotiating with HMRC, aiming to achieve the most favourable outcome through skilled and persuasive advocacy. - **Experienced Representation**: We offer seasoned representation in courts and tribunals, providing you with a confident and effective voice throughout the legal process. Our dedicated team has [a proven history](https://taxdisputes.co.uk/success/) of successfully contesting HMRC decisions and securing optimal results for our clients. We recognise the complexities inherent in tax law and are committed to delivering strategic, reliable legal advice. [Contact us today for a consultation](https://lexlaw.co.uk/contact-us/) to discuss your unique situation and discover how we can expertly guide you through your tax dispute. [Our team](https://lexlaw.co.uk/our-people/) of expert tax solicitors and barristers offers specialised advice and representation in all areas of tax law. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. --- # Case Study: HMRC Immediately Withdraws Security Notices Source: https://taxdisputes.co.uk/2025/03/case-study-hmrc-withdraws-security-notices-in-one-day/ We secured a swift and decisive victory for our clients when [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) withdrew all [security notices](https://taxdisputes.co.uk/legal-representation/hmrc-notice-requirement-tribunal-appeals-solicitor-legal-advice/) within a single day. [Our expert legal team](https://lexlaw.co.uk/our-people/) acted swiftly, leveraging their deep knowledge of [tax disputes](https://taxdisputes.co.uk/) to achieve this remarkable result. This success highlights the strength of expert legal representation and the importance of acting quickly when facing [HMRC enforcement measures](https://taxdisputes.co.uk/hmrc-enforcement-action/). We have a proven formula for success. If your business is under pressure from HMRC, [contact us](https://lexlaw.co.uk/legal-case-assessment/) — we know how to protect your interests and fight for the best outcome. When [HM Revenue & Customs](https://en.wikipedia.org/wiki/HM_Revenue_and_Customs) ([HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs)) issues a [Notice of Requirement to give security](https://taxdisputes.co.uk/legal-representation/hmrc-notice-requirement-tribunal-appeals-solicitor-legal-advice/), it can create significant challenges for businesses. Our clients faced just such a situation when they received security notices for [Pay As You Earn (PAYE)](https://www.gov.uk/paye-for-employers), [National Insurance Contributions (NICs)](https://www.gov.uk/national-insurance), and [Value Added Tax ](https://www.gov.uk/browse/tax/vat)([VAT](https://www.gov.uk/how-vat-works)). However, with our expert legal guidance, they achieved a decisive victory: [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) withdrew all [security notices](https://lexlaw.co.uk/faqs-on-hmrc-security-notices/) in one day. This case highlights the effectiveness of strategic legal action in tax disputes and demonstrates how businesses can successfully challenge [HMRC's](https://www.gov.uk/government/organisations/hm-revenue-customs) demands for security. ## HMRC Notice of Requirement to Pay Security [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) can issue a [Notice of Requirement (NOR)](https://taxdisputes.co.uk/legal-representation/hmrc-notice-requirement-tribunal-appeals-solicitor-legal-advice/) demanding a bond or deposit as security if they believe a business is at risk of not paying its tax liabilities. These security notices can cover various taxes, including: - [PAYE](https://www.gov.uk/paye-for-employers) and [NICs](https://www.gov.uk/national-insurance): These notices ensure that employers meet their obligations to deduct and remit income tax and national insurance contributions from their employees' wages. - [VAT](https://www.gov.uk/browse/tax/vat): HMRC may require security for VAT if they perceive a risk that a business will not pay its VAT. If a business fails to pay a [VAT](https://www.gov.uk/browse/tax/vat) return, assessment, or PAYE/NIC bill on time, [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) might demand security to cover future tax liabilities. Ignoring a security notice can lead to severe consequences, including penalties, fines, and even criminal prosecution. ## Ava Estell Limited & Yaw Okyere v HMRC In July 2024, [Ava Estell Ltd](https://find-and-update.company-information.service.gov.uk/company/12619108) received [Notices of Requirement to give security for PAYE, NICs](https://www.gov.uk/hmrc-internal-manuals/securities-guidance/sg42100), and [VAT](https://www.gov.uk/hmrc-internal-manuals/securities-guidance/sg41100), totaling a significant amount. Mr. Yaw Okyere was also made jointly liable for the PAYE and NICs security. Ava Estell Ltd engaged us to challenge these notices. Recognising the urgency, our expert tax disputes team swiftly filed a [Notice of Appeal](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/) with the [First-Tier Tribunal (FTT)](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/first-tier-tribunal-tax-chamber/) on 17 October 2024. We also submitted a request for review, made robust representations on behalf of the clients and put forward a [Time to Pay (TTP) proposal to HMRC](https://taxdisputes.co.uk/2023/10/obtaining-hmrc-time-to-pay-agreements-ttp/). ## HMRC Withdraws the Security Notices The result was remarkable: Within one day, on 18 October 2024, [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) withdrew all s[ecurity notices](https://lexlaw.co.uk/faqs-on-hmrc-security-notices/). This outcome underscores the power of a well-prepared appeal and strategic negotiation in tax disputes. ## Challenging HMRC Security Notices The success in this case highlights several key strategies for businesses facing similar situations: - **Seek Legal Advice Early**: Engaging experienced tax solicitors ensures compliance with procedural rules and strengthens your appeal. - **File a Proactive Appeal**: A timely and well-supported appeal demonstrates a commitment to resolving the issue and encourages HMRC to review its decision. - **Negotiate a Time to Pay Arrangement**: Presenting a [TTP](https://taxdisputes.co.uk/2023/10/obtaining-hmrc-time-to-pay-agreements-ttp/) proposal shows a willingness to meet your obligations and can lead to a negotiated settlement. Our specialist tax dispute team played a pivotal role in securing this outcome for Ava Estell Ltd. The primary objective was clear: to have the Notices of Requirement cancelled—and we delivered precisely that. This case demonstrates the effectiveness of expert legal representation in prompting HMRC to withdraw enforcement actions when presented with a robust and well-prepared appeal. ## Appealing to HMRC First: A Crucial Step Before heading to the tribunal, businesses should usually file an appeal with HMRC. A well-drafted appeal can convince HMRC to withdraw or reduce the notice. ## Download Judgment Here [![](https://taxdisputes.co.uk/wp-content/uploads/2025/02/1How-Can-Businesses-Challenge-HMRC-Security-Notices-A-Recent-UK-Tribunal-Case-Explained-724x1024.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2025/02/How-Can-Businesses-Challenge-HMRC-Security-Notices-A-Recent-UK-Tribunal-Case-Explained.pdf) ## The Role of Expert Legal Representation This case highlights the importance of engaging experienced **tax solicitors** who can craft a comprehensive, legally sound, and effectively presented appeal. [Our specialist tax dispute team](https://lexlaw.co.uk/our-people/) played a pivotal role in securing the successful outcome for Ava Estell Ltd. ### Can an HMRC Security Notice Be Withdrawn? Yes, it is possible to have an [HMRC security notice](https://taxdisputes.co.uk/legal-representation/hmrc-notice-requirement-tribunal-appeals-solicitor-legal-advice/) withdrawn. The key reasons why HMRC may withdraw a notice include: - **Successful appeal:** If an appeal is lodged with HMRC and provides valid legal grounds, the notice may be cancelled. - **Negotiation:** If a business successfully negotiates a [TTP arrangement with HMRC](https://taxdisputes.co.uk/2023/10/obtaining-hmrc-time-to-pay-agreements-ttp/), security may no longer be required. - **Procedural errors:** If HMRC has issued a security notice incorrectly or failed to follow proper procedures, it can be withdrawn. - **Change in circumstances:** If a business’s financial situation improves or it proves compliance, HMRC may reconsider the notice. - **Legal representation:** A well-prepared legal argument presented by experienced lawyers can lead to the withdrawal of the notice. ## Expert HMRC Tax Dispute Solicitors If your business faces an [HMRC security notice](https://lexlaw.co.uk/faqs-on-hmrc-security-notices/), we can provide expert legal assistance. [Our experienced team](https://lexlaw.co.uk/our-people/) offer tailored solutions for businesses facing [HMRC enforcement actions](https://taxdisputes.co.uk/hmrc-enforcement-action/). They can assist with: - **Advising on compliance to avoid future HMRC enforcement** - **Challenging PAYE, NICs, and VAT security notices** - **Filing appeals with HMRC and the tax tribunal** - **Negotiating with HMRC for settlements and Time to Pay (TTP) arrangements** - **Representing clients in the First-Tier Tribunal (Tax Chamber)** We understand the complexities of tax law and are dedicated to achieving the best possible outcome for our clients. Contact us today for on ☎ [02071830529](tel://+442071830529) | ✉ [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk) --- # Taxpayer Allowed Entrepreneur’s Relief by FTT – Cooke v HMRC Source: https://taxdisputes.co.uk/2024/07/taxpayer-allowed-entrepreneurs-relief-by-ftt-cooke-v-hmrc/ In the case of *[Cooke v HMRC [2024] UKFTT 272 (TC)](https://taxdisputes.co.uk/wp-content/uploads/2024/07/Cooke-v-HMRC-2024-UKFTT-272-TC-TC09118.pdf)*, the [First-tier Tribunal (FTT)](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/) ruled in favour of the taxpayer, Jonathan Cooke, granting him entrepreneurs’ relief on the disposal of his shares despite holding just under the 5% shareholding threshold. This case sets an important precedent, demonstrating the FTT's capacity to provide taxpayers with relief through rectification, echoing the principles established in *Lobler [2015] UKUT 152 (TCC)*. ## Jonathan Cooke v HMRC In 2017, Jonathan Cooke acquired shares in [ISG Holdings Ltd (ISG)](https://find-and-update.company-information.service.gov.uk/company/10769000) from the company’s two founders for £500,000. He aimed to maintain exactly 5% of the company’s shares to qualify for entrepreneurs' relief (ER), now known as [business asset disposal relief](https://www.gov.uk/business-asset-disposal-relief). To protect his stake, an anti-dilution clause was incorporated into the shareholders' agreement. By 2019, Mr. Cooke sold his shares in ISG, realising a gain of approximately £600,000, and claimed ER on this disposal. However, [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) denied his claim, pointing out that due to a spreadsheet rounding error, his shareholding was marginally below the 5% requirement, precisely 4.99998%. Mr. Cooke subsequently appealed this decision to the [FTT](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/first-tier-tribunal-tax-chamber/). ## FTT's Entrepreneurs’ Relief Decision [The tribunal](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/first-tier-tribunal-tax-chamber/) ruled in favour of Mr. Cooke and against HMRC. Mr Cooke contended that the [High Court ](https://www.judiciary.uk/courts-and-tribunals/high-court/)would rectify the relevant documents to reflect his intended 5% shareholding. The FTT agreed, concluding that: - Mr. Cooke’s request for the anti-dilution clause, reflected in the shareholders' agreement, evidenced his intent. - The founders of ISG acknowledged the agreement to transfer exactly 5% of the shares. - The Heads of Terms supported this agreement. - The common intention to transfer 5% of the shares persisted throughout, and all parties were surprised to learn later that the full 5% was not transferred due to a rounding error. - Both parties recognised the mistake caused by the spreadsheet error. The FTT also affirmed its jurisdiction to consider what the High Court would likely do if asked to order rectification. The tribunal believed that the High Court would have corrected the share documents to reflect a 5% shareholding. Thus, the ER conditions were met, and the appeal was allowed. ## Download the Judgment Here [![](https://taxdisputes.co.uk/wp-content/uploads/2024/07/Cooke-v-HMRC-2024-UKFTT-272-TC-TC09118-724x1024.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2024/07/Cooke-v-HMRC-2024-UKFTT-272-TC-TC09118.pdf) ## Implications of the Decision Following the *Lobler v HMRC [2015] UKUT 0152* precedent, this case exemplifies the [tax tribunals](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/first-tier-tribunal-tax-chamber/)’ willingness to consider potential High Court actions in rectification cases, enabling them to decide appeals as though rectification had already been ordered by the High Court. ## Understanding Rectification **Rectification** is an equitable remedy that modifies a document to accurately reflect the true intentions of the parties at the time it was created. This remedy does not alter the agreed terms but ensures the document aligns with the original agreement. Typically, rectification claims are pursued through the High Court, guided by principles from cases such as *Swainland Builders Ltd v Freehold Properties Ltd [2002] EWCA Civ 560*. To succeed in a rectification claim, a party must demonstrate: - A mutual and continuing intention regarding a specific matter in the document. - An outward expression of this common intention. - The intention persisted at the time the document was executed. - The document did not reflect this intention due to a mistake. ## Key Principles of Rectification Rectification claims require proof on the balance of probabilities. Importantly, rectification is generally not granted if its sole purpose is to secure a fiscal or tax benefit, as established in *Racal Group Services [1995] STC 1151*. ## Should Taxpayers Seek Rectification Separately or Rely on FTT Powers? For taxpayers like Mr. Cooke facing unexpected tax consequences due to document errors, deciding whether to seek rectification through the High Court or rely on the FTT’s powers is crucial. Consolidating the issue into a single tax appeal might seem attractive due to lower litigation costs. However, it demands overwhelming evidence of the parties' intentions. The FTT must be certain that the High Court would grant rectification, setting a higher threshold than an actual High Court claim. Moreover, obtaining rectification from the High Court could resolve the tax dispute without further tribunal proceedings. ## Specialist Tax Dispute Advice Navigating the complexities of tax disputes and rectification claims necessitates expert legal guidance. Our firm specialises in tax law, with a proven track record in handling tribunal appeals and tax relief cases. We offer comprehensive support, from evaluating the viability of your rectification claim to representing you in both the High Court and the FTT. Contact us today to ensure your tax matters are managed with the highest level of expertise and precision. By leveraging the principles of rectification and understanding cases like *Cooke v HMRC*, we help clients achieve favourable outcomes in their tax disputes. Let our experienced team assist you in securing the tax relief you deserve. ## Expert London Tax Lawyers If you need [HMRC Tax Disputes advice](https://taxdisputes.co.uk/), we are available to aid you at every stage of the HMRC appeals process. Members of [our legal team](https://lexlaw.co.uk/) have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the HMRC internal review process and in front of the Tax Tribunal. [Our team](https://taxdisputes.co.uk/) specialises in successfully [challenging HMRC decisions](https://taxdisputes.co.uk/hmrc-tax-appeals/) and will assist you in every aspect including developing a strategy. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with [a proven track record](https://taxdisputes.co.uk/success/) of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk?subject=Tax%20Query). --- # HMRC R&D Tax Relief: Winning Your Claim Source: https://taxdisputes.co.uk/2024/07/guide-to-unlocking-hmrcs-rd-tax-relief/ Many UK companies that have submitted claims for [Research and Development (R&D)](https://www.gov.uk/guidance/corporation-tax-research-and-development-rd-relief) tax relief have expressed frustration with [HMRC’s](https://www.gov.uk/government/organisations/hm-revenue-customs) overly stringent approach. HMRC often rejects claims, stating it has consulted “internal specialists,” such as IT experts, and is not convinced that the company's activities qualify as [R&D](https://www.gov.uk/guidance/corporation-tax-research-and-development-rd-relief). This stance persists even when companies provide additional evidence or offer to meet with HMRC’s specialists. HMRC frequently insists that the claimed [R&D](https://www.gov.uk/guidance/corporation-tax-research-and-development-rd-relief) did not contribute to the existing state of knowledge in the relevant scientific or technological field, asserting that it would have been obvious to any competent professional or that it was merely a practical workaround for a specific commercial issue. ## Understanding R&D Tax Relief Research and Development [(R&D)](https://www.gov.uk/guidance/corporation-tax-research-and-development-rd-relief) tax relief is a government incentive designed to reward companies for investing in innovation. It allows businesses to reduce their tax bill or receive a cash credit based on their R&D expenditure. The key to a successful claim lies in providing comprehensive and accurate documentation to prove the eligibility of your R&D activities and expenditures. ## Eligibility Criteria for R & D Claim To qualify for R&D tax relief, your project must aim to advance science or technology and resolve scientific or technological uncertainties. The project should seek to achieve something that cannot be easily solved by a competent professional in the field. ## Types of R&D Tax Relief — Accounting Periods Starting Before 1 April 2024 There are two types of R&D tax relief available, depending on the size of your company and whether the project has been subcontracted or subsidized. ## Small and Medium-Sized Enterprise (SME) R&D Tax Relief SME R&D tax relief is available if your company meets both of the following criteria: ·       Fewer than 500 employees ·       A turnover below 100 million euros or a balance sheet total below 86 million euros When determining if your company qualifies as an SME, include partner and linked enterprises. For qualifying expenditures incurred on or after 1 April 2023, you can claim a higher tax credit rate of 14.5% if you meet the intensity condition, with an R&D intensity of at least 40%. ## R&D Expenditure Credit Large companies can claim an expenditure credit for R&D projects. This credit is also available to SMEs that have been subcontracted to perform R&D work for a large company or have incurred subsidized expenditure. There’s one merged scheme for all companies. Additionally, there is a separate scheme offering a more favorable calculation basis specifically for loss-making, R&D-intensive SMEs. The expenditure rules are consistent across both forms of relief. Typically, the entity that initiated the R&D project is the one eligible to claim the relief, even if the work is conducted under contract. ## HMRC’s R&D Tax Relief Evaluation HMRC demands a high level of evidence to prove that an [R&D](https://www.gov.uk/guidance/corporation-tax-research-and-development-rd-relief) activity is truly innovative. This includes detailed technical reports, extensive documentation, and proof of a significant advance in the field of science or technology. Even when companies submit detailed explanations and evidence, HMRC’s rejections often lack detailed reasoning. This leaves companies in the dark about what specific aspects of their claims were found lacking, making it difficult to make necessary adjustments​ ## The Legal Framework In the recent case of [Get Onbord Limited [2024] UKFTT 617 (TC),](https://taxdisputes.co.uk/wp-content/uploads/2024/07/Get-Onbord-Limited-v-HMRC-2024-UKFTT-617-TC09238.pdf) the First-tier Tribunal (FTT) provided a refreshing perspective that could signal a change in HMRC's approach to R&D claims. Get Onbord Limited (GOL) developed a technology-enabled 'know your client' (KYC) process aimed at improving data manipulation and management to replace traditional, error-prone human KYC processes used in the financial services sector. ## HMRC's Initial Rejection HMRC reviewed and rejected GOL's claim, stating that its chief digital information officers found no evidence of R&D. They argued that despite the novelty and difficulty of implementing APIs, AI, algorithms, data manipulation, and database design, there was no evidence of a scientific or technological advance. This rejection, coupled with the perception that HMRC often dismisses claims regardless of the detail or explanation provided, exacerbated taxpayer frustration. ## The Tribunal’s  Decision The FTT's decision in favour of GOL marks a significant moment. The tribunal emphasised the importance of substantial evidence to support R&D claims and noted that while the burden of proof is on the taxpayer, there comes a point where the taxpayer has done enough to demonstrate an advance in science and technology. The FTT highlighted that if HMRC wished to contest this, it needed to provide material evidence to show the project was a routine advancement rather than an innovative one. ## Download the Judgment Here [![](https://taxdisputes.co.uk/wp-content/uploads/2024/07/Get-Onbord-Limited-v-HMRC-2024-UKFTT-617-TC09238-724x1024.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2024/07/Get-Onbord-Limited-v-HMRC-2024-UKFTT-617-TC09238.pdf) ## Burden of Proof on HMRC The FTT’s ruling also provided important clarification regarding the burden of proof in R&D tax relief claims. The Tribunal emphasised that it was not lowering the burden of proof required from taxpayers. Instead, it acknowledged that GOL had met its burden by providing substantial and credible evidence of their technological advancements. This clarification reinforces the principle that while the burden of proof remains on the taxpayer, once sufficient evidence is presented, the onus shifts to HMRC to provide a substantive counterargument. This balanced approach ensures that genuine R&D activities are appropriately recognised and rewarded, while also maintaining rigorous standards to prevent abuse of the tax relief system. ## Problems with HMRC’s R&D Tax Relief Evaluation HMRC’s assessment process for R&D [tax relief](https://taxdisputes.co.uk/2024/04/rd-tax-credits-hmrcs-clawback-demands/) is notorious for its demanding criteria and meticulous scrutiny. Many companies encounter rejections due to HMRC's interpretation that their activities do not meet the threshold for significant scientific or technological advancement. This is often based on: - **Narrow Definitions:** HMRC’s strict definitions of what constitutes an advancement can overshadow genuine innovations. - **Internal Expert Consultations:** Decisions frequently involve consultations with internal specialists who may lack a comprehensive understanding of the specific technological nuances. - **Broad Rejection Reasons:** Claims are often dismissed with general reasons, leaving companies unsure about the specifics of the shortfall. Despite providing detailed documentation, including technical reports and evidence of innovation, companies frequently face rejections. This highlights the need for a strategic approach to meet HMRC’s demanding standards. ## Impact on Future HMRC R&D Tax Relief Claims GOL's successful appeal underscores the need for HMRC to produce evidence when rejecting claims rather than relying on broad, unsupported statements. The tribunal was impressed by GOL’s witness, whose evidence provided clear evidence of the technological advancements achieved. HMRC's witness, lacking technological expertise, failed to counter this effectively. The FTT clarified that it was not lowering the burden of proof but acknowledged that GOL had met its burden. ## Expert Evidence in the FTT The Tribunal was notably impressed by GOL’s witness, whose evidence effectively demonstrated the technological advancements achieved by the company. This witness provided clear, detailed evidence of the innovations and the challenges overcome, which played a crucial role in convincing the Tribunal of the validity of GOL’s claim. In contrast, HMRC's witness lacked the necessary technological expertise to effectively counter GOL's claims. This disparity underscored the importance of competent professional evidence in R&D tax relief cases. The Tribunal’s decision suggests that expert evidence, particularly from individuals with direct involvement in the R&D activities, can significantly strengthen a claim. ## Specialist UK R&D Tax Advice At [LEXLAW](https://lexlaw.co.uk/faqs-on-hmrc-security-notices/), we specialise in navigating complex tax issues, including litigation with HMRC. Our team of experienced lawyers provides expert advice, strategic representation, and negotiation support to help businesses effectively manage HMRC's demands. If your company faces difficulties or is in default, reach out to us today to discuss how we can protect your interests and work towards the best possible outcomes. To successfully manage HMRC’s demands for R&D tax credit repayment, a well-informed and strategic approach is essential. By understanding the legal landscape, seeking expert advice, and demonstrating cooperation with HMRC, businesses can effectively handle these challenges and protect their financial interests. If you’re concerned about compliance, facing issues with HMRC, or considering litigation, our team can guide you through the process and provide expert support. ## Expert Tax Investigation Lawyers If you’re dealing with an [HMRC Tax Investigation](https://windinguppetitionsolicitors.co.uk/expert-advice/), our skilled team is here to assist you at every step. With in-depth knowledge of HMRC’s processes, we offer top-tier representation and defense against various inquiries and [investigations](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/), including fraud, tax inquiries, tax fraud, and criminal tax evasion. Our [specialist Tax Solicitors and Barristers](https://lexlaw.co.uk/our-people/) provide expert technical knowledge, strong negotiation skills, and respected advice, significantly influencing the outcomes of tax penalties, charges, and liabilities. If your company is under investigation, at risk, or facing potential litigation, contact us for expert support and comprehensive legal assistance. --- # Judicial Review of HMRC Decisions: A Guide to the Application Process Source: https://taxdisputes.co.uk/2024/10/judicial-review-of-hmrc-decisions-a-guide-to-the-application-process/ The [Administrative Court Judicial Review Guide 2024](https://taxdisputes.co.uk/wp-content/uploads/2024/09/HMCTS-Administrative-Court-Judicial-Review-Guide-2024.pdf) has been released, providing comprehensive guidance for those involved in [judicial review](https://www.judiciary.uk/how-the-law-works/judicial-review/) claims. This guide is a useful procedural resource for any claimant, particularly in tax disputes against public bodies like [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs). If you are a taxpayer and you have no right of appeal to the [First Tier Tax Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/), a [judicial review](https://taxdisputes.co.uk/judicial-review-applications-against-hmrc-challenge-decision-advice/) may provide your only route to challenge HMRC's decision. **It is critical that legal advice is sought early and any claim is filed urgently**. There are strict time limits to adhere to. ## Who can apply for Judicial Review of a HMRC decision? For most tax disputes there are appeal procedures for [assessments](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) or [penalties](https://taxdisputes.co.uk/hmrc-penalties/) to the First Tier Tribunal (Tax). But in some cases there is no right of appeal to the tribunal against HMRC actions. Examples of where [judicial review](https://lexlaw.co.uk/judicial-review-court-lawyers-london-hmrc-tax-dispute-decision-advice-representation/) could be sought include: - Where the decision made relates to a discretionary matter, for example a decision on whether a [late claim](https://taxdisputes.co.uk/late-hmrc-tax-appeals/) should be accepted. - Where there is no statutory right of appeal. - If a HMRC officer is not carrying out, or is delaying in carrying out their duties, or has assumed powers to which they were not entitled. - Where a taxpayer is misdirected by HMRC and submit a wrong return, for example there is disadvantage as a result of replying on incorrect advice from HMRC. - If a taxpayer believes a HMRC officer has not listened properly or at all to their representations. - When the [First Tier Tax Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) has refused a [late appeal](https://taxdisputes.co.uk/late-hmrc-tax-appeals/) (and there is no appeal on a point of law of Tribunal decision). ## What is Judicial Review? [Judicial Review](https://taxdisputes.co.uk/judicial-review-applications-against-hmrc-challenge-decision-advice/) is a legal mechanism allowing courts to review decisions made by public bodies, including [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs), to ensure their actions are lawful. It is primarily used when there is no other adequate remedy available. ## Where is a Judicial Review against a HMRC decision filed? Judicial review claims must be filed promptly (and in any event within 3 months) at the [Administrative Court](https://www.gov.uk/courts-tribunals/administrative-court). This court is a specialised division of the [High Court](https://www.judiciary.uk/courts-and-tribunals/high-court/), dealing with[ judicial review](https://taxdisputes.co.uk/judicial-review-applications-against-hmrc-challenge-decision-advice/) claims aimed at challenging the lawfulness of decisions by public bodies. ## When can a Taxpayer Challenge a HMRC Decision? To bring a [judicial review claim against HMRC](https://taxdisputes.co.uk/judicial-review-applications-against-hmrc-challenge-decision-advice/), you need to show that their decision or action meets one of the [following grounds:](https://taxdisputes.co.uk/judicial-review-applications-against-hmrc-challenge-decision-advice/) - **Illegality:** HMRC acts beyond its lawful powers, also known as *ultra vires*. - **Irrationality:** Often referred to as "Wednesbury unreasonableness," this occurs when a decision is so unreasonable that no sensible person could have made it. - **Procedural Impropriety:** This involves a breach of fair procedures, such as bias or not giving you a fair hearing. - **Breach of Legitimate Expectations:** If HMRC's actions contradict a clear promise or established practice, you might have grounds for a judicial review. - **Breach of Human Rights:** Under the Human Rights Act 1998, public authorities must respect your rights. If HMRC’s actions violate your human rights, this could also be a valid ground for judicial review. ## Is There a Time Limit for Filing a Judicial Review Claim? Yes, a [judicial review](https://www.judiciary.uk/how-the-law-works/judicial-review/) claim must be filed promptly and in any event within **three months** from the date the decision or action you are challenging occurred. Delays beyond this timeframe may prevent you from taking legal action, so it is **critical to act quickly.** If you believe that an HMRC decision has adversely affected you or your business, time is of the essence. Reach out to [our expert team](https://lexlaw.co.uk/our-people/) immediately to avoid missing crucial deadlines. ## Special Considerations for Businesses and VAT Disputes For businesses involved in VAT and tax disputes with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs), the guide provides a roadmap for challenging unfair assessments. From VAT penalties to closure notices, we can consider whether judicial review is the most appropriate means to dispute wrongful tax assessments or compliance checks. For more information on challenging VAT deregistration decisions, see our case study [here. ](https://taxdisputes.co.uk/2020/10/de-registration-what-do-you-do-if-hmrc-cancels-your-vat-number-company-director-guide-kittel-assessment-letter-legal-advice/) ## Can a company seek judicial review of a decision to cancel a VAT registration? Generally it can be argued that cancelling the VAT number of a business that makes taxable supplies can be disproportionate. Arguments could be made that such a disproportionate action is incompatible with rights under the European Convention on Human Rights, contrary to[ section 6(1) of the Human Rights Act 1998](https://www.equalityhumanrights.com/en/human-rights/human-rights-act). ## What Remedies Can the Court Order in a Judicial Review Against HMRC? If your judicial review claim against HMRC is successful, the court has several powerful remedies at its disposal to address unlawful actions by the tax authority. These remedies can vary depending on the specifics of your case, but they typically include: - **Quashing Order:** This is one of the most common remedies in judicial reviews. A quashing order nullifies HMRC’s decision, effectively cancelling it as though it never existed. This is typically used when HMRC's decision is found to be unlawful or made without proper authority. - **Prohibitory Order:** A prohibitory order prevents HMRC from continuing or repeating an unlawful action. This remedy is often sought when HMRC is exceeding its legal powers and needs to be stopped from continuing the illegal conduct in the future. - **Mandatory Order:** This order compels HMRC to perform a specific legal duty that it has failed to do. If HMRC has neglected an obligation, the court can direct them to fulfil their legal responsibility, such as reconsidering your case or making a new decision. - **Injunction:** An injunction is a court order that either compels or restrains HMRC from taking certain actions while the judicial review process is ongoing. This can be a critical interim remedy to prevent further harm while your case is being heard. - **Declaration:** A declaration is a formal statement by the court that clarifies the law or declares HMRC's decision unlawful. While not directly enforcing any action, a declaration provides important legal clarity and may guide future decisions by HMRC. - **Damages:** Although judicial review is not typically used to seek compensation, in cases where HMRC’s unlawful actions have caused financial loss or damage, the court may award damages. This can happen if your claim includes a separate cause of action, such as breach of statutory duty or misfeasance in public office. These remedies ensure that HMRC's unlawful actions are corrected and that they comply with the law going forward, protecting your rights and interests. ## Download the Administrative Court Judicial Review Guide 2024 Here [![](https://taxdisputes.co.uk/wp-content/uploads/2024/09/HMCTS-Administrative-Court-Judicial-Review-Guide-2024-724x1024.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2024/09/HMCTS-Administrative-Court-Judicial-Review-Guide-2024.pdf) ## Not based in London? We provide nationwide representation That does not matter, we will represent you no matter where you are based in England or Wales. If you contact us through our contact form, by email or by phone, one of our tax team members will contact you by phone to discuss your matter and assess whether we can help you. If we can, we will arrange a conference with a senior member(s) of our tax team. This meeting will take place either in person or using our telephone conference facilities or via Skype if you prefer. Therefore, no matter where you are based in England or Wales we can represent you. ## Discounted fixed fee initial consultation If you need advice related to judicial review of a HMRC decision, our highly experienced solicitors and barristers are able to assist. Our specialist tax team regularly provide market leading advice to directors of companies and limited liability partnerships. We invite you to contact us so we can assess your claim. We can subsequently provide urgent help, advice or representation to clients from our [expert legal team of leading Tax Disputes solicitors and barristers](http://taxdisputes.co.uk/expert-advice/). Just call or email us now for a heavily discounted initial consultation; our legal team are waiting to help. ## Instruct Specialist HMRC Judicial Review Solicitors We have decades of experience successfully representing clients in judicial reviews against HMRC. Our team includes qualified [tax solicitors](https://taxdisputes.co.uk/tax-solicitors/) and [barristers](https://taxdisputes.co.uk/tax-barristers/) with in-depth knowledge of tax law, HMRC practices, and judicial review procedures. We have first-hand experience in both [tax litigation](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) and advocacy, ensuring your case is handled with the highest level of expertise. ## Contact Us The new Administrative Court Judicial Review Guide 2024 emphasises the importance of professional legal advice in these complex cases. If you believe HMRC has acted unfairly or unlawfully, [contact us](https://lexlaw.co.uk/contact-us/) today to ensure your rights are fully protected and your case is handled effectively. --- # Tribunal Success & Costs for Taxpayer Due to HMRC’s Unreasonable conduct Source: https://taxdisputes.co.uk/2024/07/tribunal-awards-costs-to-taxpayer-due-to-hmrcs-unreasonable-conduct/ In the recent case of *[Aftab Ahmed v HMRC [2024] UKFTT 00236 (TC)](https://taxdisputes.co.uk/wp-content/uploads/2024/07/Aftab-Ahmed-v-HMRC-2024-UKFTT-00236-TC.pdf)*, the [First-tier Tribunal (FTT) ](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/)granted the taxpayer's application for costs, ruling that [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) acted unreasonably in defending the appeal. Aftab Ahmed, a director of five companies, filed his 2013/14 personal [self-assessment](https://www.gov.uk/government/collections/self-assessment-detailed-information) tax return on 31 December 2014. On 2 March 2016, he signed off the accounts for the companies for the accounting periods ending 31 December 2014. These accounts revealed that loans from the companies to Mr. Ahmed had been written off, thereby increasing his 2013/14 liability to income tax. Despite knowing the tax implications, the exact amounts written off were not finalised or agreed with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) for several years, making it too late for Mr. Ahmed to amend his 2013/14 tax return as per section 9ZA of the [Taxes Management Act 1970 (TMA)](https://taxdisputes.co.uk/wp-content/uploads/2023/10/Taxes-Management-Act-1970.pdf). ## The Discovery Assessment and Tax Appeal On 19 March 2020, HMRC issued a [discovery assessment](https://taxdisputes.co.uk/2024/02/hmrcs-assessment-powers/) under section 29 of the TMA. Mr. Ahmed appealed to the [FTT](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/first-tier-tribunal-tax-chamber/), which eventually allowed his appeal. The FTT issued a short decision under rule 35(3) of the [Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009](https://taxdisputes.co.uk/wp-content/uploads/2024/07/Tribunal-Procedure-First-tier-Tribunal-Tax-Chamber-Rules-2009.pdf), as both parties agreed that detailed reasons were unnecessary. HMRC's position was that the assessment sought to recover tax lost due to Mr. Ahmed’s carelessness regarding the written-off loans. They argued that due to his carelessness, the extended time limit under section 36 TMA applied, making the assessment valid. Mr. Ahmed did not dispute that the extended time limit would apply if he were found careless, but he argued that he was not careless, rendering the assessment out of time and invalid. ## Carelessness The core issue was whether Mr. Ahmed was careless, defined as failing to take reasonable care to avoid a loss of tax under section 118(5) TMA. This became apparent only after Mr. Ahmed’s skeleton argument was filed 14 days before the hearing. Initially, both parties also considered whether the assessment was in time, but this was clarified at the start of the hearing. HMRC contended that Mr. Ahmed was careless for not notifying HMRC’s “Income Tax Department” after the loans were written off on 2 March 2016. However, Mr. Ahmed’s auditors had informed HMRC of the written-off loans on 8 April 2016, following the filing of the companies' corporation tax returns on 30 March 2016. This led to a telephone conversation between HMRC and the auditors on 5 July 2016. ## Tax Tribunal's Decision on Carelessness The [FTT](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/first-tier-tribunal-tax-chamber/) ruled that Mr. Ahmed, through his auditors, took reasonable steps to notify HMRC about the written-off loans and the consequent tax liability. The FTT did not accept HMRC's argument that Mr. Ahmed was careless for not notifying HMRC immediately after signing off the accounts on 2 March 2016. ## Download the Judgment Here [![](https://taxdisputes.co.uk/wp-content/uploads/2024/07/Aftab-Ahmed-v-HMRC-2024-UKFTT-00236-TC-724x1024.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2024/07/Aftab-Ahmed-v-HMRC-2024-UKFTT-00236-TC.pdf) ## Costs Application at First-tier Tribunal Following the favourable decision, Mr. Ahmed applied for costs under rule 10 of the Tribunal Rules. The FTT granted this application, directing HMRC to pay Mr. Ahmed's costs of and incidental to his appeal. Mr. Ahmed argued that HMRC acted unreasonably by persisting with an unsustainable argument. HMRC countered that losing the appeal did not mean their defence was unreasonable and argued that if they had acted unreasonably, the FTT would have mentioned it in the substantive appeal decision. The FTT disagreed with HMRC, finding that HMRC's reliance on the carelessness argument, when Mr. Ahmed had clearly notified them through his auditors, was unreasonable. ## Costs Order Against HMRC This case is a reminder that the [FTT](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/first-tier-tribunal-tax-chamber/) can order costs against [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) under rule 10 of the Tribunal Rules when HMRC acts unreasonably in defending or conducting proceedings. The [FTT](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/) had no difficulty concluding that HMRC's conduct in defending Mr. Ahmed's appeal was unreasonable. ## Expert Tax Litigation Advice Navigating tax disputes with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) can be challenging and complex. [LEXLAW](https://lexlaw.co.uk/) specialises in providing expert legal representation and advice to taxpayers facing investigations or disputes with HMRC. We are committed to ensuring our clients' rights are protected and achieving the best possible outcomes. If you find yourself in a dispute with HMRC, contact us for a consultation to see how we can assist you in your case. ## Expert London Tax Lawyers If you need [HMRC Tax Disputes advice](https://taxdisputes.co.uk/), we are available to aid you at every stage of the HMRC appeals process. Members of [our legal team](https://lexlaw.co.uk/) have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the HMRC internal review process and in front of the Tax Tribunal. [Our team](https://taxdisputes.co.uk/) specialises in successfully [challenging HMRC decisions](https://taxdisputes.co.uk/hmrc-tax-appeals/) and will assist you in every aspect including developing a strategy. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with [a proven track record](https://taxdisputes.co.uk/success/) of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk?subject=Tax%20Query). --- # Victory for Taxpayer in HMRC £47K Stamp Duty Dispute Source: https://taxdisputes.co.uk/2024/07/victory-for-taxpayer-in-hmrc-47k-stamp-duty-dispute/ In a recent landmark decision, the [First Tier Tribunal (FTT)](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/) ruled in favour of Anne-Marie Hurst, the owner of a 16th-century Grade II listed [manor house](https://sortridgemanor.co.uk/), in a dispute with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) over a £47,000 stamp duty bill. This case highlights important aspects of [stamp duty land tax (SDLT)](https://www.gov.uk/stamp-duty-land-tax) assessments and the nuances of property use classifications. ## Anne-Marie Hurst v HMRC The dispute centered on whether part of Hurst's 11-bedroom property, [Sortridge Manor](https://sortridgemanor.co.uk/) in Devon, was used for commercial purposes. The house was described by [Country Life](https://www.countrylife.co.uk/property/a-house-that-blends-five-centuries-worth-of-architecture-set-on-the-shores-of-a-famous-salmon-river-in-devon-227498) as "*A house that blends five centuries worth of architecture, set on the shores of a famous salmon river in Devon*." HMRC argued that the residential rate of SDLT applied, disputing the non-residential rate originally paid. The tribunal case involved a detailed examination of the property's use and the evidence supporting Hurst's claim. ## HMRC's Position on SDLT HMRC issued a closure notice on August 17, 2022, demanding an additional £47,750 in SDLT. The tax authority contended that the property was purely residential, challenging Hurst’s assertion that part of it operated as a hotel or inn. HMRC lawyer Mr. Thompson-Jones argued that the SDLT charge should be straightforward without delving into subjective intentions about the property's use. ## Evidence Presented to Tax Tribunal Hurst provided evidence that she negotiated her mortgage based on offering holiday accommodation, with approximately 30% of the manor house dedicated to self-catering stays under the name Leat House. The accommodation was marketed on various platforms and featured separate access and amenities. Additionally, Hurst formalised an arrangement with a local farmer to lease a meadow for £500 a year for grazing and hay production, further supporting her claim of commercial use. ## Tax Tribunal's Findings Against HMRC Despite HMRC's scepticism regarding the viability of the holiday accommodation business and the sporadic nature of bookings, [Tribunal Judge Amanda Brown KC](https://www.judiciary.uk/appointments-and-retirements/appointment-as-a-judge-of-the-first-tier-tribunal-tax-chamber-brown/) found Hurst's claims credible. The judge highlighted that there was no evidence of financial pressure on the previous owners and that investments had been made to adapt the property for commercial use. ## Appeal Allowed - Additional SDLT nullified The tribunal's critical question was whether the scale of the accommodation activities constituted commercial use with sufficient permanence and continuity. Judge Brown ruled in favour of Hurst, stating that the property was used as an establishment similar to a hotel or inn, thereby not qualifying as solely residential. This ruling nullified the additional SDLT charge and allowed Hurst's appeal. ## Litigating HMRC Stamp Duty Disputes This decision underscores the importance of providing comprehensive evidence when disputing HMRC assessments. Property owners should ensure that any commercial activities are well-documented and meet the necessary thresholds for tax classifications. Navigating complex tax disputes with HMRC can be daunting. [LEXLAW](https://lexlaw.co.uk/) specialises in tax law and has extensive experience representing clients in tribunal cases. We offer tailored advice and robust representation to ensure your interests are protected. If you're facing an HMRC assessment or need assistance with SDLT matters, contact us for expert guidance and support. ## Precedent for challenging HMRC's SDLT Assessments The FTT's ruling in favour of Anne-Marie Hurst sets a significant precedent for property owners challenging HMRC's SDLT assessments. By understanding the intricacies of property use and providing clear evidence, owners can successfully defend against unwarranted tax demands. For personalised advice on tax disputes and property classifications, reach out to our legal experts today. ## Expert London Tax Lawyers If you need [HMRC Tax Disputes advice](https://taxdisputes.co.uk/), we are available to aid you at every stage of the HMRC appeals process. Members of [our legal team](https://lexlaw.co.uk/) have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the HMRC internal review process and in front of the Tax Tribunal. [Our team](https://taxdisputes.co.uk/) specialises in successfully [challenging HMRC decisions](https://taxdisputes.co.uk/hmrc-tax-appeals/) and will assist you in every aspect including developing a strategy. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with [a proven track record](https://taxdisputes.co.uk/success/) of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk?subject=Tax%20Query). --- # Historic MTIC VAT Fraud Directors Owe £4.8m (18 Years Later) Source: https://taxdisputes.co.uk/2024/08/historic-vat-fraud-mtic-director-owes-4-8m-hmrc-liquidator-tax-tribunal-phoenixtech/ *Two directors of a company involved in a complex and now historic MTIC missing trader VAT carousel fraud scheme have been ordered in a 2024 decision of the High Court to pay £4.8 million, nearly two decades after their fraudulent activity took place.* ## Directors Held Liable for Historic MTIC VAT Fraud In a landmark 2024 decision of the [High Court](https://www.gov.uk/courts-tribunals/companies-list), two Directors of Phoenix Tech Ltd have been held liable to pay up around £4.8m for a £4.5 million VAT fraud committed in 2006. The High Court upheld [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs)'s VAT repayment decision from 2006, finding the directors had knowledge of the fraudulent scheme and were not "innocent dupes" as first determined by the FTT. The case sets a precedent for holding company directors accountable for [VAT fraud](https://lexlaw.co.uk/solicitors-london/category/vat-fraud/) especially where there is a finding of director fraud already determined by the Tax Tribunal. Directors previously involved in [MTIC Fraud](https://taxdisputes.co.uk/2011/12/vat-fraud-shafqat-dad-judgment-crotek-v-hmrc/) with adverse Tribunal findings will no doubt be concerned. ## High Court Upholds HMRC MTIC Fraud VAT Penalty [Phoenix Tech Ltd](https://find-and-update.company-information.service.gov.uk/company/04859980), a company now in liquidation, participated in a “missing trader intra-community” (MTIC) fraud, a sophisticated VAT evasion scheme. The company submitted a fraudulent VAT return claiming a £4.5 million repayment. HMRC rejected this claim and imposed a £607,387 penalty. ## Directors Knowledge of VAT Fraud A subsequent appeal by the company to the [First-tier Tribunal (Tax Chamber)](https://www.gov.uk/courts-tribunals/first-tier-tribunal-tax) was dismissed, with the tribunal concluding that Phoenix Tech Ltd had engaged in an orchestrated scheme to evade VAT. There are many [other such cases of finding of VAT Fraud against Directors](https://taxdisputes.co.uk/2011/12/vat-fraud-shafqat-dad-judgment-crotek-v-hmrc/). The company's director, Mr Khan, was found to have both knowledge and intent in the fraudulent activities, despite his claims of innocence. Phoenix Tech Ltd was subsequently liquidated following an HMRC petition based on the misdeclaration penalty. Unfortunately for the Directors the appointed Liquidator, [Kevin Hellard](https://www.grantthornton.co.uk/people/kevin-hellard/), has a steel-like determination to succeed on behalf of creditors. ## High Court Strikes Out Defence in VAT Fraud Case In a recent High Court decision, *[Hellard v Khan & Anor (Re Phoenix Tech Ltd – Insolvency Act 1986)](https://www.bailii.org/ew/cases/EWHC/Ch/2024/1130.html)*, the liquidator pursued a claim against Mr Khan and another director, Mr Singh, for their involvement in the fraud. Mr Khan defended the claim, arguing that he lacked knowledge of the fraudulent activities. The High Court struck out Mr Khan’s defence, finding that he was estopped from denying knowledge of the fraud based on the previous findings of the First-tier Tribunal. The court also determined that allowing Mr Khan to defend the claim would be an abuse of process, as it would involve relitigating issues already decided and cause undue delay and expense. ## Directors Estopped from Denying Knowledge of Fraud The court emphasised the importance of preventing individuals from benefiting from fraudulent activities and the need to protect the integrity of the legal system. The decision to strike out Mr Khan's defence and grant summary judgment to the liquidator sends a strong message to those involved in VAT fraud that they will be held accountable for their actions, even after a significant period of time. [Kevin Hellard](https://www.linkedin.com/in/kevinhellard/?originalSubdomain=uk) will now seek enforce the £4.8 million owed by the directors against their assets in order to pay themselves first then distribute the same to creditors, primarily HMRC. ## Key Takeaway Points: - Two directors of a company involved in a £4.5 million VAT fraud scheme in 2006 have been ordered to pay £4.8 million in 2024. - The High Court upheld HMRC's decision, finding the directors knew about the fraud. - There was no need for a lengthy trial and the findings of the Tax Tribunal stood. - This sets a precedent for holding directors of companies engaged in historic MTIC fraud accountable for VAT fraud. - Directors that have Tribunal findings against them and have retained wealth are low-hanging fruit for liquidators who could restore companies to pursue claims. - [https://taxdisputes.co.uk/2011/12/vat-fraud-shafqat-dad-judgment-crotek-v-hmrc/](https://taxdisputes.co.uk/2011/12/vat-fraud-shafqat-dad-judgment-crotek-v-hmrc/) --- # OnlyFans & HMRC Taxes: Essential Guide for UK Content Creators Source: https://taxdisputes.co.uk/2024/12/dealing-with-hmrc-as-an-onlyfans-model/ Navigating [tax](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) matters as an [OnlyFans](https://onlyfans.com/) model with multiple streams of income can be tricky, but choosing the right legal and accounting advisers and understanding your obligations and responsibilities can prevent future issues with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs). Whether you're just starting out or have been on the platform for years, this guide will help you understand how to manage your taxes effectively and avoid potential pitfalls. If you are in dispute with HMRC [our team of ex-HMRC tax professionals](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) can help navigate you out of any problems with the taxman. ## Why Is Declaring All Income to HMRC Important for OnlyFans Models? As an [OnlyFans](https://onlyfans.com/) model, every penny you earn—from subscriptions to tips and gifts—is considered taxable income by [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs). It is crucial that you declare **all sources of income**, no matter how small, to avoid running into issues with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs). This includes: - **Subscription fees**: The money paid by subscribers to access your content. - **Tips**: Any extra money your subscribers give voluntarily. - **Gifts**: Monetary gifts received from fans. - **Other earnings**: This could include affiliate links, promotional deals, or paid collaborations. Failing to report any of these earnings can result in hefty fines, back taxes, or even [legal ](https://lexlaw.co.uk/solicitors-london/litigation-funding-in-england-wales-legal-services-board-report/)consequences. Keeping detailed records and declaring all your [income](https://lexlaw.co.uk/faqs-on-hmrc-security-notices/) is essential for compliance with [tax laws](https://taxdisputes.co.uk/). ## Should You Consider Operating Through a Limited Company? Many [OnlyFans](https://onlyfans.com/) models choose to operate through a [limited company](https://www.gov.uk/limited-company-formation) to maximise tax efficiency. A limited company can offer several benefits, such as: - **Lower tax rates on profits**: The [corporate tax](https://taxdisputes.co.uk/) rate is often lower than the income tax rates for individuals. - **Control over finances**: With a limited company, you can control how you draw your income, potentially reducing the amount of tax you pay. However, operating through a limited company also means taking on extra responsibilities, such as: - **Separate tax filings**: You’ll need to file a [corporate tax return](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) as well as a personal tax return. - **VAT registration**: Depending on your income, you may need to register for [VAT](https://lexlaw.co.uk/hmrc-vat-de-registration-tax-appeal-kittel-decision-input-tax-decision-letter-judicial-review-legal-advice/) (Value Added Tax). - **Administrative work**: A limited company requires more paperwork and legal compliance than working as a sole trader. On the other hand, if you choose to work as a [sole trader](https://www.gov.uk/become-sole-trader), the process is more straightforward, but you might face higher tax rates as your profits increase. It is important to notify [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) of your business structure to avoid complications, as failure to do so can lead to tax issues. ## What Happens If HMRC Investigates Your Tax Returns? [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) has the authority to investigate anyone they suspect of tax fraud or under-reporting income. If you are under investigation, you will typically receive a [COP9](https://www.gov.uk/government/publications/code-of-practice-9-where-hmrc-suspects-fraud-cop9/code-of-practice-9) letter. This letter outlines the process for disclosing any unpaid taxes or undeclared income. The [COP9](https://www.gov.uk/government/publications/code-of-practice-9-where-hmrc-suspects-fraud-cop9/code-of-practice-9) procedure allows you to: - **Make a full disclosure** of any mistakes or omissions in your tax returns. - **Avoid criminal prosecution** by cooperating fully and providing all the necessary information. HMRC is particularly vigilant about online income, and models who fail to declare all earnings are at risk of investigation. If you receive a [COP9](https://www.gov.uk/government/publications/code-of-practice-9-where-hmrc-suspects-fraud-cop9/code-of-practice-9) letter, it’s critical to seek professional advice to navigate the disclosure process and minimise potential penalties. ## Why Is Full Disclosure and Cooperation Crucial? When dealing with an [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) investigation, being open and transparent is essential. Cooperation with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) can help reduce potential penalties and show that you are acting in good faith. However, there are some important points to keep in mind: - **Disclose everything**: [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) expects full and honest disclosure, which includes all income sources, even those you may have forgotten or neglected to report. - **Penalties**: If you cooperate and disclose your full earnings, [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) may only impose civil penalties, which are typically lower than criminal penalties. - **Escalation to criminal investigation**: If [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) believes that you are obstructing or hiding information, they have the right to escalate the investigation to a criminal level. This could result in more severe penalties or prosecution. While the process may feel daunting, being proactive and fully disclosing any issues is often the best way to minimise the impact. ## How Can Professional Tax Advice Help OnlyFans Models? Dealing with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs), especially during an investigation, can be overwhelming. Seeking [professional tax advice](https://taxdisputes.co.uk/) from a qualified tax expert or legal professional is crucial in these situations. Here’s how professional advice can help: - **Expert guidance during a COP9 investigation**: A [tax professional](https://taxdisputes.co.uk/)[ ](https://lexlaw.co.uk/)who is experienced in dealing with HMRC investigations can help you navigate the process, ensure that you meet all the legal requirements, and negotiate the best possible outcome. - **Tax planning**:[ A specialist](https://taxdisputes.co.uk/) can help you plan for taxes proactively, suggesting ways to minimise your tax liabilities legally, such as through efficient business structures or expenses. - **Representation in negotiations**: If you are facing [penalties ](https://taxdisputes.co.uk/2024/05/hmrc-follower-notices-penalties-cancelled-roy-baker-v-hmrc/)or need to negotiate a settlement with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs), [a professional](https://taxdisputes.co.uk/) can act on your behalf, ensuring that your interests are represented. - **Ongoing support**: They can provide continuous support, ensuring that you remain compliant with tax laws and prevent future issues with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs). Having someone experienced in tax law on your side can make a significant difference when managing your business and avoiding costly mistakes. ## How Should You Communicate with HMRC? Maintaining clear and professional communication with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) is crucial. Always ensure that any communication is well-documented and handled through official channels. Some best practices include: - **Keep records**: Document all communications with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs), including emails, letters, and any phone calls. This ensures there is a clear trail of your correspondence. - **Use secure platforms**: If you need to send sensitive documents, use secure methods such as **email** or a **secure file-sharing platform**. - **Be professional and polite**: Always keep your tone professional, as this can positively influence how [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) responds to your case. Clear communication with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) can help prevent misunderstandings and ensure that all necessary information is provided promptly. ## What Are Your Rights as a Taxpayer? It’s essential to be aware of your rights as a taxpayer, which are outlined in the [Taxpayers' Charter](https://www.gov.uk/government/publications/hmrc-charter/the-hmrc-charter). This document sets out the standard of service you should receive from [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs), as well as the rights you have during any tax investigation. These include: - **The right to be treated fairly**: [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) must ensure that you are treated respectfully and fairly throughout the tax process. - **The right to clear information**: [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) is required to provide clear, understandable guidance on your tax obligations and rights. - **The right to appeal**: If you disagree with any decisions made by [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs), you have the right to appeal. Familiarising yourself with the Taxpayers' Charter can help you understand what to expect from [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) and how to assert your rights if necessary. ## Expert London Tax Lawyers At [LEXLAW](https://lexlaw.co.uk/), we specialise in providing legal support to [OnlyFans](https://onlyfans.com/) models and other online content creators facing tax-related issues. Whether you're just starting to manage your taxes or have received a [COP9](https://www.gov.uk/government/publications/code-of-practice-9-where-hmrc-suspects-fraud-cop9/code-of-practice-9) letter from [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs), our team of legal and tax experts is here to help. We offer: - **Expert advice on tax compliance**: We can help you understand your tax obligations, guide you through the process of filing tax returns, and ensure that all income is reported accurately. - **Representation in HMRC investigations**: If you receive a [COP9](https://www.gov.uk/government/publications/code-of-practice-9-where-hmrc-suspects-fraud-cop9/code-of-practice-9) letter or face a tax investigation, we can represent you, ensuring that you cooperate fully and protect your rights. - **Assistance with business structure**: We can advise you on whether operating as a [limited company](https://www.gov.uk/limited-company-formation) or [sole trader](https://www.gov.uk/become-sole-trader) is best for your situation and help you establish the most tax-efficient structure. - **Ongoing tax planning**: Our professionals can assist in tax planning, helping you to reduce your liability and stay compliant with all relevant tax laws. - **Support throughout HMRC negotiations**: We will ensure that your communication with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) is clear and professional, and we will assist in negotiating any penalties or settlement arrangements. ![Tax disputes HMRC HMRC tax resolution UK tax dispute settlement Tax litigation UK HMRC dispute resolution Tax appeal process UK Resolving HMRC disputes Tax debt negotiation HMRC UK tax controversy HMRC tax disagreement Tax tribunal UK HMRC dispute handling Tax dispute lawyer UK HMRC tax case resolution UK tax dispute mediation](https://taxdisputes.co.uk/wp-content/uploads/2024/12/Onlyfans-HMRC-Tax-Compliance-Enquiry-Solicitor-Barrister-Accountant-Expert-Dispute-Litigation-Lawyer-UK.jpg) --- # How to Challenge HMRC Account Freezing Orders Source: https://taxdisputes.co.uk/2024/11/how-to-challenge-a-hmrc-account-freezing-orders/ [HM Revenue and Customs (HMRC)](https://www.gov.uk/government/organisations/hm-revenue-customs) and other law enforcement agencies have increased the use of Account Freezing Orders ([AFOs](https://lexlaw.co.uk/solicitors-london/account-freezing-order-guide/)) and Forfeiture Orders (FOs) to tackle suspected criminal behaviour such as money laundering. These and other extended investigatory powers were introduced into the P[roceeds of Crime Act 2002 (POCA)](https://www.legislation.gov.uk/id/ukpga/2002/29) by the [Criminal Finances Act 2017](https://www.legislation.gov.uk/ukpga/2017/22/contents). We have noted HMRC increasingly use this power and seek AFOs usually without notice by applying to a Magistrates Court (where the initial application is usually heard by a lay bench). Our legal team have [successfully sought such orders be set aside. ](https://lexlaw.co.uk/solicitors-london/hmrc-account-freezing-orders-afos-legal-guide-to-challenging-afos/) If you or your company are subject to an [Account Freezing Order](https://lexlaw.co.uk/solicitors-london/hmrc-account-freezing-orders-afos-legal-guide-to-challenging-afos/), [speak to our solicitors and barristers](https://taxdisputes.co.uk/contact-us/) as soon as possible as you may have grounds to seek it be set aside. ## What is an Account Freezing Order (AFO)? An [Account Freezing Order (AFO)](https://lexlaw.co.uk/solicitors-london/account-freezing-order-guide/), also known as an Account Forfeiture Order or Forfeiture Order, is a court order that allows law enforcement agencies, including [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs), to freeze funds in bank accounts suspected of being associated with criminal activities. [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) commonly use AFOs where they suspect tax may be at risk or there has been tax evasion or fraud. An [AFO](https://lexlaw.co.uk/solicitors-london/account-freezing-order-guide/) is part of the broader framework of the Proceeds of Crime Act 2002 (POCA) and the Money Laundering, Terrorist Financing, and Transfer of Funds Regulations 2017. ## How Does HMRC Obtain an Account Freezing Order? [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) can apply to a [Magistrates’ Court](https://www.judiciary.uk/courts-and-tribunals/magistrates-courts/) for an [AFO](https://lexlaw.co.uk/solicitors-london/hmrc-account-freezing-orders-afos-legal-guide-to-challenging-afos/) without providing any notice of the application to the account holder. The account holder will be notified later and given a date to attend court to make representations. [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) must satisfy the [Magistrates' Court](https://www.judiciary.uk/courts-and-tribunals/magistrates-courts/) that they have "reasonable grounds for suspecting" that the money in the account meets one of the following criteria: - It is recoverable property, meaning it was obtained through unlawful conduct. - It is intended by any person for use in unlawful conduct. This application process often happens without notice to the account holder, who usually only discovers the [AFO](https://lexlaw.co.uk/solicitors-london/account-freezing-order-guide/) when they cannot access their accounts or receive court papers. The account must be with a bank or building society that can hold deposits, and the minimum amount in the account must be £1,000. ## What is the Purpose of an Account Freezing Order? An [AFO](https://lexlaw.co.uk/solicitors-london/hmrc-account-freezing-orders-afos-legal-guide-to-challenging-afos/) is designed to secure tax revenue that [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) considers to be at risk of going unpaid whilst they investigate suspected tax fraud. It prevents the account holder from accessing or withdrawing the funds during this period. ## How Long Can a Bank Account Be Frozen? An initial [AFO](https://lexlaw.co.uk/solicitors-london/account-freezing-order-guide/) can freeze a bank account for up to two years. Within this period, the [AFO](https://lexlaw.co.uk/solicitors-london/account-freezing-order-guide/) must either be discharged and the funds returned to the account holder, or the law enforcement agency must apply for forfeiture of the money. ## Effects of an Account Freezing Order The effects of an [AFO](https://lexlaw.co.uk/solicitors-london/account-freezing-order-guide/) include: - The account holder is prohibited from accessing or withdrawing funds from the frozen account. - The freezing period typically lasts for 12 months, although it can last for up to 2 years in total. - AFOs are part of civil proceedings and do not constitute criminal charges. - Account holders are typically notified by HMRC and have the opportunity to challenge the order in court. ## What are the Grounds for HMRC to Freeze your Bank Account? [HMRC ](https://lexlaw.co.uk/solicitors-london/case-study-abusive-hmrc-winding-up-petition-defeated/)only needs to show the [court ](https://www.gov.uk/courts)“reasonable grounds for suspecting” that the money in your account is either: - Recoverable property, meaning it was obtained through unlawful conduct such as [tax evasion](https://taxdisputes.co.uk/tax-evasion-hmrc-code-practice-9-investigations/) or fraud; or - Intended for use in unlawful activities, such as money laundering or other criminal behaviour. It is important to understand that the court does not need proof beyond suspicion at this stage, and you do not need to be under investigation yourself. The freeze targets the money, not necessarily the account holder. This low threshold means HMRC can act quickly to protect suspected funds, but you have the right to challenge the order and protect your interests with [expert legal help](https://lexlaw.co.uk/our-people/). ## Can You Challenge an Account Freezing Order? **Yes,** the account holder can challenge an [AFO](https://lexlaw.co.uk/solicitors-london/account-freezing-order-guide/). They can: - Make representations to the court against the granting or extension of an [AFO](https://lexlaw.co.uk/solicitors-london/hmrc-account-freezing-orders-afos-legal-guide-to-challenging-afos/). - Go to court to oppose any subsequent application for forfeiture of the money. - Negotiate directly with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) to agree to a variation of the [AFO](https://lexlaw.co.uk/solicitors-london/account-freezing-order-guide/). ## What Happens During an AFO Investigation? During the [AFO](https://lexlaw.co.uk/solicitors-london/hmrc-account-freezing-orders-afos-legal-guide-to-challenging-afos/) investigation period, [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) will investigate the source of the funds and whether they are linked to criminal activities. [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) may: - Gather evidence from banks, financial institutions, and other sources. - Interview the account holder and other relevant individuals. - Analyse financial records and transactions. ## What Happens If HMRC Tries to Permanently Take Your Frozen Funds? If [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)believes the money in your frozen account is either “recoverable property” (obtained through unlawful conduct) or intended for use in criminal activity, they can ask the [Magistrates’ Court](https://www.judiciary.uk/courts-and-tribunals/magistrates-courts/) for a Forfeiture Order. The court will then decide, on the “balance of probabilities” test, whether to allow HMRC to keep your funds permanently. This is a much lower standard than criminal proof “beyond reasonable doubt,” so the risk of losing your money is genuine, and [expert legal action](https://lexlaw.co.uk/contact-us/) is essential. ## What Are The Consequences If a Forfeiture Order Is Made? If the Court grants [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)a Forfeiture Order: - Your funds can be transferred into a nominated account controlled by the authorities. - The existing [Account Freezing Order (AFO)](https://lexlaw.co.uk/solicitors-london/account-freezing-order-guide/) ceases to have effect, unless HMRC applies to keep it in place during an appeal. - You have just 30 days to appeal to the [Crown Court](https://www.judiciary.uk/courts-and-tribunals/crown-court/), therefore it is crucial not to miss this deadline. ## What If The Forfeiture Order Is Refused or the AFO Is Lifted? If the court does not grant the [Forfeiture Order](https://lexlaw.co.uk/solicitors-london/hmrc-account-freezing-orders-afos-legal-guide-to-challenging-afos/) or the AFO is discharged, you may be able to: - Recover your money in full; and - Apply for financial compensation for the disruption the freeze caused to you or your business. ## Why You Must Act Quickly The forfeiture stage is often the last chance to save your money. The time limits are strict, the evidence test has a low threshold, and the burden is on the Appellant to prove why the funds are lawful. Our [specialist litigation](https://lexlaw.co.uk/practice-areas/) and[ tax dispute solicitors](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) have a proven track record in: - Challenging [HMRC’s ](https://www.gov.uk/government/organisations/hm-revenue-customs)evidence and exposing flaws in their case; - Negotiating releases or partial returns of funds for urgent living or business needs; and - Securing compensation where clients have been wrongly subjected to an AFO. If you have received notice of a Forfeiture application, [contact us immediately](https://lexlaw.co.uk/contact-us/). ## Case Study 1: Mileage Reclaim Ltd v HMRC – AFO successfully set aside The case of *R (Mileage Reclaim Ltd) v North Somerset Magistrates’ Court, HMRC* EWHC 1531 (Admin) illustrates the potentially severe consequences of AFOs on businesses, even when granted on questionable grounds. Mileage Reclaim Ltd, trading as Taxbuddi, had two of its bank accounts frozen by an AFO obtained by HMRC. The order, granted without notice, froze the company’s working capital and left them unable to pay their 89 employees. HMRC alleged that the funds in the frozen accounts were proceeds of fraud, specifically misrepresented tax rebates for expenses incurred by payroll employees. However, the evidence HMRC presented in its application was minimal and the Magistrates’ Court did not scrutinise the merits of the application or consider its potential business impact, granting the AFO in a five-minute hearing. Taxbuddi applied to set aside the AFO, disputing HMRC’s claims and pointing out that HMRC's interpretation of the relevant tax law was incorrect. Although HMRC admitted their mistake four days later, Taxbuddi’s application to set aside the AFO was delayed for almost four months. This delay had a devastating effect on the business. While Taxbuddi’s subsequent application for judicial review of the delays was unsuccessful, the High Court acknowledged that “extraordinary failings” had occurred in both HMRC’s application and the Magistrates’ Court’s handling of the matter. This case demonstrates the significant disruption and financial hardship that AFOs can cause businesses, even when there are serious flaws in HMRC’s application. ## Case Study 2: Successful Opposition to HMRC’s AFO Application The case of FI, an alcohol wholesaler, demonstrates that it is possible to successfully oppose an AFO application by HMRC. HMRC alleged that FI was involved in alcohol diversion fraud, claiming that the flow of over £8 million through its accounts was suspicious and indicative of money laundering and “layering”. However, FI’s legal team effectively challenged HMRC’s application by assembling comprehensive documentation, including due diligence records previously shared with HMRC. During the hearing, FI’s legal team cross-examined HMRC’s financial investigator, revealing significant gaps in HMRC’s investigation. For example, HMRC had failed to verify the relevant companies through official registers. FI’s operator gave evidence about his extensive compliance efforts, further weakening HMRC’s case. The Magistrates’ Court dismissed HMRC’s application, finding no reasonable grounds to suspect that the funds in FI’s account were proceeds of crime. Additionally, the court ordered HMRC to pay FI's costs, noting that HMRC’s poor investigation should have prevented the case from going to court. This case shows that HMRC's AFO applications are not always properly thought out or supported by sufficient evidence. ## Expert Account Freezing Order Lawyers [LEXLAW](https://lexlaw.co.uk/) has a team of expert solicitors specialising in HMRC account freezing orders. With extensive experience in this field, we understand the significant challenges that AFOs can pose for individuals and businesses. We are dedicated to providing robust and strategic legal advice to protect your interests. [Contact us today for a consultation to discuss your case.](https://lexlaw.co.uk/legal-case-assessment/) We will carefully analyse your situation, guide you through the complexities of the legal process, and develop a tailored strategy to achieve the best possible outcome. Do not allow an AFO to derail your finances or business operations. Instruct us today and let our expertise work for you. --- # Court of Appeal Sides with ScottishPower in £28 Million Tax Dispute with HMRC Source: https://taxdisputes.co.uk/2025/01/court-of-appeal-sides-with-scottishpower-in-28-million-tax-dispute-with-hmrc/ In a significant victory for [ScottishPower](https://www.scottishpower.co.uk/), the [Court of Appeal](https://www.judiciary.uk/courts-and-tribunals/court-of-appeal-home/) has overturned a previous ruling by the [Upper Tribunal](https://www.judiciary.uk/courts-and-tribunals/tribunals/upper-tribunal/upper-tribunal-tax-and-chancery-chamber/), allowing the energy company to deduct £28 million in payments from its corporation tax. This decision highlights the complex nature of tax law, especially regarding payments made to settle regulatory investigations. The ruling clarifies the distinction between penalties and deductible trading expenses, and has important implications for businesses in the UK. ## ScottishPower v HMRC The dispute arose from regulatory investigations by [Ofgem](https://www.ofgem.gov.uk/), which found that companies within the [ScottishPower](https://find-and-update.company-information.service.gov.uk/company/SC117120) group had breached regulations between 2013 and 2016. These breaches included issues related to mis-selling, cost-reflectivity, energy saving, and complaints handling. To settle these investigations, [ScottishPower](https://find-and-update.company-information.service.gov.uk/company/SC193794) agreed to make payments to consumers, consumer organisations, and charities, totalling around £28 million, instead of facing substantial penalties. ## HMRC's Initial Stance [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) rejected [ScottishPower](https://en.wikipedia.org/wiki/ScottishPower)’s attempt to deduct these payments for corporation tax purposes, arguing that they were essentially penalties and therefore not tax deductible. [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) amended the taxpayers’ corporation tax returns accordingly. ## First-Tier Tribunal (FTT) Ruling The case was initially heard at the [First-Tier Tribunal (FTT)](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/first-tier-tribunal-tax-chamber/) in 2021, which largely sided with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs), ruling that the payments were non-deductible, except for one payment of £554,000 which was deemed to be compensation. This sum was to be paid to consumers directly affected by the mis-selling. [ScottishPower](https://www.scottishpower.co.uk/) appealed this decision. ## Download First-tier Tribunal Judgment Here [![](https://taxdisputes.co.uk/wp-content/uploads/2025/01/ScottishPower-Ltd-v-HMRC-2022-UKFTT-41-TC-TC08393-724x1024.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2025/01/ScottishPower-Ltd-v-HMRC-2022-UKFTT-41-TC-TC08393.pdf) ## Upper Tribunal Decision In 2023, the [Upper Tribunal](https://www.judiciary.uk/courts-and-tribunals/tribunals/upper-tribunal/upper-tribunal-tax-and-chancery-chamber/) dismissed [ScottishPower](https://www.scottishpower.co.uk/)’s appeal and ruled in favour of [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs)**,** regarding the £554,000 payment, rendering it non-deductible. This ruling further solidified the view that the payments were, in effect, penalties. ## Download Upper Tribunal Judgment Here [![](https://taxdisputes.co.uk/wp-content/uploads/2025/01/ScottishPower-Ltd-and-others-v-HMRC-2023-UKUT-00218-TCC-724x1024.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2025/01/ScottishPower-Ltd-and-others-v-HMRC-2023-UKUT-00218-TCC.pdf) ## Court of Appeal Decision On Friday, 17 January 2025, the [Court of Appeal](https://www.judiciary.uk/courts-and-tribunals/court-of-appeal-home/) overturned the Upper Tribunal’s decision, ruling in favour of [ScottishPower](https://en.wikipedia.org/wiki/ScottishPower). The court held that the payments were not penalties but were made to settle regulatory investigations, thus qualifying as deductible trading expenses. Lady Justice Falk stated that the payments were made in the course of trade and were deducted in computing profits according to commercial accounting principles. The court emphasised that the nature of the payment, not its purpose, was the crucial factor. The ruling clarified that the von Glehn principle, which prevents the deduction of penalties, does not apply to payments made in lieu of penalties. Lady Justice Falk, writing the lead judgment, noted that the prohibition on the deduction of penalties established in *Commissioners of Inland Revenue v Alexander von Glehn & Co. Ltd* [1920] 2 KB 553, as explained in *McKnight (HM Inspector of Taxes) v Sheppard* [1999] 1 WLR 1333, was based on the principle that the “legislative policy [of the penalty regime] would be diluted if the taxpayer were allowed to share the burden with the rest of the community by a deduction for the purposes of tax.” However, Falk LJ clarified that this principle does not extend to payments which are not fines or penalties. The court emphasised that the scope of any extension to the rule would be highly uncertain and should be a matter for Parliament, not the courts. ## Key Points of the Court of Appeal Ruling - The court distinguished between penalties and payments made to settle regulatory investigations. - The nature of the payment, rather than its purpose, was deemed crucial for tax deductibility. - The von Glehn principle specifically applies to penalties and not to payments in lieu of penalties. - The court found that the payments were made in the course of trade and were deductible according to commercial accounting principles. This ruling provides clarity for companies regarding the tax treatment of payments made to settle regulatory investigations. It underscores the importance of analysing the character of payments rather than their intended purpose when determining tax deductibility. Companies need to consider potential tax implications when negotiating settlements with regulators. ## Download the Judgment Here [![](https://taxdisputes.co.uk/wp-content/uploads/2025/01/ScottishPower-SCPL-Limited-Ors-v-The-Commissioners-for-His-Majestys-Revenue-and-Customs-2025-EWCA-Civ-3-724x1024.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2025/01/ScottishPower-SCPL-Limited-Ors-v-The-Commissioners-for-His-Majestys-Revenue-and-Customs-2025-EWCA-Civ-3.pdf) ## The £554,000 Payment The First-Tier Tribunal initially considered a payment of £554,013 to be compensatory as it went directly to affected consumers. The Upper Tribunal disagreed, and then the Court of Appeal did not distinguish this payment as different from the other payments, which were all made in lieu of penalties. ## Expert London Tax Litigation Lawyers Navigating [tax disputes with HMRC](https://taxdisputes.co.uk/) can be complex and stressful. [Our team](https://lexlaw.co.uk/our-people/) of expert tax solicitors and barristers can provide specialised advice and representation in all areas of tax law. We can assist with: - **Understanding your tax obligations** and applicable rules for your specific circumstances. - **Challenging HMRC decisions** through the appropriate channels. - **Negotiating with HMRC** to seek a favourable resolution. - **Representing you in tax tribunals and courts** to protect your interests. Our experienced team has a track record of successfully challenging [HMRC](https://en.wikipedia.org/wiki/HM_Revenue_and_Customs) decisions and securing optimal outcomes for clients. We understand the intricacies of tax law and are committed to providing robust and strategic legal advice. [Contact us](https://lexlaw.co.uk/contact-us/) today for a consultation to discuss your case. ## Specialist Tax Dispute Advice If you need [HMRC Tax Disputes advice](https://taxdisputes.co.uk/), we are available to aid you at every stage of the HMRC appeals process. Members of [our legal team](https://lexlaw.co.uk/) have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the HMRC internal review process and in front of the Tax Tribunal. [Our team](https://taxdisputes.co.uk/) specialises in successfully [challenging HMRC decisions](https://taxdisputes.co.uk/hmrc-tax-appeals/) and will assist you in every aspect including developing a strategy. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with [a proven track record](https://taxdisputes.co.uk/success/) of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk?subject=Tax%20Query). --- # Closure Notices and HMRC’s “Fishing Expedition” (HMRC v Jonathan Hitchins & Ors) Source: https://taxdisputes.co.uk/2024/08/closure-notices-and-hmrcs-fishing-expedition-hmrc-v-jonathan-hitchins-ors/ In the recent case of[ *HMRC v Jonathan Hitchins & Ors [2024] UKUT 00114*](https://taxdisputes.co.uk/wp-content/uploads/2024/08/HMRC-v-Jonathan-Hitchins-Ors-2024-UKUT-00114.pdf), the [Upper Tribunal (UT)](https://www.judiciary.uk/courts-and-tribunals/tribunals/upper-tribunal/upper-tribunal-tax-and-chancery-chamber/) upheld the [First-tier Tribunal's (FTT)](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/) decision, confirming that it was within its rights to grant the taxpayers' applications under **section 28A, [Taxes Management Act 1970 (TMA)](https://taxdisputes.co.uk/wp-content/uploads/2023/10/Taxes-Management-Act-1970.pdf)**. This ruling required [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) to issue closure notices, effectively bringing an end to prolonged and unfocused enquiries into the taxpayers' affairs, which the FTT deemed to be nothing more than a "fishing expedition." ## HMRC v Jonathan Hitchins, Jeremy Hitchins and Robert Hitchins The case involves three brothers, **Jeremy, Jonathan, and Stephen Hitchins**, whose father, **Robert Hitchins**, founded **[Robert Hitchins Group Ltd (RHG)](https://find-and-update.company-information.service.gov.uk/company/00678982)** in 1960. By the time HMRC initiated its current enquiries, the business was ultimately owned by a discretionary settlement in Guernsey through companies incorporated and resident in Bermuda. In 2003, RHG paid a substantial dividend of **£40 million**. Over a decade later, in 2014, HMRC opened enquiries into the tax returns of all three brothers. The primary focus was whether the dividend could trigger a charge under **Chapter 2, Part 13, Income Tax Act 2007**, which relates to transfers of assets abroad (ToAA). This wasn't the first time HMRC had looked into the brothers' tax affairs; the underlying events had been disclosed between 2006 and 2008 during a previous enquiry that was closed in 2011 without amendments. ## The Taxpayers' Application for Closure Notices Under **section 28A(4), TMA**, taxpayers have the right to apply to the FTT for a direction requiring [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) to issue a closure notice within a specified period. The FTT is obliged to grant such a direction unless HMRC can demonstrate reasonable grounds for refusing the application. The burden of proof, therefore, rests on HMRC. In this case, the Hitchins brothers applied for a direction to compel HMRC to issue closure notices for a total of 13 open enquiries into their self-assessment tax returns. ## First-tier Tribunal Decision The [FTT](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/first-tier-tribunal-tax-chamber/) granted the taxpayers' applications, holding that HMRC's enquiries had reached a stage where it was reasonable for HMRC to make an informed judgment on the matter. Despite not receiving answers to all its questions, the FTT concluded that the remaining questions lacked a reasonable basis and amounted to a "fishing expedition." Moreover, the [FTT](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/first-tier-tribunal-tax-chamber/) disagreed with HMRC's assertion that compelled closure notices would be vague and uninformative. The FTT found that HMRC had sufficient information to close its enquiries regarding the potential ToAA charge related to the dividend distribution. The FTT also remarked that the enquiries had "gone on for far too long." Unsurprisingly, the FTT directed HMRC to issue closure notices within six weeks of its decision, as HMRC failed to demonstrate reasonable grounds for refusing the applications. Dissatisfied with this outcome, HMRC appealed to the Upper Tribunal. ## Download FTT Judgment Here [![](https://taxdisputes.co.uk/wp-content/uploads/2024/08/HMRC-v-Jonathan-Hitchins-Ors-2023-UKFTT-00127-TC-724x1024.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2024/08/HMRC-v-Jonathan-Hitchins-Ors-2023-UKFTT-00127-TC.pdf) ## Upper Tribunal Decision: Upheld FTT Decision HMRC's appeal was dismissed by the [Upper Tribunal](https://www.judiciary.uk/courts-and-tribunals/tribunals/upper-tribunal/upper-tribunal-tax-and-chancery-chamber/). [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) relied on three grounds of appeal, but the UT noted that it struggled to identify the precise nature of the alleged errors of law, which were presented as a series of interrelated complaints about the FTT's decision. In summary, HMRC's grounds of appeal were: - The FTT did not adequately explain how it reached its decision based on the relevant principles. - The FTT referred to the taxpayers having "well-known and reputable advisers." - The FTT erred in law by finding no liability for any of the taxpayers simply because the dividend was paid to a UK company. The UT found no errors of law in the FTT's decision, stating that the FTT had made a balanced and evaluative decision based on all relevant evidence. The UT saw no reason to interfere with the FTT's conclusion that HMRC's enquiry had been unduly prolonged and should be closed. ## Download the Judgment Here [![](https://taxdisputes.co.uk/wp-content/uploads/2024/08/HMRC-v-Jonathan-Hitchins-Ors-2024-UKUT-00114-724x1024.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2024/08/HMRC-v-Jonathan-Hitchins-Ors-2024-UKUT-00114.pdf) ## The Importance of Timely Enquiries This case highlights a significant issue in tax disputes: the length of time HMRC enquiries can take. The relevant legislation does not impose a time limit on concluding an enquiry, which can result in prolonged and unfocused investigations. Section 28A, TMA, provides taxpayers with a mechanism to compel HMRC to close such enquiries, and as this case demonstrates, the tax tribunals are willing to support taxpayers when appropriate. ## Expert London Tax Lawyers At [LEXLAW](https://lexlaw.co.uk/), we understand the complexities and challenges that come with prolonged HMRC enquiries. Our team is experienced in navigating these issues and can help you determine the right course of action, including applying for closure notices under section 28A, TMA. If you find yourself in a situation where an HMRC enquiry has gone on for too long, contact us today to discuss how we can assist you in bringing it to a resolution. By staying informed and proactive, you can protect your rights and avoid the stress of unnecessary, prolonged investigations. Let us help you ensure that your affairs are handled efficiently and in compliance with the law. ## Specialist Tax Dispute Advice If you need [HMRC Tax Disputes advice](https://taxdisputes.co.uk/), we are available to aid you at every stage of the HMRC appeals process. Members of [our legal team](https://lexlaw.co.uk/) have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the HMRC internal review process and in front of the Tax Tribunal. [Our team](https://taxdisputes.co.uk/) specialises in successfully [challenging HMRC decisions](https://taxdisputes.co.uk/hmrc-tax-appeals/) and will assist you in every aspect including developing a strategy. We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with [a proven track record](https://taxdisputes.co.uk/success/) of delivering authoritative results. Just call us on 0207 1830 529, or email [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk?subject=Tax%20Query). --- # Injunction Success: HMRC Winding-up Petition Stopped Source: https://taxdisputes.co.uk/2024/06/injunction-success-abusive-hmrc-winding-up-petition-dismissed/ HMRC have today been forced to consent to the [dismissal of a winding-up petition](https://lexlaw.co.uk/winding-up-petition-court-hearing-representation-advocacy-solicitors-london/) for a tax debt of over £0.5m and to pay substantial costs due to poor conduct by HMRC, after first freezing our client's funds so they couldn't pay then next presenting a winding-up petition in spite of promising not to. Our [injunction](https://lexlaw.co.uk/solicitors-london/category/injunction/) application included [restraining HMRC](https://windinguppetitionsolicitors.co.uk/insolvency-lawyers-london/hmrc-debts-and-winding-up-petitions-your-top-faqs-answered/) from further advertisement and seeking dismissal of the petition. HMRC accepted the petition was legally untenable and they were defeated and ordered to pay costs. ## HMRC's Abusive Winding-up Conduct HMRC’s conduct in the petition proceedings was poor; which was reflected by the fact that it conceded the entirety of the application made by our clien. As an organisation, HMRC has: - Frozen money belonging to the Company (by way of an [account freezing order](https://lexlaw.co.uk/solicitors-london/account-freezing-order-guide/#:~:text=An%20Account%20Freezing%20Order%20(AFO,is%20linked%20to%20criminal%20activity.)) which would otherwise have been sufficient to pay the tax due from the Company and then presented a winding up petition based on that unpaid tax in the knowledge that the Company’s money had been frozen on its application. - Refused to vary that account freezing order to allow the money in the frozen accounts to be released to pay the tax. - Represented in the account freezing process that it would stand over enforcement action until after the investigation into the Company’s accounts had concluded; and then presented an [HMRC winding up petition](https://taxdisputes.co.uk/hmrc-winding-up-petitions/) contrary to that representation. - Most recently, one of the two bank accounts which HMRC had applied to freeze was unfrozen as HMRC’s investigation into it had concluded without further action being taken. ## Injunction to Restrain Advertisement and Seek Petition Dismissal Our client applied to the [Insolvency and Companies Court](https://www.judiciary.uk/courts-and-tribunals/business-and-property-courts/business-list-general-chancery/insolvency-and-companies-list/) for an order that: - The Respondent, Commissioners for His Majesty’s Revenue and Customs (HMRC) and its servants,employees and agents be restrained from advertising, or taking any further steps in respect of advertisement, a petition to wind up the Applicant. - That the HMRC Petition be struck out as an [abuse of the proper process of the Court](https://lexlaw.co.uk/solicitors-london/abuse-of-process-by-early-advertisement-of-winding-up-petitions/). - Such other directions as the court thinks just. - HMRC pay the Applicant's [costs on the indemnity basis](https://lexlaw.co.uk/solicitors-london/indemnity-costs-in-litigation/#:~:text=Indemnity%20costs%3A%20Paying%20for%20unreasonable,engage%20in%20poor%20litigation%20conduct.). ## HMRC's Position on Abusive HMRC Petition HMRC accepted that the Petition should be dismissed in light of their conduct. [HMRC Solicitor's Office](https://www.sra.org.uk/consumers/register/organisation/?sraNumber=809838) agreed to pay a substantial contribution to our client's costs of and occasioned by the Petition and the Application. As an aside, they argued that the Court cannot grant injunctive relief as sought by the Applicant against a Government Department and instead can only grant equivalent declaratory relief, citing sections 17 and 21 of the [Crown Proceedings Act 1947](https://www.legislation.gov.uk/ukpga/Geo6/10-11/44/contents) as applied in ([*Quest v the Secretary of State for Education* [2023] EWHC 3578 at [137]](https://www.judiciary.uk/judgments/x-v-secretary-of-state-for-education-anonymity-order/)). However, it is noted that in [*JT Development Solutions Limited v Secretary of State for Education *[2022] 2 BCLC 135](https://www.casemine.com/judgement/uk/6192a858b50db9a0d4cba596), an injunction was granted against the Secretary of State for Education to restrain the presentation of a petition. **WARNING – OBTAIN SPECIFIC GUIDANCE & ADVICE** *The information on this website is not legal advice; you should always obtain specific advice on the circumstances of your case. Our Winding-up Petition Solicitors & Barristers provide specialist legal advice based on decades of expertise. [Click here](https://windinguppetitionsolicitors.co.uk/legal-case-assessment) or call [+442071830529](tel:+442071830529) to get in touch. For regulatory reasons we do not take on low value cases nor provide free legal advice, information or guidance and our team cannot answer questions from non-clients.* --- # IR35 Tax Rules: Adrian Chiles’ Tribunal Appeal Highlights Challenges for UK Contractors Source: https://taxdisputes.co.uk/2024/10/ir35-tax-rules-adrian-chiles-tribunal-appeal-highlights-challenges-for-uk-contractors/ The recent tax battle between [Adrian Chiles ](https://taxdisputes.co.uk/?s=Adrian+Chiles)and [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) over[ IR35 Tax rules](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35) or [off-payroll working rules](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35) has cast a spotlight on this complex piece of [UK tax legislation](https://taxdisputes.co.uk/). Many contractors, particularly those in the media industry, find themselves caught in the cross-hairs of HMRC's heavy-handed application of [IR35](https://taxdisputes.co.uk/2024/04/ir35-and-its-impact-on-freelancers/) tax rules, facing hefty tax bills, assessments and penalties if they are deemed "disguised employees". Contact our [tax team](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) for [expert legal advice](https://lexlaw.co.uk/legal-case-assessment/) on whether HMRC's assessment of whether you or your contractors are employees for the purposes of IR35 legislation. You may have a case worth fighting and potentially saving large sums in current and future tax assessments. ## What is IR35? [IR35](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35) is tax legislation designed to ensure that contractors who conduct work in essentially the same way as employees, pay the correct amount of tax. ## Who does IR35 apply to? The IR35 rules in general apply to: - workers; - who provide a service; - to a company or individual; - through an intermediary; - where this service might ordinarily be done by an employee. ## What are the IR35 tax rules? IR35 or [off-payroll working rule](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35) is a UK tax regulation designed to address a loophole that allowed workers to reduce their tax liabilities by establishing a limited company or partnership instead of being directly employed. Officially known as[ Chapter 8, Part 2 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA)](https://taxdisputes.co.uk/wp-content/uploads/2024/08/Chapter-8-Part-2-of-the-Income-Tax-Earnings-and-Pensions-Act-2003-ITEPA.pdf) and referred to as the Intermediaries Legislation, the term "IR35" originates from a 2000 press release by the former Inland Revenue, which introduced this legislation. Today, "IR35" has become the widely recognised shorthand for this tax rule. Individuals often operate through limited companies, known as [Personal Service Companies (PSCs)](https://commonslibrary.parliament.uk/research-briefings/sn05976/), which can potentially offer tax advantages. IR35 legislation counteracts this potential tax avoidance by determining whether an individual working through a [PSC](https://commonslibrary.parliament.uk/research-briefings/sn05976/) should be classified as self-employed or an employee for tax purposes. Essentially, if the individual's working arrangements closely resemble those of an employee, they will be subject to income tax and [National Insurance](https://www.gov.uk/national-insurance) contributions as if they were directly employed, irrespective of their [PSC](https://commonslibrary.parliament.uk/research-briefings/sn05976/) status. ## Why are Contractors Facing Scrutiny by HMRC? The recent string of [IR35](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35) or [off-payroll working](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35) cases involving high-profile presenters like [Adrian Chiles](https://taxdisputes.co.uk/?s=Adrian+Chiles), [Gary Lineker](https://en.wikipedia.org/wiki/Gary_Lineker), and [Kaye Adams,](https://taxdisputes.co.uk/2024/02/kaye-adams-triumphs-over-hmrc-in-9-year-ir35-tax-dispute/) highlights the challenges of applying this legislation, particularly in the media. The crux of the issue lies in determining whether a contractor, working through their [PSC](https://commonslibrary.parliament.uk/research-briefings/sn05976/), functions more like an employee of the broadcaster or production company. This is a complex question, as presenter contracts can vary significantly. Here's where things get complex: - **Control vs. Autonomy:** Does the broadcaster dictate working hours, location, and even attire? Or does the contractor have significant control over their schedule and workload? - **Substitution:** Can the contractor send a substitute to fulfil their obligations, or are they expected to perform the work themselves? - **Mutuality of Obligation:** Is there a guaranteed stream of work from the broadcaster, or does the contractor have to actively seek out new projects? - **[Financial Risk](https://taxdisputes.co.uk/2024/06/ir35-disputes-richard-alcock-back-to-the-drawing-board/):** Does the contractor bear the financial risk for equipment, travel, and other expenses, or are these covered by the broadcaster? [HM Revenue and Customs (HMRC)](https://www.gov.uk/government/organisations/hm-revenue-customs) seems to be taking a stricter approach with [IR35](https://taxdisputes.co.uk/2024/04/ir35-and-its-impact-on-freelancers/), and some see this as overly rigid. If a contractor loses their [IR35](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35) case at the [First-tier Tribunal (FTT)](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/), they face significant financial repercussions: - Backdated income tax and [National Insurance](https://www.gov.uk/national-insurance) contributions - Hefty penalties - Legal costs ## The Broader Impact of IR35 While the recent media cases grab headlines, [IR35](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35) impacts a much wider range of contractors across various industries: - **IT Contractors:** Developers, programmers, and IT consultants frequently work through PSCs. Determining their [IR35](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35) status depends on factors like project control, equipment ownership, and the ability to subcontract. - **Marketing & Communications Consultants:** These professionals often work on a project basis with various clients.[ IR35](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35) hinges on factors like client control over deliverables, working hours, and the ability to subcontract work. - **Construction Contractors:** [Freelance](https://taxdisputes.co.uk/2024/04/ir35-and-its-impact-on-freelancers/) plumbers, electricians, and other skilled tradespeople may operate through PSCs. [IR35](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35) assessment here looks at control over working methods, materials used, and whether they can bring in subcontractors. This is not an exhaustive list, but it highlights how [IR35](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35) casts a wide net across the contractor landscape. ## The Adrian Chiles IR35 Tax Dispute The [Upper Tribunal (UT)](https://www.judiciary.uk/courts-and-tribunals/tribunals/upper-tribunal/) judgment in the case of Basic Broadcasting Ltd (Chiles' PSC) vs [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) sheds light on the ongoing challenges with [IR35](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35). While Chiles initially won his case at the [FTT](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/), [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) appealed, arguing that the tribunal had misapplied the law. The Upper Tribunal agreed, finding that the [FTT](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/) had incorrectly focused on whether Chiles was "in business on his own account" rather than on the specific terms of the hypothetical contract between him and the broadcasters. The [UT ](https://www.judiciary.uk/courts-and-tribunals/tribunals/upper-tribunal/)also introduced a new element to the case, questioning whether the BBC and ITV had sufficient knowledge of Chiles' other work engagements. This could potentially impact the determination of whether he was operating as a genuine business. The potential consequences for [Mr. Chiles](https://taxdisputes.co.uk/?s=Adrian+Chiles) are significant. If the [FTT's](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/) final decision aligns with the UT's judgment, he could face a tax and [National Insurance contributions (NICs)](https://www.gov.uk/national-insurance) bill of around £1.7 million. This case serves as a cautionary tale for contractors, particularly those in the media industry. The onus is on the individual to demonstrate their [IR35](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35) status, and the lines between "employee" and "contractor" can be blurry. ## Do the IR35 rules affect my company? Companies will not have to comply with the new IR35 legislation if they satisfy two or more of the following criteria: - an annual turnover of not more than £10.2 million; - balance sheet total of not more than 5.1 million; and - number of employees of not more than 50. ## Is it worth fighting HMRC? Yes. If you have a case with merits, you may have the right to challenge a tax appeal or tax assessment (but there is ordinarily a 30 day time limit). Seek legal advice as soon as possible. HMRC are also bound by [internal guidance](https://www.gov.uk/government/publications/litigation-and-settlement-strategy-lss), for example their [Litigation and Settlement Strategy (LSS) to resolve tax disputes](https://taxdisputes.co.uk/wp-content/uploads/2024/10/HMRC_Resolving_tax_disputes.pdf). HMRC will not usually persist with a tax dispute unless it potentially secures the best practicable return for the Exchequer and HMRC has a case which it believes would be successful in litigation. Our team of [tax specialist solicitors and barristers](https://taxdisputes.co.uk/expert-advice/) (our [leading barrister](https://lexlaw.co.uk/andrew-young/) was previously counsel to HMRC) offer effective and robust representation for you. ## Expert IR35 Tax Dispute Lawyers At [LEXLAW](https://taxdisputes.co.uk/), we recognise the intricate challenges contractors encounter in today's dynamic tax environment. Our specialised team of legal experts is dedicated to [IR35](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35) compliance, providing bespoke solutions to protect your interests and mitigate tax disputes. Whether you are a seasoned independent professional or embarking on your freelance journey, we offer comprehensive legal support tailored to your specific needs. The ongoing [IR35](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35) discourse, exemplified by high-profile cases such as [Adrian Chiles](https://taxdisputes.co.uk/?s=Adrian+Chiles), [Gary Linker](https://en.wikipedia.org/wiki/Gary_Lineker) and [Kaye Adam](https://taxdisputes.co.uk/2024/02/kaye-adams-triumphs-over-hmrc-in-9-year-ir35-tax-dispute/), underscores the complex landscape contractors navigate. As tax regulations continue to evolve, proactive legal counsel becomes indispensable in safeguarding the rights and financial well-being of self-employed individuals. Our law firm's taxation practice has extensive experience guiding contractors through the intricacies of [IR35](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35). Here's how we can assist you: - **[IR35](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35) Status Assessment:** We can analyse your specific working arrangements and advise on the likelihood of being caught by [IR35](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35). - **Contract Review and Negotiation:** We can review your existing contracts with clients and help negotiate new ones that minimise your [IR35](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35) risk. - **[HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) Negotiations:** If [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) challenges your [IR35](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35) status, our team can represent you in negotiations to reach a favourable outcome. - **[Tribunal](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/) Representation:** In the event your case goes to the [First-tier Tribunal (FTT)](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/), our experienced lawyers can effectively present your arguments. --- # IR35 Disputes – Richard Alcock Back To The Tax Tribunal Again Source: https://taxdisputes.co.uk/2024/06/ir35-disputes-richard-alcock-back-to-the-drawing-board/ *Richard Alcock, a self-employed contractor, is currently embroiled in a lengthy legal battle with HMRC over his tax status under IR35 legislation. After years of dispute, the case has been remitted to the First-tier Tribunal with a potential liability of £240,000. Alcock's situation underscores the complexities of IR35 regulations for contractors and highlights the importance of understanding and complying with these laws in the gig economy. The outcome of this case could set a precedent for future IR35 disputes and provide clarity on employment status determination, impacting both contractors and HMRC alike.* ## What is IR35? Inland Revenue 35 or IR35 (Intermediaries Legislation) is a UK tax rule that cracks down on "disguised employment." It checks if contractors working through intermediaries (like limited companies) should actually be taxed as employees. The aim is to ensure all employees pay a fair share of taxes like National Insurance. The rules are difficult to apply as they are open to interpretation. [IR35](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35) has gained considerable attention in the UK in recent years, both from contractors and companies that have hired them. With the stated aim of combating tax evasion by "disguised employees", IR35 assesses whether a contractor is entitled to employee treatment for tax reasons. However, IR35 assessments can be tricky and will often result in disagreements between companies, contractors and HMRC as to who is right on the legislation. By guaranteeing that any limited company contractor who works in the same capacity as a permanent employee gets taxed accordingly, IR35 is a piece of tax legislation designed to discourage tax evasion. Stated differently, they are making the necessary payments for both [Income Taxes](https://www.gov.uk/income-tax-rates) and [National Insurance Contributions (NICs)](https://www.gov.uk/national-insurance). Dispute with HMRC? Instruct our unparalleled [tax practice](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/). Encountering challenges with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs)? Entrust your tax matters to our ex-HMRC tax barrister and experienced solicitors team. Backed by years of experience, our lawyers provide invaluable advice navigating intricate tax regulations, ensuring optimal outcomes for our clients. From adept negotiation with HMRC to skilfully [advocacy for clients](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/) in Tax Tribunals and the Courts of England and Wales, we at LEXLAW excel in resolving complex tax litigation. ## Richard Alcock's Ongoing Tussle with HMRC Richard Alcock’s [IR35](https://taxdisputes.co.uk/2024/04/ir35-and-its-impact-on-freelancers/) case was [determined by the First Tier Tribunal in 2019](https://www.cipp.org.uk/resources/news/hmrc-ir35-richard-alcock.html) but is now set to be reheard, as HMRC has successfully challenged the previous ruling made by the [First Tier Tribunal](https://www.gov.uk/courts-tribunals/first-tier-tribunal-tax) (FTT). Alcock, who was an IT contractor and director of [RALC Consulting](https://find-and-update.company-information.service.gov.uk/company/06464035), previously received determinations from HMRC stating that he had incorrectly operated outside of IR35, resulting in a tax liability of £243,324. Alcock successfully appealed this decision at the FTT in 2019, however, HMRC's subsequent appeal at an [Upper Tier Tribunal](https://www.gov.uk/courts-tribunals/upper-tribunal-tax-and-chancery-chamber), which has been [admitted on the basis of *‘material errors of law’*](https://lexlaw.co.uk/wp-content/uploads/Upper-Tier-Tribunals-Final-Order-15-04-2024.pdf) means Alcock will need to present his case once more before the Tribunal. [![merry go round with signs saying "HMRC" "IR35" "Merry Go Round" Appeals UK TAX](https://taxdisputes.co.uk/wp-content/uploads/2024/06/HMRC-IR35-Merry-Go-Round-Tax-Solicitors-London-Appeals-Tribunal.png)](https://taxdisputes.co.uk/wp-content/uploads/2024/06/HMRC-IR35-Merry-Go-Round-Tax-Solicitors-London-Appeals-Tribunal.png) The uncertainty surrounding the potential rehearing of the case stems from reports that RALC Consulting has ceased trading since the initial appeal was upheld. This uncertainty is further complicated by the fact that the events under scrutiny occurred between 10 and 15 years ago, with HMRC's investigation spanning RALC's activities from the 2010/11 to 2014/15 tax years. ## Why is Richard Alcock under scrutiny by HMRC? Richard Alcock's IR35 case with HMRC stands as a pivotal example in the ongoing debate surrounding the [tax legislation's application and interpretation](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/). The case highlights the complexities and challenges faced by contractors and tax authorities in determining employment status under [IR35](https://taxdisputes.co.uk/2024/04/ir35-and-its-impact-on-freelancers/). Richard Alcock, found himself at the centre of an IR35 dispute with HMRC more than a decade ago. Alcock operated through his personal service company, providing services to various clients in the IT sector. However, HMRC challenged Alcock's tax status, arguing that he should be considered as an employee for tax purposes under IR35. ## Key IR35 Issues in Alcock Case: Below is a summary of the key issues, typical of IR35 disputes, that were employment indication factors in Alcock’s case: - **Control**: HMRC scrutinised the level of control exerted by Alcock's clients over his work. They sought to establish whether Alcock operated independently or was subject to the direction and supervision characteristic of an employment relationship. - **Substitution**: The ability for Alcock to provide a substitute to carry out the work in his absence was examined. HMRC assessed whether this aspect of contractual arrangements aligned with genuine self-employment or indicated a disguised employment relationship. - **Mutuality of Obligation**: The presence of a mutuality of obligation between Alcock and his clients was analysed. HMRC sought to determine whether there was an ongoing obligation for Alcock to provide services and for his clients to offer work, a characteristic often associated with employment. Additional factors such as financial risk, integration into the client's business and provision of equipment were also considered in assessing Alcock's employment status. ## FTT Proceedings in Alcock’s Case Before the FTT, legal representatives for Richard Alcock meticulously crafted their arguments to demonstrate the authenticity of his self-employment status. They strategically emphasised several key factors pivotal in distinguishing genuine self-employment from employment under IR35. Alcock's legal team emphasised his autonomy in managing his work schedule, tasks and methods of delivery. They provided evidence showcasing Alcock's ability to exercise independent decision-making without undue influence or direction from his clients. This autonomy demonstrated a fundamental aspect of self-employment, wherein the contractor retains control over their work arrangements. Central to the dispute was the level of control exerted by Alcock's clients over his work. His legal representatives outlined the contractual agreements and operational practices that supported Alcock's assertion of maintaining control over his assignments. They argued that any direction provided by clients was inherent to the nature of the project rather than indicative of an employment relationship. Alcock's legal team further highlighted the financial risks inherent in his contracting arrangements. They presented evidence illustrating Alcock's investment in equipment, training and business development, all of which underscored his entrepreneurial endeavours. By assuming financial risk, Alcock demonstrated a characteristic commonly associated with self-employment, further bolstering his case. Conversely, HMRC's legal representatives countered these arguments by scrutinising the working arrangements between Alcock and his clients. They sought to demonstrate that the contractual terms and operational dynamics aligned more closely with those of an employment relationship, thus warranting the application of IR35. HMRC emphasised instances where Alcock's work appeared to be integrated into the day-to-day operations of his clients, suggesting a level of dependence and control inconsistent with genuine self-employment. They also scrutinised the absence of clear substitution clauses and asserted that the mutuality of obligation between Alcock and his clients implied an ongoing employment relationship. Throughout the tribunal proceedings, both parties presented compelling evidence and legal arguments to support their respective positions. The tribunal carefully deliberated on the intricacies of the case, weighing the evidence presented against the statutory provisions and precedents established in previous IR35 disputes. Ultimately, the FTT’s decision on the basis of the [fresh guidance provided by the Upper Tier Tribunal ](https://lexlaw.co.uk/wp-content/uploads/Upper-Tier-Tribunals-Final-Order-15-04-2024.pdf)will hinge on its assessment of the totality of circumstances surrounding Alcock's working arrangements. The outcome will not only impact Alcock's individual tax liabilities but also serve as a precedent influencing future interpretations and applications of IR35 within the UK's contractor landscape. ## Impact of Richard Alcock’s case on IR35 Disputes Richard Alcock's case has emerged as a pivotal moment in the ongoing dialogue concerning [IR35](https://taxdisputes.co.uk/2024/04/ir35-and-its-impact-on-freelancers/) regulations in the UK, encapsulating the complexities and challenges inherent in determining employment status. As the tribunal's decision draws near, the significance of this case reverberates across the contractor landscape, underscoring the critical need for clarity and consistency in assessing employment relationships under IR35. ## What is the purpose of IR35 Legislation? IR35 legislation aims to prevent tax avoidance by individuals operating as 'disguised employees', thereby ensuring fairness and equity in the tax system. However, the application of IR35 has often been criticised for its ambiguity, leading to disputes and uncertainty for contractors and businesses alike. Richard Alcock's case underscores the importance of clarity in delineating between [genuine self-employment and employment](https://lexlaw.co.uk/solicitors-london/category/employment-law/), providing a clearer framework for future assessments. By emphasising the need for consistency in assessing employment status, stakeholders seek to promote fairness and predictability in the [application of IR35](https://lexlaw.co.uk/hmrc-tax-dispute-lawyers/). A consistent approach ensures that contractors and businesses understand their obligations and rights under the legislation, fostering a more transparent and equitable tax environment. ## What are the implications of Alcock’s case for Stakeholders? As the tribunal's decision in Richard Alcock's case approaches, stakeholders across the UK's contractor landscape are closely monitoring the outcome and its potential ramifications. Contractors, businesses, legal experts and industry associations recognise the far-reaching implications of this landmark case, which may set precedent for future IR35 disputes. For contractors, the decision holds significant implications for their tax liabilities and working arrangements. A ruling in favor of Alcock could affirm the legitimacy of genuine self-employment arrangements, providing clarity and reassurance for contractors operating through personal service companies. Conversely, a decision against Alcock may raise concerns regarding the scope and interpretation of IR35, prompting contractors to reassess their contractual arrangements and [tax planning strategies](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/). Businesses engaging contractors also await the tribunal's decision with keen interest, as it may impact their hiring practices and contractual relationships. A clear and consistent approach to assessing employment status under IR35 is essential for businesses to mitigate the risk of tax liabilities and [ensure compliance](https://lexlaw.co.uk/) with legal obligations. ## Expert Tax Investigation Lawyers *Should you require [assistance with HMRC Tax Investigation matters](https://windinguppetitionsolicitors.co.uk/expert-advice/), we offer comprehensive support throughout the entirety of the HMRC investigation process. Our legal team comprises individuals with extensive firsthand experience and deep understanding of the internal mechanisms of HMRC. We, at Lexlaw, are equipped to furnish you with top-tier representation during negotiations with HMRC, as well as in the defense against various HMRC-related matters including fraud, tax inquiries, investigations into tax fraud, criminal tax evasion and HMRC inquiries. Our team specialises in effectively contesting HMRC decisions and will extend support across [all facets of the investigation](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/). Led by our [specialised Tax Solicitors and Barristers](https://lexlaw.co.uk/our-people/), we provide unparalleled technical expertise, adept negotiation skills, and esteemed guidance, all of which can significantly impact the outcome in terms of tax penalties, charges, and liability*. --- # IR35 Tax Appeals: Gary Lineker’s Off-Payroll Working Dispute with HMRC Source: https://taxdisputes.co.uk/2024/12/ir35-tax-appeals-gary-linekers-off-payroll-working-dispute-with-hmrc/ ### What Is IR35, and How Does It Relate to Gary Lineker? [IR35](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35), the UK’s [off-payroll](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35) working legislation, is designed to prevent tax avoidance by individuals who provide services through intermediaries, such as [Personal Service Companies (PSCs)](https://commonslibrary.parliament.uk/research-briefings/sn05976/), but work in a manner similar to employees. This legislation ensures that such workers pay the appropriate income tax and [National Insurance](https://www.gov.uk/national-insurance) contributions. Many contractors, particularly those in the media industry, find themselves caught in the cross-hairs of HMRC’s heavy-handed application of [IR35](https://taxdisputes.co.uk/2024/04/ir35-and-its-impact-on-freelancers/) tax rules, facing hefty tax bills, assessments and penalties if they are deemed “disguised employees”. [Gary Lineker](https://taxdisputes.co.uk/2023/03/gary-lineker-wins-battle-with-hmrc-over-4-9m-tax-bill/), a former England footballer and *Match of the Day* presenter, became one of the most high-profile figures entangled in an [IR35 tax dispute](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35). The case, centred on a £4.9 million tax bill, raised important questions about employment classification and the boundaries of freelancer autonomy. ## What is IR35? [IR35](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35) is tax legislation designed to ensure that contractors who conduct work in essentially the same way as employees, pay the correct amount of tax. ## Who does IR35 apply to? The IR35 rules in general apply to: - workers; - who provide a service; - to a company or individual; - through an intermediary; - where this service might ordinarily be done by an employee. ### Gary Lineker’s IR35 Tax Dispute The dispute involved income [Lineker](https://taxdisputes.co.uk/2023/03/gary-lineker-wins-battle-with-hmrc-over-4-9m-tax-bill/) earned between 2013 and 2018 from the [BBC](https://www.bbc.com/) and BT Sport. [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) argued that [Lineker](https://taxdisputes.co.uk/2023/03/gary-lineker-wins-battle-with-hmrc-over-4-9m-tax-bill/) should be treated as an employee of these broadcasters and taxed accordingly. However, [Lineker](https://taxdisputes.co.uk/2023/03/gary-lineker-wins-battle-with-hmrc-over-4-9m-tax-bill/) maintained he was a freelancer, operating through GLM, a general partnership he set up in 2012. Key issues in the case included: - **Intermediaries Legislation**: [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) claimed GLM acted as an intermediary, making [Lineker](https://taxdisputes.co.uk/2023/03/gary-lineker-wins-battle-with-hmrc-over-4-9m-tax-bill/)’s income subject to [IR35](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35). - **Direct Contracts**: [Lineker](https://taxdisputes.co.uk/2023/03/gary-lineker-wins-battle-with-hmrc-over-4-9m-tax-bill/) argued his contracts with the [BBC](https://www.bbc.com/) and BT Sport were direct and not facilitated through an intermediary. - **Section 49(1)(b) of the [Income Tax (Earnings and Pensions) Act 2003](https://www.legislation.gov.uk/ukpga/2003/1/section/49)**: The tribunal examined whether his working arrangements met the legal definition of employment under this section. The [First-tier Tribunal](https://www.gov.uk/courts-tribunals/first-tier-tribunal-immigration-and-asylum) ruled in [Lineker’s](https://taxdisputes.co.uk/2023/03/gary-lineker-wins-battle-with-hmrc-over-4-9m-tax-bill/) favour in March 2023, determining that his partnership did not qualify as an intermediary under [IR35](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35). [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)initially appealed the decision but withdrew its appeal before the [Upper Tribunal](https://www.judiciary.uk/courts-and-tribunals/tribunals/upper-tribunal/) hearing scheduled for December 2024 and settled the case. ### Why Did HMRC Pursue Lineker Under IR35? [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) has taken an increasingly strict approach to enforcing [IR35](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35), targeting individuals who work through partnerships or [PSCs](https://commonslibrary.parliament.uk/research-briefings/sn05976/) but whose roles resemble employment. [Lineker](https://taxdisputes.co.uk/2023/03/gary-lineker-wins-battle-with-hmrc-over-4-9m-tax-bill/)’s case was part of a broader campaign that has included other public figures, such as [Adrian Chiles](https://taxdisputes.co.uk/2024/02/adrian-chiles-1-7m-ir35-hmrc-tax-dispute/) and [Kaye Adams](https://taxdisputes.co.uk/?s=Kaye+Adams). In [Lineker](https://taxdisputes.co.uk/2023/03/gary-lineker-wins-battle-with-hmrc-over-4-9m-tax-bill/)’s situation, [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) focused on: - **Control**: Did the broadcasters dictate his schedule and duties, or did he maintain autonomy? - **Substitution**: Could [Lineker](https://taxdisputes.co.uk/2023/03/gary-lineker-wins-battle-with-hmrc-over-4-9m-tax-bill/) delegate his duties to another presenter? - **Mutuality of Obligation**: Did the [BBC](https://www.bbc.com/) or BT Sport guarantee him a continuous stream of work? The tribunal found that [Lineker](https://taxdisputes.co.uk/2023/03/gary-lineker-wins-battle-with-hmrc-over-4-9m-tax-bill/) exercised significant control over his work and bore the financial risks associated with freelancing, solidifying his status as a self-employed individual. ### What Does Gary Lineker’s Case Mean for Contractors and Freelancers? [Lineker](https://taxdisputes.co.uk/2023/03/gary-lineker-wins-battle-with-hmrc-over-4-9m-tax-bill/)’s victory offers hope for other contractors facing similar [IR35](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35) challenges. It underscores the importance of clearly defined contracts and working arrangements that reflect genuine freelancer status. However, the complexity of [IR35](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35) means that no two cases are identical, and outcomes often hinge on nuanced interpretations of [tax law](https://taxdisputes.co.uk/). For businesses, the case serves as a reminder to carefully assess the employment status of contractors to avoid costly disputes. ## The Broader Impact of IR35 While the recent media cases grab headlines, [IR35](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35) impacts a much wider range of contractors across various industries: - **IT Contractors:** Developers, programmers, and IT consultants frequently work through PSCs. Determining their [IR35](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35) status depends on factors like project control, equipment ownership, and the ability to subcontract. - **Marketing & Communications Consultants:** These professionals often work on a project basis with various clients.[ IR35](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35) hinges on factors like client control over deliverables, working hours, and the ability to subcontract work. - **Construction Contractors:** [Freelance](https://taxdisputes.co.uk/2024/04/ir35-and-its-impact-on-freelancers/) plumbers, electricians, and other skilled tradespeople may operate through PSCs. [IR35](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35) assessment here looks at control over working methods, materials used, and whether they can bring in subcontractors. This is not an exhaustive list, but it highlights how [IR35](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35) casts a wide net across the contractor landscape. ## Is It Worth Fighting HMRC? Yes. If you have a case with merits, you may have the right to challenge a tax appeal or tax assessment (but there is ordinarily a 30 day time limit). Seek legal advice as soon as possible. HMRC are also bound by internal guidance, for example their [Litigation and Settlement Strategy (LSS)](https://taxdisputes.co.uk/wp-content/uploads/2024/10/HMRC_Resolving_tax_disputes.pdf) to resolve tax disputes. [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) will not usually persist with a tax dispute unless it potentially secures the best practicable return for the Exchequer and [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) has a case which it believes would be successful in litigation. Our team of [tax specialist solicitors and barristers](https://taxdisputes.co.uk/expert-advice/) (our [leading barrister](https://taxdisputes.co.uk/expert-advice/) was previously counsel to [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs)) offer effective and robust representation for you. ### How Our Law Firm Can Help Contractors in IR35 Disputes At [LEXLAW](https://lexlaw.co.uk/), we recognise the intricate challenges contractors encounter in today’s dynamic tax environment. Our specialised team of legal experts is dedicated to [IR35 ](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35)compliance, providing bespoke solutions to protect your interests and mitigate tax disputes. Whether you are a seasoned independent professional or embarking on your freelance journey, we offer comprehensive legal support tailored to your specific needs. The ongoing [IR35](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35) discourse, exemplified by high-profile cases such as [Adrian Chiles](https://taxdisputes.co.uk/?s=Adrian+Chiles), [Gary Linker](https://en.wikipedia.org/wiki/Gary_Lineker) and [Kaye Adam](https://taxdisputes.co.uk/2024/02/kaye-adams-triumphs-over-hmrc-in-9-year-ir35-tax-dispute/), underscores the complex landscape contractors navigate. As tax regulations continue to evolve, proactive legal counsel becomes indispensable in safeguarding the rights and financial well-being of self-employed individuals. Our services include: - **IR35 Status Assessment**: We evaluate your working arrangements to determine your [IR35 ](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35)risk. - **Contract Review**: We help structure contracts to minimise exposure to [IR35](https://www.gov.uk/guidance/understanding-off-payroll-working-ir35). - **Representation in HMRC Disputes**: Our team negotiates with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) on your behalf and ensures your interests are protected. - **Tribunal Representation:** In the event your case goes to the [First-tier Tribunal (FTT)](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/), our experienced lawyers can effectively present your arguments. --- # HMRC Ordered to Disclose AI Use in R&D Tax Claims Source: https://taxdisputes.co.uk/2025/08/hmrc-ordered-to-disclose-ai-use-in-rd-tax-claims/ A landmark ruling by the [First-tier Tribunal (FTT)](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) in [*Thomas Elsbury v The Information Commissioner* [2025] UKFTT 915 (GRC)](https://taxdisputes.co.uk/wp-content/uploads/2025/08/Thomas-Elsbury-v-The-Information-Commissioner-2025-UKFTT-915-GRC.pdf) has required [HMRC](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) to reveal whether it used artificial intelligence (AI) in assessing [Research & Development (R&D) tax relief claims](https://taxdisputes.co.uk/2024/07/guide-to-unlocking-hmrcs-rd-tax-relief/). The Tribunal rejected HMRC’s secrecy arguments, finding that transparency and public confidence outweighed the potential risks cited by the tax authority. This decision has significant implications not just for R&D claims but for the wider tax system, especially in disputes involving [VAT fraud](https://lexlaw.co.uk/solicitors-london/category/vat-fraud/), [MTIC fraud](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/vat-appeals-mtic-solicitors-london/), and the [Kittel principle](https://taxdisputes.co.uk/knew-or-ought-to-have-known-a-review-of-mtic-or-carousel-fraud-cases/), where AI-driven risk assessment may be influencing HMRC decisions without taxpayers’ knowledge. ## Dispute Between Thomas Elsbury and HMRC In 2024, tax expert [Thomas Elsbury](https://find-and-update.company-information.service.gov.uk/officers/KIq8lc2OxgXzsM42HyeibLy70m0/appointments) submitted a [Freedom of Information (FOI)](https://www.gov.uk/make-a-freedom-of-information-request) request to [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) asking whether AI had been used in evaluating R&D tax credit claims. His concerns arose after noticing unusual features in HMRC correspondence, including the use of Americanised spellings, em dashes that were not typically found in HMRC templates, and letters that failed to match the specific details of the claims in question. Elsbury argued that if AI was being used, especially without clear safeguards, it could undermine trust in HMRC’s processes and discourage legitimate claims, ultimately harming the UK’s innovation policy objectives. HMRC refused to confirm or deny AI use, citing FOI exemptions aimed at preventing tax fraud. The [Information Commissioner’s Office (ICO)](https://www.gov.uk/government/organisations/information-commissioner-s-office) upheld HMRC’s refusal, accepting that confirming AI use could prejudice the collection of tax. Elsbury appealed to the FTT. For taxpayers and advisers, this is a reminder that challenging HMRC’s refusal to disclose key information requires both a clear understanding of Freedom of Information law and a strategic litigation approach. At [LEXLAW](https://lexlaw.co.uk/), our [tax disputes solicitors](https://taxdisputes.co.uk/) have extensive experience in compelling HMRC to release information critical to a client’s case, whether through FOI challenges, disclosure applications in the Tax Tribunal, or judicial review. In many cases, early legal advice can make the difference between uncovering decisive evidence and being left at a disadvantage in dispute proceedings. ## Tribunal’s Findings and Legal Reasoning The Tribunal considered two main questions: whether HMRC could refuse to confirm or deny AI use under FOIA exemptions, and where the balance of public interest lay. [Judge Alexandra Marks ](https://justice.org.uk/alexandra-marks/)found that Elsbury’s arguments were “compelling” and that the public interest in transparency outweighed HMRC’s stated concerns. The Tribunal noted that concealing AI use risked undermining taxpayer trust and confidence in HMRC, and that there was a realistic possibility AI could be deployed by individual HMRC officers in an unauthorised way. Such a lack of transparency, the judge observed, could deter legitimate R&D claimants from applying, frustrating the scheme’s policy aims. > “The balance of the public interest lies in disclosing the information requested,” Judge Marks concluded. HMRC was ordered to respond to the FOI request by 18 September 2025. ## Read the Whole Judgement Here: ## Understanding the Wider Impact on Tax Disputes While the case centred on R&D tax relief, its principles apply far more widely. HMRC increasingly uses data analytics, machine learning, and potentially AI in: - [VAT Kittel principle cases](https://taxdisputes.co.uk/2025/08/hmrc-loses-9-3m-kittel-vat-case-what-it-means-for-businesses-facing-allegations-of-fraud/) denying input tax recovery where HMRC alleges “knew or should have known” involvement in fraud. - [MTIC fraud investigations](https://taxdisputes.co.uk/carousel-mtic-fraud-missing-trader-intra-community-fraud-kittel/) risk profiling supply chains and trade patterns. - [Penalty decisions](https://taxdisputes.co.uk/hmrc-penalties/) determining whether late filing/payment penalties should be issued. - [Customs and excise compliance](https://taxdisputes.co.uk/excise-duty-appeals/) automated risk scoring for imports and exports. Taxpayers now have a precedent for seeking disclosure about whether AI influenced HMRC’s decision-making in their case, and if that process met legal standards of procedural fairness. ## Practical Takeaways from the Ruling This case demonstrates that transparency can be compelled through legal challenge, and that the FTT is willing to order HMRC to confirm AI use where the public interest outweighs potential operational risks. It also shows that procedural fairness can be challenged if AI has influenced an assessment in a way that causes error. The ruling further highlights important data protection concerns, as AI use raises questions about the secure handling of sensitive business information. From a policy perspective, the decision underscores the danger that perceived unfairness could deter participation in relief schemes designed to promote innovation. Finally, the case confirms that well-targeted FOI requests can be a strategic tool for uncovering decision-making methods before entering litigation. ## Why This Case Matters The Tribunal’s ruling in *[Elsbury](https://taxdisputes.co.uk/wp-content/uploads/2025/08/Thomas-Elsbury-v-The-Information-Commissioner-2025-UKFTT-915-GRC.pdf)* marks the first time HMRC has been compelled to disclose potential AI use in tax claim assessments. It signals a growing judicial willingness to prioritise openness over administrative convenience, even in areas where HMRC claims fraud-prevention justifications. For businesses, the decision strengthens the ability to hold HMRC accountable for how it reaches its conclusions, particularly where technology and automation play a role. For advisers, it underscores the need to consider FOI processes alongside traditional tribunal and court appeals when challenging HMRC decisions. At [LEXLAW](https://lexlaw.co.uk), our [tax dispute lawyers](https://lexlaw.co.uk/our-people/) regularly assist clients in challenging HMRC on both procedural and substantive grounds, including cases involving undisclosed decision-making processes. We have a [proven record](https://taxdisputes.co.uk/success/) in HMRC investigations and tribunal litigation, we provide strategic and effective representation that protects our clients' commercial and legal interests. ## Need Help Responding to HMRC? Timely, strategic legal advice is essential when facing an [HMRC enquiry or penalty](https://lexlaw.co.uk/hmrc-tax-penalty-appeal-solicitor-london/). [Our team of specialist tax solicitors and barristers](https://lexlaw.co.uk/our-people/) offers end-to-end support, from FOI requests and internal reviews to representation before the Tax Tribunal. We combine legal precision with commercial acumen, helping clients navigate the complex interface between compliance obligations and evolving HMRC technology. Our team has a proven track record in defending clients against serious HMRC allegations, overturning penalties, and resolving disputes efficiently and decisively. At [LEXLAW](https://lexlaw.co.uk/), we ensure your interests are rigorously protected and your position is informed by the latest legal developments, case law, and best practices in [UK tax dispute resolution](https://taxdisputes.co.uk/). [Contact us](https://lexlaw.co.uk/contact-us/) today for expert legal guidance and proactive representation. ### Frequently Asked Questions What was the main issue in Thomas Elsbury v The Information Commissioner? The case focused on whether HM Revenue & Customs (HMRC) should be required to disclose if it had used artificial intelligence (AI) in processing Research & Development (R&D) tax relief claims. Tax expert Thomas Elsbury suspected that AI was being used, possibly without proper authorisation, based on anomalies he observed in HMRC correspondence, such as American spellings, unusual formatting, and content that did not match the specific details of the claims. His argument was that, in matters involving sensitive intellectual property and significant tax reliefs, the public has a right to know if automated systems, rather than human officers, are making decisions that could have major financial consequences. Why did HMRC refuse to confirm or deny the use of AI? HMRC relied on exemptions under the [Freedom of Information Act 2000 (FOIA)](https://www.legislation.gov.uk/ukpga/2000/36/contents), particularly those designed to protect the public purse from fraud. They argued that acknowledging AI use, even without revealing operational details, could give fraudsters valuable insight into HMRC’s compliance systems. This, HMRC claimed, could allow individuals or businesses to adapt their conduct to evade detection, thereby undermining tax collection. In their view, the risk of prejudicing the prevention of tax fraud outweighed any transparency benefits. How did the Information Commissioner’s Office (ICO) initially rule? The ICO sided with HMRC, agreeing that the potential harm to the tax system justified withholding the information. The Commissioner accepted HMRC’s position that even confirming or denying the use of AI could jeopardise compliance by revealing operational vulnerabilities. While the ICO acknowledged that there was a public interest in understanding HMRC’s adoption of AI, it concluded that the risks to tax collection were more compelling. What did the First-tier Tribunal decide? The First-tier Tribunal (FTT) overturned the ICO’s decision. Judge Alexandra Marks found that the public interest in transparency was strong, particularly given the potential for AI use to affect trust in HMRC’s decision-making. The Tribunal ordered HMRC to confirm or deny whether AI had been used in the relevant R&D claims and gave a deadline for compliance. The judge considered Mr Elsbury’s concerns “compelling” and noted that transparency could help maintain the integrity of the R&D tax relief scheme by ensuring claimants have confidence in how their applications are assessed. Why is this decision significant for taxpayers? This is believed to be the first tribunal ruling requiring HMRC to disclose whether AI is used in specific tax decision-making processes. It represents a potential shift towards greater openness in government use of emerging technologies. For taxpayers, the decision could set an important precedent: it shows that HMRC’s operational secrecy is not absolute and can be challenged successfully where there is a strong public interest. It also raises broader questions about the fairness, accuracy, and oversight of AI in tax administration, issues that could affect many other areas of tax law beyond R&D claims. How can LEXLAW assist in cases like this? At [LEXLAW](https://lexlaw.co.uk/), our specialist tax disputes solicitors and barristers have extensive experience challenging HMRC decisions through Freedom of Information requests, statutory appeals, and judicial review. We have successfully compelled HMRC to disclose key operational details, which can be decisive in overturning unjust decisions. In a case like Elsbury’s, we would help build a strong public interest argument, gather technical and legal evidence, and ensure that your application meets the strict procedural requirements of FOIA and tribunal litigation. Our team includes former HMRC lawyers and leading tax counsel, enabling us to combine insider insight with aggressive defence strategies. --- # IR35 Case Study: Tax Adviser’s Procedural Error Fatal to Taxpayer’s Appeal Rights (Professional Negligence in Tax Tribunals) Source: https://taxdisputes.co.uk/2025/06/ir35-case-study-tax-advisers-procedural-error-fatal-to-taxpayers-appeal-rights-professional-negligence-in-tax-tribunals/ The judgment handed down by the [Tax Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) in relation to the [IR35 intermediaries legislation](https://taxdisputes.co.uk/) case of [Cranham Sports LLP v HMRC [2024] UKUT 00209 (TCC))](https://assets.publishing.service.gov.uk/media/66ab8ac949b9c0597fdb098c/Cranham_Sports_LLP_v_HMRC_Final_Decision__002_.pdf) serves as a stark reminder of the critical importance of strict adherence to statutory time limits in tax appeals. The ruling highlights how tax advisers' (i.e. non-solicitors) procedural failures can result in irreversible loss of appeal rights, even where the underlying tax position may be arguable. The decision reinforces the principles established in [Martland v HMRC](https://assets.publishing.service.gov.uk/media/5b115855e5274a191271783e/William_Martland_v_HMRC_.pdf) regarding late appeal applications and demonstrates the harsh consequences when [tax tribunal procedures](https://taxdisputes.co.uk/) are not properly followed. This case particularly emphasises the risks faced by contractors and commentators operating through intermediaries when their professional representatives fail to act within prescribed deadlines, as seen in other [professional negligence claims](https://professionalnegligenceclaimsolicitors.co.uk/) involving tax advisory services. ## Background of the IR35 Engagement: Cowan’s Relationship with Sky [Cranham Sports LLP](https://find-and-update.company-information.service.gov.uk/company/OC348107) was established on 24 August 2009 as a limited liability partnership with Barry Cowan, a former professional tennis player turned Sky Sports commentator, as a member. The case centered on Cowan's services as a tennis commentator for Sky UK Limited from around 2013, with HMRC's investigation covering the 2013/14 to 2018/19 tax years and the application of IR35 intermediaries legislation to these arrangements. [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) conducted a comprehensive review of the contractual arrangements between Cranham Sports LLP and Sky Sports, ultimately determining that under the IR35 rules, Cowan should be treated as an employee of Sky rather than a genuine self-employed contractor. This determination resulted in HMRC issuing regulation 80 determinations under the [Income Tax (Pay as Your Earn) Regulations 2003](https://www.legislation.gov.uk/uksi/2003/2682/contents) and notices under [section 8 of the Social Security and Contributions (Transfer of Functions) Act 1999](https://www.legislation.gov.uk/ukpga/1999/2/section/8), demanding additional income tax and Class 1 National Insurance contributions. The timeline of correspondence proves crucial to understanding how procedural errors developed. On 17 June 2021, HMRC issued its initial opinion concluding that IR35 applied to Cowan's arrangements, giving the taxpayer until 19 July 2021 to respond with any disagreements. Cranham Sports' representative, Mr Leslie, responded on 8 July 2021 with a detailed email containing 23 disputed points, describing HMRC's decision as "unsafe and completely incorrect". However, HMRC failed to respond to these detailed challenges, instead issuing a "view of the matter" letter on 8 December 2021, which clearly stated the taxpayer's options and the 30-day deadline for action. **DOWNLOAD THE PDF JUDGMENT HERE:** [![](https://taxdisputes.co.uk/wp-content/uploads/2025/06/Cranham_Sports_LLP_v_HMRC_Final_Decision__-e1780311849959.jpg)](https://assets.publishing.service.gov.uk/media/66ab8ac949b9c0597fdb098c/Cranham_Sports_LLP_v_HMRC_Final_Decision__002_.pdf) ## Key Findings in Cranham Sports LLP v HMRC ### The Tax Adviser's Critical Procedural Failure The [First-tier Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) found that despite receiving clear instructions about statutory deadlines, the taxpayer's professional representative failed to take timely action. Judge Phyllis Ramshaw and Judge Guy Brannan noted in their judgment: *"The representatives in this case were chartered accountants acting for the Appellant in connection with its tax affairs and should have been, and were in any event, were made aware of the statutory time limit in which to request a review or notify an appeal"*. The judges emphasised at paragraph 41 that: *"Acting prudently, a competent professional could have been expected to have protected the Appellant's position by formally asking for an internal review even were the view held that the view of the matter letter was inadequate"*. ### Application of Martland Principles The Upper Tribunal confirmed that the First-tier Tribunal had correctly applied [the three-stage Martland test](https://assets.publishing.service.gov.uk/media/5b115855e5274a191271783e/William_Martland_v_HMRC_.pdf) for late appeals. This established framework requires consideration of: (1) the length of delay, (2) the reasons for delay, and (3) all circumstances of the case in a balancing exercise. The judges found that a 60-day delay against a 30-day statutory limit constituted a serious delay requiring detailed examination of the second and third stages. ### Rejection of HMRC Non-Disclosure Arguments [The Upper Tribunal](https://assets.publishing.service.gov.uk/media/66ab8ac949b9c0597fdb098c/Cranham_Sports_LLP_v_HMRC_Final_Decision__002_.pdf) rejected arguments that HMRC's failure to disclose material from Sky Sports justified the delay. The judges found at paragraph 52 that whilst the taxpayer had requested Sky documentation and considered it important, this did not excuse the failure to protect appeal rights: *"I consider that had the appeal been notified within a reasonable period after 25 January 2022 I would have granted permission firstly because the period of delay would have been short and secondly because I consider that the conflict in the letter as to dates and the without prejudice correspondence could have created an impression to the representative and his client that the time limit was not running"*. ## Implications of Cranham Sports LLP v HMRC This decision reinforces the unforgiving nature of [statutory time limits](https://lexlaw.co.uk/limitation-periods-time-limits-bar-statute-expired-start-claim-litigation-legal-advice/) in tax appeals and demonstrates how [professional negligence in tax matters](https://professionalnegligenceclaimsolicitors.co.uk/) can have devastating consequences for clients. The Upper Tribunal's dismissal of the appeal confirms that even where taxpayers may have strong substantive arguments, procedural failures by their advisers can permanently bar access to justice. The case highlights a growing trend where courts are increasingly unwilling to excuse delays caused by professional representatives' errors, as seen in similar decisions involving [tax dispute procedures](https://taxdisputes.co.uk/). The judgment serves as a warning to all contractors operating through intermediaries that their choice of professional adviser is critical to protecting their interests. The case demonstrates that ongoing correspondence with HMRC does not suspend statutory deadlines and that formal procedural steps must be taken within prescribed time limits regardless of the substantive negotiations taking place. This principle has broader implications for all taxpayers facing investigations or assessments where appeal rights are time-limited. The decision also highlights the importance of proper case management in [IR35 disputes](https://taxdisputes.co.uk/2024/12/ir35-tax-appeals-gary-linekers-off-payroll-working-dispute-with-hmrc/), where the stakes are often high and the legal landscape complex. [Professional advisers](https://professionalnegligenceclaimsolicitors.co.uk/contact-us-london/) acting in such matters must maintain rigorous deadline management systems and cannot rely on assumptions about HMRC's conduct or ongoing dialogue to protect their clients' procedural rights. The case reinforces that the burden lies squarely on taxpayers and their representatives to comply with statutory requirements, regardless of perceived deficiencies in HMRC's handling of the matter. **ACCOUNTANTS HAVE NO LEGAL DUTY OF CONIFDENTIALTY **Unlike a [solicitor who by law must provide an entirely confidential legal service](https://www.lawsociety.org.uk/topics/gdpr/lpp-and-client-confidentiality), an accountant has no legal duty of confidentiality and will have little to no skill in managing tax litigation; we have seen numerous cases where an accountant has disclosed material that we as solicitors would not be able to disclose and also worsened the client's position with HMRC. Our [team of ex-HMRC barristers and solicitors](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) can carefully manage tax disputes by reviewing and providing additional documentation, clarifying positions, or negotiating a settlement with HMRC. In some cases, taxpayers may appeal decisions to independent tax tribunals or courts if an agreement cannot be reached through negotiation. Alternative dispute resolution mechanisms, such as HMRC mediation, may be explored as a way to resolve conflicts outside of formal legal proceedings. ## Expert HMRC IR35 Defence Lawyers When facing [IR35 investigations](https://taxdisputes.co.uk/category/ir35/), early identification of all relevant deadlines and implementation of robust case management systems becomes paramount to protecting taxpayer rights. [Professional advisers](https://taxdisputes.co.uk/contact-us/) must maintain comprehensive deadline diaries that account for all statutory time limits, including the crucial 30-day periods for requesting reviews or notifying appeals under sections [49B](https://www.legislation.gov.uk/ukpga/1970/9/section/49B) and [49C](https://www.legislation.gov.uk/ukpga/1970/9/section/49C) of the [Taxes Management Act 1970](https://www.legislation.gov.uk/ukpga/1970/9/contents). The establishment of multiple reminder systems and clear delegation of responsibilities within advisory teams can prevent the type of oversight that proved fatal in Cranham Sports. Immediate protective action should be taken upon receipt of any HMRC determination or view of the matter letter, even where substantive negotiations are ongoing. This includes formally requesting internal reviews within prescribed deadlines whilst simultaneously preparing comprehensive responses to HMRC's technical arguments. [Advisers](https://taxdisputes.co.uk/) should never assume that ongoing correspondence or settlement discussions suspend statutory deadlines, as demonstrated by the harsh consequences in this case.  Where procedural errors do occur, immediate damage limitation becomes essential, including prompt applications for late appeal permission with comprehensive evidence supporting reasonable excuse arguments. However, the Cranham Sports decision demonstrates the difficulty of succeeding with such applications, particularly where the delay extends beyond what tribunals consider reasonable. [Advisers ](https://taxdisputes.co.uk/)must therefore focus on prevention rather than cure, implementing systems that make procedural failures virtually impossible rather than relying on the tribunal's discretion to excuse errors after they occur. ## Expert London Tax Litigation Lawyers Contact our experienced tax dispute resolution team today for a confidential discussion and [expert legal guidance](https://lexlaw.co.uk/our-people/m-ali-akram/) on 02071830529 or email us at taxdisputes@lexlaw.co.uk. We are here to help you understand your obligations, navigate HMRC scrutiny, and protect your interests in all tax-related litigation matters. ### Frequently Asked Questions: **Can I blame my tax adviser/ accountant for missing the appeal deadline?** The Tribunal reaffirmed that taxpayers bear ultimate responsibility for compliance. If your adviser fails to act, the consequences fall on you. However, you may have a claim in [professional negligence](https://professionalnegligenceclaimsolicitors.co.uk/) against the adviser. What is a “valid notice of appeal”? It must meet all statutory requirements: be in writing, signed, state the grounds of appeal clearly, and be served within the 30-day deadline. Informal letters or emails are not sufficient unless they meet all conditions. Is IR35 a discretionary assessment or mandatory? IR35 applies mandatorily where the conditions are met. However, the assessment involves judgment and fact-finding. Procedural failures, like in this case, mean those factual disputes are never considered. **Why is this case significant for IR35 contractors and their advisers?** The Cranham Sports decision establishes a crucial precedent regarding the absolute nature of statutory deadlines in IR35 appeals and the consequences of professional advisers' procedural failure. This case demonstrates that even highly experienced chartered accountants can make errors that permanently deny clients their appeal rights, regardless of the strength of their substantive arguments. The significance extends beyond IR35 to all areas of [tax dispute resolution](https://taxdisputes.co.uk/) where statutory time limits apply, serving as a stark reminder that procedural compliance cannot be treated as secondary to substantive legal arguments. For contractors, the case highlights the critical importance of selecting advisers with robust case management systems and deep understanding of tribunal procedures, as the consequences of errors can be financially devastating and legally irreversible. **How do statutory time limits apply to different stages of IR35 disputes?** IR35 disputes involve multiple critical deadlines under various statutory provisions, each carrying severe consequences for non-compliance. The initial 30-day period for appealing HMRC determinations under section 31A of the Taxes Management Act 1970 represents the first crucial deadline, failure to meet which results in the assessment becoming final. Where HMRC offers internal reviews under section 49C, taxpayers have 30 days to accept the offer, failing which the matter is deemed settled by agreement. Following review conclusions, taxpayers have a further 30 days under section 49F to notify appeals to the First-tier Tribunal, with late appeals requiring tribunal permission under strict criteria established in Martland v HMRC. Understanding these interconnected deadlines and their consequences is essential for both advisers and clients in managing IR35 disputes effectively. **What do I do if the appeal deadline has passed?** Seek legal advice urgently. While late appeals may sometimes be permitted under s.49 TMA 1970, the threshold is high. Tribunals look at reasons for delay, length of delay, and prejudice caused. --- # HMRC Account Freezing Orders: Guide to Challenge AFOs 2025 Source: https://taxdisputes.co.uk/2025/08/hmrc-account-freezing-orders-guide-to-challenge-afos-2025/ An Account Freezing Order (AFO) is a court order issued by a [UK Magistrates’ Court](https://www.judiciary.uk/courts-and-tribunals/magistrates-courts/) that prevents the holder of a bank account from accessing or moving the funds within it. This measure is used by enforcement agencies, such as [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs), the [Serious Fraud Office (SFO)](https://www.gov.uk/government/organisations/serious-fraud-office), the [National Crime Agency (NCA),](https://www.nationalcrimeagency.gov.uk/) or the police. When HMRC suspects that funds are linked to tax fraud, [VAT evasion](https://taxdisputes.co.uk/vat-evasion/), undeclared income, or other unlawful tax-related activity, it can apply for an AFO to immediately block the account. The primary goal is to preserve the money while HMRC investigates its origin and use, preventing it from being moved or spent before legal proceedings can take place. Even if you are not facing criminal charges, [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) can keep your funds frozen for months, or even up to two years. If you or your business face an [AFO](https://taxdisputes.co.uk/?s=Account+Freezing+Order), [prompt legal advice](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) is crucial. The sooner we intervene, the more options we have to protect your position and minimise disruption to your affairs. ## Who Can Apply for an Account Freezing Order? While various UK enforcement bodies can apply for an [AFO](https://lexlaw.co.uk/solicitors-london/hmrc-account-freezing-orders-afos-legal-guide-to-challenging-afos/), HMRC is one of the most frequent applicants, particularly in tax-related investigations. Under the [Proceeds of Crime Act 2002 (POCA)](https://www.legislation.gov.uk/ukpga/2002/29/contents), only certain agencies have this power, including: - **HM Revenue & Customs (HMRC)** – often in cases involving suspected tax fraud, undeclared income, [VAT ](https://taxdisputes.co.uk/vat-evasion/)carousel fraud, or complex corporate tax evasion schemes. [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) uses [AFOs](https://lexlaw.co.uk/solicitors-london/hmrc-account-freezing-orders-afos-legal-guide-to-challenging-afos/) as part of its civil and criminal investigation toolkit, often in coordination with other agencies. - **The Police** – generally in cases linked to serious organised crime, fraud, or other unlawful conduct. While their remit is wide, in tax-linked matters they may work alongside [HMRC’s](https://lexlaw.co.uk/solicitors-london/hmrc-time-to-pay-arrangement-guide-2025-how-to-negotiate-a-repayment-plan-for-unpaid-tax/) Fraud Investigation Service. - **The Serious Fraud Office (SFO)** – typically in high-value corporate fraud and corruption cases, where funds may be tied to complex cross-border transactions. - **Accredited Financial Investigators (AFIs)** – authorised officers within local authorities or other enforcement bodies trained to trace and preserve suspected criminal assets. When [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) makes an application, it is often supported by intelligence from banking data, international tax information-sharing agreements, or suspicious activity reports. [Our experts](https://lexlaw.co.uk/our-people/) regularly find [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) using this power at the early stage of a tax investigation, often before the account holder is even aware they are under scrutiny. Acting fast at this point can prevent an investigation from escalating. ## How Does HMRC Obtain an Account Freezing Order? For HMRC to obtain an [AFO](https://lexlaw.co.uk/solicitors-london/hmrc-account-freezing-orders-afos-legal-guide-to-challenging-afos/), they must satisfy a [Magistrates’ Court](https://www.judiciary.uk/courts-and-tribunals/magistrates-courts/) that there are reasonable grounds to suspect the funds are: - **Recoverable property**—money obtained through unlawful conduct; or - **Intended for use in unlawful conduct**—for example, to pay suppliers in a fraudulent scheme or move illicit profits offshore. Each account covered by an [AFO](https://lexlaw.co.uk/solicitors-london/account-freezing-order-guide/) must hold more than £1,000. Importantly, the [court](https://www.judiciary.uk/courts-and-tribunals/magistrates-courts/) can grant the order without notice to HMRC if telling them beforehand could prejudice their investigation or future forfeiture proceedings. Once granted, the [AFO](https://lexlaw.co.uk/solicitors-london/hmrc-account-freezing-orders-afos-legal-guide-to-challenging-afos/) takes immediate effect, blocking withdrawals and transfers. The account holder can only make transactions if the court specifically allows them, usually by way of a variation order. [Our experience](https://lexlaw.co.uk/legal-news/) shows that courts are often persuaded to permit living expenses, essential business costs, or legal fees, provided the application is well-prepared and fully documented. ## What Level of Proof is Needed for an AFO? The evidential threshold for an [AFO](https://lexlaw.co.uk/solicitors-london/account-freezing-order-guide/) is significantly lower than in a criminal prosecution. [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) does not need to prove beyond reasonable doubt that a crime has occurred, nor does it need to show that you are personally under investigation. The focus is on the money itself, if the [court](https://www.judiciary.uk/courts-and-tribunals/magistrates-courts/) is persuaded there are reasonable grounds to suspect it is tainted or intended for unlawful use, the order will likely be granted. This low bar means many perfectly legitimate account holders can find their funds frozen by [HMRC](https://taxdisputes.co.uk/hmrc-tax-investigations/) pursuing an AFO while investigations drag on. If this happens to you, [specialist legal representation](https://lexlaw.co.uk/our-people/) is essential to challenge the basis of the order, seek a variation, or prepare for any forfeiture proceedings. [Our experts](https://lexlaw.co.uk/our-people/) have successfully dismantled applications by exposing flaws in the evidence and showing the lawful source of funds. ## What Happens When HMRC Freezes Your Account? An [AFO](https://lexlaw.co.uk/solicitors-london/account-freezing-order-guide/) can cause immediate and severe disruption. You will: - **Lose access to your funds:** Without court approval, you cannot make withdrawals, payments, or transfers. This can halt business operations, delay salaries, or prevent payment of suppliers. For individuals, it can leave you unable to cover living costs. - **Face operational and reputational damage:** For companies, news of an account freeze can undermine confidence with clients, partners, and investors. Personal and corporate credit facilities can also be affected. - **Risk contempt of court:** Attempting to bypass the freeze or failing to comply with the order’s terms can lead to serious legal consequences. Courts do have the power to make exceptions, known as **exclusions**, to allow payment of essential living expenses, critical business costs, or legal fees. These applications must be carefully prepared and justified with the help of our [expert solicitors](https://lexlaw.co.uk/our-people/). ## How Do You Challenge an HMRC Account Freezing Order? You have the right to challenge or vary an [HMRC](https://taxdisputes.co.uk/hmrc-tax-investigations/) [AFO](https://lexlaw.co.uk/solicitors-london/account-freezing-order-guide/). You can apply to the Magistrates’ Court to: - **Discharge the order** – removing it entirely if it was wrongly granted. - **Vary the order** – adjusting its terms to allow for necessary expenses or to exclude certain funds. Challenges may succeed where: - The evidence linking the funds to criminal conduct is weak or speculative. - The order is overly broad and threatens the viability of a business. - Legitimate sources of funds have been overlooked or ignored by the applicant agency. A variation application will usually require full disclosure of your financial circumstances. In some cases, negotiating directly with [HMRC](https://taxdisputes.co.uk/?s=HMRC) can lead to a quicker resolution without the need for a contested hearing. Having [solicitors](https://lexlaw.co.uk/our-people/) experienced in [AFO disputes](https://lexlaw.co.uk/solicitors-london/hmrc-account-freezing-orders-afos-legal-guide-to-challenging-afos/) is critical; poorly prepared challenges can harden the HMRC’s position and make resolution harder. ## How Can You Prevent Permanent Loss of Your Funds? An [AFO](https://lexlaw.co.uk/solicitors-london/account-freezing-order-guide/) is often a precursor to a [Forfeiture Order](https://www.legislation.gov.uk/ukpga/2002/29/part/5/chapter/3B/crossheading/forfeiture-orders), which permanently transfers the frozen funds to the state. [HMRC](https://taxdisputes.co.uk/hmrc-enforcement-action/) must give at least 30 days’ notice before seeking [forfeiture](https://www.legislation.gov.uk/ukpga/2002/29/part/5/chapter/3B/crossheading/forfeiture-orders). If you fail to object in time, the money will be lost. If you do object, [HMRC](https://taxdisputes.co.uk/hmrc-tax-investigations/) will have to persuade the court, on the [balance of probabilities](https://en.wikipedia.org/wiki/Burden_of_proof_(law)), that the funds are recoverable property or intended for unlawful use. This is still a relatively low standard of proof, making early, robust legal defence essential. A successful challenge can result in: - **Full recovery of your funds** – with the freeze lifted entirely. - **Partial release** – allowing access to funds for business or personal needs. - **Compensation** – in rare cases, where the freeze caused provable loss due to agency error or overreach. At [LEXLAW](https://lexlaw.co.uk/contact-us/), we have overturned forfeiture applications by exposing flawed financial tracing, proving lawful sources of funds, and undermining the credibility of the [HMRC's](https://taxdisputes.co.uk/?s=HMRC) case. In tax-linked disputes, this often involves expert forensic accounting to demonstrate legitimate income and transaction history. ## How Long Can an Account Freezing Order Last? An HMRC [AFO](https://taxdisputes.co.uk/2024/11/how-to-challenge-a-hmrc-account-freezing-orders/) can last for up to two years, depending on the court’s order. During this period, HMRC will continue its investigation, often working to build a [forfeiture](https://www.legislation.gov.uk/ukpga/2002/29/part/5/chapter/3B/crossheading/forfeiture-orders) case. At the end of the term, [HMRC](https://taxdisputes.co.uk/hmrc-enforcement-action/) must either apply for forfeiture or ask the court to discharge the order. For individuals and businesses, a prolonged freeze can be devastating. This is why [our expert solicitors](https://lexlaw.co.uk/our-people/) act quickly to shorten the lifespan of an AFO where possible, either through [negotiated settlement](https://taxdisputes.co.uk/2025/07/case-study-adr-exit-agreements-and-hmrc-penalties-andrew-quay-hull-llp-v-hmrc/) or by persuading the court that continued freezing is unjustified. ## Are Funds Automatically Forfeited at the End of an AFO? No. There are two routes to forfeiture:**** - **Notice procedure:** [HMRC](https://taxdisputes.co.uk/?s=HMRC) serves at least 30 days’ notice of its intention to forfeit the funds. If no objection is filed, the money is forfeited without a hearing. This is why failing to act quickly can be fatal to your case. - **Direct court application:** [HMRC](https://taxdisputes.co.uk/hmrc-enforcement-action/) applies to the [Magistrates’ Court](https://www.judiciary.uk/courts-and-tribunals/magistrates-courts/) for a [Forfeiture Order](https://www.legislation.gov.uk/ukpga/2002/29/part/5/chapter/3B/crossheading/forfeiture-orders). The court decides based on the civil standard of proof, ‘balance of probabilities’. Even at this stage, a strong defence can succeed, but the preparation must be thorough. ## Are There Any Exceptions to the Freeze? Yes. While withdrawals are generally prohibited, the court can grant exceptions for:**** - **Reasonable living expenses** – such as rent, utilities, and household costs. - **Legal expenses** – to fund your defence in the [AFO](https://lexlaw.co.uk/solicitors-london/hmrc-account-freezing-orders-afos-legal-guide-to-challenging-afos/) or related proceedings. - **Business costs** – to allow a company to keep trading, pay staff, and meet contractual obligations. Securing these exemptions requires persuasive evidence and a clear explanation of why the spending is necessary. At [LEXLAW](https://lexlaw.co.uk/contact-us/), we often prepare detailed financial schedules and affidavits to strengthen these applications, helping clients maintain normal operations while the freeze is in place ## Instruct Specialist London Lawyers When [HMRC](https://lexlaw.co.uk/solicitors-london/hmrc-time-to-pay-arrangement-guide-2025-how-to-negotiate-a-repayment-plan-for-unpaid-tax/) or another enforcement body freezes your account, every hour counts. Our [London-based team](https://lexlaw.co.uk/our-people/) is experienced in urgent, high-stakes financial disputes, particularly those involving tax allegations. We:**** - Act within hours to review the order and identify immediate options. - Develop tailored defence strategies based on the specific facts of your case. - Negotiate with agencies to secure variations, shorten freeze periods, or agree settlements. - Fight [forfeiture applications](https://www.legislation.gov.uk/ukpga/2002/29/part/5/chapter/3B/crossheading/forfeiture-orders) in court with a track record of success. Located near the [Royal Courts of Justice](https://lexlaw.co.uk/contact-us/), we combine strategic insight with rapid mobilisation. Our focus is always on achieving the best possible outcome, whether that’s the immediate return of funds, an agreed compromise, or complete dismissal of the agency’s case. If your accounts have been frozen by [HMRC](https://lexlaw.co.uk/solicitors-london/hmrc-time-to-pay-arrangement-guide-2025-how-to-negotiate-a-repayment-plan-for-unpaid-tax/) or any enforcement agency, [contact](https://lexlaw.co.uk/contact-us/) our [specialist tax dispute solicitors](https://lexlaw.co.uk/our-people/) today. We will act decisively to safeguard your assets, protect your rights, and minimise the damage to your financial and personal life. ### FAQs 1. Why has HMRC frozen my bank account? HMRC can apply for an Account Freezing Order if they suspect that funds in your account are linked to tax evasion, VAT fraud, undeclared income, or other unlawful activity. The freeze is designed to preserve money during an investigation, even if you have not been charged with a criminal offence. **2. Do I have to be charged with a crime for HMRC to get an Account Freezing Order?** No. HMRC does not need to charge you or prove a criminal offence to obtain an AFO. They only need to show a magistrate that there are reasonable grounds to suspect the funds are linked to unlawful conduct. This low threshold means many legitimate account holders are affected. **3. Can I still use my bank account after HMRC gets an AFO**? In most cases, your ability to withdraw or transfer funds is blocked. However, the court can allow certain **exclusions**, such as payments for living costs, legal fees, or essential business expenses. These must be requested formally and supported by evidence. 4. How long does an HMRC Account Freezing Order last? An AFO can last up to **two years**. During this period, HMRC may continue investigating and can apply for forfeiture of the funds. It’s vital to act quickly to challenge the order or secure variations before financial damage becomes severe. **5. What is the difference between an Account Freezing Order and a Forfeiture Order?** An **Account Freezing Order** temporarily blocks access to your funds, while a **Forfeiture Order** allows HMRC to permanently confiscate them. Forfeiture often follows a freeze, and if you don’t challenge it within 30 days of notice, you risk losing the money automatically. 6. Can I challenge an HMRC Account Freezing Order? Yes. You can apply to the Magistrates’ Court to vary or discharge the order, or you can negotiate with HMRC for a more flexible arrangement. A strong challenge focuses on disproving the link between your funds and any alleged unlawful activity. --- # Mega Marshmallows win VAT Battle: HMRC Appeal Rejected by Tax Tribunal Source: https://taxdisputes.co.uk/2025/05/mega-marshmallows-win-vat-battle-hmrc-appeal-rejected-by-tax-tribunal/ [Innovative Bites Ltd](https://find-and-update.company-information.service.gov.uk/company/06655245), the UK distributor of the popular “Mega Marshmallows,” has won a high-profile [VAT dispute](https://www.gov.uk/guidance/how-to-correct-vat-errors-and-make-adjustments-or-claims-vat-notice-70045) against [His Majesty Revenue and Customs (HMRC)](https://www.gov.uk/government/organisations/hm-revenue-customs), following a ruling by the [Upper Tribunal](https://www.judiciary.uk/live-hearings/hm-revenue-and-customs-appellant-v-innovative-bites-ltd-respondent/). The decision affirms that the large marshmallows, often used for roasting, qualify for VAT zero-rating as a food product—despite HMRC's contention that they are taxable confectionery. This ruling not only protects Innovative Bites Ltd from a significant VAT bill but also reinforces key principles around VAT classification for food products in the UK. ## HMRC v Innovative Bites Limited [2024] The case centered on whether Mega Marshmallows should be zero-rated as a food item under [Group 1, Schedule 8 of the Value Added Tax Act 1994](https://www.legislation.gov.uk/ukpga/1994/23/schedule/8), or subject to the standard 20% VAT rate as a confectionery product. HMRC argued that Mega Marshmallows, due to their marketing focus on roasting over open flames, should be classified as confectionery and thus standard-rated. Innovative Bites Ltd, however, maintained that the marshmallows were sold primarily as cooking ingredients, intended for melting or toasting, rather than for direct consumption like sweets. ## Upper Tribunal Decision: The [First-tier Tribunal](https://taxdisputes.co.uk/2022/10/marshmallow-decision-aids-company-in-vat-case/) initially ruled in favour of Innovative Bites Ltd, a decision that HMRC appealed. However, the Upper Tribunal upheld the original ruling, determining that the marshmallows were not “confectionery” within the meaning of the VAT legislation. In doing so, the tribunal placed weight on the way the product was: - Marketed (clearly for roasting and cooking), - Used by consumers (primarily in food preparation), and - Packaged and presented (not for impulse snacking). The ruling is consistent with case law such as [Customs and Excise Commissioners v Ferrero UK Ltd [1997] STC 881](https://www.casemine.com/search/uk/%2BFerrero%2BUK%2BLimited), which emphasize that the functional use and presentation of food products are critical in determining VAT treatment. ## Download the Judgment Here [![](https://taxdisputes.co.uk/wp-content/uploads/2025/05/HM-Revenue-and-Customs-appellant-v-Innovative-Bites-Ltd-respondent-724x1024.jpg)](https://taxdisputes.co.uk/wp-content/uploads/2025/05/HM-Revenue-and-Customs-appellant-v-Innovative-Bites-Ltd-respondent.pdf) ## What Are the Legal and Tax Implications of This VAT Ruling? This ruling reinforces the principle that VAT classification must be based on objective characteristics of the goods and their common use, rather than solely on marketing or perceived consumer behavior. For food producers, retailers, and importers, this decision underscores the importance of accurate product classification and provides reassurance that minor variations in size or usage suggestions do not automatically lead to a different VAT treatment. [Tax advisors and legal professionals](https://taxdisputes.co.uk/expert-advice/) should take note of this case when assisting clients with HMRC disputes over VAT liability. It also serves as a reminder to maintain detailed documentation and evidence of how products are typically used by Customers. ## How Does the Mega Marshmallows Case Affect Other UK Food Businesses? If your business is involved in the sale of food products or faces uncertainty about VAT classifications, the Mega Marshmallows ruling could have direct relevance. The decision highlights the value of challenging HMRC determinations when there is a strong legal and factual basis. Businesses may benefit from a VAT health check to ensure that product lines are correctly classified and to mitigate potential compliance risks. **Need Expert Legal Advice on VAT and HMRC Disputes?** Our [Specialist Tax Law Solicitors and Barristers](https://taxdisputes.co.uk/expert-advice/) have extensive experience dealing with HMRC disputes, VAT classification, and tax tribunal litigation. If you’re facing a challenge from HMRC related to VAT we are here to help. Contact our experienced tax dispute resolution team today for a confidential discussion and [expert legal guidance](https://lexlaw.co.uk/our-people/m-ali-akram/) on 02071830529 or email us at taxdisputes@lexlaw.co.uk. We are here to help you understand your obligations, navigate HMRC scrutiny, and protect your interests in all tax-related litigation matters. ### Frequently Asked Questions related to VAT Classification’s and HMRC disputes: **1. What is the difference between zero-rated and standard-rated VAT in the UK?** In the UK, zero-rated goods (such as most food and children’s clothing) are taxed at 0%, while standard-rated goods are subject to the full VAT rate of 20%. The classification affects how much VAT a business must charge customers and pay to HMRC. **2. Are all food products zero-rated for VAT?** No. While many food products are zero-rated, exceptions exist for items classified as confectionery, alcoholic beverages, restaurant meals, and snacks. The line between food and confectionery can be complex and case-specific. **3. How does HMRC determine whether a food product is confectionery?** HMRC considers various factors such as ingredients, presentation, packaging, intended use, and how the product is marketed. Case law also plays a key role in determining classification. **4. Can the way a product is marketed affect its VAT classification?** Yes, but it’s not the sole factor. Courts and tribunals typically look at a combination of marketing, consumer use, packaging, and product function to assess VAT treatment. **5. What should a business do if HMRC challenges its VAT classification?** Businesses should consult with [tax law experts](https://taxdisputes.co.uk/expert-advice/) immediately. You may be able to provide evidence supporting your product’s correct classification or appeal the decision through a tax tribunal. **6. Has case law influenced how VAT is applied to food in the UK?** Yes. Legal cases such as [Ferrero UK Ltd (1997)](https://www.casemine.com/search/uk/%2BFerrero%2BUK%2BLimited) has clarified how products are assessed, reinforcing that classification depends on common use and consumer perception. **7. Why is product classification important for VAT compliance?** Incorrect classification can lead to unexpected VAT liabilities, penalties, or interest from HMRC. It’s crucial for businesses to ensure their VAT treatment aligns with legislation and precedent. --- # How to Challenge HMRC Tax Assessments and Protect Your Rights Source: https://taxdisputes.co.uk/2025/10/how-to-challenge-hmrc-tax-assessments-and-protect-your-rights/ [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) tax assessments are official calculations of the amount of tax owed by a taxpayer. [Disputes](https://taxdisputes.co.uk/contact-us/) often arise when taxpayers believe these assessments are incorrect due to errors, overestimations, or a lack of clarity in the calculation. For instance, assessments may incorrectly charge both [income tax](https://www.gov.uk/income-tax) and [capital gains tax](https://www.gov.uk/capital-gains-tax) on the same transaction. These issues can create financial and legal burdens, as demonstrated in the [Wyatt case](https://assets.caselaw.nationalarchives.gov.uk/ukftt/tc/2024/867/ukftt_tc_2024_867.pdf), where HMRC raised invalid assessments that were later successfully challenged. Understanding the fundamentals of tax assessments and the rights of taxpayers is crucial to avoiding unnecessary liabilities. ## What Is an HMRC Tax Assessment? An [HMRC tax assessment](https://www.gov.uk/self-assessment-tax-returns) is a calculation issued to determine your tax liability. These assessments are typically issued when HMRC believes income or gains have been omitted from a tax return or when further tax is due. For instance, under [Section 29 of the Taxes Management Act 1970 (TMA)](https://www.legislation.gov.uk/ukpga/1970/9/section/29), HMRC can issue an assessment if they discover undeclared income or discrepancies. However, HMRC must ensure that these assessments comply with legal requirements, as taxpayers have the right to challenge invalid assessments. ## Can HMRC Tax the Same Income Twice? No, HMRC cannot tax the same income twice. In the case of [Mr. Wyatt](https://assets.caselaw.nationalarchives.gov.uk/ukftt/tc/2024/867/ukftt_tc_2024_867.pdf)**,** HMRC issued assessments for both **[income tax](https://taxdisputes.co.uk/contact-us/)** and **[capital gains tax (CGT)](https://taxdisputes.co.uk/contact-us/)** on the same property development income. This approach effectively taxed him twice for the same amount, which the tribunal ruled was invalid. This example demonstrates that taxpayers should always review assessments carefully. Errors such as double taxation are not uncommon, and you have the right to challenge them. ## When Is an HMRC Assessment Invalid? An [HMRC assessment ](https://taxdisputes.co.uk/2024/02/hmrcs-assessment-powers/)is considered invalid when it fails to meet the legal criteria outlined in tax legislation. For instance, under [Section 29 of the Taxes Management Act 1970](https://www.legislation.gov.uk/ukpga/1970/9/section/29/enacted), any "discovery" assessment must be based on the amount of tax the officer genuinely believes to be due. If HMRC raises an assessment that exceeds this belief, it may be deemed invalid, as seen in the Wyatt case. Invalid assessments can also arise when HMRC makes errors in calculations, bases the assessment on inaccurate information, or fails to provide clear reasoning for its claims. Moreover, raising multiple assessments for the same income, such as charging both income tax and capital gains tax on a single receipt, can render them improper. Taxpayers have the right to challenge such assessments through appeals or by bringing the matter before the tax tribunal to ensure that the assessment complies with legal standards. ## What Should You Do If You Receive an Incorrect Tax Assessment? If you believe an HMRC tax assessment is incorrect, follow these steps: - [Review the Assessment](https://lexlaw.co.uk/legal-case-assessment/): Check the figures and the reasoning behind the calculation. - [Seek Expert Advice](https://taxdisputes.co.uk/): Tax law is complex; a professional can clarify whether the assessment is valid. - [File an Appeal](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/): If necessary, challenge the assessment through the First-tier Tax Tribunal. - Keep Evidence: Maintain records of all transactions and correspondence with HMRC. **NOTE:** HMRC assessments are not final. You have the legal right to ensure they are accurate and fair. ## Can HMRC Be Held Accountable for Errors? Yes, HMRC can be held [accountable](https://taxdisputes.co.uk/contact-us/) for unreasonable or incorrect actions. In [Mr. Wyatt’s case](https://assets.caselaw.nationalarchives.gov.uk/ukftt/tc/2024/867/ukftt_tc_2024_867.pdf), the tribunal acknowledged HMRC’s mistake but criticised their delay in rectifying it. [The tribunal](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/) highlighted its power to impose costs on HMRC for unreasonable behavior. This serves as a reminder that taxpayers can seek accountability when HMRC oversteps its authority or causes undue stress. ## Why Is It Important to Be Proactive in HMRC Disputes? Being proactive in [HMRC disputes](https://lexlaw.co.uk/?s=disputes+with+HMRC) is essential to protecting your financial interests and ensuring a fair resolution. Tax disputes can become complex and prolonged if not addressed promptly, leading to increased stress and potential financial burdens. By acting quickly, you can take advantage of legal remedies, such as filing timely appeals or providing evidence to support your case, which can significantly strengthen your position. Additionally, proactive measures help you avoid penalties or additional liabilities that might arise from delays. [Seeking professional advice](https://lexlaw.co.uk/legal-case-assessment/) early in the process ensures that you understand your rights, identify flaws in HMRC's claims, and develop a robust strategy for resolution. This approach not only saves time but also increases the likelihood of a [favorable outcome](https://lexlaw.co.uk/legal-case-assessment/), as demonstrated in the [Wyatt case](https://assets.caselaw.nationalarchives.gov.uk/ukftt/tc/2024/867/ukftt_tc_2024_867.pdf), where timely action highlighted HMRC's errors and led to a successful challenge. ## What Role Does the Tribunal System Play in Tax Disputes? The UK’s tax tribunal system provides an impartial platform for resolving disputes between taxpayers and HMRC. The [First-tier Tax Tribunal](https://www.gov.uk/courts-tribunals/first-tier-tribunal-tax) evaluates cases based on evidence and legal principles, ensuring fairness. In Mr. Wyatt’s case, the tribunal ruled against HMRC, emphasising that taxpayers should not be subject to prolonged appeals due to flawed assessments. ## Benefits of the Tribunal System: [The tribunal system](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/) offers taxpayers a fair and impartial platform to resolve [disputes with HMRC](https://lexlaw.co.uk/?s=disputes+with+HMRC). It ensures that cases are evaluated based on evidence, legal principles, and established procedures, providing an opportunity for taxpayers to challenge HMRC’s decisions effectively. The system is designed to be accessible, allowing individuals to present their case without the intimidation often associated with government disputes. Decisions made by the tribunal often clarify legal uncertainties and set precedents that benefit other taxpayers in similar situations. Furthermore, [the tribunal system ](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/)provides transparency and accountability, ensuring that HMRC operates within its legal boundaries. By engaging with the tribunal, taxpayers can safeguard their rights, [seek justice](https://lexlaw.co.uk/legal-case-assessment/), and avoid being unfairly burdened by incorrect tax assessments or unreasonable demands. ## What Lessons Can Taxpayers Learn from the Wyatt Case? [The Wyatt case](https://assets.caselaw.nationalarchives.gov.uk/ukftt/tc/2024/867/ukftt_tc_2024_867.pdf) underscores several key lessons for taxpayers dealing with HMRC. First and foremost, it highlights the importance of thoroughly reviewing tax assessments to ensure accuracy. Mistakes, such as overestimations or duplicate charges, can occur, and taxpayers should not assume HMRC’s calculations are infallible. The case also demonstrates the value of challenging incorrect assessments through the tribunal system, which exists to ensure fairness and accountability. Additionally, it serves as a reminder that HMRC must adhere to legal limits when issuing assessments and cannot estimate tax liabilities beyond what they genuinely believe is due. By taking proactive steps, such as seeking expert advice and pursuing appeals when necessary, taxpayers can protect their rights and avoid unnecessary financial burdens. This case reinforces the importance of vigilance and advocacy in navigating disputes with HMRC. ## How Can LEXLAW Assist You in Resolving HMRC Tax Disputes? Navigating [HMRC disputes](https://lexlaw.co.uk/?s=HMRC+disputes) can be overwhelming, but you don’t have to face them alone. The Wyatt case serves as a reminder that taxpayers have rights and can challenge HMRC when necessary. At [LEXLAW](https://lexlaw.co.uk/contact-us/), we specialise in representing taxpayers in [complex tax disputes](https://lexlaw.co.uk/?s=complex+tax+disputes) and ensuring that their rights are upheld. [Our experienced team](https://lexlaw.co.uk/contact-us/) can: - Challenge inaccurate or excessive assessments. - Guide you through the appeals process efficiently. - Protect your rights during negotiations and tribunal hearings. If you’re dealing with an HMRC tax assessment that seems unfair or excessive, don’t accept it without reviewing it thoroughly. Instead, seek professional help to ensure that errors are identified and your case is presented effectively. [Get in touch](https://taxdisputes.co.uk/contact-us/) with our expert team for advice and representation. Call us on 0207 1830 529 or email contact@lexlaw.co.uk to discuss your case and explore the best course of action. Let us help you resolve your tax dispute efficiently and fairly. --- # HMRC Nudge Letters Explained: Expert Legal Guidance for Taxpayers Source: https://taxdisputes.co.uk/2025/07/hmrc-nudge-letters-explained-expert-legal-guidance-for-taxpayers/ [HM Revenue & Customs (HMRC)](https://www.gov.uk/government/organisations/hm-revenue-customs) [nudge letters](https://taxdisputes.co.uk/2020/08/hmrc-new-nudge-letter-offshore-assets-disclosure-tax-investigation-advice/) have emerged as a tool in the UK’s tax compliance and enforcement framework, particularly targeting offshore income and assets. This comprehensive guide explains what HMRC nudge letters are, why they are issued, the potential legal risks involved, and the best strategies for taxpayers to respond effectively. Our [specialist tax dispute solicitors](https://lexlaw.co.uk/contact-us/) provide authoritative legal advice to help you navigate these complex issues and safeguard your financial interests. ## What Are HMRC Nudge Letters? HMRC nudge letters are informal, yet highly targeted, communications sent by HM Revenue & Customs to taxpayers. Their primary purpose is to encourage voluntary compliance with UK tax laws by prompting recipients to review and, if necessary, correct their tax affairs. These letters are part of HMRC’s broader data-driven [compliance strategy](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/), which leverages international cooperation and data exchange agreements. Unlike [formal tax investigations](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) or enquiries, nudge letters do not represent an accusation or a legal proceeding. Instead, they serve as an early warning system signaling that HMRC has received information, often from foreign tax authorities or financial institutions that suggests discrepancies or undeclared income and assets. This approach aligns with [HMRC’s modern enforcement techniques](https://taxdisputes.co.uk/hmrc-voluntary-disclosure-campaigns-solicitors-london/) designed to increase transparency and voluntary disclosure while reducing the need for costly and lengthy investigations. Understanding the nature of nudge letters is crucial for taxpayers to avoid unnecessary panic. They are an opportunity to address potential issues proactively, but ignoring them can escalate risks significantly. ## Why You Might Receive an HMRC Nudge Letter HMRC issues nudge letters based on specific triggers identified through sophisticated data analysis and international information sharing. Common reasons include: - **Undeclared Offshore Income or Capital Gains:** If you have received income or realised gains from foreign investments, bank accounts, or property that have not been declared in your UK tax returns, [HMRC](https://en.wikipedia.org/wiki/HM_Revenue_and_Customs) may send a nudge letter. - **Ownership or Interest in Overseas Bank Accounts, Trusts, or Investments:** Holding assets abroad without proper disclosure can attract HMRC’s attention, especially given global transparency initiatives. - **Mismatched Information between Tax Returns and International Disclosures:** Discrepancies between your declared income and data received from foreign tax authorities or financial institutions often trigger compliance checks. - **Use of Offshore Structures:** [Complex offshore arrangements](https://taxdisputes.co.uk/offshore-tax-evasion-tax-avoidance-solicitors-london/), including trusts or companies, may be scrutinised if HMRC suspects tax avoidance or evasion. If you have any foreign financial interests, it is vital to assess whether your tax returns fully reflect these. Receiving a nudge letter does not necessarily mean wrongdoing, but it does indicate HMRC’s interest in your tax affairs. ## What HMRC Expects: Completing the Certificate of Tax Position Upon receiving a nudge letter, [HMRC](https://taxdisputes.co.uk/hmrc-penalties/) requires you to complete a **Certificate of Tax Position** within a 30-day timeframe. This certificate is a formal declaration where you must: - **Confirm that your tax affairs are fully up to date**, or - **Disclose any past errors, omissions, or inaccuracies** in your tax returns through the **[Worldwide Disclosure Facility (WDF)](https://www.gov.uk/guidance/worldwide-disclosure-facility-make-a-disclosure)**. The Certificate of Tax Position requires you to provide accurate information about your tax affairs within a 30 day timeframe. This timeframe is deliberately short to encourage prompt attention, so it is important to act quickly and carefully to ensure your response is complete and truthful. Failing to respond, or responding inaccurately, can trigger further enforcement action. Therefore, it is highly advisable to seek expert legal advice before completing and submitting the certificate. ## Consequences of Ignoring or Mishandling a Nudge Letter Ignoring an HMRC nudge letter or mishandling your response can lead to severe repercussions, including: - **Escalation to a Formal Tax Investigation:** HMRC may open a formal enquiry under the Taxes Management Act 1970, which is far more intrusive and demanding. - **Financial Penalties:** You could face substantial penalties, including “failure to correct” penalties if HMRC determines deliberate non-compliance. - **Criminal Prosecution:** In cases involving deliberate concealment or fraud, [prosecution](https://taxdisputes.co.uk/hmrc-penalties/) is possible, potentially leading to fines and imprisonment. - **Reputational Damage:** Being subject to an HMRC investigation or [prosecution](https://taxdisputes.co.uk/hmrc-penalties/) can harm your personal and professional reputation. The legal gravity of these consequences underscores the importance of treating nudge letters with the utmost seriousness and engaging professional assistance immediately. ## How to Respond to a HMRC Nudge Letter Responding to an HMRC nudge letter requires a strategic and legally sound approach: - **Do Not Ignore the Letter:** Prompt engagement is critical to avoid escalation. - **Seek Specialist Legal Advice Before Responding:** Many declarations in the Certificate of Tax Position are made under oath or penalty of perjury, so accuracy and honesty are paramount. - **Assess Your Actual Tax Position:** Expert solicitors can review your financial records and tax filings to identify any discrepancies or risks. - **Consider Using the [Worldwide Disclosure Facility (WDF)](https://taxdisputes.co.uk/offshore-tax-evasion-tax-avoidance-solicitors-london/):** If errors or omissions exist, the WDF allows you to disclose voluntarily, often resulting in reduced penalties. - **Draft and Review Your Response:** Legal professionals can ensure your certificate and any accompanying disclosures are precise, compliant, and strategically framed. - **Negotiate with HMRC if Necessary:** Experienced tax lawyers can liaise with HMRC to mitigate penalties and avoid formal investigations or prosecutions. At LEXLAW, [our tax dispute solicitors](https://lexlaw.co.uk/our-people/) have a proven track record of successfully guiding clients through HMRC’s compliance processes, minimising risks and securing favourable outcomes. Early legal intervention can make a decisive difference. ## Your Rights as a UK Taxpayer While HMRC nudge letters themselves are not subject to appeal, taxpayers retain important rights throughout the compliance and enforcement process: - **Right to Appeal Penalties and Assessments:** If HMRC issues penalties or tax assessments following your response or investigation, you can request an internal review or appeal to the independent First-Tier Tax Tribunal. - **Right to Fair Treatment:** HMRC must act fairly and proportionately, respecting your rights under UK tax law and procedural fairness principles. - **Right to Legal Representation:** You may be represented by solicitors or tax advisers at all stages. - **Right to Confidentiality:** Taxpayer information is protected under [data protection laws](https://www.gov.uk/data-protection), although HMRC shares data internationally under strict protocols. Understanding these rights empowers you to challenge HMRC’s decisions and ensures that enforcement actions are balanced and justified. ## Table: Comprehensive Overview of HMRC Nudge Letters | **Aspect** | **Details** | | ---------- | ----------- | | **Definition** | Informal HMRC letter encouraging voluntary tax compliance | | **Common Triggers** | Offshore income, overseas accounts, trusts, mismatched international data | | **Immediate Obligation** | Complete Certificate of Tax Position within 30 days | | **Legal Nature of Certificate** | Declaration often made under penalty of perjury | | **Risks of Non-Compliance** | Formal investigation, financial penalties up to 200%, criminal prosecution | | **Recommended Response** | Engage specialist tax solicitors, assess tax position, consider voluntary disclosure via WDF | | **Taxpayer Rights** | Appeal penalties/assessments, request internal reviews, appeal to First-Tier Tax Tribunal | ## Expert London Tax Defence Solicitors HMRC nudge letters are a clear signal that your offshore tax affairs require urgent attention. Ignoring these letters or responding without [expert advice](https://lexlaw.co.uk/our-people/) can lead to costly penalties, formal investigations, or even criminal charges. It is essential to act promptly, understand your legal obligations, and engage experienced tax dispute solicitors to protect your interests. If you have received an HMRC nudge letter or are uncertain about your offshore tax position, [contact](https://lexlaw.co.uk/contact-us/) LEXLAW today. Our [expert tax lawyers](https://lexlaw.co.uk/our-people/) will provide confidential, tailored advice to help you navigate HMRC’s compliance process and achieve the best possible outcome. We understand the complexities of tax law and are dedicated to achieving the best possible outcome for our clients. [Contact us today](https://lexlaw.co.uk/contact-us/)  --- # How to Respond to COP8 & COP9 HMRC Tax Investigations (2025 Guide) Source: https://taxdisputes.co.uk/2025/05/how-to-respond-to-cop8-cop9-hmrc-tax-investigations-2025-guide/ *[COP8](https://taxdisputes.co.uk/tax-avoidance-cop-8-investigations-solicitors-london/) and [COP9](https://taxdisputes.co.uk/tax-evasion-hmrc-code-practice-9-investigations/) are the [investigations](https://lexlaw.co.uk/hmrc-tax-investigation-penalty-advice-solicitors/) that HMRC starts in cases involving tax avoidance and tax [fraud](https://taxdisputes.co.uk/repayment-fraud/). COP8 and COP9 are the two main Codes of Practice that are used by *[*HM Revenue & Customs (HMRC)*](https://www.gov.uk/government/organisations/hm-revenue-customs)*  to look into major tax cases involving both individuals and companies. These inquiries are carried out by the *[*Fraud Investigation Service (FIS)*](https://www.gov.uk/government/publications/hmrc-annual-report-and-accounts-2023-to-2024-technical-notes/fraud-investigation-service-technical-note)* of HMRC, a specialised division charged with managing intricate tax compliance matters. Comprehending the differences, procedures, and current patterns in COP8 and COP9 inquiries is essential for taxpayers who are under investigation.* ## Expert Legal Support You Can Rely on During HMRC Investigations [Our team](https://lexlaw.co.uk/our-people/) specialises in handling [HMRC tax investigations](https://taxdisputes.co.uk/hmrc-tax-investigations/), including the most complex COP8 and COP9 cases. We combine years of experience as specialist solicitors and barristers, negotiating directly with HMRC, managing contentious [tax disputes](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/), and representing clients at [Tax Tribunals](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/) and the High Court. With our deep understanding of HMRC’s Fraud Investigation Service processes, we provide proactive, strategic advice tailored to minimise penalties and resolve investigations efficiently. Our dedicated legal experts will guide you confidently through disclosure requirements and negotiations with discretion and professionalism. When it comes to navigating HMRC investigations, [our expert team](https://taxdisputes.co.uk/legal-representation/) is your strongest ally. ## COP8: HMRC’s Approach to Complex Tax Avoidance Investigations in 2025 [Civil investigations known as COP8](https://taxdisputes.co.uk/wp-content/uploads/2025/05/COP8.pdf)** **(Code of Practice 8) are started when HMRC suspects a substantial underpayment of taxes, frequently connected to intricate tax evasion schemes or sizable offshore transactions. In some cases, significant tax losses are suspected in high-risk tax arrangements rather than outright fraud. Long-term COP8 investigations typically entail a thorough analysis of financial records and tax planning techniques, occasionally incorporating third-party data from suppliers or banks. [COP8 investigations](https://taxdisputes.co.uk/tax-avoidance-cop-8-investigations-solicitors-london/) are generally civil tax investigations, particularly if managed carefully with expert legal advice. However, if HMRC suspects or discovers evidence of fraud at any point during a [COP8 investigation](https://taxdisputes.co.uk/tax-avoidance-cop-8-investigations-solicitors-london/), they may shift their approach and handle the investigation under [Code of Practice 9](https://taxdisputes.co.uk/tax-evasion-hmrc-code-practice-9-investigations/). Unlike COP9, there is no standardised procedure for a COP8 investigation. The primary focus is on gathering information to establish the facts and recover any tax, interest, and penalties due. This process can involve examining your tax returns, accounts, and statements, and obtaining information from third parties, potentially using statutory powers if necessary. HMRC may also request meetings or conduct visits to business premises to inspect records. Full cooperation is encouraged, and you must ensure any information provided is correct and complete. ## Understanding COP9: When HMRC Suspects Deliberate Tax Fraud More serious civil investigations known as [Code of Practice 9 (COP9) ](https://taxdisputes.co.uk/wp-content/uploads/2025/05/COP9-.pdf)** **are initiated when HMRC detects intentional tax evasion or dishonesty. In contrast to COP8, instances involving COP9 specifically claim fraudulent intent, and taxpayers are formally notified that their actions are being contested. By filing a thorough disclosure report outlining the type and scope of the fraud, taxpayers can use COP9 to voluntarily reveal fraud and avoid criminal prosecution. Under [COP9](https://www.gov.uk/government/publications/code-of-practice-9-where-hmrc-suspects-fraud-cop9/code-of-practice-9), HMRC offers the individual the opportunity to make a complete, accurate, open, and honest disclosure of all their deliberate behaviour leading to a loss of tax, duty, or payment administered by HMRC, as well as all other irregularities in their tax affairs (including those arising from non-deliberate behaviour). This is facilitated through a contractual arrangement called the [Contractual Disclosure Facility (CDF).](https://www.gov.uk/guidance/admitting-tax-fraud-the-contractual-disclosure-facility-cdf) The CDF is presented as an alternative to a criminal investigation with a view to prosecution. By entering into the CDF contract, the individual admits that tax has been lost due to their deliberate conduct. In exchange for a full disclosure of the deliberate conduct, HMRC undertakes not to commence a criminal investigation into the suspected frauds related to that disclosed deliberate behaviour. The individual has 60 days from the date of receiving the [COP9 offer](https://taxdisputes.co.uk/tax-evasion-hmrc-code-practice-9-investigations/) to accept or reject the CDF. Accepting the offer creates a binding contractual arrangement. If accepted, the individual must comply with the terms, which involve making an initial Outline Disclosure within the 60-day period and a subsequent Formal Disclosure** **within an agreed timeframe. The Outline Disclosure requires an honest description of the deliberate conduct, including details like what was done, how it was done, who was involved, how the individual benefited, and the period over which it occurred. The Formal Disclosure involves a complete and accurate disclosure of all irregularities and includes mandatory certified documents such as a statement of worldwide assets and liabilities and certificates of bank accounts and credit cards operated, often alongside a detailed Disclosure Report in complex cases. ## Key Differences Between COP8 and COP9 | **Feature** | **COP8** | **COP9** | | ----------- | -------- | -------- | | Nature of Allegation | Suspected tax underpayment, avoidance | Suspected deliberate tax fraud | | HMRC Approach | Civil investigation without immediate fraud claim | Civil investigation with fraud allegation | | Disclosure Requirement | No formal disclosure report required | Full disclosure report mandatory | | Penalties | Generally lower, related to tax underpayment | Higher penalties due to fraud and dishonesty | | Risk of Criminal Prosecution | Low unless fraud uncovered later | High unless full disclosure made | | Typical Targets | Complex tax avoidance, offshore structures | Undisclosed income, falsified records | ## COP 8 and COP 9: Recent Trends and Statistics HMRC’s focus on [COP8](https://taxdisputes.co.uk/tax-avoidance-cop-8-investigations-solicitors-london/) and [COP9](https://taxdisputes.co.uk/tax-evasion-hmrc-code-practice-9-investigations/) investigations has evolved significantly in recent years, with new cases almost quadrupling from the previous year, COP8 investigations increased significantly in 2022–2023, a sign of HMRC's heightened scrutiny of tax planning and evasion strategies. Although there were fewer new COP8 cases in 2023–2024, a significant amount of tax was recovered, indicating that ongoing investigations had been successfully concluded. Although there were fewer COP9 cases in 2023–2024, the amount of revenue collected from these investigations rose significantly, in part because of one major settlement that totalled more than £650 million. This emphasises how much money is at stake in fraud cases. Given the magnitude of intentional tax fraud, penalties in COP9 investigations are frequently ten times or more severe than those in COP8. Although there are fewer of these investigators overall than in other cases, HMRC nonetheless invests in specialised investigators for certain situations. In 2023-24, HMRC opened 212 COP8 [investigations](https://lexlaw.co.uk/hmrc-tax-investigation-penalty-advice-solicitors/) and closed 268, recovering £83.2 million. For COP9, 268 cases were opened and 618 closed, with £338.4 million recovered (excluding a £652.6 million settlement). [COP8](https://taxdisputes.co.uk/tax-avoidance-cop-8-investigations-solicitors-london/) targets suspected tax underpayment or avoidance, while COP9 focuses on deliberate fraud requiring full disclosure. Despite fewer new cases, tax recovered increased significantly, highlighting HMRC’s focus on high-value investigations and higher penalties in fraud cases. ## Are you facing Challenges with a COP9 Investigation? If you’re facing a [COP9 investigation](https://taxdisputes.co.uk/tax-evasion-hmrc-code-practice-9-investigations/) from HMRC, you need expert support to navigate this serious and complex process. Our [specialist team](https://lexlaw.co.uk/hmrc-tax-investigation-penalty-advice-solicitors/) of solicitors and barristers has extensive experience handling COP9 cases, guiding clients through every step-from preparing detailed disclosure reports under the Contractual Disclosure Facility to negotiating with HMRC to minimise penalties and avoid criminal prosecution. We understand the high stakes involved and provide clear, strategic advice tailored to your situation, ensuring you respond promptly and confidently. Don’t face a COP9 investigation alone, contact us for an [initial conference](https://taxdisputes.co.uk/contact-us/) and let our expert team protect your interests and help you achieve the best possible outcome. ## Practical Advice for Taxpayers on COP8 and COP9 Given HMRC’s increasing focus on [high-value tax investigations](https://lexlaw.co.uk/hmrc-tax-investigation-penalty-advice-solicitors/), our team strongly advises individuals and businesses to seek [expert advice](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) early. Engaging our [tax investigation specialists](https://taxdisputes.co.uk/) can help you manage risks, negotiate effectively with HMRC, and potentially reduce penalties. Cooperation with HMRC is crucial-especially in [COP9](https://taxdisputes.co.uk/tax-evasion-hmrc-code-practice-9-investigations/) cases-where full and timely disclosure often mitigates penalties and avoids prosecution. COP8 investigations may involve extensive scrutiny, including third-party enquiries and detailed financial analysis, so thorough documentation and professional support are essential. Ignoring HMRC notices or refusing to engage can lead to prolonged investigations, higher penalties, and increased risk of criminal action. [Contact us ](https://lexlaw.co.uk/contact-us/)to ensure you have the expert guidance needed to protect your interests and navigate these complex investigations confidently. In summary, COP8 and COP9 investigations represent HMRC’s serious approach to tackling tax underpayment and fraud. While COP8 targets complex avoidance without immediate fraud allegations, COP9 addresses suspected deliberate fraud with higher penalties and potential criminal implications. Awareness of these processes and recent trends can help taxpayers navigate investigations more effectively and safeguard their interests. ## FAQs: HMRC COP8 and COP9 Tax Investigations ** What are COP8 and COP9 investigations?** Without immediate accusations of fraud, COP8 investigations concentrate on suspected substantial tax underpayments or evasion. When HMRC detects intentional tax fraud or dishonesty, COP9 investigations are initiated, necessitating complete disclosure under the Contractual Disclosure Facility (CDF). **How does HMRC approach COP8 and COP9 cases differently?** HMRC does not immediately accuse fraud in COP8, a civil inquiry in which it collects evidence and demands documents. In order to prevent criminal prosecution, taxpayers are asked to completely reveal all irregularities in COP9, which entails a formal fraud claim. **Am I required to submit a disclosure report?** A comprehensive disclosure report that describes the type and date of the fraud is required in COP9 cases. Although a formal disclosure report is not necessary in COP8 situations, HMRC will ask for a lot of information and documentation. **What penalties can I face under COP8 and COP9?** Under COP8, penalties are typically less severe and pertain to tax evasion or underpayment. Because of the fraudulent nature of the behavior, COP9 sanctions are much harsher and can involve hefty fines and interest. **What is the risk of criminal prosecution?** Unless fraud is discovered during the investigation, there is little chance of criminal prosecution in COP8 cases. Unless the taxpayer discloses fully and honestly under the CDF, there is a significant danger in COP9 investigations. **How long do I have to respond to a COP9 notice?** After receiving a COP9 notice, you normally have 60 days to determine whether to accept HMRC's offer to disclose under the CDF. **Can a COP8 investigation become a COP9?** Yes, the matter may be moved to a COP9 investigation if HMRC finds evidence of intentional fraud during a COP8 probe. --- # HMRC Targets Employment Agencies with Section 44 ITEPA: K5K Limited Loses PAYE and NICs Appeal Source: https://taxdisputes.co.uk/2025/07/hmrc-targets-employment-agencies-with-section-44-itepa-k5k-limited-loses-paye-and-nics-appeal/ [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) continues its aggressive pursuit of businesses that engage temporary or contract workers, particularly those supplying services through Limited Company Contractors (LCCs) or personal service companies. The recent tax case of K5K Limited v HMRC serves as a stark warning to employment agencies and businesses operating in highly regulated sectors, such as healthcare, that fail to properly assess their tax obligations under agency worker legislation. The [First-tier Tribunal's](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/) decision, which upheld significant tax assessments for unpaid [PAYE](https://en.wikipedia.org/wiki/Pay-as-you-earn_tax) and [National Insurance ](https://www.gov.uk/national-insurance)Contributions (NICs), demonstrates how HMRC is using [Section 44 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA)](https://www.legislation.gov.uk/ukpga/2003/1/section/44) to treat contractors as employees for tax purposes even where personal service companies are involved. If your business uses contractors, agency workers or LCCs, this case highlights the real risk of facing retrospective tax assessments, penalties, and reputational damage. [Our specialist tax dispute solicitors and barristers](https://taxdisputes.co.uk/expert-advice/) have a proven track record in defending businesses against HMRC investigations, including Section 44 ITEPA, IR35, PAYE, and NIC claims. ## HMRC's Agency Worker Crackdown [K5K Limited](https://find-and-update.company-information.service.gov.uk/company/07692648), trading as 247 Professional Health, operated as an employment business supplying healthcare workers to clients across the UK. Like many in the sector, K5K engaged a significant proportion of its workforce through personal service companies commonly referred to as LCCs. In July 2018, HMRC issued K5K with 18 decision notices covering three tax years from 2014 to 2017. The assessments totalled nearly £261,000 in unpaid income tax and NICs, arising from HMRC's conclusion that K5K had incorrectly treated workers as self-employed contractors when, in reality, they should have been taxed as employees under Section 44 ITEPA. K5K appealed the assessments to the First-tier Tribunal (Tax Chamber), arguing that HMRC had misapplied the legislation and that the assessments were invalid on procedural grounds. However, the Tribunal ultimately ruled in HMRC's favour, providing crucial insight into how courts interpret agency worker rules and contractor arrangements. ## What is Section 44 ITEPA 2003 and Why Does It Matter? Section 44 ITEPA, often referred to as the "agency legislation," is designed to prevent tax avoidance where workers provide services via intermediaries, such as employment agencies or personal service companies, but in substance operate as employees. The legislation applies where: - An individual personally provides services to a client; - There is a contract between the client and an intermediary (such as an agency); and - The individual is subject to supervision, direction, or control in how the work is carried out. If these conditions are met, the intermediary (the agency) is responsible for operating PAYE and paying [Class 1 NICs](https://www.gov.uk/national-insurance/national-insurance-classes) as if the worker were an employee. Section 44 is particularly significant in sectors like healthcare, construction, and logistics, where agencies often engage workers through LCCs or [umbrella companies](https://www.gov.uk/guidance/working-through-an-umbrella-company), believing this distances them from [employment tax liabilities](https://www.gov.uk/government/publications/globally-mobile-employees/effect-of-residence-on-an-employees-liability-to-uk-income-tax). ## Common Reasons Businesses Lose PAYE and NIC Appeals Against HMRC The recent Tax Tribunal decision serves as a clear warning to businesses that rely on Limited Company Contractors (LCCs) or personal service companies without properly considering their tax obligations. Below are some of the key reasons businesses fail in defending PAYE and National Insurance Contributions (NIC) appeals brought by HMRC under Section 44 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA). ### 1. Personal Service, Regardless of Corporate Structures A common misconception is that by engaging workers through personal service companies or LCCs, businesses can avoid employment tax liabilities. However, the Tribunal made it clear that if the individual themselves personally performs the services, the presence of an intermediary company does not shield the business from PAYE and NIC obligations. In practice, if a worker personally provides services to a client, the business may still be caught by Section 44 ITEPA, regardless of any [company structure](https://companieshouse.blog.gov.uk/2018/07/18/choosing-the-right-business-structure/) in place. ### 2. Inadequate or Missing Contractual Documentation Tribunals place significant weight on the quality and timing of [contractual](https://www.gov.uk/employment-contracts-and-conditions) documentation. Where businesses fail to produce clear, contemporaneous contracts that accurately reflect the working arrangements, HMRC's interpretation is more likely to prevail. In some cases, documents produced after the fact to "regularise" the situation have been rejected as unreliable. Without robust contracts in place, businesses risk being unable to defend themselves and may find that workers are treated as employees for tax purposes by default. ### 3. Supervision, Direction, and Control by End Clients [The existence of supervision, direction, or control (SDC)](http://Agency Legislation- Supervision, Direction or Control GOV.UK https://assets.publishing.service.gov.uk › media) over the worker by the client is a key condition that triggers Section 44 ITEPA. This is especially common and often unavoidable in regulated industries such as healthcare, construction, and logistics. Where workers are subject to instructions on how, when, or where work is performed, businesses are exposed to PAYE and NIC liabilities, even if the engagement is via a [personal service company](https://commonslibrary.parliament.uk/research-briefings/sn05976/). ### 4. Weak Procedural Defences and Misunderstanding of Assessment Requirements Businesses sometimes attempt to challenge HMRC assessments by arguing procedural defects, such as a failure to expressly cite the relevant tax provisions within the assessments themselves. However, tribunals consistently find that there is no statutory requirement for HMRC to set out detailed legal references within assessments. Moreover, correspondence between HMRC and the business prior to the assessments often demonstrates that the business was aware of the legal issues, undermining any procedural defence. ## What This Means for Your Business: This case should serve as a wake-up call for businesses that rely on agency workers, contractors, or LCCs without fully considering their [tax obligations](https://www.gov.uk/self-assessment-tax-returns) under agency legislation. HMRC is increasingly focused on ensuring the correct application of PAYE and NICs for workers who, despite operating through intermediaries, are in practice treated as employees. Where businesses fail to comply, HMRC will pursue assessments for unpaid tax  and as K5K discovered, tribunals are unlikely to accept weak contractual arrangements or procedural defences. Please find the detailed judgment below: [![HMRC Targets Employment Agencies with Section 44 ITEPA](https://taxdisputes.co.uk/wp-content/uploads/2025/07/HMRC-Targets-Employment-Agencies-with-Section-44-ITEPA-1.png)](https://taxdisputes.co.uk/wp-content/uploads/2025/07/HMRC-Targets-Employment-Agencies-with-Section-44-ITEPA.pdf) ## How Our Tax Lawyers Can Help If your business is facing an HMRC investigation under Section 44 ITEPA, IR35, or agency worker legislation, early, specialist legal advice is essential. Our team of tax solicitors and barristers has extensive experience advising and defending businesses in complex PAYE, NIC, and employment status disputes. We provide: - Strategic legal advice to assess risk and exposure; - Contract reviews and compliance support to reduce liability; - Robust representation in HMRC negotiations; - [Expert advocacy](https://taxdisputes.co.uk/success/) before Tax Tribunals where necessary. [We have successfully defended businesses](https://taxdisputes.co.uk/success/) facing multi-million-pound tax assessments, negotiated favourable settlements with HMRC, and guided clients through complex legal frameworks to safeguard their operations. ## Contact Our Leading Tax Dispute Lawyers Today The consequences of getting agency worker arrangements wrong can be severe, including crippling tax liabilities, penalties, and reputational damage. Do not wait for HMRC to act. Our specialist tax team is ready to provide immediate, practical advice tailored to your circumstances. We are a [specialised firm](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) and also provide: [Urgent Advice and Representation](https://lexlaw.co.uk/legal-case-assessment/)**:** Our unique expert team includes leading (ex-HMRC and Big Four) tax litigation counsel.         Defence Against Winding-Up Petitions: We can help you negotiate with HMRC for a [Time to Pay Arrangement (TTP)](https://taxdisputes.co.uk/2025/04/what-is-a-hmrc-time-to-pay-tpp-arrangement-a-guide-to-securing-a-tpp-agreement/) or explore options like a [Company Voluntary Arrangement (CVA)](https://www.gov.uk/company-voluntary-arrangements) to rescue your business.    [Preventing Bank Account Freezes](https://taxdisputes.co.uk/2024/11/how-to-challenge-a-hmrc-account-freezing-orders/): We assist companies in avoiding the advertisement of winding-up petition notices or obtaining a validation order to unfreeze accounts. [Expert Legal Advice on HMRC Investigations](https://lexlaw.co.uk/practice-areas/): This includes tax avoidance schemes, tax evasion, offshore tax evasion, VAT evasion, and cryptoassets tax investigations. HMRC Tax Appeals: From Notice of Appeal to HMRC to First Tier Tax Tribunal representation and [Judicial Review](https://lexlaw.co.uk/judicial-review-court-lawyers-london-hmrc-tax-dispute-decision-advice-representation/) applications against HMRC. ### Frequently Asked Questions What is Section 44 ITEPA 2003? Section 44 of the Income Tax (Earnings and Pensions) Act 2003, often called the "agency legislation," is designed to prevent tax avoidance where workers are supplied through intermediaries like agencies or personal service companies, but in reality, operate as employees. Where the conditions apply, the agency or intermediary is responsible for operating PAYE and paying National Insurance Contributions (NICs) as if the worker were directly employed. Who is affected by Section 44 ITEPA? Section 44 applies to employment agencies, businesses, and any organisation that supplies workers to end clients through intermediaries, such as Limited Company Contractors (LCCs) or personal service companies. It is particularly relevant in industries like healthcare, construction, logistics, and other sectors that rely on temporary or contract workers. When does Section 44 ITEPA apply? Section 44 applies when: ✔ An individual personally provides services to an end client; ✔ There is a contract between the client and an intermediary (e.g., an agency); ✔ The individual is subject to supervision, direction, or control (SDC) in how the work is carried out. If these conditions are met, the intermediary must treat the individual as an employee for tax purposes. Why are HMRC targeting employment agencies and contractors? HMRC is actively cracking down on businesses that use contractors, agency workers, or LCCs to avoid employment tax liabilities. The agency worker legislation ensures that, where workers are effectively treated as employees, PAYE and NICs must be correctly operated. HMRC uses Section 44 ITEPA as a powerful tool to enforce compliance, especially in regulated industries. What are common reasons businesses lose PAYE and NIC appeals? Tribunals often side with HMRC where businesses: - Rely on weak procedural arguments against HMRC assessments. - Engage workers personally, despite corporate structures; - Fail to produce clear, contemporaneous contracts; - Allow end clients to exercise supervision, direction, or control over workers; What are the risks of getting agency worker arrangements wrong? Businesses that fail to comply with agency legislation risk: - Potential enforcement action by HMRC, including winding-up petitions or frozen bank accounts. - Retrospective PAYE and NIC assessments; - Penalties and interest charges; - Reputational damage; How can your firm help with HMRC investigations and Section 44 ITEPA disputes? Our team of specialist tax solicitors and barristers can: - Assist with urgent matters such as HMRC enforcement action, winding-up petitions, or frozen accounts. - Review your contractor and agency worker arrangements; - Provide strategic advice to minimise tax risks; - Represent you in negotiations with HMRC; - Defend you in Tax Tribunal appeals or Judicial Review proceedings;   --- # First-Tier Tax Tribunal Appeals Guide Source: https://taxdisputes.co.uk/2025/10/first-tier-tax-tribunal-appeals-guide/ The [First-tier Tax Tribunal (FTT)](https://lexlaw.co.uk/hmrc-tax-dispute-lawyers/) plays a central role in resolving [disputes between taxpayers and HM Revenue & Customs (HMRC)](https://taxdisputes.co.uk/). For businesses and individuals [facing significant tax assessments, penalties, or VAT reclaims](https://taxdisputes.co.uk/2020/10/hmrc-assessments-penalties-vat-appeal-to-first-tier-tax-tribunal-out-of-time-late-advice/), the FTT offers an independent forum where HMRC’s decisions can be challenged. This guide explains the First-tier Tribunal appeal process in detail, from filing your appeal through to hearings and potential onward appeals. It highlights the relevant legislation, case law, and practical steps that can determine the outcome of a dispute. ## What is the First-Tier Tax Tribunal? The First-tier Tribunal (Tax Chamber) is an independent judicial body that hears appeals against a wide range of HMRC decisions. It is governed by the **[Tribunals, Courts and Enforcement Act 2007](https://www.legislation.gov.uk/ukpga/2007/15/pdfs/ukpga_20070015_en.pdf)** and the **[Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009](https://taxdisputes.co.uk/wp-content/uploads/2024/07/Tribunal-Procedure-First-tier-Tribunal-Tax-Chamber-Rules-2009.pdf)**. Cases can span a broad spectrum of [tax matters](https://taxdisputes.co.uk/). Common disputes include [VAT assessments ](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/online-sellers-businesses-vat-compliance-hmrc-tax-liability-fraud-evasion-investigation-penalty-assessments/)and denials of input tax, often in connection with the [Kittel principle](https://taxdisputes.co.uk/2025/08/hmrc-loses-9-3m-kittel-vat-case-what-it-means-for-businesses-facing-allegations-of-fraud/) or [MTIC fraud investigations](https://taxdisputes.co.uk/2011/06/knew-or-ought-to-have-known-a-review-of-mtic-or-carousel-fraud-cases/). The Tribunal also hears corporation tax and [income tax appeals](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/), [PAYE disputes](https://taxdisputes.co.uk/paye-tax-investigation-disputes/), [R&D tax relief claims](https://taxdisputes.co.uk/2024/07/guide-to-unlocking-hmrcs-rd-tax-relief/), [penalties for late filing or inaccuracies](https://taxdisputes.co.uk/2021/01/hmrc-relaxes-late-filing-penalty-for-self-assessment-tax-returns/), and [excise and customs](https://taxdisputes.co.uk/excise-duty-appeals/) matters. Increasingly, it also adjudicates on [HMRC information notices](https://taxdisputes.co.uk/2020/09/taxpayer-appeal-allowed-tribunal-hmrc-penalty-information-notice-investigation-time-limits/) and [disclosure applications](https://taxdisputes.co.uk/hmrc-voluntary-disclosure-campaigns-solicitors-london/), where the boundaries of taxpayer confidentiality are tested. The Tribunal is independent of HMRC and aims to provide a fair and accessible process. However, success before the FTT is not automatic. It depends heavily on careful preparation, strong evidence, and expert representation. ## Step 1: Deciding Whether to Appeal The first stage is deciding whether the [HMRC decision in question is capable of being appealed](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/). Most HMRC decisions carry a right of appeal, and the decision letter or assessment notice should set this out. In many situations, the taxpayer must first request a [statutory review](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/) by HMRC before they can progress to the Tribunal. Timing is critical. In most cases, a taxpayer has only 30 days to[ lodge an appeal](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/), whether against the original HMRC decision or the conclusion of a review. Missing the deadline can be fatal to the case, although the Tribunal retains discretion to admit [late appeals](https://taxdisputes.co.uk/late-hmrc-tax-appeals/) in limited circumstances. At this point, it is important to identify the precise [grounds of appeal](https://taxdisputes.co.uk/2025/09/tax-tribunal-process-guide-benefits-and-strategy-for-hmrc-tax-disputes-in-the-uk/). These may involve challenging HMRC’s interpretation of the law, disputing the factual basis of an assessment, or arguing that a penalty is disproportionate. In some instances, taxpayers may also consider [Alternative Dispute Resolution (ADR)](https://lexlaw.co.uk/adr-alternative-dispute-resolution-second-opinion-legal-advice/) before proceeding with litigation, particularly where the dispute turns on evidence rather than points of law. The Supreme Court in [*BPP Holdings v HMRC*](https://taxdisputes.co.uk/wp-content/uploads/2025/10/uksc_2016_0069_judgment_1895846dda-1.pdf)**[ ](https://taxdisputes.co.uk/wp-content/uploads/2025/10/uksc_2016_0069_judgment_1895846dda-1.pdf)**[[2017] UKSC 55](https://taxdisputes.co.uk/wp-content/uploads/2025/10/uksc_2016_0069_judgment_1895846dda-1.pdf) stressed the importance of engaging constructively with HMRC before litigation; uncooperative conduct at this stage can damage prospects at the Tribunal. ## Step 2: Filing the Notice of Appeal The appeal formally begins with a [Notice of Appeal](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/), filed either online or using form T242. This document must clearly identify the decision under challenge, set out the taxpayer’s grounds of appeal, and include supporting documentation such as the HMRC assessment letter and relevant correspondence. The precision of the appeal grounds is vital. Vague or generic grounds may leave the taxpayer at a disadvantage when the case comes before the Tribunal. In [*Katib v HMRC *[2019] UKUT 189 (TCC)](https://taxdisputes.co.uk/wp-content/uploads/2025/10/Katib-v-HMRC-2019-UKUT-189-TCC.pdf), the [Upper Tribunal](https://www.gov.uk/government/publications/upper-tribunal-tax-and-chancery-register-of-cases) underlined the importance of properly pleaded grounds to ensure procedural fairness. A well-drafted appeal notice not only sets the scope of the dispute but also signals to HMRC and the Tribunal that the taxpayer’s case is serious and professionally prepared. ## Step 3: HMRC’s Response and Case Management Once the appeal is lodged, HMRC will file a Statement of Case, explaining their legal and factual position. The Tribunal then issues case management directions, setting deadlines for each stage of the proceedings. These typically cover the exchange of documents, the submission of[ witness statements](https://taxdisputes.co.uk/taxpayer-witness-statement-drafting-representation-hmrc-advice/), and the scheduling of hearings. Strict compliance with these directions is required. The Tribunal has the power to [strike out an appeal](https://taxdisputes.co.uk/2023/06/tax-tribunal-denies-hmrcs-application-to-dismiss-appeal/) or exclude evidence if a party fails to comply. ## Step 4: Preparing Your Case Preparation is the single most important factor in achieving success at the Tribunal. Appeals are determined primarily by the strength of evidence and the persuasiveness of legal arguments. Documentary evidence must be gathered and organised carefully, including invoices, contracts, emails, accounting records, and due diligence materials. Witness evidence is equally important: detailed witness statements should explain the decisions taken by directors, accountants, or advisers, and address key issues raised by HMRC. Legal submissions should then place the evidence in the context of statutory provisions, HMRC guidance, and relevant case law. For example, in VAT fraud cases, judgments such as [*Mobilx Ltd v HMRC *[2010] EWCA Civ 517](https://lexlaw.co.uk/solicitors-london/ca-decision-mobilx-blue-sphere-calltel/) and [*Red Rose Payroll Ltd v HMRC* [2025] UKFTT 878 (TC)](https://taxdisputes.co.uk/wp-content/uploads/2025/08/Red-Rose-Payroll-Ltd-v-Revenue-and-Customs-Commissioners.pdf) confirm that HMRC must prove actual or constructive knowledge before denying input tax. A robust defence requires careful alignment of the evidence with these legal principles. ## Step 5: The Tribunal Hearing Hearings may be conducted in person, remotely, or, for very simple cases, on paper. Substantive hearings typically involve opening submissions by each side, cross-examination of witnesses, and closing arguments. The panel usually consists of a judge and, in some cases, a lay member with tax expertise. Although hearings are less formal than those in the [High Court](https://lexlaw.co.uk/practice-areas/litigation-dispute-resolution-solicitors-london/), they remain adversarial proceedings. Judges expect coherent evidence and structured argument. [Professional representation](https://lexlaw.co.uk/) ensures that a taxpayer’s case is put forward effectively and that weaknesses in HMRC’s arguments are exposed. ## Step 6: Tribunal Decision After the hearing, the Tribunal issues a written decision, usually within weeks or months. This decision may allow the appeal in full, reduce assessments or penalties, or dismiss the appeal entirely. Decisions are published and can set important precedents for future cases. Where a taxpayer believes there has been an error of law, they may seek permission to appeal to the Upper Tribunal. This is a more limited process, as factual disputes cannot usually be reopened, but it can be an important safeguard where the Tribunal’s interpretation of the law is in question. ## Why the Tribunal Appeal Process Matters The FTT process is central to protecting taxpayer rights. Without the Tribunal, HMRC would effectively act as judge and jury in its own cause. The Tribunal provides an independent check on HMRC’s powers, ensuring that decisions are evidence-based, legally sound, and procedurally fair. Cases such as *[Elsbury v ICO ](https://taxdisputes.co.uk/wp-content/uploads/2025/08/Thomas-Elsbury-v-The-Information-Commissioner-2025-UKFTT-915-GRC.pdf)*[[2025] UKFTT 915 (GRC](https://taxdisputes.co.uk/wp-content/uploads/2025/08/Thomas-Elsbury-v-The-Information-Commissioner-2025-UKFTT-915-GRC.pdf)), which required HMRC to disclose whether AI was being used in assessing claims, highlight the importance of transparency and accountability. You can read more about this case [here](https://taxdisputes.co.uk/2025/08/hmrc-ordered-to-disclose-ai-use-in-rd-tax-claims/). ## Practical Takeaways The First-tier Tribunal offers taxpayers a vital route to challenge HMRC’s decisions. However, it is a formal judicial process that requires strict adherence to rules, comprehensive preparation, and expert advocacy. Taxpayers should act quickly to protect their rights, build their case with strong documentary and witness evidence, and challenge HMRC robustly on both legal and factual grounds. Expert representation makes a significant difference. Solicitors and barristers specialising in tax disputes can ensure that the taxpayer’s position is presented effectively and that HMRC’s case is subjected to rigorous scrutiny. ## HMRC Tax Disputes Legal Advice & Defence Our lawyers have a proven track record of successfully challenging HMRC decisions before the First-tier Tribunal and higher courts. We provide urgent, strategic advice from the outset, analysing the merits of your case in an initial consultation with leading (ex-HMRC and Big 4) tax litigation counsel. At LEXLAW, our [unique team of solicitors and barristers](https://lexlaw.co.uk/our-people/) specialise in VAT appeals, penalty disputes, corporation tax, PAYE and income tax appeals, R&D tax relief disputes, and HMRC information notice challenges. We combine legal precision with commercial insight, ensuring taxpayer rights are protected while disputes are resolved efficiently. [Contact us](https://lexlaw.co.uk/contact-us/) today for expert legal guidance and proactive representation. --- ### Frequently Asked Questions **How long do I have to appeal a decision to the First-tier Tribunal?** In most cases, a taxpayer has **30 days** from the date of the HMRC decision or the conclusion of a statutory review to file an appeal. Missing this deadline can be fatal, although the Tribunal retains discretion to admit late appeals where a good reason is shown. Acting quickly is therefore essential. **What happens if I lose at the First-tier Tribunal?** If you lose, you may be able to appeal to the Upper Tribunal, but only on points of law. This means you must show that the Tribunal made an error in its legal reasoning, not simply that you disagree with the factual findings. Professional advice is essential to assess whether an appeal has merit. **Is Alternative Dispute Resolution (ADR) a substitute for an appeal?** ADR can sometimes resolve disputes without a hearing, particularly where the dispute turns on factual matters or negotiations. However, ADR is not a replacement for the appeal process. If ADR fails, the Tribunal remains the final forum for challenging HMRC decisions. --- # Have You Underpaid Your Tax: Voluntary Disclosures to HMRC Source: https://taxdisputes.co.uk/2025/09/have-you-underpaid-your-tax-voluntary-disclosures-to-hmrc/ [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs), the UK’s tax authority, has robust mechanisms for gathering information from various sources such as [Companies House](https://www.gov.uk/government/organisations/companies-house), banks, and individual tax returns. Additionally, HMRC can track sales figures from internet platforms. However, despite its extensive data collection capabilities, HMRC does not have complete visibility into every taxpayer's financial dealings. This gap creates an opportunity for individuals and businesses to come forward and rectify any past tax underpayments voluntarily. At LexLaw Solicitors & Barristers, our [specialist HMRC tax dispute team](https://taxdisputes.co.uk/contact-us/) can guide you through the voluntary disclosure process, helping you minimise penalties and protect your position. ## What is a Voluntary Disclosure? A [voluntary disclosure](https://www.gov.uk/guidance/tell-hmrc-about-underpaid-tax-from-previous-years) is when taxpayers proactively inform [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) about underpaid taxes without being prompted by an investigation. This proactive step allows individuals to take control of their tax situation and demonstrates good faith in complying with tax regulations. By making a full and honest disclosure, taxpayers can often benefit from reduced penalties compared to those who wait for HMRC to initiate an investigation. ## Benefits of Making a Voluntary Disclosure ### 1. Reduced Penalties Through Voluntary Disclosure One of the significant advantages of making a voluntary disclosure is the potential for [lower tax-geared penalties](https://lexlaw.co.uk/hmrc-tax-penalty-appeal-solicitor-london/). If you voluntarily disclose previous underpayments, you are likely to face reduced penalties compared to those who are investigated by HMRC. This proactive approach can save you money and stress in the long run. ### 2. Peace of Mind with Updated Tax Affairs Making a voluntary disclosure helps bring your tax affairs up to date, providing you with peace of mind. By addressing any past mistakes, you can focus on your current financial situation without the constant worry of [potential tax liabilities](https://taxdisputes.co.uk/2020/10/successful-case-study-reduction-in-penalty-assessment-out-of-time-appeal-hmrc-tax-tribunal-limitation/). ### 3. Protection Against Criminal Charges Engaging in voluntary disclosure is particularly important for those who may have deliberately failed to pay the correct tax. By making a full disclosure through the [Contractual Disclosure Facility (CDF)](https://www.gov.uk/government/publications/voluntary-disclosure-contractual-disclosure-facility-cdf1), you can protect yourself from criminal prosecution. This facility allows taxpayers to resolve tax issues amicably, without fear of criminal repercussions. ## What Is the Process for Making a Voluntary Disclosure? ### Step 1: Notifying HMRC The first step in the voluntary disclosure process is notifying HMRC. This can be done through their [Digital Disclosure Service](https://www.gov.uk/government/publications/hmrc-your-guide-to-making-a-disclosure/your-guide-to-making-a-disclosure), which provides a streamlined way to access various disclosure facilities, including the **Worldwide Disclosure Facility**. ### Step 2: Receiving Confirmation from HMRC After notifying HMRC, you will receive a confirmation and a registration number. This number is essential for tracking your disclosure process. ### Step 3: Explaining the Mistake Next, you need to explain to HMRC what went wrong. This involves detailing the nature of the mistake or omission, including why it occurred. Transparency is key in this step, as it shows HMRC your commitment to resolving the issue. ### Step 4: Calculating Tax Liabilities Calculating the amount of tax, interest, and [potential penalties](https://taxdisputes.co.uk/2020/10/successful-case-study-reduction-in-penalty-assessment-out-of-time-appeal-hmrc-tax-tribunal-limitation/) due is a critical part of the process. It’s advisable to seek professional advice from us, experts at [LexLaw](https://taxdisputes.co.uk/) during this stage, as the calculations can be complex. By instructing our professional accountants, you can ensure that your case is thoroughly assessed while maintaining confidentiality. Unlike direct consultations with accountants, when you work with [LexLaw](https://taxdisputes.co.uk/contact-us/), your communications will be protected under legal privilege. This means that any data shared with our legal experts will not be disclosed to the authorities, providing you with greater security and peace of mind throughout the process. ### Step 5: HMRC’s Review of Your Disclosure Once you have submitted your disclosure, HMRC will review it. They may ask for additional information or clarification, so being prepared to provide supporting documents is essential. ### Step 6: Reaching a Formal Agreement The final step involves reaching a formal agreement with HMRC. This agreement will outline the amount due and any applicable penalties. Having professional guidance from [LexLaw](https://taxdisputes.co.uk/) during this stage can help ensure that you fully understand the terms and conditions of the agreement, allowing you to navigate the complexities of the process with confidence. ## How Far Back Can You Go with a Voluntary Disclosure? The length of time you may need to pay back taxes depends on the nature of the mistake. HMRC typically has three time frames for assessing tax liabilities based on the situation. For most errors, taxpayers generally have a time frame of **four years** to rectify their tax obligations. In cases where errors are classified as careless, the time frame extends to **six years**. This longer period reflects the seriousness of careless mistakes and the necessity for greater diligence in tax reporting. For instances of deliberate tax evasion, HMRC can assess liabilities for up to **twenty years**. This extended time frame highlights the severity of intentional non-compliance and the importance of accurate reporting. Additionally, for disclosures related to offshore matters, taxpayers may need to go back **twelve years**. Understanding these time limits is crucial for accurately calculating your tax liabilities and ensuring that any corrections are made within the appropriate time frames. ## What Are the Penalties for Underpayment? While making a voluntary disclosure can lead to [reduced penalties](https://taxdisputes.co.uk/2020/10/successful-case-study-reduction-in-penalty-assessment-out-of-time-appeal-hmrc-tax-tribunal-limitation/), it is crucial to understand the potential consequences that may still apply for underpayment of taxes. If an error or omission is deemed careless, penalties can reach up to **100%** of the tax owed for UK tax issues. In cases involving offshore income, penalties can escalate significantly, potentially reaching up to **300%** of the tax due. Additionally, failing to meet the [Requirement to Correct](https://www.gov.uk/government/publications/requirement-to-correct) can result in a minimum penalty of **150%** of the unpaid tax, though this is reduced to **100%** for those who make a voluntary disclosure before HMRC begins an investigation. Understanding these penalty structures emphasises the importance of taking proactive steps to rectify any tax issues. ## How Can You Minimise Penalties? Given the complexities of tax regulations and [potential penalties](https://taxdisputes.co.uk/2020/10/successful-case-study-reduction-in-penalty-assessment-out-of-time-appeal-hmrc-tax-tribunal-limitation/), seeking assistance from the Tax Litigation experts at [LexLaw](https://taxdisputes.co.uk/) is highly recommended. Our dedicated team is readily available to help you resolve your tax issues effectively. They will guide you through the voluntary disclosure process, ensuring that you accurately calculate what you owe and work diligently to minimise your penalties. With a proven track record of success, [LexLaw](https://taxdisputes.co.uk/contact-us/) is committed to providing you with the best possible support to address your tax concerns. ## What Are the Real-Life Implications of Voluntary Disclosure? Engaging in a voluntary disclosure can have significant real-life implications, not just in terms of finances but also reputation. For instance, businesses that operate in sectors heavily regulated by HMRC must maintain their reputation. A proactive approach to tax compliance can enhance trust among clients and stakeholders, leading to long-term benefits. By addressing past mistakes, businesses can avoid the negative publicity associated with [HMRC investigations](https://lexlaw.co.uk/hmrc-tax-investigation-penalty-advice-solicitors/), safeguarding their brand image. ## How Does Voluntary Disclosure Affect Future Tax Compliance? Another noteworthy aspect of making a voluntary disclosure is its effect on future tax [compliance](https://taxdisputes.co.uk/category/compliance/). By voluntarily addressing past mistakes, taxpayers can adopt a more proactive stance on their tax affairs. This process often leads to a better understanding of tax regulations and compliance requirements. Moreover, once an individual or business has taken steps to rectify their past underpayments, they may be more inclined to maintain accurate records and seek professional advice for future transactions, thus minimising the risk of errors down the line. ## What Should You Consider Before Starting a Voluntary Disclosure? While it’s possible to initiate a voluntary disclosure on your own, having an [experienced adviser](https://taxdisputes.co.uk/contact-us/) can make the process smoother and less stressful. The [professionals at LexLaw](https://taxdisputes.co.uk/contact-us/) are here to help you: - Assess how much tax is due - Determine how many years of tax need to be corrected - Manage communications with HMRC Engaging an adviser can not only alleviate the stress of dealing with HMRC but also ensure that you are following the correct procedures and maximising your chances of minimising penalties. ## Instruct Specialist HMRC Tax Dispute Solicitors We have decades of experience successfully representing clients in tax disputes against HMRC. Our team includes qualified [tax solicitors](https://taxdisputes.co.uk/tax-solicitors/) and [barristers](https://taxdisputes.co.uk/tax-barristers/) with in-depth knowledge of tax law, HMRC practices, and litigation procedures. We have first-hand experience in both [tax litigation](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) and advocacy, ensuring your case is handled with the highest level of expertise. --- # Judicial Review Victory for the Taxpayer: Hotelbeds UK Ltd v HMRC Source: https://taxdisputes.co.uk/2025/09/judicial-review-victory-for-the-taxpayer-hotelbeds-uk-ltd-v-hmrc/ The High Court’s decision in **[R (on the application of Hotelbeds UK Ltd) v HMRC [2025] EWHC (Admin)](https://taxdisputes.co.uk/wp-content/uploads/2025/09/R-on-the-application-of-Hotelbeds-UK-Ltd-v-HMRC-2025-EWHC-Admin.pdf)** marks a significant victory for taxpayers, demonstrating that [judicial review ](https://taxdisputes.co.uk/judicial-review-applications-against-hmrc-challenge-decision-advice/)can be a powerful tool to challenge HMRC decisions where they act unlawfully or unfairly. The case is significant because it provides fresh guidance on the limits of HMRC’s decision-making powers in the context of [VAT recovery](https://taxdisputes.co.uk/hmrc-vat-investigations-evasion-input-ouput-double-taxation-tribunal-legal-advice/) and the principles of fairness in tax administration. This ruling underscores the importance of carefully scrutinising HMRC’s conduct and adherence to [Code of Governance for resolving tax disputes](https://www.gov.uk/government/publications/resolving-tax-disputes/code-of-governance-for-resolving-tax-disputes) and demonstrates that judicial review, remains an essential safeguard against unlawful or irrational decision-making by the tax authority. ## Background to the Dispute [Hotelbeds UK Ltd](https://find-and-update.company-information.service.gov.uk/company/13635477) is a global accommodation provider operating in the travel and hospitality sector. The dispute arose from HMRC’s decision concerning Hotelbeds’ entitlement to [recover VAT](https://taxdisputes.co.uk/hmrc-vat-investigations-evasion-input-ouput-double-taxation-tribunal-legal-advice/) input tax on certain supplies within its complex supply chain. HMRC challenged the company’s interpretation of the VAT rules, effectively denying recovery of substantial amounts of input tax and raising significant financial exposure. Hotelbeds sought to resolve the matter through the usual appeal routes but eventually pursued [judicial review proceedings](https://taxdisputes.co.uk/2024/10/judicial-review-of-hmrc-decisions-a-guide-to-the-application-process/) on the basis that HMRC’s decision was procedurally unfair, irrational, and contrary to legitimate expectations. The company argued that HMRC had failed to properly consider relevant evidence, applied inconsistent reasoning, and acted in a way that undermined certainty for taxpayers operating in good faith within established industry practices. ## Judicial Review in Tax Cases: A High Threshold [Judicial review](https://lexlaw.co.uk/judicial-review-court-lawyers-london-hmrc-tax-dispute-decision-advice-representation/#:~:text=Judicial%20review%20is%20a%20mechanism,public%20body%20such%20as%20HMRC.) is not an [appeal](https://lexlaw.co.uk/hmrc-tax-penalty-appeal-solicitor-london/) on the merits; rather, it is a mechanism to challenge the lawfulness of HMRC’s decision-making process. The courts have repeatedly emphasised that judicial review will only succeed where HMRC has acted unlawfully, unreasonably, or in breach of procedural fairness. This high bar explains why taxpayers rarely succeed in such claims. However, the Hotelbeds case demonstrates that when HMRC departs from legal standards or fails to exercise its powers consistently, judicial review can provide an effective remedy. The decision also reinforces the principle that HMRC is bound by standards of fairness, proportionality, and consistency in applying tax law, even in complex [cross-border VAT](https://taxdisputes.co.uk/2025/06/landmark-tribunal-vat-win-for-insurance-intermediaries-hastings-v-hmrc/#:~:text=A%20Precedent%20in%20Favour%20of%20Cross%2DBorder%20VAT%20Recovery) contexts. ## The Court’s Reasoning The High Court carefully analysed HMRC’s decision-making process and identified several failings. First, it found that HMRC had failed to give proper consideration to material evidence provided by Hotelbeds, including documentation on how supplies were structured and the industry-standard treatment of similar transactions. This omission undermined the reasonableness of HMRC’s conclusions. Secondly, the Court noted that HMRC had acted inconsistently with its own prior guidance and treatment of similar businesses. Such inconsistency created unfairness and uncertainty, especially where taxpayers rely on HMRC’s published guidance in structuring their affairs. Thirdly, the Court concluded that HMRC’s approach [breached the principle of legitimate expectation](https://lexlaw.co.uk/judicial-review-court-lawyers-london-hmrc-tax-dispute-decision-advice-representation/#:~:text=The%20breach%20of%20legitimate%20expectations). Where HMRC’s previous statements and practice indicate a consistent treatment of certain transactions, businesses are entitled to rely on that approach unless HMRC provides clear notice of a change in policy. In this case, Hotelbeds had arranged its business model in reliance on HMRC’s prior position, and the sudden departure from that stance was held to be unlawful. These findings led the Court to quash HMRC’s decision, ordering it to reconsider the matter in accordance with the law and principles of fairness. At LEXLAW, we are committed to [defending taxpayer rights](https://taxdisputes.co.uk/expert-advice/) and ensuring that HMRC acts within the bounds of the law. ## Read the Judgement Here: ## Implications for Businesses This judgment has far-reaching consequences for businesses engaged in [complex VAT arrangements](https://lexlaw.co.uk/solicitors-london/landmark-tax-tribunal-win-for-vat-recovery-rights-hastings-insurance-services-v-hmrc/), particularly in industries such as travel, hospitality, finance, and e-commerce where cross-border supplies and chain transactions are common. The ruling confirms that HMRC’s powers are not unfettered. Even in technical disputes over VAT recovery, HMRC must act fairly, consistently, and rationally. Where a taxpayer can demonstrate that HMRC has ignored evidence, contradicted its own guidance, or frustrated legitimate expectations, judicial review remains a viable remedy. Importantly, the case also highlights that judicial review may be appropriate where HMRC’s decision has immediate and severe financial consequences that cannot adequately be addressed by the ordinary statutory appeals process. Hotelbeds’ success shows that judicial review can be an essential tool for protecting taxpayers’ rights in exceptional cases. ## Why This Case Matters The Hotelbeds decision is a rare but important victory for taxpayers in judicial review proceedings. It illustrates that while judicial review is not a substitute for an appeal on the merits, it can provide meaningful relief where HMRC oversteps its legal boundaries. Businesses should draw three key lessons from this ruling: - **Procedural fairness is essential**: HMRC must consider all relevant evidence and cannot dismiss taxpayer submissions without reasoned analysis. - **Consistency matters**: HMRC cannot arbitrarily depart from its prior guidance or treatment of similar cases without providing clear justification. - **Legitimate expectations are protected**: Where businesses structure their affairs in reliance on HMRC’s published guidance or consistent practice, they have a right to expect stability and fair notice of any change. These principles strengthen the position of businesses facing HMRC decisions that appear unfair, inconsistent, or irrational. ## LEXLAW: Expert Representation in HMRC Judicial Review Cases At LEXLAW, our [tax disputes solicitors and barristers](https://lexlaw.co.uk/hmrc-tax-dispute-lawyers/) have extensive experience challenging HMRC through judicial review, [statutory appeals](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/), and [alternative dispute resolution](https://lexlaw.co.uk/adr-alternative-dispute-resolution-second-opinion-legal-advice/). We understand that judicial review is a complex and high-stakes remedy, often requiring urgent applications to protect our clients’ commercial and financial interests. Our team includes leading tax counsel and former HMRC lawyers, giving us unique insight into HMRC’s decision-making processes and litigation strategy. We provide [strategic advice](https://lexlaw.co.uk/hmrc-tax-dispute-lawyers/) on whether judicial review is the appropriate route, prepare compelling arguments based on procedural fairness and legitimate expectation, and represent clients at every stage of proceedings. If your business has received an adverse decision from HMRC that appears unfair, inconsistent, or irrational, our expert tax dispute lawyers can assess the merits of a judicial review challenge and provide urgent representation to safeguard your position. [Contact us](https://lexlaw.co.uk/contact-us/) today for expert legal guidance and proactive representation. --- # Christian Candy Wins Stamp Duty Refund Battle Against HMRC Over £68 Million Mansion Source: https://taxdisputes.co.uk/2025/04/christian-candy-wins-stamp-duty-refund-battle-against-hmrc-over-68-million-mansion/ Billionaire property developer [Christian Candy](https://en.wikipedia.org/wiki/Christian_Candy) has emerged victorious in a near decade-long [tax dispute](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) against [HM Revenue and Customs](https://www.gov.uk/government/organisations/hm-revenue-customs)** **([HMRC](https://en.wikipedia.org/wiki/HM_Revenue_and_Customs)), securing a £2 million stamp duty refund plus £270,000 in lost interest. This high-profile tax battle centred on the purchase of a stunning [£68 million Georgian mansion ](https://en.wikipedia.org/wiki/Gordon_House,_Chelsea)overlooking the River Thames, highlighting the complexities and potential for [tax disputes](https://taxdisputes.co.uk/) arising from high-value property transactions. This case serves as a significant development in the realm of property tax disputes and will be of keen interest to those involved in similar situations. ## The £68 Million Gordan House Purchase and Stamp Duty Issue In 2012, [Christian Candy](https://find-and-update.company-information.service.gov.uk/officers/hN0JEozvbHaDdB_CHiB2N2pqiPI/appointments), aged 50, a prominent British billionaire [luxury property developer](https://candyldn.com/), acquired the Grade II listed [Gordon House](https://en.wikipedia.org/wiki/Gordon_House,_Chelsea) in Chelsea, next to the [Royal London hospital](https://en.wikipedia.org/wiki/Royal_London_Hospital), in a deal worth £68 million. The purchase of the mansion, which boasts two acres, an orangery created by the baroque architect [Sir John Vanbrugh](https://en.wikipedia.org/wiki/John_Vanbrugh), and a separate lodge, was made jointly with his brother [Nick Candy](https://en.wikipedia.org/wiki/Nick_Candy#:~:text=Nicholas%20Anthony%20Christopher%20Candy%20(born,Treasurer%20of%20Reform%20UK), 52. Payments for two leases were structured in multiple instalments. Following the initial payment and commencement of extensive renovations, including a 14,000 square feet basement, a swimming pool, and a private Imax cinema, HMRC determined that the purchase had been 'substantially performed'. As a result, Christian Candy paid £1.92 million in stamp duty. Subsequently, in 2014, after paying £27.4 million, Christian Candy gifted the property to his brother [Nick Candy](https://en.wikipedia.org/wiki/Nick_Candy), who completed the renovations and paid the final instalments. [Nick Candy](https://candycapital.com/) was also required to pay £1.92 million in stamp duty, leading to a situation of double taxation on the same property purchase. [Nick Candy](https://candyldn.com/), who is married to Australian actress [Holly Valance](https://thecandyfoundation.org/) and is the treasurer of [Reform UK](https://www.reformparty.uk/), still resides in the London mansion. Christian Candy is married to socialite and former nightclub hostess Emily Crompton, whom he wed in 2010. Notably, the Candy brothers also designed the world's most expensive penthouses at [One Hyde Park](https://onehidepark.uk/) in 2011. ## Christian Candy v HMRC Following the property transfer, Christian Candy sought a [stamp duty refund](https://www.gov.uk/stamp-duty-land-tax/refunds-of-stamp-duty-land-tax#:~:text=How%20you%20will%20get%20your,that%20your%20claim%20is%20wrong.) for the £1.92 million he had paid, arguing that both brothers had effectively paid tax on the same transaction. However, in 2022, a [Court of Appeal](https://www.judiciary.uk/courts-and-tribunals/court-of-appeal-home/) [judge sided with HMRC](https://taxdisputes.co.uk/wp-content/uploads/2025/04/Christian-Peter-Candy-v-HMRC-2022-EWCA-Civ-1447.pdf), rejecting Christian Candy's claim on the grounds that he had applied for the refund after the 12-month deadline following his previous tax return, having taken 18 months. Despite this setback, Christian Candy pursued a further appeal. In a new verdict this week, delivered on 15 April 2025, [Judge Vimal Tilakapala ](https://solicitors.lawsociety.org.uk/person/264634/vimal-tilakapala)overturned the previous ruling. The judge allowed Candy's appeal on a separate legal basis, stating that the law in fact granted him four years to lodge the claim for a tax refund. As a result of this successful appeal in the [tax dispute](https://taxdisputes.co.uk/), Christian Candy is now entitled to a £1.92 million** **[stamp duty refund](https://www.gov.uk/guidance/apply-for-a-refund-of-the-higher-rates-of-stamp-duty-land-tax), along with approximately £270,000 in lost interest to compensate for the inconvenience caused by this protracted [tax battle](https://taxdisputes.co.uk/hmrc-tax-appeals/). ## Implications of the Stamp Duty Refund Victory This ruling marks a significant win for Christian Candy in his long-running [tax dispute](https://taxdisputes.co.uk/) with HMRC. While the case was described as an unusual battle over double taxation, it highlights the importance of understanding the nuances of [stamp duty](https://www.gov.uk/stamp-duty-land-tax/residential-property-rates) rules and the deadlines for claiming tax refunds. Tax experts noted the potential cost to the taxpayer of HMRC's decision to continue fighting the case, given the accumulating interest on the disputed amount. HMRC has stated that it is "disappointed" with the tribunal's decision and is carefully considering the judgment, leaving open the possibility of a further appeal. ## Expert London Tax Dispute Lawyers Navigating [tax disputes](https://taxdisputes.co.uk/) with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) can be a complex and stressful process. [Our specialist team](https://lexlaw.co.uk/our-people/) of [tax dispute lawyers](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/), including experienced solicitors and barristers, provides expert legal advice and robust representation to individuals and businesses facing challenges from HMRC. Whether you are dealing with [stamp duty](https://www.gov.uk/stamp-duty-land-tax/residential-property-rates) issues, [income tax assessments](https://taxdisputes.co.uk/2024/02/hmrcs-assessment-powers/), or other [tax investigations](https://taxdisputes.co.uk/hmrc-tax-investigations/), we offer tailored solutions to protect your interests. Our services include: - Comprehensive assessment of your tax situation and potential liabilities. - Expert advice on [HMRC tax appeals](https://taxdisputes.co.uk/hmrc-tax-appeals/) and the relevant legal procedures. - Strategic negotiation with HMRC to achieve the most favourable outcome. - Experienced representation at the [First Tier Tax Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) and higher courts. If you are involved in a [tax dispute](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) with HMRC, including matters related to [stamp duty](https://www.gov.uk/stamp-duty-land-tax), it is crucial to seek timely and expert legal advice. [Contact our team](https://lexlaw.co.uk/legal-case-assessment/) today for a confidential consultation to discuss your case and understand how our expertise in tax law can assist you in achieving a successful resolution. We aim to provide clear, effective guidance and strong representation to help you navigate the complexities of [tax disputes](https://taxdisputes.co.uk/) and reach a positive outcome. --- # Case Study: ADR Exit Agreements and HMRC Penalties (Andrew Quay Hull LLP v. HMRC) Source: https://taxdisputes.co.uk/2025/07/case-study-adr-exit-agreements-and-hmrc-penalties-andrew-quay-hull-llp-v-hmrc/ The *[Andrew Quay Hull LLP v HMRC [2024] UKFTT 842 (TC)](https://assets.caselaw.nationalarchives.gov.uk/ukftt/tc/2024/842/ukftt_tc_2024_842.pdf)* judgment highlights the critical need for taxpayers to obtain [specialised legal advice](https://lexlaw.co.uk/our-people/) before entering [ADR](https://en.wikipedia.org/wiki/Alternative_dispute_resolution) exit agreements in VAT disputes with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs). Our [expert tax dispute lawyers](https://taxdisputes.co.uk/offshore-tax-evasion-tax-avoidance-solicitors-london/) know that navigating the complexities of contractual interpretation and penalty liabilities requires detailed understanding of both tax law and dispute resolution principles. This case demonstrates how unilateral mistakes about the legal effect of settlements, particularly concerning penalties, can have severe financial consequences if agreements are not carefully reviewed. The [First-tier Tribunal](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/)’s strict application of the *[Rainy Sky SA v Kookmin Bank [2011] UKSC 50](https://supremecourt.uk/uploads/uksc_2010_0127_judgment_d7564de16f.pdf)* principles emphasises that clear, unambiguous wording governs enforcement. At [LEXLAW](https://lexlaw.co.uk/), we assist taxpayers and advisers in negotiating, interpreting, and challenging ADR agreements, helping to minimise risks and safeguard client interests in often high-stake [VAT disputes](https://taxdisputes.co.uk/2025/06/understanding-hmrcs-notice-of-requirement-security-demands-for-vat-paye-and-nics/). For those facing HMRC penalty claims or considering ADR, our [specialised legal guidance](https://lexlaw.co.uk/contact-us/) and thorough contract scrutiny are indispensable. ## Case Background [Andrew Quay Hull LLP](https://assets.caselaw.nationalarchives.gov.uk/ukftt/tc/2024/842/ukftt_tc_2024_842.pdf) was embroiled in a protracted tax dispute following [HMRC’s assessments](https://taxdisputes.co.uk/2024/02/hmrcs-assessment-powers/) of approximately £750,000 VAT and a substantial penalty of £472,500 for alleged deliberate inaccuracies in VAT returns. The figures involved reflect the seriousness of HMRC’s claims and the financial stakes for the [appellant](https://en.wikipedia.org/wiki/Appellants). To resolve the matter without further lengthy litigation, the parties opted for shuttle mediation, a form of [ADR](https://en.wikipedia.org/wiki/Alternative_dispute_resolution) where negotiations are conducted through a mediator shuttling between parties in separate rooms to maintain confidentiality and avoid direct confrontation. On 3 February 2020, this process culminated in an ADR exit agreement. Under this agreement, [Andrew Quay Hull LLP](https://assets.caselaw.nationalarchives.gov.uk/ukftt/tc/2024/842/ukftt_tc_2024_842.pdf) withdrew its appeals against both the VAT and penalty assessments. In exchange, HMRC agreed to reverse the [VAT liability](https://taxdisputes.co.uk/hmrc-vat-investigations-evasion-input-ouput-double-taxation-tribunal-legal-advice/) based on bad debt relief provisions, effectively negating the VAT due. However, after executing the agreement, HMRC asserted the penalty was still payable, arguing that the withdrawal of the penalty appeal did not equate to removal of the penalty itself. The appellant claimed a mistaken belief that once the [VAT liability](https://taxdisputes.co.uk/hmrc-vat-investigations-evasion-input-ouput-double-taxation-tribunal-legal-advice/) was reversed, the penalty would no longer be applicable. This disagreement over the contractual terms brought the matter back to the [Tribunal](https://www.gov.uk/courts-tribunals/first-tier-tribunal-tax) for resolution, focusing on the enforceability and interpretation of the ADR exit agreement. **View The PDF Judgment below: ** ## Key Findings in Andrew Quay Hull LLP v HMRC ## Breach or Mistake in ADR Agreements The Tribunal’s analysis centered on contractual interpretation principles, chiefly referencing the Supreme Court’s ruling in *[Rainy Sky SA v Kookmin Bank [2011] UKSC 50](https://supremecourt.uk/uploads/uksc_2010_0127_judgment_d7564de16f.pdf)*. This precedent presses courts to interpret contracts by the meaning a reasonable person would attribute to the language used, giving preference to clear and unambiguous wording. In this case, the [Tribunal](https://www.gov.uk/courts-tribunals/first-tier-tribunal-tax) found that the ADR exit agreement contained “clear and explicit” terms with regard to the VAT liability and the appeal withdrawals. Crucially, however, the agreement did not explicitly state that the penalty itself would be withdrawn or extinguished. The appellant’s mistaken assumption about the penalty’s status was unilateral and not shared or known by HMRC, meaning the mistake could not justify invalidating the agreement. For taxpayers and advisers, this finding underscores the vital importance of ensuring all settlement terms, especially those concerning penalties, are explicitly documented and understood before signing. Our [expert tax dispute lawyers](https://lexlaw.co.uk/hmrc-tax-dispute-lawyers/) at LEXLAW rigorously review such terms to avoid costly misunderstandings. ## Enforceability of ADR Exit Agreements The [Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) confirmed that the agreement constituted a valid contract with all conventional elements; offer, acceptance, intention to create legal relations, and consideration. Since Andrew Quay Hull LLP had withdrawn its appeals, including that against the penalty, the Tribunal held the penalty remained enforceable by HMRC. When the appellant sought to reinstate appeals or postpone proceedings, these requests were rejected by the Tribunal. Subsequent [enforcement](https://taxdisputes.co.uk/hmrc-enforcement-action/) continued even in the appellant’s absence, reflecting courts’ strong support for finality and certainty in ADR settlements. This ruling reinforces the need for parties to appreciate that withdrawal of an appeal is final unless expressly stated otherwise. For companies engaged in ADR with HMRC, this serves as a stark cautionary tale. ## Implications of Andrew Quay Hull LLP v HMRC Beyond the immediate facts, this judgment sends a clear message to taxpayers, tax advisers, and legal practitioners about the critical nuances of [ADR](https://lexlaw.co.uk/solicitors-london/compulsory-mediation-for-small-claims-in-england-and-wales/) exit agreements involving HMRC. While ADR offers an often quicker and less adversarial path to resolving tax disputes, it carries significant risks if legal and contractual issues are not deftly handled. [Penalties](https://taxdisputes.co.uk/hmrc-penalties/) for deliberate inaccuracies carry severe financial weight and are rigidly enforced. As seen in this case, mistakes regarding penalty implications, even where the underlying VAT is resolved, are not lightly excused by tribunals. This strict approach aligns with the government’s broader agenda to deter and penalise deliberate tax non-compliance robustly. Moreover, the decision highlights that courts and tribunals will uphold ADR contracts where the terms are clear, limiting the scope for challenging agreements on grounds of unilateral mistake when the opposing party is unaware of any misunderstanding. This reflects an increasing reliance on ADR in tax disputes as a cost-effective mechanism but demonstrates the paramount importance of obtaining clear and [comprehensive legal advice](https://taxdisputes.co.uk/contact-us/) before and during mediation. At LEXLAW,[ our expert tax dispute lawyers](https://taxdisputes.co.uk/) actively support taxpayers through every stage of HMRC dispute resolution, including scrutinising [ADR proposals](https://lexlaw.co.uk/solicitors-london/compulsory-mediation-for-small-claims-in-england-and-wales/), advising on the potential consequences of signing exit agreements, and representing clients when enforcement issues arise. With us, you gain the benefit of seasoned advice to navigate complex penalty regimes and contractual intricacies. ## Defending ADR Agreements and Penalty Claims: LEXLAW’s Expertise If you are involved in an ADR process with HMRC or facing penalty assessments, LEXLAW’s team of specialist tax solicitors offers tailored support designed to reduce risk and clarify complex legal positions. Our proven expertise covers crucial steps such as: - Detailed legal review and negotiation of ADR exit agreements, ensuring no unwanted terms remain hidden, especially concerning [penalties](https://taxdisputes.co.uk/hmrc-penalties/) or appeal withdrawals. - Forensic VAT analysis to distinguish between disputed tax liabilities and penalty exposure early in the dispute, enabling more strategic settlement discussions. - Meticulous record-keeping advice during shuttle [mediation and other ADR procedures](https://lexlaw.co.uk/solicitors-london/alternative-dispute-resolution-adr-mediation-v-arbitration-pros-and-cons-second-opinion/), enhancing evidential standing should contract interpretation issues later arise. - Strategic evaluation of dispute resolution pathways, advising on whether shuttle mediation, direct negotiation, or litigation provides the best client outcome under the circumstances. With LEXLAW’s expert input, you gain not only legal certainty but also a practical edge in complex tax disputes. We understand that ADR agreements are not just about reaching a quick deal, they affect your financial future and ongoing [compliance obligations](https://taxdisputes.co.uk/2024/04/dyslexia-and-tax-compliance-charles-collier-v-hmrc/). Early legal involvement is decisive in avoiding costly mistakes. ## Expert Tax Dispute London ADR Lawyers Our [tax dispute lawyers](https://lexlaw.co.uk/hmrc-tax-dispute-lawyers/) bring decades of combined experience in handling contentious VAT and penalty matters with HMRC. Whether advising on initial settlement offers or representing clients in Tribunals and appeals, [our team](https://lexlaw.co.uk/our-people/) is highly respected for depth of knowledge and pragmatic approach. We combine legal precision with commercial awareness, aiming to protect taxpayer rights while promoting swift, cost-effective resolution where appropriate. As demonstrated in successful defences of complex claims and contractual challenges, timely legal advice is critical to mitigating risks when dealing with HMRC’s rigorous enforcement policies. When stakes are high, turn to [LEXLAW](https://lexlaw.co.uk/) to ensure your interests are robustly defended and informed by the latest legal developments and best practices in [tax dispute resolution](https://taxdisputes.co.uk/). [Contact](https://lexlaw.co.uk/contact-us/) today for expert legal guidance! --- # Landmark Tribunal VAT Win for Insurance Intermediaries: Hastings v HMRC Source: https://taxdisputes.co.uk/2025/06/landmark-tribunal-vat-win-for-insurance-intermediaries-hastings-v-hmrc/ The [First-tier Tax Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/)’s decision in [*Hastings Insurance Services Ltd v HMRC* [2025] UKFTT 275 (TC)](https://taxdisputes.co.uk/wp-content/uploads/2025/06/Hastings-Insurance-Services-Ltd-v-HMRC-TC09444-Tax-Tribunal-Judgment.pdf) marks a turning point for VAT recovery rights in the UK insurance intermediary sector. The Tribunal found in favour of Hastings, holding that input VAT was recoverable on services supplied to a Gibraltar-based insurer, even where the insured policyholders resided in the UK. The case scrutinised [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs)’s restrictive interpretation of the [Specified Supplies Order](https://www.legislation.gov.uk/uksi/2019/408/made) as amended in 2019 and challenged the domestic application of the so-called “Offshore Looping Regulations” under the retained EU VAT regime. ## Dispute Between Hastings Insurance and HMRC [Hastings Insurance Services Ltd](https://find-and-update.company-information.service.gov.uk/company/03116518) is a UK-based intermediary acting on behalf of [Advantage Insurance Company Limited](https://advantage.com.gi/), an insurer incorporated in Gibraltar. Hastings provided underwriting and broking services to Advantage, which ultimately issued insurance policies to UK customers. The dispute arose when [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) refused to allow Hastings to recover input VAT for the period 1 January 2019 to 31 December 2022, relying on the [2019 amendments to the Value Added Tax (Input Tax) (Specified Supplies) Order 1999 (SI 1999/3121)](https://www.legislation.gov.uk/uksi/2019/408/made), as amended by SI 2018/1328. HMRC argued that since the underlying insurance was consumed by UK customers, the intermediary could not reclaim VAT under the exemption for services supplied to non-UK entities. ## Download the Hastings Judgment [![VAT tax disputes tribunal solicitor lawyer london](https://taxdisputes.co.uk/wp-content/uploads/2025/06/Hastings-Insurance-v-HMRC-Judgment.png)](https://taxdisputes.co.uk/wp-content/uploads/2025/06/Hastings-Insurance-Services-Ltd-v-HMRC-TC09444-Tax-Tribunal-Judgment.pdf) ## The Tribunal’s Examination of VAT Recovery Under Article 169(c) At the heart of Hastings’ argument was [Article 169(c) of the Principal VAT Directive (2006/112/EC)](https://www.legislation.gov.uk/eudr/2006/112/article/169), which allows a taxable person to deduct VAT incurred on services supplied to customers established outside the European Union. Hastings maintained that Advantage Insurance was the direct recipient of its services and was established outside the UK and EU, entitling it to full VAT recovery. The Tribunal agreed, reaffirming that Article 169(c) has direct effect and is sufficiently clear and precise to confer rights enforceable in UK law even post-Brexit, by virtue of [section 4 of the European Union (Withdrawal) Act 2018](https://www.legislation.gov.uk/ukpga/2018/16/section/4). ## Determining the “Customer” in Cross-Border Insurance Transactions The Tribunal placed particular emphasis on identifying the true recipient of the intermediary services for VAT purposes. It rejected HMRC’s argument that the UK policyholders were the ultimate customers, finding instead that Advantage Insurance—the Gibraltar-based entity—was the contracting party and recipient of the taxable supply. ## Post-Brexit Legal Effect of EU VAT Provisions in the UK The Tribunal reinforced that, under [section 4 of the EU (Withdrawal) Act 2018](https://www.legislation.gov.uk/ukpga/2018/16/section/4), rights previously recognized under EU law, including those derived from the Principal VAT Directive, continue to have effect in the UK legal framework post-Brexit, so long as they were directly effective before the end of the transition period. The judgment emphasized that domestic legislation cannot be interpreted in a vacuum and must be aligned with higher-order retained rights. ## Impact of the Tribunal’s Ruling on the Insurance Sector The [Hastings ruling](https://taxdisputes.co.uk/wp-content/uploads/2025/06/Hastings-Insurance-Services-Ltd-v-HMRC-TC09444-Tax-Tribunal-Judgment.pdf) could have wide-ranging implications for other intermediaries supplying services to non-UK insurers. Many firms previously blocked from reclaiming VAT under the amended Specified Supplies Order may now be able to pursue historical claims. Tax and legal practitioners should carefully evaluate past VAT treatment where intermediary services were provided cross-border. The Tribunal’s judgment is particularly relevant for periods up to 31 December 2023, given that further amendments have since taken effect under the [Finance Act 2023](https://www.legislation.gov.uk/ukpga/2023/1/contents). Although HMRC is expected to appeal, the decision currently stands as a persuasive precedent for intermediaries operating in international markets. ## Legal Strategy for Insurance Intermediaries Post-Hastings Ruling Insurance firms and intermediaries should immediately assess their entitlement to reclaim VAT on historic supplies made to overseas insurers. Submitting protective claims with appropriate supporting documentation may be essential to preserve rights before [limitation periods expire.](https://lexlaw.co.uk/limitation-periods-time-limits-bar-statute-expired-start-claim-litigation-legal-advice/) Moreover, businesses should review contractual structures to clarify who is considered the service recipient for VAT purposes, drawing on the legal reasoning in this case. Continuous monitoring of HMRC’s response, and any further litigation or legislative revisions, is advised to maintain compliance and capitalize on potential tax efficiencies. ## A Precedent in Favour of Cross-Border VAT Recovery The decision in [*Hastings Insurance Services Ltd v HMRC*](https://www.bailii.org/uk/cases/UKFTT/TC/2025/TC09444.html) underscores the continuing relevance of EU VAT principles in UK domestic law and reaffirms the rights of intermediaries to recover VAT in cross-border transactions. The Tribunal’s robust interpretation of Article 169(c) and rejection of HMRC’s narrow view of the “customer” provides a clear legal framework for VAT recovery where services are supplied to non-UK insurers. This case serves as a valuable precedent for both advisors and businesses, emphasizing the importance of correctly identifying the legal recipient of services and reinforcing the legal protections afforded under retained EU law. ## Expert London Tax Litigation Lawyers Our [Specialist Tax Law Solicitors and Barristers](https://taxdisputes.co.uk/expert-advice/) have extensive experience dealing with HMRC disputes, VAT classification, and tax tribunal litigation. If you’re facing a challenge from HMRC related to VAT we are here to help. Contact our experienced tax dispute resolution team today for a confidential discussion and [expert legal guidance](https://lexlaw.co.uk/our-people/m-ali-akram/) on 02071830529 or email us at taxdisputes@lexlaw.co.uk. We are here to help you understand your obligations, navigate HMRC scrutiny, and protect your interests in all tax-related litigation matters. --- ### Frequently Asked Questions **1. Can UK-based insurance intermediaries recover VAT on services provided to overseas insurers?** Yes, in certain cases. If the intermediary’s services are supplied to an insurer established outside the UK, VAT on related input costs may be recoverable under the Specified Supplies regime and retained EU law. Correctly identifying the recipient of the service is key. **2. What are the Specified Supplies rules and how do they affect VAT recovery?** The Specified Supplies Order allows VAT recovery on certain exempt financial and insurance services when supplied to customers outside the UK. However, amendments in 2019 restricted these rules, particularly for services consumed within the UK, even if supplied cross-border. **3. What is a “protective VAT claim” and when should one be filed?** A protective claim is a precautionary submission to HMRC asserting a right to VAT recovery, often ahead of litigation or policy change. Businesses may file these to preserve their position within statutory time limits, typically four years from the end of the relevant VAT period. **4. How has Brexit affected VAT treatment of cross-border services?** While the UK has left the EU, many VAT rules based on EU law still apply under the European Union (Withdrawal) Act 2018. Where provisions like Article 169 of the Principal VAT Directive had direct effect, they may still form part of UK law post-Brexit. **5. Who is considered the “customer” for VAT purposes in insurance transactions?** For VAT recovery, the customer is typically the recipient of the service—not necessarily the end user. In intermediary arrangements, this is often the insurer (e.g., the entity underwriting the policy), not the individual policyholders. **6. What should intermediaries review when assessing VAT recovery eligibility?** Firms should: - Consider past VAT treatment and whether protective claims are warranted - Review contracts to clarify who the service recipient is - Assess whether services qualify as “specified supplies” - Examine the customer’s location and VAT status **7. Can HMRC decisions on VAT recovery be appealed?** Yes. If HMRC denies input VAT recovery, businesses can challenge the decision before the First-tier Tax Tribunal. Success often depends on precise legal interpretation and evidence of service structures and contractual relationships. --- # Case Study Success: Notices of Requirement Withdrawn by HMRC Source: https://taxdisputes.co.uk/2025/06/case-study-success-notices-of-requirement-withdrawn-by-hmrc/ [Our expert tax disputes](https://lexlaw.co.uk/our-people/) team recently secured a rapid and favourable outcome for a client facing urgent [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) enforcement action. The case involved [security notices](https://taxdisputes.co.uk/legal-representation/hmrc-notice-requirement-tribunal-appeals-solicitor-legal-advice/) issued in respect of [Pay As You Earn (PAYE)](https://www.gov.uk/paye-online), [National Insurance Contributions (NICs)](https://www.gov.uk/national-insurance), and [Value Added Tax (VAT)](https://www.gov.uk/browse/tax/vat), putting the client's business operations at immediate risk. Thanks to our in-depth understanding of HMRC powers and fast, strategic legal intervention, we were able to resolve the matter efficiently, protecting the client's position and avoiding further enforcement or disruption. Our swift response and strategic approach meant that [HMRC](https://en.wikipedia.org/wiki/HM_Revenue_and_Customs)’s actions were challenged immediately and resolved without delay. This successful outcome demonstrates [our team’s](https://lexlaw.co.uk/contact-us/) proven ability to protect businesses under pressure and to navigate even the most complex tax disputes with precision and speed. We have a tested recipe for success when it comes to confronting HMRC enforcement, and our track record speaks for itself. If your business is facing pressure from HMRC, early legal intervention is essential, [contact our expert team](https://lexlaw.co.uk/contact-us/) today for trusted, results-driven representation. ## Understanding HMRC’s Notice of Requirement to Pay Security A [Notice of Requirement (NoR)](https://taxdisputes.co.uk/legal-representation/hmrc-notice-requirement-tribunal-appeals-solicitor-legal-advice/) for security is a formal written demand issued by [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) to a business or individual, requiring them to provide a financial security, often a deposit, to cover future tax liabilities by a specified deadline. This measure is taken when [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) has reasonable grounds to believe that the taxpayer may fail to meet their tax obligations going forward, based on past non-compliance, financial instability, or other risk factors. ### What Does a Notice of Requirement for Security Involve? - Purpose: [The Notice of Requirement (NoR)](https://taxdisputes.co.uk/legal-representation/hmrc-notice-requirement-tribunal-appeals-solicitor-legal-advice/) acts as a mechanism to secure potential future tax payments from businesses or individuals deemed high-risk for non-payment. - Scope: These security demands commonly cover taxes such as VAT, PAYE and NICs. HMRC may also require security for other taxes, including Corporation Tax in certain cases. - Calculation of Security: The amount required typically reflects estimated tax liabilities for a period of four to six months, plus any outstanding arrears. For example, if a business is behind on PAYE/NICs payments for 12 months, [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) might demand security covering those arrears plus several months of future liabilities, resulting in a substantial sum. - Joint and Several Liability: When multiple directors or associated persons are involved, HMRC issues individual NoRs to each, making them jointly and severally liable for the full security amount. ### Key Terms Explained - **PAYE (Pay As You Earn)**: A system where employers deduct income tax from employees’ wages and remit them to HMRC. [Security notices](https://lexlaw.co.uk/solicitors-london/hmrc-notice-of-requirement/) for PAYE and NICs ensure employers meet these obligations. - **NICs (National Insurance Contributions)**: Contributions paid by employers and employees to fund state benefits. HMRC may require security to cover unpaid or future NICs liabilities. - **VAT (Value Added Tax)**: A consumption tax charged on most goods and services. HMRC may demand security if there is a risk that a business will not pay its VAT liabilities on time. - **Security Deposit**: A sum of money or financial guarantee held by HMRC as assurance against the risk of unpaid taxes. Failure to provide this security is a criminal offence and can lead to prosecution and fines. ## Case Study: Our Success for Our Client In August 2024, our client received [Notices of Requirement to provide security for PAYE, NICs, and VAT](https://www.gov.uk/hmrc-internal-manuals/securities-guidance/sg42100), imposing joint and several liability on both the company and its sole director. Despite the 30-day appeal period and warnings of potential criminal prosecution for non-compliance, no appeal was lodged within the specified time frame. They instructed us in mid-January 2025 to challenge these notices, citing personal circumstances as the reason for the late appeal. Recognising the urgency, our expert tax disputes team swiftly filed [Notices of Appeal](https://lexlaw.co.uk/hmrc-tax-penalty-appeal-solicitor-london/) with the [First-tier Tribunal](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/) on 22 January, 2025, citing exceptional personal circumstances. We submitted compelling evidence and secured statutory protection to defer enforcement and stay potential criminal prosecution. Simultaneously, we negotiated a formal [Time to Pay (TTP) proposal with HMRC](https://taxdisputes.co.uk/2023/10/obtaining-hmrc-time-to-pay-agreements-ttp/), including a 28-month payment plan and facilitated full payment of the VAT liability. ## Appeals Successful: HMRC Withdraws Security Notices The result of exceptional: On February 3, 2025, HMRC withdrew all [security notices](https://lexlaw.co.uk/solicitors-london/hmrc-notice-of-requirement/) relating to PAYE, NICs, and VAT. The PAYE and NICs notices were withdrawn to allow our client to negotiate a [Time to Pay (TTP) arrangement](https://taxdisputes.co.uk/2023/10/obtaining-hmrc-time-to-pay-agreements-ttp/), while the VAT notice was withdrawn following full payment of the outstanding tax as a tactical manoeuvre. This decisive outcome highlights the effectiveness of a well-prepared appeal combined with strategic negotiation in resolving complex tax disputes. Subsequently, the [First-tier Tribunal allowed the appeals](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/) on 17 June 2025, after HMRC chose not to defend the case, leading to the cancellation of the scheduled hearing. ## Challenging HMRC Security Notices: Key Strategies We Employed The success achieved in this case underscores several vital strategies for businesses confronting similar HMRC security notices: - **Seek Legal Advice Early**: Engaging specialist tax solicitors early ensured strict compliance with procedural requirements and strengthened the grounds for appeal. - **File a Proactive Appeal**: Despite the late submission, a well-supported appeal citing exceptional circumstances demonstrated a serious commitment to resolving the dispute and prompted HMRC to reconsider its position. - **Negotiate a Time to Pay Arrangement**: Proposing a formal [Time to Pay (TTP)](https://taxdisputes.co.uk/2023/10/obtaining-hmrc-time-to-pay-agreements-ttp/) plan showcased willingness to meet tax obligations responsibly, facilitating constructive negotiations with HMRC. [Our expert tax dispute team](mailto:https://lexlaw.co.uk/about/) played a crucial role in securing the withdrawal of the Notices of Requirement for our client. Our primary objective was clear: to have the security notices cancelled and we delivered precisely that. This case exemplifies how expert legal representation, combined with strategic negotiation and a robust appeal, can effectively prompt HMRC to withdraw enforcement actions and avoid potential criminal prosecution. ## The Importance of Expert Legal Representation This case underscores the value of partnering with seasoned tax law experts who can develop a thorough, well-founded, and persuasive appeal. [Our dedicated tax dispute](mailto:https://lexlaw.co.uk/about/) team played a key role in securing a favourable resolution. ## Expert HMRC Tax Dispute Solicitors if your business is confronted with an HMRC security notice, [our expert legal team](https://lexlaw.co.uk/our-people/) is here to help. We deliver customised strategies designed to support businesses navigating [HMRC enforcement proceedings](https://taxdisputes.co.uk/hmrc-enforcement-action/). They can assist with: - **Advising on compliance to avoid future [HMRC enforcement](https://taxdisputes.co.uk/hmrc-enforcement-action/).** - **Challenging PAYE, NICs, and VAT security notices.** - **Negotiating with HMRC for settlements and [Time to Pay (TTP) arrangements](https://taxdisputes.co.uk/2023/10/obtaining-hmrc-time-to-pay-agreements-ttp/).** - **Filing appeals with HMRC and the tax tribunal.** - **Representing clients in the First-Tier Tribunal (Tax Chamber).** We understand the complexities of tax law and are dedicated to achieving the best possible outcome for our clients. [Contact us today](https://lexlaw.co.uk/contact-us/) for on ☎ 02071830529 | ✉ [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk) --- # What is a HMRC Time to Pay (TPP) Arrangement? A Guide to Securing a TPP Agreement Source: https://taxdisputes.co.uk/2025/04/what-is-a-hmrc-time-to-pay-tpp-arrangement-a-guide-to-securing-a-tpp-agreement/ Navigating [tax](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) matters and negotiating with HMRC when tax is owing can be tricky, but choosing the right legal and accounting advisers and understanding your obligations and responsibilities can prevent future issues with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs). If HMRC are threatening [enforcement action](https://lexlaw.co.uk/hmrc-debt-enforcement-defence-statutory-demand-winding-up-peititon-solicitor-london/) such as by issuing a [statutory demand](https://taxdisputes.co.uk/hmrc-statutory-demand/) or by commencing [winding up](https://lexlaw.co.uk/practice-areas/winding-up-petitions-solicitors-london/hmrc-petition-winding-up/) or [bankruptcy](https://lexlaw.co.uk/bankruptcy-petition-insolvency-annulment-debt-lawyers-london/) proceedings, you can seek to negotiate a repayment plan to stop nuclear action being taken by the Revenue. This guide will help you understand how to manage your tax repayment obligations effectively and avoid potential pitfalls. If you are in dispute with HMRC [our team of ex-HMRC tax professionals](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) can help navigate you out of any problems with the taxman. ## What Is Time to Pay (TTP) Arrangement? [Time to Pay (TTP)](https://taxdisputes.co.uk/2023/10/obtaining-hmrc-time-to-pay-agreements-ttp/) is a discretionary arrangement offered by [HM Revenue & Customs (HMRC)](https://www.gov.uk/government/organisations/hm-revenue-customs) that allows taxpayers who are unable to pay their tax liabilities in full by the due date to spread payments over an agreed period. It is designed to assist individuals and businesses facing temporary financial difficulties while ensuring [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) collects taxes efficiently. However, [TTP agreements](https://taxdisputes.co.uk/2023/04/understanding-the-importance-of-settling-tax-bills-with-hmrc/) are not automatic and must meet specific conditions laid out by HMRC. ## Who Is Eligible for a TTP Arrangement? [HMRC](https://www.gov.uk/hmrc-internal-manuals/debt-management-and-banking/dmbm800000) considers [TTP requests](https://www.gov.uk/hmrc-internal-manuals/debt-management-and-banking/dmbm800510) on a case-by-case basis, applying objective criteria to determine eligibility. The key conditions for approval include: - **Financial Hardship**: The taxpayer must demonstrate that they genuinely cannot pay their tax liability on the due date but can afford instalments. - **Means to Pay**: The taxpayer must show they have the means to make regular payments during the TTP period and pay other tax liabilities that arise during this time. - **Short Duration**: [TTP arrangements](https://www.gov.uk/hmrc-internal-manuals/debt-management-and-banking/dmbm800040) are typically short-term, often lasting a few months. Agreements exceeding 12 months are rare and require managerial approval. - **Realistic Payment Proposals**: The taxpayer must offer the best payment terms they can realistically afford, with the expectation of increasing payments if their financial situation improves during the TTP period. ## Which Unpaid Taxes Are Covered Under a TTP Agreement? While most taxes can be included in a [TTP arrangement](https://www.gov.uk/hmrc-internal-manuals/debt-management-and-banking/dmbm800510), there are specific cases where taxpayers have a statutory right to pay by instalments under legislation. These include: - Tax due on lease premiums under the [Income and Corporation Taxes Act 1988](https://taxdisputes.co.uk/wp-content/uploads/2025/04/Income-and-Corporation-Taxes-Act-1988.pdf). - Employment income net underpayments under [ICTA88/S137(4)](https://taxdisputes.co.uk/wp-content/uploads/2025/04/Income-and-Corporation-Taxes-Act-1988.pdf). - Tax on chargeable gains paid by instalments under the [Taxation of Chargeable Gains Act 1992](https://taxdisputes.co.uk/wp-content/uploads/2025/04/Taxation-of-Chargeable-Gains-Act-1992_compressed.pdf). For all other taxes, TTP is discretionary and must be negotiated directly with HMRC. ## How Does HMRC Assess "Can't Pay" vs "Won't Pay"? HMRC distinguishes between taxpayers who genuinely cannot pay ("can't pay") and those who simply want to delay payment ("won't pay"). This assessment involves reviewing the [taxpayer's financial circumstances](https://www.gov.uk/hmrc-internal-manuals/debt-management-and-banking/dmbm518500), including: - Income, expenses, assets, and liabilities. - Whether other tax liabilities can be paid during the TTP period. - Whether the taxpayer has provided truthful information. HMRC will reject applications if it finds evidence of deliberate non-payment or misleading information. ## What Needs to be Shown to Get a TTP Arrangement? The principles governing [TTP arrangements](https://www.gov.uk/guidance/find-out-how-to-pay-a-debt-to-hmrc-with-a-time-to-pay-arrangement) ensure fairness and consistency across all cases (according to HMRC): - **Case-by-Case Basis**: Each application is assessed individually. - **Best Payment Proposals**: Taxpayers must offer realistic instalment plans based on their financial capacity. - **Short Duration**: The repayment period should be as brief as possible. - **Interest Charges**: Interest accrues on late payments, even when a TTP agreement is in place. - **No Reduction in Tax Liability**: [HMRC](https://taxdisputes.co.uk/repayment-fraud/) cannot reduce the amount of tax owed as part of a TTP agreement. ## How Can You Apply for a TTP Arrangement? To request a TTP arrangement: - **Contact HMRC Early**: Reach out as soon as you realise you cannot meet your tax obligations. - **Provide Financial Information**: Submit detailed records of your income, expenses, assets, and liabilities. - **Propose a Payment Plan**: Offer realistic instalment terms that align with your financial situation. Once approved, you must adhere strictly to the agreed terms and notify HMRC if your financial circumstances improve. ## What are the Consequences If You Default on a TTP Agreement? HMRC may cancel a [TTP](https://taxdisputes.co.uk/paye-tax-investigation-disputes/) agreement under certain circumstances, including: - Discovery of new facts that invalidate the arrangement. - Evidence of misleading or untruthful information from the taxpayer. - Failure to comply with payment terms or conditions. - Any other reason that puts tax collection at risk. In cases where Universal Credit is claimed during an ongoing TTP arrangement, [HMRC](https://taxdisputes.co.uk/2024/06/injunction-success-abusive-hmrc-winding-up-petition-dismissed/) will transfer any remaining debt to the [Department for Work and Pensions (DWP)](https://www.gov.uk/government/organisations/department-for-work-pensions). ## Expert HMRC Tax Lawyers Navigating HMRC’s Time to Pay process can be daunting, especially when dealing with complex financial situations or large tax liabilities. Our law firm specialises in assisting individuals and businesses with tax disputes and negotiations with HMRC. We provide: - Expert advice on eligibility for TTP arrangements. - Preparation of detailed applications supported by robust financial evidence. - Negotiation of favourable terms tailored to your unique circumstances. - Representation in disputes or appeals if your application is rejected. With our extensive experience in tax law, we ensure your rights are protected while helping you achieve manageable repayment solutions. ### FAQ: HMRC Time to Pay Arrangements Q: What are the main conditions for HMRC to agree to a Time To Pay (TTP) arrangement? A: For [HMRC](https://taxdisputes.co.uk/2024/06/injunction-success-abusive-hmrc-winding-up-petition-dismissed/) to allow a TTP arrangement, the customer must meet specific conditions. These include: They must have the means to make the agreed payments. They must have the means to pay other tax liabilities that become due during the TTP period. The TTP period must be as short as possible. Q: Will HMRC reduce the amount of tax I owe if I get a TTP agreement? A: No, HMRC will not reduce the amount of tax owed as part of a TTP agreement [(DMBM800040)](https://www.gov.uk/hmrc-internal-manuals/debt-management-and-banking/dmbm800040). Q: What happens if my financial situation improves during the TTP period? A: If your ability to pay improves during the TTP period, you must contact HMRC and increase your payments or clear the debt [(DMBM800040)](https://www.gov.uk/hmrc-internal-manuals/debt-management-and-banking/dmbm800040). Q: Can I get a TTP arrangement for more than 12 months? A: TTP arrangements exceeding 12 months are exceptional and must be authorised by a manager, with the exception of tax credit cases [(DMBM800040)](https://www.gov.uk/hmrc-internal-manuals/debt-management-and-banking/dmbm800040). Q: What if I have a statutory right to pay my taxes in installments? A: If you have a statutory right to pay by installments, you must advise HMRC that you wish to exercise that right [(DMBM800030)](https://www.gov.uk/hmrc-internal-manuals/debt-management-and-banking/dmbm800030). Q: What should I do if I can’t specify the exact amount I can pay in the future? A: If you are unable to specify the future increased amount, and HMRC considers the proposal to be acceptable, a TTP based on the initial payment amount (and for the whole of the debt) should be set up. You should be advised to contact HMRC by a specific agreed date to renegotiate the arrangement [(DMBM800040)](https://www.gov.uk/hmrc-internal-manuals/debt-management-and-banking/dmbm800040). Q: Will I have to pay interest on the outstanding tax debt if I have a TTP arrangement? A: Yes, applicable interest will always be charged when payments are received after the due date, irrespective of whether a TTP has been agreed or not. When a TTP is agreed, HMRC will usually look to include the interest in the arrangement. Q: What happens if I miss a payment under a TTP arrangement? A: If you do not stick to the terms of the TTP arrangement, HMRC can cancel the arrangement and take legal action to recover any outstanding debt. If a payment is missed, HMRC will usually issue a reminder letter advising you to pay the overdue amount immediately to continue with the arrangement. If the overdue amount is not paid, HMRC will cancel the [TTP arrangement in writing](https://www.gov.uk/hmrc-internal-manuals/debt-management-and-banking/dmbm804210). Q: Can HMRC refuse a TTP request? A: Yes, HMRC can reject TTP requests for a number of reasons. Any request that does not meet the conditions of TTP will be rejected. If it is discovered that the customer can pay or that their request is unacceptable, HMRC will reject the request. Repeat requests will also be closely scrutinised. Q: What if I have multiple tax debts? A: When considering a TTP request, HMRC will usually want to know about all of your HMRC debts. If you have debts across different HMRC departments, different specialist offices within [Debt Management and Banking (DMB)](https://www.gov.uk/hmrc-internal-manuals/debt-management-and-banking) may be responsible for dealing with the request depending on the type and amount of debt. Q: Can a TTP arrangement include future tax liabilities? A: Yes, in [Self Assessment (SA)](https://www.gov.uk/browse/tax/self-assessment) cases, future amounts becoming due should be considered when setting up a TTP arrangement that spans future payment due dates. Customers should be encouraged to include both the existing debt and future liabilities in the arrangement. --- # UK Introduces Tax Avoidance Whistleblower Scheme Source: https://taxdisputes.co.uk/2025/03/uk-introduces-tax-avoidance-whistleblower-scheme/ In a significant move to bolster its anti-fraud enforcement and crack down on [tax avoidance](https://www.gov.uk/guidance/tax-avoidance-an-introduction) and [tax evasion](https://www.gov.uk/report-tax-fraud), the United Kingdom has announced the launch of a new whistleblower reward scheme. This groundbreaking initiative, overseen by [HM Revenue & Customs (HMRC)](https://www.gov.uk/government/organisations/hm-revenue-customs), is modeled after the highly successful tax whistleblower program in the United States, offering substantial financial incentives for individuals who expose significant [tax fraud](https://www.gov.uk/report-tax-fraud). If you have information about potential [tax avoidance schemes ](https://www.gov.uk/guidance/tax-avoidance-an-introduction#what-tax-avoidance-is)or tax evasion, this new scheme could provide a powerful avenue for action and potential reward. ## New UK Tax Whistleblower Scheme: A US-Inspired Approach to Tackle Tax Fraud The government's decision to implement this **tax whistleblower scheme** signifies a major breakthrough in the UK's approach to combating [tax fraud](https://www.gov.uk/government/publications/hmrc-issue-briefing-hmrcs-approach-to-tax-fraud/hmrcs-approach-to-tax-fraud). Inspired by the US model, which has proven highly effective in recovering billions in unpaid taxes, the new system aims to incentivize insiders, such as employees of wealthy individuals and multinational businesses, to come forward with information about [tax avoidance](https://www.gov.uk/government/collections/tax-avoidance-detailed-information) and [fraudulent tax practices](https://www.gov.uk/government/publications/hmrc-issue-briefing-hmrcs-approach-to-tax-fraud/hmrcs-approach-to-tax-fraud). Under this new scheme, whistleblowers who provide information that leads to the recovery of previously unpaid tax could receive up to 25% of the extra tax raised as a direct reward for their efforts. This substantial incentive mirrors the success seen in the United States, where the Internal Revenue Service (IRS) paid out $89 million (£68 million) to 121 whistleblowers in the 2022-23 fiscal year alone, resulting in an additional $338 million (£261 million) in [tax collection](https://commonslibrary.parliament.uk/research-briefings/cbp-8513/#:~:text=In%202023%2F24%2C%20UK%20government,GDP%20in%20the%20early%2D1980s.). In one notable US case, three informants split a $74 million (£57 million) reward after their information led to the recovery of $263 million. Exchequer Secretary to the Treasury, [James Murray](https://www.gov.uk/government/people/james-murray), emphasised the importance of this new approach, stating, "Tax fraud is a crime — it rips off everyone else who plays by the rules. As is the case in the US and Canada, our new approach will make sure people are incentivised to do the right thing and help the government to tackle tax avoidance head on. This new scheme helps deliver our plan for change, by supporting economic growth and putting more money in people’s pockets”. ## Why a Tax Whistleblower Scheme Now? Addressing the UK Tax Gap The introduction of this tax avoidance whistleblower scheme comes at a time when the government is increasingly focused on reducing the [tax gap](https://www.gov.uk/government/collections/measuring-tax-gaps), which was estimated to be a significant £39.8 billion. By offering a significant financial reward, the government hopes to tap into insider knowledge to uncover and penalise large-scale [tax evasion](https://publications.parliament.uk/pa/cm5901/cmselect/cmpubacc/355/report.html) that might otherwise go undetected. ## Potential Impact and Considerations for Businesses and Individuals This new tax fraud whistleblower incentive has significant implications for businesses and individuals in the UK. For large corporations and high-net-worth individuals, the potential for disgruntled employees or financial professionals to report [tax avoidance schemes](https://dontgetcaughtout.campaign.gov.uk/tax-avoidance/) could lead to increased scrutiny and the need for robust [tax compliance](https://www.gov.uk/guidance/hmrc-compliance-checks-help-and-support) strategies. In parallel to this scheme, the government has also announced an increase in the self-assessment reporting threshold for trading income, aiming to reduce the administrative burden on smaller [online sellers](https://taxdisputes.co.uk/2025/03/hmrc-cracking-down-on-online-marketplace-sellers/) and those with side hustles. This allows [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) to focus more resources on investigating high-value tax fraud cases potentially brought to light by whistleblowers. ## How to Navigate the New Tax Whistleblower Landscape The introduction of the UK tax whistleblower reward program marks a new era in HMRC's efforts to combat [tax avoidance](https://taxdisputes.co.uk/tax-avoidance-cop-8-investigations-solicitors-london/) and [tax evasion](https://taxdisputes.co.uk/tax-evasion-hmrc-code-practice-9-investigations/). Individuals with knowledge of significant tax fraud now have a powerful incentive to come forward. ## Expert Legal Assistance for HMRC Tax Disputes Navigating the complexities of[** **tax law](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) and dealing with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs), whether as a potential whistleblower or a business facing scrutiny, can be challenging. Our specialist [tax dispute solicitors and barristers](https://lexlaw.co.uk/our-people/) have extensive experience in assisting individuals and businesses with all aspects of [HMRC investigations](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/), [tax disputes](https://taxdisputes.co.uk/), and [HMRC enforcement actions](https://lexlaw.co.uk/hmrc-debt-enforcement-defence-statutory-demand-winding-up-peititon-solicitor-london/). If you are considering making a whistleblower report and require confidential legal advice on the process and potential implications, or if your business is facing an [HMRC tax investigation](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) or concerned about [tax compliance](https://www.gov.uk/government/collections/tax-compliance-detailed-information) in light of these new developments, our expert team can provide tailored solutions and robust representation. We understand the intricacies of tax fraud, [tax avoidance schemes](https://taxdisputes.co.uk/tax-avoidance-cop-8-investigations-solicitors-london/), and [HMRC procedures](https://www.gov.uk/government/collections/hmrc-manuals), and we are dedicated to achieving the best possible outcome for our clients. Contact our experienced tax dispute resolution team today for a confidential discussion and expert legal guidance on 02071830529 or email us at taxdisputes@lexlaw.co.uk. We are here to help you understand your obligations, navigate HMRC scrutiny, and protect your interests in all tax-related matters. --- # Understanding HMRC’s Notice of Requirement: Security Demands for VAT, PAYE, and NICs Source: https://taxdisputes.co.uk/2025/06/understanding-hmrcs-notice-of-requirement-security-demands-for-vat-paye-and-nics/ When a business falls behind on its tax obligations, [HM Revenue & Customs (HMRC)](https://www.gov.uk/money/tax-compliance) may issue more than just routine warnings or penalties. One of the more serious actions they can take is to serve a [Notice of Requirement (NOR)](https://taxdisputes.co.uk/legal-representation/hmrc-notice-requirement-tribunal-appeals-solicitor-legal-advice/#:~:text=What%20is%20a%20HMRC%20Notice%20of%20Requirement%20to%20give%20Security%20(NOR)%3F), a formal demand for a security deposit intended to protect the revenue against future defaults. This measure, often issued without warning, can cause significant disruption to business operations and personal risk to directors and officers. A Notice of Requirement is not simply an administrative request. It is a binding legal notice requiring payment of a substantial sum of money, calculated to cover several months’ worth of future [Pay As You Earn (PAYE)](https://www.gov.uk/paye-for-employers), [National Insurance Contributions (NICs)](https://www.gov.uk/national-insurance), or [Value Added Tax ](https://www.gov.uk/browse/tax/vat)([VAT](https://www.gov.uk/how-vat-works)) liabilities. If ignored or unpaid, the consequences can include criminal prosecution, personal liability, and financial penalties. This article explains how these notices work, why HMRC issues them, what the legal consequences are, and how they can be challenged. ## What Is a Notice of Requirement? A Notice of Requirement is a [statutory demand](https://lexlaw.co.uk/statutory-demand-debt-enforcement-recovery-solicitors-london-advice/#:~:text=What%20is%20a%20statutory%20demand%3F) from HMRC requiring a business, or in some cases, its directors or responsible officers, to provide a sum of money as a financial security. This security is held by HMRC to offset potential losses if the business fails to pay future taxes. Most commonly, the notice covers[ Value Added Tax (VAT)](https://www.gov.uk/government/publications/securities-in-respect-of-vat-at-risk), [Pay As You Earn (PAYE)/National Insurance Contributions (NICs)](https://www.gov.uk/government/publications/securities-in-respect-of-paye-and-national-insurance-contributions). The notice sets out the amount of the required security, the form in which it must be provided, and the time within which compliance is expected. For VAT, HMRC usually demands immediate payment, while for PAYE and NICs, a period of 30 days is typically given. The forms of acceptable security can include electronic payments, cheques, or third-party guarantees, such as performance bonds issued by financial institutions. Crucially, HMRC has wide discretion in issuing these notices and is not required to provide advance warning. If they suspect that delay might enable a taxpayer to dispose of assets or otherwise avoid payment, they may issue the notice without prior communication or negotiation. ## Why Does HMRC Issue Notices of Requirement? HMRC will consider issuing a [Notice of Requirement](https://taxdisputes.co.uk/legal-representation/hmrc-notice-requirement-tribunal-appeals-solicitor-legal-advice/) when there is a concern that the taxpayer may default on future obligations. This typically arises where a business has a track record of late payment, has previously defaulted on [time-to-pay arrangements](https://taxdisputes.co.uk/2025/04/what-is-a-hmrc-time-to-pay-tpp-arrangement-a-guide-to-securing-a-tpp-agreement/), or is linked to other companies with poor compliance histories. The risk is considered especially high in so-called “phoenix” cases, where a failed business is effectively restarted under a new name, with the same personnel involved. In such cases, HMRC may require the new entity to provide a security deposit before it is permitted to continue trading. In assessing risk, HMRC relies on both past performance and predictive indicators, including industry type, cashflow behaviour, and whether the business has previously entered into insolvency arrangements. Where the evidence points to a pattern of non-compliance, HMRC is more likely to intervene pre-emptively by demanding security. The security demanded is typically equivalent to four to six months’ worth of expected tax liabilities. This amount is often based on previous tax returns, estimated turnover, and any known arrears. In many cases, especially for new or distressed businesses, the sum demanded can be substantial and may effectively prevent continued trading unless legal advice is obtained quickly. ## Key Features of a Notice of Requirement A [Notice of Requirement](https://taxdisputes.co.uk/legal-representation/hmrc-notice-requirement-tribunal-appeals-solicitor-legal-advice/) will typically include: - **The amount of security required**: Often calculated as 4 to 6 months of estimated tax liabilities, sometimes including existing arrears. - **A payment deadline**: For [VAT,](https://taxdisputes.co.uk/hmrc-vat-investigations-evasion-input-ouput-double-taxation-tribunal-legal-advice/) payment is usually demanded immediately. For PAYE and NICs, the taxpayer is generally given 30 days to comply. - **Approved forms of payment**: This might include electronic transfers, cheques, or a third-party performance bond (usually from a bank or insurer). - **Legal consequences for non-compliance**: These include criminal prosecution, personal liability, and fines of up to £5,000 per taxable supply for VAT-related breaches. Importantly, HMRC is not required to give advance notice before issuing a NOR. In fact, if they suspect a business might try to evade liability, they can serve the notice without any prior warning. ## When Will HMRC Issue a Notice Of Requirement? HMRC typically serves a [Notice of Requirement](https://taxdisputes.co.uk/legal-representation/hmrc-notice-requirement-tribunal-appeals-solicitor-legal-advice/) in one of the following situations: - **A history of default**: Repeated late filings, unpaid returns, or defaulted payment plans. - **Phoenix company behaviour**: If the business appears to be a continuation of a previously failed company (especially with the same directors or shareholders). - **High risk of future default**: Based on HMRC’s own risk profiling, which may include industry-specific patterns, director behaviour, or adverse financial indicators. In some cases, HMRC may serve the NOR personally on individual directors, especially if there’s evidence that a prior company was deliberately abandoned to avoid tax debts. This makes those individuals personally liable for the security sum. ## How Is the Security Calculated? The calculation depends on the type of tax and HMRC’s estimate of future liabilities. Factors include: - **Historical tax returns**: If a business previously paid £10,000 per month in [VAT](https://taxdisputes.co.uk/hmrc-vat-investigations-evasion-input-ouput-double-taxation-tribunal-legal-advice/), HMRC might demand £40,000 to £60,000 as security. - **Existing arrears**: If any taxes are already overdue, those amounts may be included in the demand. - **Nature of business and seasonal trends**: For example, retailers may face higher security during peak trading months. In many cases, the demand is significant enough to create real cashflow issues. It may prevent the business from trading, hiring staff, or paying suppliers. ## Legal Consequences of Non-Compliance Ignoring a Notice Of Requirement is not just a commercial risk; it is a criminal offence. In the context of [VAT](https://taxdisputes.co.uk/hmrc-vat-investigations-evasion-input-ouput-double-taxation-tribunal-legal-advice/), making a single taxable supply without first providing the required security can result in a fine of up to £5,000. If a business continues to trade in breach of the notice, each individual transaction may give rise to a separate offence and fine. In the case of PAYE and NICs, the penalties are even more severe, with potential criminal convictions and unlimited fines. Directors and officers who are “knowingly concerned” in the business’s failure to comply with the NOR may also face personal liability. This includes the possibility of disqualification from acting as a director, in addition to being held jointly liable for any unpaid taxes. For this reason, it is essential that businesses take NORs seriously and seek legal advice as soon as a notice is received. ## Can You Challenge a NOR? Yes, but timing is critical. - **Appeal to HMRC in writing within 30 days** of receiving the notice. State why you believe the demand is unlawful, excessive, or unjustified. - **Request an internal review** if the initial appeal is rejected. A different HMRC officer will review the case. - **Apply to the First-tier Tax Tribunal** if HMRC maintains the notice after the review. You can ask for a suspension of the NOR during proceedings. Legal representation at this stage significantly improves your chances of success. We have a strong track record of successfully challenging HMRC Notices of Requirement and preventing criminal action against company directors. Our [specialist Tax Solicitors and Barristers](https://taxdisputes.co.uk/) bring expert technical knowledge, effective negotiation skills, and practical advice that can significantly reduce potential tax penalties, charges, and personal liability. ## Case Law: How Have Tribunals Treated NOR Disputes? **1. [Ava Estell Ltd & Yaw Okyere v HMRC (18 October 2024)](https://taxdisputes.co.uk/wp-content/uploads/2025/02/How-Can-Businesses-Challenge-HMRC-Security-Notices-A-Recent-UK-Tribunal-Case-Explained.pdf)** HMRC issued Notices of Requirement (NORs) to Ava Estell Ltd, demanding security for PAYE, NICs, and VAT. The director, Mr Yaw Okyere, was also held personally liable for the PAYE and NICs element. [Our expert team](https://taxdisputes.co.uk/expert-advice/) acted immediately, filing an appeal with the First-tier Tribunal, submitting robust written representations, and putting forward a carefully structured Time to Pay (TTP) proposal. As a result of our swift and strategic intervention, HMRC withdrew all the security notices within one day. This outcome highlights the effectiveness of experienced legal representation and the impact of early, well-prepared action in challenging HMRC enforcement. You can read more about this case [here](https://taxdisputes.co.uk/2025/03/case-study-hmrc-withdraws-security-notices-in-one-day/). **[2. D-Media Communications Ltd v HMRC [2016] UKFTT 430 (TC)](https://taxdisputes.co.uk/wp-content/uploads/2025/06/D-Media-Communications-Limited-v-HMRC-Decision.pdf)** HMRC issued a Notice of Requirement (NOR) to D-Media Communications Ltd demanding security for PAYE and National Insurance Contributions (NICs) totalling over £147,000. The company appealed, arguing the amount was excessive and did not reflect its actual tax liabilities. On review, the First-tier Tribunal acknowledged that HMRC was legally entitled to issue a NOR under the relevant legislation. However, it found that the sum demanded was not proportionate to the company’s current liabilities and trading position. The Tribunal ultimately reduced the security to £25,000. This decision illustrates that while HMRC has wide powers to issue NORs, the Tribunal will assess whether the quantum of the demand is fair and properly justified. **[3. Pachangas Mexican Restaurant Ltd v HMRC [2019] UKFTT 436 (TC)](https://taxdisputes.co.uk/wp-content/uploads/2025/06/Pachangas.pdf)** In this case, HMRC issued a NOR to a restaurant business without providing any explanation or basis for the amount of security requested. Pachangas Mexican Restaurant Ltd challenged the notice, asserting that the lack of transparency breached principles of fairness and made it impossible to mount an informed appeal. [The Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) agreed, heavily criticising HMRC for failing to disclose how the figure was calculated or why the notice was necessary. It held that such opacity undermined the taxpayer’s right to challenge the decision effectively and set aside the NOR in full. The case reinforces the procedural requirement for HMRC to provide clear reasoning when demanding security. ## Expert HMRC Security Notice Defence Lawyers Receiving a Notice of Requirement can have an immediate and paralysing effect on a business. Banks, landlords, and suppliers may lose confidence, while internal operations grind to a halt as resources are diverted to address the demand. Legal professionals can assist by negotiating with HMRC, preparing appeals supported by robust evidence, and helping directors understand and limit their personal exposure. Early intervention is often the difference between success and failure. If you receive an NOR, or believe one may be imminent, seek legal advice immediately. In many cases, acting promptly can avoid criminal penalties, keep the business operational, and safeguard individual directors from personal liability. If your business faces a [HMRC security notice](https://lexlaw.co.uk/faqs-on-hmrc-security-notices/), we can provide expert legal assistance. [Our experienced team](https://lexlaw.co.uk/our-people/) offer tailored solutions for businesses facing [HMRC enforcement actions](https://taxdisputes.co.uk/hmrc-enforcement-action/). They can assist with: - **Advising on compliance to avoid future HMRC enforcement** - **Challenging PAYE, NICs, and VAT security notices** - **Filing appeals with HMRC and the tax tribunal** - **Negotiating with HMRC for settlements and Time to Pay (TTP) arrangements** - **Representing clients in the First-Tier Tribunal (Tax Chamber)** We understand the complexities of tax law and are dedicated to achieving the best possible outcome for our clients. Contact us today for on ☎ [02071830529](tel://+442071830529) | ✉ [contact@lexlaw.co.uk](mailto:contact@lexlaw.co.uk) --- # Tax Tribunal Process Guide: Benefits and Strategy for HMRC Tax Disputes in the UK Source: https://taxdisputes.co.uk/2025/09/tax-tribunal-process-guide-benefits-and-strategy-for-hmrc-tax-disputes-in-the-uk/ When dealing with disputes with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs), taking the matter to the [Tribunal](https://www.gov.uk/courts-tribunals/first-tier-tribunal-tax) can be a strategic and [necessary step](https://taxdisputes.co.uk/contact-us/). This approach has several advantages. First, it compels HMRC to formally set out their case, ensuring that all arguments and evidence are clearly presented. The case is reviewed by different parties within HMRC and ultimately by an independent Tribunal, which provides a fresh perspective and impartial judgment. The formal setting of the [Tribunal](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/first-tier-tribunal-tax-chamber/) process encourages both parties to consider the costs involved at various stages, which can often lead to more serious settlement discussions. Evidence is submitted in a structured manner, and issues are addressed in a legal context, providing clarity and focus. Additionally, a favorable Tribunal ruling can have broader implications, potentially influencing similar cases and setting important precedents. At [LEXLAW Solicitors & Barristers](https://taxdisputes.co.uk/contact-us/), we specialise in representing clients in complex [HMRC tax disputes](https://lexlaw.co.uk/hmrc-tax-dispute-lawyers/) and [Tribunal proceedings](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/), ensuring that your case is argued robustly and strategically to achieve the best possible outcome. ## The UK Tax Tribunal Understanding the stages of the [Tribunal](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/first-tier-tribunal-tax-chamber/) process is crucial for effective preparation and strategy. The process begins with an enquiry or assessment by [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs#). If the taxpayer disagrees with HMRC’s findings, they can appeal within HMRC and request a review. If the review does not resolve the issue, the next step is to appeal to the Tribunal. The Tribunal process involves several key steps: filing a [Statement of Case](https://lexlaw.co.uk/statements-of-case-pleadings-litigation-documents-claim-form-particulars-defence-reply-legal-advice/), preparing Skeleton Arguments, and ultimately attending a Hearing. Throughout this process, the involvement of the client, advisors, solicitor, barrister, and witnesses is essential. Each participant plays a critical role in presenting a strong case. ### Why Consider the Tribunal? While contesting a [tax dispute](https://taxdisputes.co.uk/contact-us/) to the bitter end isn't always necessary, the Tribunal offers several advantages: - **Structured Environment:** [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) must formally present their case, allowing for a clear framework to address contested issues. - **Independent Review:** Unlike internal discussions with HMRC, the Tribunal provides an objective body to evaluate evidence and arguments. - **Potential for Favourable Outcomes:** A [positive Tribunal decision](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/) can not only resolve your dispute but also set a precedent for similar cases, potentially benefiting others. ## When Does the Tax Dispute Start? A dispute typically starts from the initial enquiry or [discovery assessment](https://taxdisputes.co.uk/2024/02/hmrcs-assessment-powers/) by [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs). This is the point where the taxpayer needs to be vigilant and proactive. Key milestones in the dispute include the issuance of a closure notice, the review process, the filing of a Statement of Case, and the preparation of witness statements. It is important to treat an enquiry as the beginning of a potential dispute. While HMRC has broad information-gathering powers, taxpayers must be thoughtful about what information they provide. Certain protections, such as legal professional privilege, apply. Taxpayers should evaluate the relevance of the information requested and consider whether it is pertinent to the enquiry. ## What's Involved in the Process? Understanding the different stages of a tax dispute can help you prepare effectively. Here's a breakdown of the typical process: - **HMRC Enquiry and Assessment:** The dispute often starts with an enquiry, followed by an assessment that outlines the disputed tax amount. - **Appealing to HMRC and Review:** You can appeal HMRC's initial decision and request a review before resorting to the Tribunal. - **Tribunal Proceedings:** If the review is unsuccessful, you can initiate formal proceedings at the Tribunal, requiring a Statement of Case and potentially witness statements and legal arguments. ## Importance of Witness Evidence in Tax Tribunal Effective witness evidence can significantly impact the outcome of a [Tribunal](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/first-tier-tribunal-tax-chamber/) case. It is crucial to gather evidence early and understand the burden of proof. Differentiate between factual evidence and expert evidence, and ensure that witness statements are well-prepared and focused on the key issues. ## HMRC's Perspective on Litigation In 2025, HMRC’s litigation approach continues to reflect its cautious pragmatism. In the most recent quarter, HMRC’s litigation success rate stood at **87.2 %**, with 407 court and tribunal decisions, of which 346 were full wins and 9 partial wins. [GOV.UK](https://www.gov.uk/government/publications/hmrc-performance-update-july-2025/performance-report-2025-to-2026-july-2025-and-quarter-1?utm_source=chatgpt.com) HMRC still tends to concede weaker cases under its Litigation and Settlement Strategy, meaning that many disputes are resolved before hearing. This stance, alongside its generally strong performance in litigation, underscores why taxpayers must present well-developed grounds and robust evidence if they intend to take a dispute to the [Tribunal](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/). By bringing an [appeal](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/), taxpayers give HMRC's lawyers the opportunity to reassess the case under the LSS. Well-drafted and comprehensive grounds of appeal, along with substantial evidence, can increase the likelihood of HMRC conceding. An overly aggressive approach is less effective and may reduce the chances of a favourable outcome. ## Alternative Dispute Resolution (ADR): [ADR](https://lexlaw.co.uk/alternative-dispute-resolution-lawyers-london/) can be a strategic alternative to [Tribunal](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/first-tier-tribunal-tax-chamber/) litigation. It is applicable when communication with HMRC breaks down, during a compliance check, or when a dispute appears to be the result of a misunderstanding. ADR is also useful when it is unclear what information HMRC has used or if they have made incorrect assumptions. ADR can be pursued when progress in an enquiry stalls, or at the end of a compliance check after a decision has been made. Using ADR can facilitate understanding HMRC’s case better, narrow the issues, and potentially settle the dispute more efficiently. ## Costs in the First-tier Tax Tribunal Costs are a significant consideration at various stages of the [Tribunal](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/first-tier-tribunal-tax-chamber/) process. In the [FTT](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/), costs are generally not awarded unless the case is classified as ‘complex’. Taxpayers need to decide whether to opt out of this classification. Costs implications extend to the [Upper Tribunal (UT)](https://www.judiciary.uk/courts-and-tribunals/tribunals/upper-tribunal/upper-tribunal-tax-and-chancery-chamber/) and beyond, including Judicial Review. ## Judicial Review When certain HMRC decisions cannot be appealed to the Tribunal, Judicial Review is an alternative. It challenges the lawfulness, reasonableness, and proportionality of HMRC’s decisions. Judicial Review involves different procedures and courts, such as the High Court. It is a crucial tool for challenging both formal decisions and informal exercises of discretion by HMRC. ## Strategy to win Tax Disputes with Legal Expertise Litigating a tax dispute is a complex process. Developing a well-defined strategy early on with the support of a tax specialist is crucial for successful litigation. Taxpayers should consider their preferred outcome and the options for achieving it at an early stage. Thorough preparation is key: gathering compelling evidence, understanding how it supports the case, and ensuring it is well-organised and relevant. Settlement opportunities should be considered carefully, including the timing, approach, and acceptable amounts. [Our team](https://lexlaw.co.uk/our-people/) of ex-HMRC tax lawyers and barristers offer a wealth of experience and insights to help you: - **Clearly Define Your Desired Outcome:** What do you hope to achieve through this process? - **Evaluate Your Options:** We can help you understand the different avenues available to resolve the dispute. - **Thorough Preparation:** Gathering compelling evidence, analyzing its relevance, and anticipating challenges are key steps for success. ### Don't Do It Alone! Tax disputes can be highly technical and emotionally charged. Navigating the legal complexities on your own can be overwhelming. ### Contact our Specialist Tax Solicitors and Barristers today. At [LEXLAW](https://lexlaw.co.uk/), we specialise in navigating complex tax disputes with HMRC. Our experienced team of solicitors and barristers will guide you through each stage of the Tribunal process, ensuring thorough preparation and robust representation. We are committed to achieving the best possible outcome for our clients by leveraging our deep understanding of tax law and strategic litigation. Contact us today for a consultation and let us help you resolve your tax dispute effectively. --- # Medpro v HMRC: Revised Tribunal Principles on Late VAT Appeals Source: https://taxdisputes.co.uk/2025/10/medpro-v-hmrc-revised-tribunal-principles-on-late-vat-appeals/ The [Upper Tribunal’s](https://www.judiciary.uk/courts-and-tribunals/tribunals/upper-tribunal/) ruling in [Medpro Healthcare Ltd v HMRC [2025] UKUT 255 (TCC)](https://www.bailii.org/uk/cases/UKUT/TCC/2025/255.pdf) is one of the most important developments in tax litigation in recent years. The judgment reshapes the law on [late VAT appeals](https://lexlaw.co.uk/solicitors-london/how-to-appeal-hmrc-vat-penalties-reasonable-excuse-defence-guide-2025/), clarifies the application of earlier cases such as [Martland v HMRC](https://assets.publishing.service.gov.uk/media/5b115855e5274a191271783e/William_Martland_v_HMRC_.pdf) and [HMRC v Katib](https://assets.publishing.service.gov.uk/media/5d0a3f90ed915d09440c159d/HMRC_v_MH_Katib_.pdf), and confirms that tribunals must apply a transparent and fair balancing exercise when deciding whether to permit appeals brought after statutory deadlines. For taxpayers who have missed [appeal windows](https://lexlaw.co.uk/solicitors-london/how-to-appeal-hmrc-vat-penalties-reasonable-excuse-defence-guide-2025/), Medpro offers new opportunities to secure access to justice and demonstrates the value of specialist representation in disputes with [HMRC](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/). ## Case Overview In 2022, [HMRC](https://taxdisputes.co.uk/hmrc-penalties/) imposed two significant [VAT penalties](https://taxdisputes.co.uk/hmrc-vat-investigations-evasion-input-ouput-double-taxation-tribunal-legal-advice/) on [Medpro Healthcare Ltd](https://www.bailii.org/uk/cases/UKUT/TCC/2025/255.pdf). One exceeded £43,000 and the other was over £1 million. After both penalties were upheld on review, Medpro sought to appeal. However, its [notices of appeal](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/) were submitted late: one by 70 days, the other by more than five months. At the [First-tier Tribunal (FTT)](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/), Medpro explained that the delays were due to professional adviser failings as well as other serious challenges the business faced at the time. The [FTT](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) rejected these arguments, treating the advisers’ mistakes as Medpro’s own and classifying the delays as “serious and significant.” The company’s application for an extension of time was refused, prompting an appeal to the [Upper Tribunal (UT)](https://www.judiciary.uk/courts-and-tribunals/tribunals/upper-tribunal/). This case also highlights that timely [expert tax advice](https://taxdisputes.co.uk/contact-us/) is critical when faced with an [HMRC penalty](https://taxdisputes.co.uk/hmrc-penalties/).   ## Read the Full Judgment: [![](https://taxdisputes.co.uk/wp-content/uploads/2025/10/Extracted-pages-from-Medpro-Healthcare-Ltd-2025-UKUT-255-TCC-1.jpg)](https://www.bailii.org/uk/cases/UKUT/TCC/2025/255.pdf) ## The Law Before Medpro For several years, the law on late appeals had been shaped by two key decisions. In [Martland v HMRC [2018] UKUT 178 (TCC)](https://assets.publishing.service.gov.uk/media/5b115855e5274a191271783e/William_Martland_v_HMRC_.pdf), the UT adopted the civil courts’ three-stage test for relief from sanctions (from *Denton v TH White Ltd*). This required tribunals to consider: the seriousness of delay, the reasons for it, and whether the overall circumstances justified granting an extension. In [HMRC v Katib [2019] UKUT 189 (TCC)](https://assets.publishing.service.gov.uk/media/5d0a3f90ed915d09440c159d/HMRC_v_MH_Katib_.pdf), the UT held that professional adviser negligence was generally attributable to the taxpayer. This “general rule” created significant barriers for taxpayers whose appeals were late due to poor advice. Together, these cases made it extremely difficult to succeed in [late appeal applications](https://taxdisputes.co.uk/late-hmrc-tax-appeals/), especially where delay arose from adviser error while also implying the need to [engage expert tax lawyers](https://taxdisputes.co.uk/contact-us/). ## The Upper Tribunal’s Decision The [Upper Tribunal](https://www.judiciary.uk/courts-and-tribunals/tribunals/upper-tribunal/) found that the FTT’s decision was legally flawed in several respects. First, it had failed to provide proper reasons. Large parts of its judgment were lifted directly from the parties’ submissions, without explaining which arguments were accepted or rejected. The absence of reasoning was, in itself, enough to overturn the decision. Second, the [FTT](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) had failed to apply the [Martland test](https://assets.publishing.service.gov.uk/media/5b115855e5274a191271783e/William_Martland_v_HMRC_.pdf) correctly. While it considered the seriousness of the delay and the reasons for it, it never undertook the crucial third stage, balancing all the circumstances. This holistic balancing exercise, the [UT](https://www.judiciary.uk/courts-and-tribunals/tribunals/upper-tribunal/) confirmed, is the most important part of the test. Third, the tribunal had applied [Katib](https://assets.publishing.service.gov.uk/media/5d0a3f90ed915d09440c159d/HMRC_v_MH_Katib_.pdf) too rigidly. It simply treated adviser negligence as fatal without considering whether fairness required a different outcome. The [UT](https://www.judiciary.uk/courts-and-tribunals/tribunals/upper-tribunal/) clarified that Katib is not an inflexible rule but guidance, and tribunals must actively consider whether it is fair to apply it in any given case. ## A Shift in the Legal Landscape The Upper Tribunal’s reasoning went beyond correcting errors. In a split decision** **(Mr Justice Marcus Smith, with Judge Cannan dissenting), the court held that part of *[Martland](https://assets.publishing.service.gov.uk/media/5b115855e5274a191271783e/William_Martland_v_HMRC_.pdf) *was “clearly wrong.” By instructing tribunals to give extra weight to efficiency, proportionality, and compliance with rules, *Martland *had wrongly restricted the broad discretion conferred by [section 83G(6) of the Value Added Tax Act 1994.](https://www.legislation.gov.uk/ukpga/1994/23/section/83G) The Upper Tribunal confirmed that not only [Martland](https://assets.publishing.service.gov.uk/media/5b115855e5274a191271783e/William_Martland_v_HMRC_.pdf), but also [Katib](https://assets.publishing.service.gov.uk/media/5d0a3f90ed915d09440c159d/HMRC_v_MH_Katib_.pdf), [Uddin](https://assets.publishing.service.gov.uk/media/643fcdba6dda69000d11e07e/Shafique_Uddin_and_Kazitula_Ltd_v_HMRC_.pdf), [Websons](https://assets.publishing.service.gov.uk/media/5ebaa127d3bf7f5d40439339/HMRC_v_Websons__8_.pdf) and [BMW Shipping](https://assets.publishing.service.gov.uk/media/608165e28fa8f51b8b34c840/HMRC_v_BMW_.pdf), misstated the law to the extent that they imposed similar restrictions. This marks a decisive recalibration of the late appeal principles. From now on, tribunals must treat their discretion as genuinely broad and case-sensitive. They are required to produce detailed, reasoned judgments, to carry out the full Martland balancing exercise, and to consider whether fairness requires [exceptions](https://taxdisputes.co.uk/late-hmrc-tax-appeals/) to the [Katib](https://assets.publishing.service.gov.uk/media/5d0a3f90ed915d09440c159d/HMRC_v_MH_Katib_.pdf) rule. ## Implications for Taxpayers and HMRC The [Medpro](https://www.bailii.org/uk/cases/UKUT/TCC/2025/255.pdf) decision has several immediate practical consequences. For taxpayers, it provides a stronger legal basis for challenging refusals of [late appeals](https://taxdisputes.co.uk/late-hmrc-tax-appeals/). Inadequate reasoning, failure to conduct the balancing exercise, or mechanical reliance on Katib can all amount to standalone errors of law. For [HMRC](https://taxdisputes.co.uk/hmrc-penalties/), the ruling means refusals will face closer scrutiny. The department can no longer rely on tribunals applying Katib strictly or overlooking Stage 3 of the Martland test. For advisers, the case highlights the need for robust procedural evidence. Where reliance is placed on adviser mistakes, serious illness, or complex procedural difficulties, records must be produced to show why fairness justifies an extension. It is essential to [instruct](https://lexlaw.co.uk/legal-case-assessment/) [expert lawyers](https://lexlaw.co.uk/our-people/) who are [successfully tested](https://taxdisputes.co.uk/2025/06/case-study-success-notices-of-requirement-withdrawn-by-hmrc/) in pre-litigation and litigation phases with [HMRC](https://taxdisputes.co.uk/hmrc-vat-investigations-evasion-input-ouput-double-taxation-tribunal-legal-advice/). ## Practical Guidance for VAT Penalty Appeals Taxpayers should always aim to submit appeals within the [30-day statutory limit](https://lexlaw.co.uk/solicitors-london/how-to-appeal-hmrc-vat-penalties-reasonable-excuse-defence-guide-2025/). However, where deadlines are missed, Medpro shows that all is not lost. Adviser error may not be automatically fatal, and tribunals must now consider whether fairness demands that an appeal proceed. Protective notices of appeal, supported by detailed evidence and [expert legal submissions](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/), are more important than ever. Engaging [expert solicitors](https://lexlaw.co.uk/our-people/) at an [early stage](https://lexlaw.co.uk/legal-case-assessment/) can make the decisive difference between losing appeal rights and having a case properly heard. ## Instruct Expert London Tax Solicitors The [Medpro Healthcare Ltd v HMRC [2025] UKUT 255 (TCC)](https://www.bailii.org/uk/cases/UKUT/TCC/2025/255.pdf) ruling is more than a technical adjustment: it rebalances the law on late appeals in favour of fairness and transparency. By softening the Katib principle and recalibrating Martland, the Upper Tribunal has made it clear that each case must be decided on its merits, with tribunals providing clear, reasoned decisions. For businesses and individuals facing [HMRC penalties](https://taxdisputes.co.uk/hmrc-penalties/), the case creates genuine opportunities to revive appeals thought to be closed. At [LEXLAW](https://lexlaw.co.uk/solicitors-london/how-to-appeal-hmrc-vat-penalties-reasonable-excuse-defence-guide-2025/), [our solicitors](https://lexlaw.co.uk/our-people/) are experienced in challenging [HMRC](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) decisions, preparing late appeal applications, and protecting clients from procedural pitfalls. If you have missed a deadline or face penalties from [HMRC](https://taxdisputes.co.uk/hmrc-vat-investigations-evasion-input-ouput-double-taxation-tribunal-legal-advice/), [contact us today](https://lexlaw.co.uk/legal-case-assessment/) for [expert advice and representation](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/). ### FAQs on Medpro Health Ltd What was the Medpro Healthcare case about? Medpro Healthcare Ltd challenged HMRC after receiving two large VAT penalties. Its appeals were submitted late, and the First-tier Tribunal refused to extend time. On appeal, the Upper Tribunal found that the FTT had misapplied the law and clarified how tribunals should deal with late appeals, making this a landmark case for taxpayers. Why is Medpro important for late tax appeals? The decision reshapes the law by confirming that tribunals have a genuinely broad discretion when deciding whether to allow late appeals. Unlike previous cases that imposed rigid restrictions, Medpro requires tribunals to balance all the circumstances and consider fairness, rather than automatically penalising taxpayers for adviser mistakes. How does Medpro affect the Martland and Katib cases? The Upper Tribunal found that Martland was “clearly wrong” in narrowing tribunals’ discretion and confirmed that Katib should not be treated as a hard rule. Instead, both are now guidance only, meaning tribunals must apply a fair balancing exercise and can depart from adviser-negligence rules where fairness requires it. What does this mean if I have missed a tax appeal deadline? Medpro strengthens the chances of success for taxpayers applying for permission to appeal out of time. While every case depends on its facts, adviser errors, illness, or other difficulties may now be treated more sympathetically, provided proper evidence and submissions are put forward. What should I do if my appeal is already late? If you have missed a 30-day appeal deadline, you should act quickly by filing a protective notice of appeal and preparing evidence explaining the delay. Medpro confirms that tribunals must take a fair and transparent approach when deciding whether to allow your appeal to proceed. How will HMRC respond to Medpro? HMRC will now face closer scrutiny in resisting late appeals. It can no longer rely on tribunals automatically rejecting cases because of adviser negligence or by applying Martland’s restrictions. Taxpayers therefore have stronger grounds to challenge refusals and seek justice. Do I need legal representation for a late tax appeal? Yes, Medpro shows that success often turns on presenting evidence properly and making persuasive legal arguments. Specialist tax solicitors can ensure deadlines, procedures, and submissions are handled correctly, maximising your chances of persuading the tribunal to hear your appeal. --- # UK Wealth Tax 2025: What It Could Mean and How to Prepare Source: https://taxdisputes.co.uk/2025/08/uk-wealth-tax-2025-what-it-could-mean-and-how-to-prepare/ The prospect of a [UK wealth tax ](https://www.theguardian.com/politics/2025/jul/15/what-is-a-wealth-tax-and-would-it-work-in-the-uk)is once again dominating headlines. With [public finances](https://commonslibrary.parliament.uk/research-briefings/sn02812/) under strain and pressure mounting to address economic inequality, speculation is growing that high‑net‑worth individuals (HNWIs) may soon face a new layer of taxation. [Lord Kinnock’s](https://members.parliament.uk/member/693/career) widely reported suggestion of a 2% annual levy on assets exceeding £10 million has fuelled debate across [Westminster](https://www.parliament.uk/) and the [financial press](https://moneyweek.com/economy/uk-economy/wealth-tax-labour-idea). While the Chancellor has yet to commit, [neither has the government dismissed the possibility](https://news.sky.com/story/former-labour-leader-lord-kinnock-calls-for-wealth-tax-to-help-ailing-government-finances-13393515), leaving private clients, trustees and family offices in a state of heightened vigilance. For those with substantial estates, understanding the risks, potential structures, and dispute avenues associated with any future wealth tax is critical. Acting early, before draft legislation emerges, can provide a significant strategic advantage. This article examines the current political and legal context, considers the forms a wealth tax might take, explores its likely impact on HNWIs, and outlines proactive steps to safeguard wealth and minimise dispute risk. Our [specialist tax dispute solicitors](https://lexlaw.co.uk/contact-us/) provide authoritative legal advice to help you navigate potential risks and safeguard your financial interests. ## Current Status: Political Signals and Legal Context The wealth tax debate has gained momentum due to the UK’s fiscal challenges, with a projected £20-30 billion shortfall prompting fresh exploration of revenue‑raising measures. Lord Kinnock’s proposal of a 2% levy on ultra‑high‑net‑worth individuals reignited discussions that had quietened after the [2020 Wealth Tax Commission’s report](https://www.ukwealth.tax/). While Business Secretary [Jonathan Reynolds](https://www.gov.uk/government/people/jonathan-reynolds) has publicly dismissed the idea as “daft” on the grounds of valuation complexity, other senior figures have refused to rule it out, creating uncertainty for private wealth holders. At present, no draft legislation or formal consultation has been published. However, policy signals suggest that Autumn 2025 could be a critical window for either a consultation paper or a formal announcement. HMRC’s current infrastructure poses limitations: unlike income or capital gains tax, there is no centralised wealth register. Any annual wealth tax would therefore require extensive self‑assessment based on asset valuations, creating an environment ripe for dispute if valuations are challenged or penalties imposed for non‑disclosure. ## What a UK Wealth Tax Could Look Like A potential wealth tax could take various forms. An annual recurring levy on net assets is the most frequently discussed model, with thresholds around £10 million and rates between 1-2%. This would predominantly target fewer than 0.04% of UK taxpayers, yet generate an estimated £12-24 billion annually. Alternatively, the government could introduce a one‑off wealth tax, capturing a broader base, perhaps assets over £500,000, with a lower rate applied for a single collection cycle. This approach is administratively simpler and has precedents in countries such as France and Spain during fiscal crises. Regardless of structure, the tax base would likely include real property, unlisted business shares, investment portfolios, trusts, pension entitlements, and high‑value personal assets such as art and jewellery. The inclusion of offshore structures or discretionary trusts is probable, given HMRC’s focus on closing perceived loopholes. The valuation burden would be significant. Unlike [inheritance tax](https://www.gov.uk/inheritance-tax) and [capital gains tax](https://www.gov.uk/capital-gains-tax), which crystallise valuations at the point of transfer or disposal, a wealth tax could demand annual or event‑triggered assessments. Family‑owned businesses, complex share structures, and illiquid assets pose unique challenges. Disputes will almost certainly arise where HMRC adopts aggressive or formulaic valuations unsupported by market reality. ## Risks and Implications for High‑Net‑Worth Individuals The introduction of a wealth tax carries economic, behavioural, and legal risks for HNWIs. Economically, the impact on liquidity can be profound, particularly for individuals whose wealth is asset-rich but cash‑poor. Business owners may be forced to release capital or take on debt to meet recurring liabilities, leading to potential forced asset disposals or disinvestment in growth ventures. There is also a real risk of [capital flight](https://www.econlib.org/library/Enc/CapitalFlight.html), as some HNWIs may consider relocating tax residency to more favourable jurisdictions if the levy is implemented without transitional relief or exclusions for entrepreneurial assets. From a legal and compliance standpoint, the greatest risk lies in valuation disputes. [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) is likely to adopt broad assumptions to maximise recoverable revenue, issuing assessments that may overstate asset values or fail to recognise legitimate liabilities and discounts. Past cases such as *[Nellsar Limited v The Commissioners for His Majesty's Revenue and Customs](https://taxdisputes.co.uk/wp-content/uploads/2025/08/Nellsar-Ltd-v-Revenue-and-Customs-Commissioners.pdf)* and [UK Uncut Legal Action Ltd v Commissioners of Her Majesty’s Revenue and Customs](https://taxdisputes.co.uk/wp-content/uploads/2025/08/UK-Uncut-Legal-Action-Ltd-vs-HMRC.pdf) illustrate the importance of meticulous expert valuations and contemporaneous documentation in contesting HMRC’s determinations. Failure to disclose assets or provide evidence proactively could result in penalties of 30-100%, adding substantial cost to the underlying liability. Moreover, a wealth tax would not replace existing regimes such as CGT and IHT; it would likely layer on top, creating scenarios of double or even triple taxation for the same asset across its lifecycle. For HNWIs with cross‑border interests, this also raises questions about double taxation treaties and foreign credit relief, further complicating compliance and dispute strategies. ## Strategic Preparation Before Any Announcement While no wealth tax has yet been enacted, proactive preparation can significantly reduce exposure and provide leverage in any future HMRC interaction. The first step is to audit and document all assets comprehensively, including domestic and offshore property, unquoted business interests, and high‑value chattels. Early independent valuations can establish a defensible baseline, which may be invaluable if HMRC later challenges figures or imposes retrospective reporting obligations. Secondly, modelling financial scenarios allows individuals to assess liquidity risk under different tax structures. For example, a 2% recurring levy on £15 million in illiquid assets could require £300,000 annually in cash. Stress‑testing potential one‑off vs recurring tax events enables informed decisions on asset sales, restructuring, or debt facilities to preserve control without fire‑sale losses. High‑net‑worth individuals should also review their legal structures. Trust arrangements, family investment companies, and pension schemes should be assessed for exposure, relief eligibility, and administrative readiness. Any adjustments must be carried out cautiously to avoid triggering [anti‑avoidance rules](https://www.gov.uk/hmrc-internal-manuals/corporate-finance-manual/cfm56005) or retrospective challenge, particularly under the [General Anti‑Abuse Rule (GAAR)](https://www.gov.uk/government/publications/tax-avoidance-general-anti-abuse-rules). Finally, early engagement with professional advisers ensures readiness for [Alternative Dispute Resolution (ADR)](https://lexlaw.co.uk/adr-alternative-dispute-resolution-second-opinion-legal-advice/) or [tribunal ](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/)processes. Having expert reports, valuation files, and supporting evidence prepared before HMRC inquiries begin can significantly strengthen negotiation positions and minimise the risk of prolonged or costly litigation. ## Dispute Management: HMRC Assessments and Appeals If a wealth tax is introduced, HMRC is expected to issue formal assessments based on self‑declared or estimated valuations. Where taxpayers disagree, the dispute process will likely mirror that for other high‑value assessments: - **Statutory Review**: The first line of defence, requesting that HMRC reconsider the assessment based on detailed evidence and valuation reports. - **Alternative Dispute Resolution (ADR)**: A powerful, cost‑effective method for resolving complex valuation disagreements without full tribunal proceedings. - **First‑Tier Tribunal and Upper Tribunal**: For intractable cases, formal litigation ensures judicial scrutiny of HMRC’s methodology and assumptions. Previous valuation disputes have demonstrated that well‑prepared expert evidence can overturn overreaching assessments. In all cases, timely, well‑documented responses are critical. Delays or incomplete disclosures can trigger penalty regimes and reduce credibility in subsequent negotiations. ## Case Law Insights for Wealth Tax Planning Although the UK has never implemented a formal wealth tax, existing valuation and tax dispute jurisprudence offers clear lessons. Cases such as *[Nellsar Limited v The Commissioners for His Majesty's Revenue and Customs](https://taxdisputes.co.uk/wp-content/uploads/2025/08/Nellsar-Ltd-v-Revenue-and-Customs-Commissioners.pdf)* and [UK Uncut Legal Action Ltd v Commissioners of Her Majesty’s Revenue and Customs](https://taxdisputes.co.uk/wp-content/uploads/2025/08/UK-Uncut-Legal-Action-Ltd-vs-HMRC.pdf) demonstrate that expert evidence, contemporaneous records, and market‑relevant methodologies are decisive in challenging HMRC’s assumptions. Where taxpayers rely solely on informal estimates or fail to document discount rationales for illiquid assets, tribunals have historically sided with HMRC. For those anticipating potential exposure, preparing robust evidence files now, including asset registers, shareholder agreements, and independent appraisals, can pre‑empt future disputes and strengthen any ADR or tribunal appeal. ## Practical Guidance and Client Takeaways The possibility of a UK wealth tax is no longer remote. While the exact structure, threshold, and timing remain uncertain, the direction of travel is clear: high‑net‑worth individuals will face closer scrutiny and potentially higher tax liabilities. Acting now provides a significant strategic advantage. Key actions include conducting comprehensive valuations, assessing liquidity and restructuring options, and preparing for HMRC engagement through robust documentation and expert input. Engaging experienced tax dispute solicitors ensures that, should HMRC assessments arise, your position is defended with both precision and authority. ## Expert Tax Solicitors A UK wealth tax, if introduced, will create complex compliance burdens and significant dispute risks for high‑net‑worth individuals. Early action, through asset audits, financial modelling, structural review, and dispute readiness planning, can preserve value and avoid costly mistakes. Our [specialist tax dispute team](https://lexlaw.co.uk/our-people/) has extensive experience defending high‑value clients in HMRC enquiries, ADR, and tribunal proceedings. If you are concerned about potential wealth tax exposure or have received correspondence from HMRC, [contact us](https://lexlaw.co.uk/contact-us/) today for a confidential consultation. We can provide a risk assessment, valuation strategy, and defence plan tailored to your specific circumstances. --- # Fraudulent Misrepresentation Allegations Defeated: £1.4bn tax refund Source: https://taxdisputes.co.uk/2025/10/fraudulent-misrepresentation-allegations-defeated-1-4bn-tax-refund/ The Commercial Court's decision [in **Skatteforvaltningen v Solo Capital Partners [2025] EWHC 2364 (Comm)**](https://taxdisputes.co.uk/wp-content/uploads/2025/10/Skatteforvaltningen-v-Solo-Capital-Partners-2025-EWHC-2364-Comm.pdf) represents a significant victory for defendants accused of orchestrating sophisticated tax fraud, demonstrating that even in cases involving allegations of massive fraudulent schemes, [claimants must prove](https://taxdisputes.co.uk/tax-evasion-hmrc-code-practice-9-investigations/) that they were actually misled by false representations. After what became the longest trial in Commercial Court history, spanning 108 hearing days over 13 months, Mr Justice Andrew Baker dismissed all claims brought by [the Danish tax authority (SKAT)](https://skat.dk/borger) against the defendants, except for one [default judgment](https://lexlaw.co.uk/solicitors-london/category/litigation/default-judgment/). This ruling provides crucial guidance on the requirements for establishing misrepresentation and inducement in high-value fraud cases, the operation of cum-ex trading schemes, and the standards tax authorities must meet when pursuing civil recovery actions. The judgment underscores that sophisticated control failures by public authorities can undermine their ability to establish the reliance element necessary for fraud claims. ## Background to the Dispute The case arose from Denmark's pursuit of approximately £1.4 billion in tax refunds paid out through sophisticated "cum-ex" trading schemes between August 2012 and July 2015. SKAT alleged that Solo Capital Partners, founded by trader Sanjay Shah, orchestrated complex dividend arbitrage operations designed to exploit weaknesses in Denmark's [withholding tax system](https://www.gov.uk/guidance/what-will-happen-if-you-do-not-pay-your-tax-bill). The cum-ex schemes operated by capitalising on the brief period around dividend payment dates when shares could be traded rapidly between multiple parties, creating artificial settlement loops that generated dividend credit advice notes without any actual shareholdings changing hands. This allowed tax refund claims to be made to SKAT based on "synthetic" shareholdings that never actually existed. SKAT's case centred on allegations of [fraudulent misrepresentation](https://www.legislation.gov.uk/ukpga/1967/7/england/enacted), claiming that the defendants had deliberately misled the Danish tax authority about share ownership to induce improper tax refund payments. The Danish authority argued that each refund claim contained implied representations that the claimants were legitimate shareholders entitled to dividend tax relief under applicable double taxation treaties. ## The Settlement Loop Methodology The court's technical analysis revealed that all the trading involved "share-less settlement loops" where custodians processed transactions internally without any actual shares ever changing hands. As the judge explained: "This was share trading by parties with neither shares nor money, settled at a custodian with neither shares nor money, by and through which neither shares nor money ever changed hands." The court found that buyers contracted to purchase shares cum-dividend (before the record date) for settlement ex-dividend (after the record date), but these purchases were settled through complex circular arrangements involving stock loans and forwards that meant no actual shareholdings were ever transferred. ## SKAT's Institutional Control Failures Critically, the court found that **"SKAT's controls for assessing and paying dividend tax refund claims were so flimsy as to be almost non-existent."** The evidence showed that: - A single civil servant, Mr Nielsen, processed the 4,170 claims worth £1.4 billion as "a straightforward clerical matter" - SKAT paid claims without examining the underlying trading arrangements - The system was designed to pay out based on minimal documentation - Tax agents' cover letters explaining the arrangements "may as well have said nothing" The court concluded that SKAT knew representations of share ownership were not being made to it, and that it was paying claims anyway without regard to whether the strict legal requirements were met. ## The Burden of Proving Inducement The judgment emphasises a crucial principle for fraud cases: claimants must prove they were actually misled by false representations, not merely that false representations were made. The court found that: "SKAT was not misled by misrepresentations made to it through the tax refund claims it received, as it alleged... SKAT was not induced to act, at all, by the representations it alleged in these proceedings." This finding was based on evidence that SKAT's process was essentially mechanical, with no genuine consideration of whether the claimed shareholdings existed or whether tax liabilities had actually been incurred. Please find the full judgment here: [![Skatteforvaltningen v Solo Capital Partner](https://taxdisputes.co.uk/wp-content/uploads/2025/10/Skatteforvaltningen-v-Solo-Capital-Partner.png)](https://taxdisputes.co.uk/wp-content/uploads/2025/10/Skatteforvaltningen-v-Solo-Capital-Partners-2025-EWHC-2364-Comm.pdf)Skatteforvaltningen v Solo Capital Partner ## Legal Principles and Findings ### No Reasonable Belief in Validity While dismissing SKAT's fraud claims, the court made significant findings about the defendants' knowledge and belief systems. Mr Justice Baker concluded: - **Sanjay Shah, Graham Horn and Rajen Shah**: The court rejected their evidence that they believed the tax refund claims were valid under [Danish tax law](https://skat.dk/en-us/individuals/taxation-in-denmark/types-of-tax) - **Guenther Klar**: The court accepted he believed the claims were valid but found he had no reasonable basis for this belief - **Other participants**: Many were found to have engaged in "collateral dishonesty" and obfuscation However, the judge emphasised: "My rejection of narratives put forward by many of the trial defendants... does not prove the case pleaded by SKAT and pursued by it at trial." ### The "Street Sign" Analogy The court referenced Sanjay Shah's 2021 interview comment about the Danish situation: "If there's a big sign on the street saying, 'please help yourself', then me or somebody else would go and help themselves." Mr Justice Baker found this was an accurate assessment - that the defendants exploited SKAT's weak control systems rather than deliberately deceiving the authority through false representations. ### Implications for Commercial Fraud Defence This judgment has significant implications for defendants facing fraud allegations from public authorities, particularly in cases involving complex financial arrangements and systemic institutional failures.  **Requirements for Inducement**: The decision confirms that courts will require clear evidence that alleged misrepresentations actually influenced the claimant's decision-making process. Where[ authorities](https://www.gov.uk/government/organisations/hm-revenue-customs) operate mechanical approval systems without genuine consideration of the matters allegedly represented, inducement cannot be established. ### Institutional Competence as Defence The case demonstrates how institutional failures by claimant authorities can provide powerful defences to fraud allegations. Where authorities implement inadequate systems that ignore key information, they may struggle to establish they were genuinely misled. The court's findings about SKAT's "flimsy" controls that were "almost non-existent" show how system design evidence can defeat inducement claims even where the underlying transactions lack commercial substance. ## Complexity vs. Misrepresentation The judgment illustrates that complex or artificial commercial arrangements do not automatically constitute misrepresentation. The court carefully distinguished between: - Arrangements designed to exploit regulatory weaknesses (which may be permissible) - Arrangements involving false statements designed to mislead authorities (which constitute fraud) ## Why This Case Matters The Skatteforvaltningen decision represents a rare but significant victory for defendants in a major fraud case brought by a tax authority. The judgment provides several key lessons for commercial litigation practice: **Institutional process evidence is crucial**: The detailed examination of SKAT's approval process proved decisive in defeating the inducement claim. Defendants should carefully examine claimant systems and decision-making processes. **Burden of proof remains high**: Even where defendants' conduct appears questionable and arrangements lack commercial substance, fraud claimants must still prove all elements of their case to the required standard. **System design defeats reliance**: Where claimants operate mechanical systems that ignore key information, this can provide compelling evidence against inducement, even where prima facie misleading documents were submitted. The case also demonstrates the importance of sustained, expert legal representation in defending high-value fraud claims, given the 13-month trial duration and complex legal and factual analysis required. ## Expert Defence in High-Value Fraud Cases [Our commercial litigation team](https://lexlaw.co.uk/our-people/) has extensive experience defending clients against fraud allegations brought by regulatory authorities, tax administrations, and other public bodies. We understand that complex fraud cases require specialist knowledge of both substantive law and sophisticated evidential analysis. Our team includes leading commercial counsel with proven track records in defending high-value fraud cases, including barristers with experience in financial markets and regulatory investigations. We provide strategic advice on evidential challenges, institutional process analysis, and the complex procedural requirements of major commercial fraud litigation. If your business is facing allegations of fraud, misrepresentation, or regulatory non-compliance, our expert commercial litigation team can provide the specialist representation needed to protect your interests. We offer urgent advice and robust defence strategies designed to achieve optimal outcomes in even the most challenging cases. ### FAQs What was the Skatteforvaltningen v Solo Capital Partners case about? The case involved the Danish tax authority (SKAT) seeking recovery of £1.4bn in alleged fraudulent tax refunds arising from cum-ex dividend trading schemes between 2012–2015. **What are cum-ex trading schemes?** Cum-ex schemes exploit dividend payment timings to create artificial ownership records of shares, enabling multiple parties to claim tax refunds despite no real shareholdings changing hands. What legal principle was central to the judgment? The case reinforced that for fraudulent misrepresentation, claimants must show they were actually misled and induced to act. Simply proving false statements exist is not enough. What does this ruling mean for fraud defence cases? It shows defendants can rely on claimant authorities’ systemic failings to defeat inducement claims, especially where approval systems operate mechanically without proper review. --- # HMRC Loses £9.3m Kittel VAT Fraud Case Source: https://taxdisputes.co.uk/2025/08/hmrc-loses-9-3m-kittel-vat-case-what-it-means-for-businesses-facing-allegations-of-fraud/ A recent decision by the [First-tier Tribunal (FTT)](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) in *[Red Rose Payroll Ltd v HMRC](https://taxdisputes.co.uk/wp-content/uploads/2025/08/Red-Rose-Payroll-Ltd-v-Revenue-and-Customs-Commissioners.pdf)* has dealt a significant blow to [HMRC's](https://www.gov.uk/government/organisations/hm-revenue-customs) efforts to clamp down on [VAT fraud](https://taxdisputes.co.uk/2021/01/vat-fraud-tribunal-rules-both-company-and-director-liable-for-hmrc-costs-appeal-advice/) using the [Kittel principle](https://www.gov.uk/hmrc-internal-manuals/vat-fraud/vatf53110). The tribunal ruled in favour of [Red Rose Payroll (RRP)](https://find-and-update.company-information.service.gov.uk/company/12193002), dismissing over £9 million in [VAT assessments and penalties](https://taxdisputes.co.uk/hmrc-penalties/) after HMRC failed to prove that the company “knew or should have known” it was participating in transactions connected to the fraudulent evasion of VAT. This case study underscores the importance of early legal intervention and careful due diligence to avoid being implicated in tax fraud schemes and facing personal financial ruin. The decision in this case is part of a growing body of rulings pushing back against aggressive HMRC Kittel assessments, echoing outcomes in other cases such as [Mobilx](https://lexlaw.co.uk/solicitors-london/ca-decision-mobilx-blue-sphere-calltel/). ## Dispute Between Red Rose Payroll and HMRC [Red Rose Payroll (RRP)](https://find-and-update.company-information.service.gov.uk/company/12193002), a payroll services company incorporated in 2019, partnered with external introducers and intermediaries including Workforce Management (WM). HMRC alleged that RRP's transactions were connected to fraudulent VAT activity involving WM, and that RRP should have recognised the warning signs. The central figures were Ian Hamilton and Charlie Vause, who were not formally registered as directors or shareholders of WM, but who played key roles in introducing business to RRP. HMRC’s argument rested on the assertion that RRP should have known that it was involved in a fraudulent scheme, pointing to inadequate due diligence and continued trading even after WM was deregistered for VAT. RRP ceased transactions with WM in January 2022 following notice of its deregistration. ## Tribunal’s Findings and Legal Reasoning The Tribunal framed the key issues as: - Whether RRP knew or should have known its transactions were connected with VAT fraud. - Whether the transaction chains were part of a fraudulent scheme to defraud the revenue. [Judge Malek](https://www.judiciary.uk/appointments-and-retirements/circuit-judge-appointment-malek/) concluded that HMRC had not provided sufficient evidence to prove either element. While RRP’s due diligence was flawed in some respects, the Tribunal accepted the evidence of director [Janet Walmsley](https://find-and-update.company-information.service.gov.uk/officers/Crt7C6ZP85LvOMCYem-LARQT5FI/appointments), who acted swiftly upon learning about WM’s deregistration and had not been shown to possess actual or constructive knowledge of fraudulent activity. > “We reject the notion that the appellant’s decision to continue to trade with WM after being notified of WM’s deregistration indicates that RRP knew or ought to have known that its transactions with WM were connected to fraud.” The Tribunal also emphasised that HMRC failed to establish a link between RRP’s transactions and an orchestrated fraud, reinforcing the importance of HMRC meeting its evidential burden when invoking the Kittel principle. This outcome mirrors past [MTIC fraud decisions](https://taxdisputes.co.uk/2011/06/knew-or-ought-to-have-known-a-review-of-mtic-or-carousel-fraud-cases/) where tribunals required HMRC to meet strict evidentiary standards, not merely point to process imperfections or inference. ## Read the Whole Judgement Here: ## Understanding the Kittel Principle in VAT Law Under *[Kittel v Belgium (C-439/04)](https://taxdisputes.co.uk/wp-content/uploads/2025/08/Kittel-v-Belgium.pdf)*, HMRC may deny input tax recovery where a business knew or should have known that its transactions were connected with VAT fraud. This principle remains a central weapon in HMRC’s approach to [MTIC (Missing Trader Intra-Community) fraud](https://taxdisputes.co.uk/carousel-mtic-fraud-missing-trader-intra-community-fraud-kittel/), especially in high-risk sectors like payroll and electronics. But as decisions like *Red Rose Payroll*, [Phoenixtech](https://taxdisputes.co.uk/2024/08/historic-vat-fraud-mtic-director-owes-4-8m-hmrc-liquidator-tax-tribunal-phoenixtech/), and [Calltel](https://taxdisputes.co.uk/the-court-of-appeal-decision-in-mobilx-and-others/) show, HMRC must do more than suggest carelessness. The burden of proof remains on them to establish actual or constructive knowledge. Our [expert tax litigation team](https://lexlaw.co.uk/hmrc-tax-dispute-lawyers/) regularly advises directors and companies facing Kittel assessments, and we understand the high stakes involved. The *[Red Rose Payroll Ltd](https://taxdisputes.co.uk/wp-content/uploads/2025/08/Red-Rose-Payroll-Ltd-v-Revenue-and-Customs-Commissioners.pdf)* case just how far HMRC will go in pursuit of VAT denials and how prompt, specialist legal advice can make all the difference. --- ## Practical Takeaways from the Ruling This case offers important lessons for UK businesses: - **Reasonable diligence is key.** Although RRP’s due diligence was imperfect, its responses, such as halting VAT payments and ending trade upon deregistration, were critical in supporting its case. - **Context matters.** The Tribunal examined the commercial realities of the payroll sector and found that RRP’s conduct was not inconsistent with standard practices. - **HMRC bears the burden of proof.** Allegations of fraud must be substantiated with evidence. In the absence of a proven link between the transactions and fraudulent evasion of VAT, assessments cannot stand. Businesses operating in sectors vulnerable to VAT fraud should implement proportionate compliance frameworks and seek advice when uncertain about counterparties or supply chain integrity. ## Why This Case Matters The Tribunal's decision in *Red Rose Payroll* shows that a business can successfully defend against a Kittel denial if it can demonstrate good faith, reasonable conduct, and a lack of knowledge about VAT fraud in the supply chain. It underscores the need for businesses to maintain proper documentation, carry out risk-based due diligence, and act swiftly when concerns arise. It also serves as a reminder that HMRC cannot rely on generalised suspicion or imperfect processes to justify assessments. Each case must be judged on its facts, and the legal burden remains firmly on HMRC. At [LEXLAW](https://lexlaw.co.uk/), our [expert tax dispute lawyers](https://lexlaw.co.uk/hmrc-tax-dispute-lawyers/) regularly assist businesses and their advisers in assessing risk exposure, enhancing due diligence protocols, and defending against unjustified Kittel assessments. With deep expertise in contentious VAT matters and a proven record in HMRC investigations and tribunal litigation, we provide strategic and effective representation that protects our clients' commercial and legal interests. ## Need Help Responding to HMRC? Timely, strategic legal advice is essential when facing a VAT assessment or penalty under the Kittel principle. At [LEXLAW](https://lexlaw.co.uk/), [our team of specialist tax solicitors and barristers ](https://lexlaw.co.uk/our-people/)offers end-to-end support tailored to the complexity of your case. We provide in-depth analysis of due diligence procedures, assess risk exposure, and deliver practical guidance on responding to HMRC enquiries. Whether you are engaged in Alternative Dispute Resolution (ADR) or require representation before the Tax Tribunal, we have the experience to secure effective outcomes. We combine legal precision with commercial acumen, helping clients navigate the intricate interface between compliance obligations and operational realities. Our team has a proven track record in defending clients against serious HMRC allegations, overturning penalties, and resolving disputes efficiently and decisively. At [LEXLAW](https://lexlaw.co.uk/), we ensure your interests are rigorously protected and your position is informed by the latest legal developments, case law, and best practices in [UK tax dispute resolution](https://taxdisputes.co.uk/). [Contact us](https://lexlaw.co.uk/contact-us/) today for expert legal guidance and proactive representation. ### Frequently Asked Questions What is the Kittel principle and how does it affect VAT claims? The Kittel principle, originating from *Kittel v Belgium (C-439/04)*, allows HMRC to deny input tax recovery if a business knew or should have known that its transactions were connected to VAT fraud. This rule is aimed at tackling fraud in high-risk industries, especially where supply chain manipulation is common. However, its application is complex and often challenged. The *Red Rose Payroll* case confirms that HMRC must prove actual or constructive knowledge of fraud to apply Kittel, and that businesses can successfully defend claims if they demonstrate good faith and commercial prudence. Why did Red Rose Payroll succeed in challenging HMRC’s VAT assessment? The Tribunal found that HMRC failed to provide sufficient evidence that Red Rose Payroll (RRP) either knew or should have known about the fraudulent conduct of its supplier, Workforce Management. While RRP’s due diligence was imperfect, its actions including halting payments and ceasing trading after deregistration, demonstrated responsiveness and integrity. The Tribunal held that suspicion alone cannot justify a Kittel-based denial, and HMRC had not shown a clear connection between RRP’s transactions and a fraudulent scheme. How much due diligence is legally required to avoid a Kittel denial? Due diligence must be proportionate to the nature and scale of the business. The law does not demand perfection, but businesses must take reasonable steps to verify the legitimacy of their supply chains. This includes checking director/shareholder details, ensuring transactions make commercial sense, reviewing VAT status, and investigating red flags. The Tribunal in this case accepted that although RRP could have done more, its actions were sufficient to avoid liability under Kittel. What are the consequences of a Kittel-based VAT assessment? A Kittel denial can lead to massive financial exposure. HMRC may issue assessments disallowing input VAT, impose penalties, and threaten director liability. It may also trigger criminal investigations or reputational harm. This case illustrates how serious these disputes can be and why early legal intervention is essential to minimise risk, challenge unfair assessments, and prevent business disruption or insolvency. Can a company challenge both the VAT assessment and penalty in the same appeal? Yes. In *Red Rose Payroll*, the Tribunal set aside both the £7.1 million VAT assessment and the £2.1 million penalty. This shows that if HMRC cannot establish knowledge or recklessness, both elements of its claim may fail. A strong legal defence that addresses both factual and procedural weaknesses in HMRC’s case is often key to achieving this outcome. --- # NIC Reclassification Disputes: Employment vs Self-Employment Source: https://taxdisputes.co.uk/2025/12/nic-reclassification-disputes-employment-vs-self-employment/ Disputes over whether a worker is employed or self-employed have become one of the most significant areas of conflict between UK businesses and [HM Revenue & Customs (HMRC)](https://taxdisputes.co.uk/). The classification determines a worker’s entitlement to [employment rights](https://www.gov.uk/government/publications/employment-status-and-employment-rights/employment-status-and-rights-support-for-individuals) and drives the correct level of [National Insurance Contributions (NICs)](https://www.google.com/search?q=National+Insurance+Contributions+%28NICs%29+taxdisputes.co.uk&sca_esv=5cb444661cf9bcf8&ei=DscyadD4Hf-N9u8P5tWV4As&ved=0ahUKEwjQt_PusKaRAxX_hv0HHeZqBbwQ4dUDCBE&uact=5&oq=National+Insurance+Contributions+%28NICs%29+taxdisputes.co.uk&gs_lp=Egxnd3Mtd2l6LXNlcnAiOU5hdGlvbmFsIEluc3VyYW5jZSBDb250cmlidXRpb25zIChOSUNzKSB0YXhkaXNwdXRlcy5jby51azIIEAAYgAQYogQyCBAAGIAEGKIEMggQABiABBiiBDIFEAAY7wUyBRAAGO8FSMwTUPgPWPgPcAF4AJABAJgBoQOgAaEDqgEDNC0xuAEDyAEA-AEC-AEBmAICoAKpA8ICCBAAGLADGO8FwgILEAAYgAQYsAMYogSYAwCIBgGQBgOSBwUxLjQtMaAHigSyBwM0LTG4B6cDwgcFMC4xLjHIBwU&sclient=gws-wiz-serp#:~:text=Late%20PAYE%20%26%20NIC,Category%3A%20HMRC%20Penalty). For employers, HMRC reclassification can lead to sudden and substantial liabilities for arrears of [Class 1 NICs, PAYE income tax, penalties, and interest](https://taxdisputes.co.uk/legal-representation/hmrc-notice-requirement-tribunal-appeals-solicitor-legal-advice/). As HMRC intensifies its compliance activity, particularly in labour-intensive industries, the gig economy, hospitality, construction, logistics, delivery services, and professional contracting, more businesses are challenged over their employment models. Many find their historic arrangements scrutinised through the lens of case law such as *[Autoclenz Ltd v Belcher](https://www.supremecourt.uk/cases/uksc-2009-0198)*, *[Pimlico Plumbers v Smith](https://www.supremecourt.uk/cases/uksc-2017-0053)*, and recent Tribunal decisions analysing substitution clauses, mutuality of obligation, and the degree of control. This article provides a comprehensive guide to how NIC reclassification disputes arise, how HMRC approaches worker status enquiries, the relevant legislation and case law, and practical steps to defend classification during an investigation or appeal. ## Understanding Why NIC Reclassification Matters National Insurance status hinges on whether a worker is genuinely self-employed or, in substance, working under a contract of service. If HMRC determines that a contractor, freelancer, or consultant is in fact an employee, the consequences can be significant. Employers may be issued with [determinations](https://taxdisputes.co.uk/2025/10/late-payment-of-paye-nic-penalties-reasonable-excuse-and-appeals/) under [Regulation 80 (PAYE)](https://www.legislation.gov.uk/uksi/2003/2682/regulation/80) and decisions under [section 8 of the Social Security Contributions (Transfer of Functions) Act 1999](https://www.legislation.gov.uk/ukpga/1999/2/section/8) for Class 1 NICs. These liabilities often span several years, creating exposure not only for primary and secondary NICs but also for penalties under [Schedule 24 FA 2007](https://www.legislation.gov.uk/ukpga/2007/11/schedule/24/enacted) and interest dating back to the original due dates. In some cases, reclassification can trigger further compliance consequences, including potential [IR35 issues](https://taxdisputes.co.uk/2024/06/ir35-disputes-richard-alcock-back-to-the-drawing-board/), [VAT questions](https://lexlaw.co.uk/solicitors-london/how-to-appeal-hmrc-vat-penalties-reasonable-excuse-defence-guide-2025/) around employment businesses, and the risk of personal liability notices for directors. ## How HMRC Investigates Worker Classification NIC reclassification enquiries are typically initiated through [PAYE audits](https://taxdisputes.co.uk/paye-tax-investigation-disputes/), [employer compliance reviews](https://www.gov.uk/hmrc-internal-manuals/enquiry-manual/em8250), or in response to inconsistencies in [Real Time Information (RTI)](https://assets.publishing.service.gov.uk/media/5a7c509e40f0b6321db385cb/On_or_before.pdf) reporting. HMRC examines the contractual documentation but places far greater emphasis on the *actual working practices*. During an [enquiry](https://taxdisputes.co.uk/2024/05/managing-hmrc-tax-enquiry-investigations/), HMRC will commonly request details of contractual arrangements, payment schedules, control mechanisms, substitution rights, disciplinary processes, and supervision. Interviews with workers or management may be conducted, and HMRC often seeks to identify whether an individual's relationship with the engager aligns with case law definitions of employment. Businesses frequently underestimate how much weight HMRC places on day-to-day reality over written agreements. Even well-drafted self-employment contracts can be disregarded if HMRC considers them inconsistent with practical operation. This is why early assistance from [specialist tax dispute professionals](https://taxdisputes.co.uk/) is essential to ensure that the facts are presented accurately and consistently. ## Legal Framework: Employment Status and NIC Liability Employment status for tax purposes is grounded in decades of case law rather than statute. The distinction between a “contract of service” (employment) and a “contract for services” (self-employment) originates from cases such as [*Ready Mixed Concrete v Minister of Pensions* [1968]](https://taxdisputes.co.uk/wp-content/uploads/2025/12/1968-2-Q.B.-497.pdf), which set out the now-familiar test requiring: - Personal service - Mutuality of obligations - Control by the engager These factors, together with the wider circumstances, form the multi-factorial test applied by courts and tribunals. HMRC’s [Employment Status Manual](https://www.google.com/search?q=Employment+Status+Manual+taxdisputes.co.uk&sca_esv=5cb444661cf9bcf8&ei=rckyaffDL9yli-gPgqyagQQ&ved=0ahUKEwi3zv-us6aRAxXc0gIHHQKWJkAQ4dUDCBE&uact=5&oq=Employment+Status+Manual+taxdisputes.co.uk&gs_lp=Egxnd3Mtd2l6LXNlcnAiKkVtcGxveW1lbnQgU3RhdHVzIE1hbnVhbCB0YXhkaXNwdXRlcy5jby51a0jdAVAAWABwAHgAkAEAmAEAoAEAqgEAuAEDyAEA-AEC-AEBmAIAoAIAmAMAkgcAoAcAsgcAuAcAwgcAyAcA&sclient=gws-wiz-serp#:~:text=of%20individuals.-,Employment%20Status%20Manual,https%3A//www.gov.uk%20%E2%80%BA%20government%20%E2%80%BA%20publications%20%E2%80%BA%20emp...,-10%2DJul%2D2010) mirrors these principles. NIC obligations flow from this classification. Under the [Social Security Contributions and Benefits Act 1992](https://www.legislation.gov.uk/id/ukpga/1992/4), employed earners are subject to Class 1 NICs. Self-employed earners fall under Class 2 and Class 4. HMRC often uses NIC enquiries as a proxy to challenge businesses whose workforce arrangements they believe resemble disguised employment. Case law developments continue to influence HMRC’s approach. In *[Autoclenz](https://www.supremecourt.uk/cases/uksc-2009-0198)*, the Supreme Court held that courts may disregard written terms that do not reflect the economic reality of the relationship. In [*Uber BV v Aslam* (2021)](https://taxdisputes.co.uk/wp-content/uploads/2025/12/2021-R.T.R.-29.pdf), the Supreme Court emphasised that statutory protections cannot be contracted out of, reinforcing HMRC’s stance that control and dependency can override contractual labels. ## Common Triggers for NIC Reclassification Disputes HMRC’s enquiries frequently arise from specific patterns or red flags, such as: - Long-term contractors performing identical roles to employees - Substitution clauses that are theoretical but never exercised - Payment arrangements resembling wages rather than invoices - Workers using the engager’s equipment, uniforms, or systems - Schedule-style shift allocation or rota management - Integration into the engager’s organisational structure These issues often appear in sectors reliant on flexible labour. HMRC may treat these working patterns as indicators of disguised employment, even where parties believe they have structured self-employment legitimately. A common challenge is that businesses may have adopted models recommended by accountants or industry practice without realising that HMRC’s interpretation differs significantly from commercial norms. ## How to Defend an NIC Reclassification Challenge [Effective defence](http://HMRC Tax Dispute Lawyers LEXLAW Solicitors & Barristers https://lexlaw.co.uk › hmrc-tax-dispute-lawyers) requires a methodical analysis of how the relationship operated in practice. Control must be examined in terms of operational independence rather than superficial oversight. Personal service must be assessed by reference to whether substitution existed in genuine commercial reality. Mutuality of obligation must be analysed by reference to whether the business was legally bound to provide work and whether the worker was obliged to accept it. [Tribunal litigation](https://taxdisputes.co.uk/2025/09/tax-tribunal-process-guide-benefits-and-strategy-for-hmrc-tax-disputes-in-the-uk/) frequently reveals that HMRC conflates commercial quality control with employment control, or economic reliance with contractual obligation. LEXLAW’s [tax disputes team](https://taxdisputes.co.uk/) regularly exposes these analytical flaws through structured witness evidence, contemporaneous documentation, and targeted cross-examination. Successful defence typically requires coordinated legal and evidential preparation well before the matter reaches Tribunal. Businesses that attempt to manage reclassification disputes informally often find that strategic opportunities have already been lost. ## Penalties, Interest, and Potential Escalation Where reclassification is upheld, HMRC may impose interest dating back several years and behavioural penalties under Schedule 24 FA 2007. These penalties vary according to whether the failure is classified as careless, deliberate, or deliberate and concealed. In the most serious cases, HMRC may also consider criminal investigation or director liability. At LEXLAW, we frequently challenge both the technical reclassification and HMRC’s behavioural characterisation. Where businesses can demonstrate that they relied on professional advice, industry standards, or genuinely believed their model was compliant, significant penalty mitigation or cancellation is often achievable. ## Appealing HMRC’s Decision Once [HMRC issues NIC decisions and PAYE determinations](https://taxdisputes.co.uk/legal-representation/hmrc-notice-requirement-tribunal-appeals-solicitor-legal-advice/), the taxpayer has [30 days to appeal](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/). The appeal process generally proceeds through [HMRC internal review](https://taxdisputes.co.uk/hmrc-tax-appeals/) and then to the [First-tier Tribunal (Tax Chamber)](https://taxdisputes.co.uk/2025/10/first-tier-tax-tribunal-appeals-guide/), which conducts a full rehearing of the facts and law. Tribunal judges place heavy weight on real-world working practices rather than labels. Many Tribunal decisions overturn HMRC’s assessments where evidence shows genuine entrepreneurial risk, authentic substitution, or operational independence. However, poor evidential preparation often leads to defeat even where the business model is technically sound. [Our Tax litigators](https://lexlaw.co.uk/hmrc-tax-dispute-lawyers/) routinely conduct full Tribunal advocacy in NIC and employment status cases, ensuring that evidence is presented coherently, legally framed, and tested against the correct judicial principles. ## Why Early Specialist Advice Matters NIC reclassification disputes sit at the intersection of employment law, tax law, and procedural litigation. They require a sophisticated understanding of how factual matrices are analysed by courts, how burdens of proof operate, and how HMRC’s internal compliance machinery functions. Early engagement with LEXLAW’s tax disputes team allows businesses to control the narrative from the outset, preserve favourable evidence, correct HMRC misconceptions before they become entrenched, and position the dispute for either negotiated settlement or successful litigation. Where reclassification disputes are handled reactively or without legal oversight, businesses often face avoidable penalties, inflated liabilities, and unnecessary enforcement escalation. ## HMRC Tax Disputes Legal Advice & Representation NIC and worker status disputes pose some of the most severe financial risks faced by UK businesses. Our [specialist tax disputes team](https://lexlaw.co.uk/our-people/) comprises experienced solicitors and barristers with a proven track record in challenging HMRC reclassification decisions, PAYE/NIC assessments, and worker status determinations before the First-tier Tribunal and Upper Tribunal. We provide strategic advice from the earliest stages of enquiry, manage complex evidence gathering, prepare technically robust legal submissions grounded in leading case law, and conduct full Tribunal advocacy where disputes cannot be resolved. Our objective is always to protect commercial stability while securing the most legally advantageous outcome for our clients. [Contact us](https://lexlaw.co.uk/contact-us/) today for expert legal guidance and proactive representation. --- # Delaying Payments During an Appeal Source: https://taxdisputes.co.uk/2025/11/delaying-payments-during-an-appeal/ When [HMRC](https://taxdisputes.co.uk/) issues a [tax assessment](https://taxdisputes.co.uk/2025/10/how-to-challenge-hmrc-tax-assessments-and-protect-your-rights/), [penalty](https://taxdisputes.co.uk/hmrc-penalties/), or [VAT decision](https://taxdisputes.co.uk/vat-evasion/), many taxpayers assume they must pay the disputed amount immediately. In reality, the UK tax system contains several [statutory mechanisms](https://taxdisputes.co.uk/2025/10/how-to-challenge-hmrc-tax-assessments-and-protect-your-rights/) that allow individuals and businesses to delay payment safely and lawfully while an [appeal](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) is ongoing. These protections are critically important, especially where the disputed liability is substantial or where [HMRC’s decision](https://taxdisputes.co.uk/2025/10/hmrc-rejected-your-rd-tax-relief-claim-legal-defence-guide/) is based on errors, assumptions, or procedural unfairness. Delaying payment during an appeal can preserve cash-flow, stabilise trading, and allow the taxpayer the time and financial headroom needed to prepare a proper defence. This article provides a comprehensive examination of the legal framework governing postponed collection, relevant case law, the role of the Tribunal, and the practical strategies that enable taxpayers to pause HMRC’s collection efforts without breaching compliance. ## Why Payment Timing Matters in Tax Disputes [Tax assessments](https://taxdisputes.co.uk/2025/10/how-to-challenge-hmrc-tax-assessments-and-protect-your-rights/) frequently involve large sums, especially in VAT disputes, [PAYE/NIC determinations](https://taxdisputes.co.uk/2025/10/late-payment-of-paye-nic-penalties-reasonable-excuse-and-appeals/), R&D clawbacks, excise assessments, and penalties for alleged inaccuracies. Paying such sums prematurely can destabilise a business, force the suspension of commercial operations, or even trigger [insolvency](https://taxdisputes.co.uk/hmrc-winding-up-petitions/). For individuals, upfront payment can create financial hardship at a time when [legal representation](http://lexlaw.co.uk/) is most needed. Delaying payment allows taxpayers to challenge HMRC’s position on an equal footing. It prevents HMRC from enforcing premature or inaccurate assessments and ensures that the taxpayer is not punished financially before a [Tribunal](https://taxdisputes.co.uk/2025/09/tax-tribunal-process-guide-benefits-and-strategy-for-hmrc-tax-disputes-in-the-uk/) examines the merits. The law explicitly recognises this need and provides structures enabling payment to be postponed until the dispute is resolved. ##  “Pay Now or Pay Later?” - The Legal Framework Explained ### 1. Direct Tax (PAYE, Income Tax, Corporation Tax) For direct taxes, submitting an appeal does not automatically suspend the requirement to pay. Instead, taxpayers must request *postponement of collection* under [section 55 of the Taxes Management Act 1970](https://www.legislation.gov.uk/ukpga/1970/9/section/55/enacted). HMRC must consider whether the taxpayer has a genuine argument that the assessment is excessive or incorrect. If HMRC refuses postponement, the taxpayer can refer the matter to the First-tier Tribunal, which has the power to override HMRC and postpone collection until the substantive appeal is determined. ### 2. VAT and Indirect Taxes VAT rules differ significantly. Under [section 84(3) of the Value Added Tax Act 1994](https://www.legislation.gov.uk/ukpga/1994/23/section/84), payment of the assessed VAT is usually suspended automatically once an appeal is lodged. The exception is where HMRC issues a direction requiring payment. Even then, the taxpayer may apply to the Tribunal to have the direction set aside, particularly where payment would cause hardship or where HMRC’s reasoning is flawed. ### 3. Penalties (Schedule 55 & 56 FA 2009) Penalties cannot be collected while a [statutory appeal](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) is active. Once an appeal is filed, the disputed penalty amount is automatically protected from enforcement. This safeguard ensures that penalties, especially those alleging deliberate behaviour, are not imposed before the Tribunal can determine whether HMRC’s accusation is justified. ## Case Study: How the Tribunal Approaches Postponement Applications Tribunal case law provides essential insight into how postponement decisions are evaluated. In [Hargreaves v HMRC (2015)](https://taxdisputes.co.uk/wp-content/uploads/2025/11/JOHN_HARGREAVES_v_HMRC.pdf), the Tribunal held that postponement should be granted where a taxpayer presents a credible and genuine dispute, even if HMRC considers the underlying argument weak. The Tribunal emphasised that the purpose of postponement is to avoid prejudging the substantive appeal. More recently, in [Hotelbeds UK Ltd v HMRC (2025)](https://taxdisputes.co.uk/2025/09/judicial-review-victory-for-the-taxpayer-hotelbeds-uk-ltd-v-hmrc/), the High Court scrutinised HMRC’s handling of taxpayer safeguards in a judicial review. The court found HMRC’s approach irrational and procedurally unfair, reinforcing the requirement that HMRC must exercise discretion lawfully and not merely rely on internal assumptions or blanket policies. Together, these decisions underscore that postponement is not a discretionary favour from HMRC but a statutory right grounded in principles of fairness and natural justice. ## Hardship Applications in VAT Appeals Where VAT remains payable pending appeal, taxpayers may seek a [hardship direction](https://taxdisputes.co.uk/hmrc-hardship-application-dispute-vat-assessment-appeal-tribunal-successful-outcome/). The question is whether payment would cause serious financial difficulty, disrupt trading, or risk insolvency. Evidence plays a central role in these applications, which often rely on accounts, cash-flow statements, bank letters, and director witness statements. HMRC must meaningfully assess the evidence. Refusal cannot be based on speculation or formulaic reasoning. If HMRC rejects the application without proper analysis, the Tribunal can, and frequently does, intervene to grant hardship relief itself. ## HMRC Enforcement During an Active Appeal Once an appeal or postponement request has been submitted, HMRC’s ability to enforce payment becomes heavily restricted. They cannot issue distraint, commence winding-up proceedings for the disputed amount, or take enforcement steps on sums covered by the appeal. Similarly, they must not offset unrelated repayments without statutory authority. However, HMRC may continue charging interest and may pursue non-disputed liabilities. They may also, in serious cases involving tax fraud allegations, request security for future VAT liabilities. Taxpayers should monitor HMRC closely to ensure no unlawful enforcement action is pursued during the appeal. ## Strategic Considerations: Whether to Pay or Delay Deciding whether to delay payment is a strategic choice and must be considered carefully. Preserving cash-flow is often the foremost concern. Many businesses cannot afford to divert working capital to HMRC while contesting an assessment that may ultimately be cancelled or substantially reduced. The ability to maintain liquidity allows taxpayers to fund representation, maintain trading, and fully develop their legal arguments. Interest is another factor. HMRC will continue to accrue interest on any unpaid amount. While this adds cost, it must be weighed against the financial risks of paying prematurely, especially if success at Tribunal is likely. In some cases, early payment may be a tactical choice, for example, to prevent HMRC escalating the matter to enforcement. However, such decisions should be grounded in legal advice and a careful assessment of the strength of the underlying appeal. ## Common HMRC Errors in Postponement Cases Tribunal decisions frequently reveal procedural errors by HMRC when dealing with postponement or hardship applications. These include: - Failing to consider the taxpayer’s financial evidence - Applying blanket policies rather than assessing individual circumstances - Refusing postponement on the assumption that HMRC is always correct - Misinterpreting the statutory tests for postponement or hardship - Attempting collection action when legal safeguards prevent it Such errors can strengthen the taxpayer’s position significantly and may provide grounds for escalation to statutory review or, in serious cases, judicial review. ## Practical Guidance for Taxpayers Seeking to Delay Payment Taxpayers should ensure that appeals and postponement applications are submitted within the 30-day statutory timeframe. Applications should clearly identify why the assessment is disputed, outline the legal basis for postponement, and provide supporting evidence. The evidential burden is lower than in the main appeal, but clarity and coherence are still essential. Throughout the process, taxpayers should maintain a clear record of all HMRC communications, including delays, errors, or procedural irregularities. If HMRC refuses postponement, the taxpayer should escalate to the Tribunal promptly, as Tribunal scrutiny often brings a more balanced and fair assessment. [Specialist representation](http://taxdisputes.co.uk) can be decisive. The postponement process involves not only statutory interpretation but also financial analysis, case law application, and procedural knowledge. Experienced tax disputes professionals are able to identify weaknesses in HMRC’s reasoning, prepare compelling submissions, and ensure the taxpayer’s rights are upheld. ## Why Acting Promptly Matters HMRC’s systems record a late payment immediately, even while the taxpayer prepares a challenge. Automated collection activity can follow quickly, sometimes before HMRC’s officers have properly considered the taxpayer’s submissions. Acting swiftly to file appeals and applications can prevent this escalation, safeguard legal rights, and demonstrate proactive engagement, a factor which both HMRC and the Tribunal view favourably. The courts have repeatedly emphasised that HMRC must act proportionately. In *BPP Holdings Ltd v HMRC*, the Supreme Court stressed the importance of procedural fairness and criticised HMRC’s heavy-handed reliance on automated systems without proper human oversight. Prompt action by taxpayers ensures they are in the strongest position to benefit from these judicial principles. ## HMRC Tax Disputes Legal Advice & Defence Disputes involving HMRC, particularly those concerning payment demands, VAT assessments, PAYE/NIC liabilities, or penalties, can escalate rapidly if taxpayers do not act quickly to protect their position. Engaging [LEXLAW’s specialist tax disputes team](https://lexlaw.co.uk/our-people/) at an early stage can make a decisive difference to the outcome. The firm’s expert solicitors and barristers have extensive experience in assessing whether payment should be postponed, whether hardship relief applies, and in preparing legally robust submissions supported by case law, financial evidence, and statutory authority. Where necessary, LEXLAW’s team is able to challenge HMRC’s decisions directly before the First-tier Tribunal and higher courts. For taxpayers facing HMRC assessments or penalties, seeking advice from LEXLAW at the earliest opportunity is critical. Early intervention can significantly reduce the risk of unnecessary enforcement action, insolvency consequences, or procedural disadvantage, while maximising the chances of a successful appeal and fair treatment throughout the dispute process. [Contact us](https://lexlaw.co.uk/contact-us/) today for expert legal guidance and proactive representation. --- # Upper Tribunal Refuses Late VAT Appeal (Personal Liability Notice – Director’s Delay of 3 Years) Source: https://taxdisputes.co.uk/2025/10/upper-tribunal-refuses-late-vat-appeal-personal-liability-notice-directors-delay-of-3-years/ The judgment in [*Tajinder Pawar v HMRC [2025] UKUT 309 (TCC)*](https://assets.publishing.service.gov.uk/media/68cc05d9b6d7ea468dbea677/Pawar_v_HMRC_-_Final_decision.pdf) clarifies how tribunals exercise discretion under [s.83G (6) of the Value Added Tax Act 1994](https://www.legislation.gov.uk/ukpga/1994/23/section/83G#:~:text=(6)An%20appeal%20may%20be,the%20conclusions%20of%20the%20review.%5D)* when faced with extreme delay. *The decision applies the three-stage test from* [Martland v HMRC [2018] UKUT 178 (TCC)](https://assets.publishing.service.gov.uk/media/5b115855e5274a191271783e/William_Martland_v_HMRC_.pdf) *but follows* [Medpro Healthcare Ltd v HMRC [2025] UKUT 255 (TCC)](https://www.bailii.org/uk/cases/UKUT/TCC/2025/255.pdf) *in removing any “special weight” for statutory time limits. Despite that legal correction, the [Tribunal ](https://www.judiciary.uk/courts-and-tribunals/tribunals/upper-tribunal/)held that Mr Pawar’s delay, more than three years, was wholly unjustified. The case is a cautionary reminder that director-level taxpayers cannot rely on adviser error or assumed settlements to excuse procedural default. [Expert legal guidance](https://lexlaw.co.uk/our-people/) is necessary when faced with an [HMRC](https://taxdisputes.co.uk/2025/10/how-to-challenge-hmrc-tax-assessments-and-protect-your-rights/) [personal liability notice](https://www.gov.uk/hmrc-internal-manuals/national-insurance-manual/nim12203). ## Case Background Mr Pawar was the director of First Stop Wholesale Ltd, which [HMRC](https://taxdisputes.co.uk/2025/10/medpro-v-hmrc-revised-tribunal-principles-on-late-vat-appeals/) assessed in 2014 for £2.64 million [VAT ](https://taxdisputes.co.uk/2025/10/medpro-v-hmrc-revised-tribunal-principles-on-late-vat-appeals/)due on supplies between 2010 and 2014. HMRC concluded that input tax had been claimed on invoices addressed not to the company but to Mr Pawar’s sole-trader business, *The Wine Lodge.* In 2015 [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)issued the company with a penalty of £1.26 million and then made Mr Pawar personally liable under [Schedule 24 Finance Act 2007](https://www.legislation.gov.uk/ukpga/2007/11/schedule/24/enacted). [HMRC ](https://taxdisputes.co.uk/2025/10/how-to-challenge-hmrc-tax-assessments-and-protect-your-rights/)later reduced the PLN to £874,238 in October 2017. Following a statutory review in November 2018, the decision was upheld and a letter sent directly to Mr Pawar stated his right to appeal within 30 days. No [appeal ](https://taxdisputes.co.uk/2025/10/first-tier-tax-tribunal-appeals-guide/)was filed by Mr Pawar. He claimed that his adviser at Tiberius Solutions failed to explain the deadline. The appeal was eventually lodged on 22 February 2022, over 38 months late. The [First-tier Tribunal (FTT)](https://taxdisputes.co.uk/2025/10/first-tier-tax-tribunal-appeals-guide/) refused permission which is why he appealed to the [Upper Tribunal](https://www.judiciary.uk/courts-and-tribunals/tribunals/upper-tribunal/). This case is an example of why it is absolutely crucial to obtain [expert tax guidance](https://taxdisputes.co.uk/contact-us/) from [solicitors ](https://lexlaw.co.uk/legal-case-assessment/)who have been successfully tested in [litigation ](https://taxdisputes.co.uk/2025/10/first-tier-tax-tribunal-appeals-guide/)against HMRC. **Read the Full Judgment Below: ** [![](https://taxdisputes.co.uk/wp-content/uploads/2025/10/Extracted-pages-from-Tajinder-Pawar-v-HMRC-2025-UKUT-309-TCC.jpg)](https://assets.publishing.service.gov.uk/media/68cc05d9b6d7ea468dbea677/Pawar_v_HMRC_-_Final_decision.pdf) ## Key Findings in Pawar v HMRC ### 1. Merits Not “Obviously Strong” Mr Pawar argued that HMRC had agreed in 2015 that there was *no tax loss* and that “corrective action” (re-routing [VAT ](https://taxdisputes.co.uk/2025/10/medpro-v-hmrc-revised-tribunal-principles-on-late-vat-appeals/)through his own registration) could have regularised matters. The Upper Tribunal held this argument was misconceived: the four-year statutory limit for corrections had long expired and the information required for HMRC’s agreement was never supplied. The judges confirmed that tribunals need only consider whether underlying merits are *obviously strong or weak*, and here they were not. ### 2. Adviser Negligence Not a Defence The Tribunal rejected the claim that adviser failings excused the delay. Although *[HMRC v Katib [2019] UKUT 189 (TCC)](https://assets.publishing.service.gov.uk/media/5d0a3f90ed915d09440c159d/HMRC_v_MH_Katib_.pdf)* establishes a general rule that an adviser’s error is attributed to the client, the FTT had not misapplied that rule. It found Mr Pawar personally responsible because he ignored a letter sent to him which clearly set out the appeal procedure. The [Upper Tribunal](https://www.judiciary.uk/courts-and-tribunals/tribunals/upper-tribunal/) agreed: even without adviser negligence, a taxpayer who receives a direct notice cannot assume matters will “be sorted out” without taking action. ### 3. Bankruptcy Risk Considered Mr Pawar said refusing permission would force him into bankruptcy. The [Upper Tribunal](https://www.judiciary.uk/courts-and-tribunals/tribunals/upper-tribunal/) accepted that the risk was real but held it was not decisive. Financial prejudice is common in late-appeal cases and cannot outweigh serious delay. The Tribunal approved the FTT’s reasoning that hardship “is common to all such cases.” ### 4. The Medpro Principle The only legal error arose because the FTT had given “particular importance” to respecting time limits, wording which [*Medpro* ](https://taxdisputes.co.uk/2025/10/medpro-v-hmrc-revised-tribunal-principles-on-late-vat-appeals/)had since ruled “clearly wrong.” Following *[Medpro](https://taxdisputes.co.uk/2025/10/medpro-v-hmrc-revised-tribunal-principles-on-late-vat-appeals/)*, no pre-determined weight may be given to such factors; they are simply part of the overall balance. The Upper Tribunal therefore set aside the FTT’s decision but remade it, applying *[Martland](https://assets.publishing.service.gov.uk/media/5b115855e5274a191271783e/William_Martland_v_HMRC_.pdf)* without that special weight. The outcome was unchanged: permission for a late appeal remained refused. ## Upper Tribunal’s Revised Decision Re-evaluating the evidence, the [Upper Tribunal](https://www.judiciary.uk/courts-and-tribunals/tribunals/upper-tribunal/) confirmed the delay of more than three years was unjustified. The reasons offered, reliance on advisers, inattention, and misplaced assumption, were inadequate. The review conclusion letter clearly stated the 30-day limit, yet Mr Pawar neither appealed nor followed up with [HMRC ](https://taxdisputes.co.uk/2025/10/how-to-challenge-hmrc-tax-assessments-and-protect-your-rights/)despite reminders. At [[106]](https://assets.publishing.service.gov.uk/media/68cc05d9b6d7ea468dbea677/Pawar_v_HMRC_-_Final_decision.pdf), the Tribunal concluded that even considering bankruptcy risk, “the prejudice to the appellant is not sufficiently great as to outweigh more than three years’ unjustified delay.” The prospects of success were “not obviously strong,” and [HMRC ](https://taxdisputes.co.uk/2025/10/first-tier-tax-tribunal-appeals-guide/)would face clear prejudice if forced to revisit settled assessments. The Personal Liability Notice therefore remained enforceable. ## Legal and Practical Implications ### Reinforcing Strict Time Discipline *[Pawar v HMRC](https://assets.publishing.service.gov.uk/media/68cc05d9b6d7ea468dbea677/Pawar_v_HMRC_-_Final_decision.pdf)* confirms that the 30-day limit for appealing tax decisions is not a technicality. Tribunals expect immediate action. Delays beyond 12 months are almost never excused unless there is compelling evidence that the taxpayer was prevented from appealing. Here, long silence and lack of documentation proved fatal. ### Adviser Failings Remain Taxpayer Responsibility The judgment underscores that reliance on advisers provides no automatic protection. Even where advice was plainly deficient, the [tribunal ](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/first-tier-tribunal-tax-chamber/)expects directors to oversee their own affairs. Clients may sue negligent advisers, but cannot use negligence as a shield against HMRC enforcement. [Timely legal advice](https://lexlaw.co.uk/legal-case-assessment/) from [experts](https://lexlaw.co.uk/our-people/) is essential at this stage. ### Impact of Medpro Procedurally, *[Pawar](https://assets.publishing.service.gov.uk/media/68cc05d9b6d7ea468dbea677/Pawar_v_HMRC_-_Final_decision.pdf)* shows how *[Medpro](https://www.bailii.org/uk/cases/UKUT/TCC/2025/255.pdf)* has refined the [*Martland* ](https://assets.publishing.service.gov.uk/media/5b115855e5274a191271783e/William_Martland_v_HMRC_.pdf)test. [Tribunals ](https://taxdisputes.co.uk/2025/10/first-tier-tax-tribunal-appeals-guide/)can no longer elevate time-limit compliance above all else, yet this does not lower the threshold for late appeals. Rather, it requires a balanced assessment of delay, reasons and prejudice, an assessment that still produced the same outcome here. Read our [comprehensive case study](https://taxdisputes.co.uk/2025/10/medpro-v-hmrc-revised-tribunal-principles-on-late-vat-appeals/) on [*Medpro* ](https://www.bailii.org/uk/cases/UKUT/TCC/2025/255.pdf)and its implications. ### Consequences for Directors and Insolvent Companies Personal Liability Notices transfer corporate [VAT penalties](https://taxdisputes.co.uk/2025/10/medpro-v-hmrc-revised-tribunal-principles-on-late-vat-appeals/) to individuals where a “deliberate inaccuracy” is attributable to an officer. Directors facing insolvency must act swiftly to contest such notices through [expert tax advice](https://taxdisputes.co.uk/expert-advice/). Once deadlines expire, late appeals will only succeed where delay is minimal and convincingly explained. The [Tribunal ](https://www.judiciary.uk/courts-and-tribunals/tribunals/upper-tribunal/)in *Pawar* found no such justification despite the potential for [bankruptcy](https://taxdisputes.co.uk/2022/06/dealing-with-a-hmrc-7-day-letter-before-winding-up-action/), confirming that financial hardship alone will rarely suffice. ## Instruct Expert London Tax Solicitors The Upper Tribunal’s decision in *[Pawar v HMRC](https://assets.publishing.service.gov.uk/media/68cc05d9b6d7ea468dbea677/Pawar_v_HMRC_-_Final_decision.pdf)* provides a definitive warning: procedural delay is rarely forgiven. The court corrected the FTT’s legal reasoning but not its result, showing that even under the refined [*Medpro* ](https://www.bailii.org/uk/cases/UKUT/TCC/2025/255.pdf)framework, [tribunals ](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/)will refuse permission where appellants ignore clear [statutory deadlines](https://taxdisputes.co.uk/2025/10/first-tier-tax-tribunal-appeals-guide/). Directors must treat [HMRC ](https://taxdisputes.co.uk/2025/10/how-to-challenge-hmrc-tax-assessments-and-protect-your-rights/)correspondence as urgent, not optional. Personal liability can attach even where the underlying tax dispute appears arguable or where “no tax loss” is claimed. Once the 30-day clock expires, discretion is narrow and fact-sensitive. For professionals defending director claims or advising on late appeals, the case reinforces the value of immediate, documented action and direct oversight. At [LEXLAW](https://lexlaw.co.uk/), we are routinely instructed to represented high-value clients in similar disputes with [HMRC](https://taxdisputes.co.uk/2025/10/first-tier-tax-tribunal-appeals-guide/). As this judgment illustrates, time truly is of the essence in [tax litigation](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/)**. **If you are faced with a HMRC Personal Liability Notice, [contact now](https://lexlaw.co.uk/legal-case-assessment/) for [expert legal advice](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/)! ### FAQs: Late Tax Appeals and Personal Liability Notices **What is a Personal Liability Notice (PLN)?** A PLN is a notice issued by HMRC under paragraph 19, Schedule 24 to the *Finance Act 2007*, holding a company officer personally liable for deliberate inaccuracies in the company’s tax returns. It effectively transfers corporate tax penalties to the individual director or responsible person. See our guide to defending Personal Liability Notices for more information. **How long do I have to appeal an HMRC decision?** Taxpayers normally have 30 days from the date of the review or decision letter to appeal to the First-tier Tribunal under section 83G(1) of the *Value Added Tax Act 1994*. Missing that deadline means the appeal is “out of time,” and you must apply for the tribunal’s discretion to accept a late appeal. **Can I bring a late appeal if my accountant or adviser missed the deadline?** Usually not. As reaffirmed in *Pawar v HMRC [2025] UKUT 309 (TCC)*, adviser error is generally treated as the taxpayer’s own responsibility. The tribunal will expect you to have exercised reasonable oversight of your tax affairs. Negligent professional advice may form the basis of a separate professional negligence claim, but it rarely justifies a late appeal. **Does the Tribunal consider financial hardship or bankruptcy risk**? Yes, but it is not decisive. In *Pawar v HMRC*, the Upper Tribunal accepted that bankruptcy would cause “very great prejudice” yet ruled it was not enough to outweigh three years of unjustified delay. Financial hardship is common in tax disputes and will not by itself justify extending time. **What legal test applies to late tax appeals?** Tribunals follow the three-stage test in *Martland v HMRC [2018] UKUT 178 (TCC)*: (1) assess the seriousness of delay, (2) consider reasons for default, and (3) balance prejudice and fairness. Following *Medpro UT [2025] UKUT 255 (TCC)*, tribunals no longer give special or “pre-determined” weight to statutory time limits, but delay remains a key factor. **How did the *****Medpro***** decision affect *****Pawar v HMRC*****?** *Medpro UT* overruled the idea that tribunals must treat respect for time limits as having particular importance. The Upper Tribunal in *Pawar* corrected the FTT’s reasoning accordingly, yet still refused permission, showing that even under the refined approach, lengthy and unexplained delay is almost never excused. **What steps should I take if I’ve already missed the appeal deadline?** Act immediately. Gather all correspondence showing why the delay occurred and instruct experienced solicitors to prepare a detailed application explaining the reasons and potential prejudice. However, as *Pawar v HMRC* demonstrates, appeals delayed for years are rarely admitted, so early action is crucial. --- # Understanding the UK’s Statutory Residence Test (SRT): A Guide for Taxpayers and Expats Source: https://taxdisputes.co.uk/2025/11/understanding-the-uks-statutory-residence-test-srt-a-guide-for-taxpayers-and-expats/ ## Introduction to the Statutory Residence Test (SRT) The [Statutory Residence Test (SRT)](https://www.gov.uk/government/publications/rdr3-statutory-residence-test-srt/guidance-note-for-statutory-residence-test-srt-rdr3), introduced in the Finance Act 2013, replaced vague common law residency rules with a clear, objective framework to determine UK tax residency based on days spent in the UK and specific "ties." The SRT determines your UK tax residency status from the 2013/14 tax year onward. UK tax residents face worldwide taxation, while non-residents pay UK tax only on UK-source income and certain gains (with some exceptions like certain property income). Business owners relocating overseas (e.g., to the UAE) should understand and master the SRT in order to avoid unexpected tax bills.​ It is important at the outset to understand that the SRT only decides your residency status; it doesn't directly set tax rules. Once residency is established then **UK Residents** are taxed on worldwide income/gains (subject to reliefs like remittance basis for non-doms, ending April 2025) whereas **Non-UK Residents** are taxed only on UK-source income (rents, dividends, bank interest) and UK gains (property disposals); foreign income/gains untaxed in UK. ## The UK Millionaire Exodus: SRT Importance The UK is witnessing an unprecedented **millionaire exodus** in 2025, with Henley & Partners' Private Wealth Migration Report projecting a record **net loss of 16,500 high-net-worth individuals (HNWIs)**. This is the largest single-year outflow globally, carrying away an estimated **£69.28 billion GBP** in wealth. This surpasses even China's 7,800 departures and follows 10,800 exits in 2024, driven by non-dom tax reforms, higher capital gains/inheritance taxes, Brexit fallout, and regulatory uncertainty. **Top destinations** for UK millionaire migration: - **UAE** (world #1): Gaining **9,800 millionaires** (USD 63 billion), fueled by 0% personal tax, golden visas, and business hubs like Dubai/Abu Dhabi.[](https://www.ndtv.com/world-news/millionaires-on-the-move-united-arab-emirates-to-welcome-9-800-millionaires-in-2025-report-says-8797836)​ - **USA, Italy, Switzerland**: Tax incentives and stability draw the rest. - [](https://www.henleyglobal.com/publications/henley-private-wealth-migration-report-2025/great-wealth-flight-millionaires-relocate-record-numbers)​Other popular destinations include **Singapore, Monaco, Australia, Cyprus and Malta**. For relocating business owners, especially those that are asset or cash-rich, the **[Statutory Residence Test (SRT)](https://www.gov.uk/government/publications/rdr3-statutory-residence-test-srt)** is critical: Botch it with >46 UK days or ties (accommodation/work), and HMRC taxes your worldwide income despite overseas residency. Proper SRT planning is critical to ensure clean non-residency.[](https://www.litrg.org.uk/international/residence-and-domicile/uk-tax-residence/statutory-residence-test)​​ ## How the SRT Works in 4 Easy Steps The Statutory Residence Test (SRT) follows this order; stop as soon as you get an answer: `[](https://www.gov.uk/government/publications/rdr3-statutory-residence-test-srt/guidance-note-for-statutory-residence-test-srt-rdr3)​Step 1: 183+ days in UK? → Yes = Resident Step 2: Automatic overseas tests? → Yes = Non-resident Step 3: Other automatic UK tests? → Yes = Resident Step 4: Sufficient ties test` - **Step 1: Check if you're automatically UK resident** Did you spend **183+ days** in the UK (counting midnights)? Or have a UK home as your main base? Or work full-time in the UK? **Yes** = UK resident. **No** = Go to Step 2. ​ - **Step 2: Check automatic overseas tests (non-resident)** Spent **<46 days** in UK (and weren't UK resident in prior 3 years)? Or **<16 days** (with UK work only)? Or full-time work overseas? **Yes** = Non-UK resident. **No** = Go to Step 3. ​ - **Step 3: Check other automatic UK resident tests** (UK home details or specific work patterns.) **Yes** = UK resident. **No** = Go to Step 4. - **Step 4: Sufficient ties test** Count your UK "ties" (family, home, work) + days spent. See table below.[](https://www.litrg.org.uk/international/residence-and-domicile/uk-tax-residence/statutory-residence-test)​ NB: Days count as midnights (00:00-23:59) in the UK tax year (6 April to 5 April). Airport transit doesn't count. ![UK Statutory Residence Test (SRT) Decision Flowchart - A visual guide showing the decision process for determining UK tax residency status, including automatic overseas tests, automatic UK tests, and the sufficient ties test](https://taxdisputes.co.uk/wp-content/uploads/2025/11/UK_Statutory_Residence_Test_SRT_Decision_Flowchart_-_A_visual_guide_showing_the_decision_process_for_determining_UK_tax_residency_status-scaled-e1764432324618.png)*UK Statutory Residence Test (SRT) Decision Flowchart - A visual guide showing the decision process for determining UK tax residency status, including automatic overseas tests, automatic UK tests, and the sufficient ties test.* ## *Automatic Overseas Tests You're non-resident if you meet any of these criteria. These apply **first** in the SRT sequence. Meeting just one makes you automatically non-UK resident; no need to check further tests.[](https://www.gov.uk/hmrc-internal-manuals/residence-and-fig-regime-manual/rfig20120)​ - **<46 days in the UK**: **And** you were **not** UK resident in **any** of the previous 3 tax years. (Perfect for first-year UAE movers building a clean record.)[](https://www.gov.uk/hmrc-internal-manuals/residence-and-fig-regime-manual/rfig20120)​ - **<16 days in the UK**: **And** you **were** UK resident in one or more of the previous 3 tax years.[](https://www.gov.uk/hmrc-internal-manuals/residence-and-fig-regime-manual/rfig20120)​ - **Full-time overseas work**: Work "sufficient hours" overseas (35+ hours/week average) over 365 days overlapping the tax year, with **<91 days** in UK (≤30 working), no significant breaks from overseas duties.[](https://titanwealthinternational.com/learn/statutory-residence-test-uk/)​ **Ideal for overseas relocators**: Target <46 days in year 1 (if prior non-resident history builds), then maintain low days. Track midnights with care. ## Automatic UK Tests You will become resident if you meet any of these criteria. These apply only if you fail all automatic overseas tests first (see above*). Meeting just one makes you UK resident. ​ - **183+ days in the UK**: Count midnights spent in UK during the tax year (6 April to 5 April).[](https://www.gov.uk/hmrc-internal-manuals/residence-and-fig-regime-manual/rfig20320)​ - **UK home as your only/main base**: A UK home available for 91+ consecutive days (30+ of those in the tax year), **and** no overseas home where you spend 30+ days that year—or it's your "only" viable home.[](https://www.litrg.org.uk/international/residence-and-domicile/uk-tax-residence/statutory-residence-test)​ - **Full-time UK work**: Work >3 hours on 40+ days in a 365-day period overlapping the tax year, averaging 35+ hours/week with no significant breaks, and 75%+ of work days in the UK.[](https://www.gov.uk/hmrc-internal-manuals/residence-and-fig-regime-manual/rfig20370)​ **Company directors note**: Attending UK board meetings or making key decisions while in the UK counts as "work days" toward these tests.[](https://www.rsmuk.com/insights/employment-matters/global-mobility/non-resident-directors-of-uk-companies-and-the-tax-implications)​ ## The Sufficient Ties Test This applies only if both automatic tests above (overseas, 183-day, other UK tests) fail to give a clear answer. It combines your UK days spent with ties (connections) to decide residency. Ties include the following **5 UK Ties** (you have a tie if **any** criteria met):[](https://www.taxadvisermagazine.com/article/statutory-residence-test-establishing-ties-uk)​ - **Family tie**: Spouse, civil partner, cohabiting partner, or minor child (under 18) UK tax resident. *Exception*: Minor child only in UK for full-time education + limited non-term visits with you.[](https://www.taxadvisermagazine.com/article/statutory-residence-test-establishing-ties-uk)​ - **Accommodation tie**: UK accommodation (owned, rented, or friend's) available **91+ consecutive days** (one day in tax year) **and** you spend **1+ night** there. *Close relative's home*: Only if **16+ nights**. Hotels/Airbnb usually qualify if long-term.[](https://www.saffery.com/insights/articles/statutory-residence-test/)​ - **Work tie**: **40+ days** working **>3 hours** in UK during tax year. *Directors*: UK board meetings/decision-making counts. Remote UAE work doesn't.[](https://www.rsmuk.com/insights/employment-matters/global-mobility/non-resident-directors-of-uk-companies-and-the-tax-implications)​ - **90-day tie**: Spent **90+ midnights** in UK in **either** of the previous **2 tax years** (not combined).[](https://www.gov.uk/hmrc-internal-manuals/residence-and-fig-regime-manual/rfig20570)​ - **Country tie**: UK is the country you spend **most days** in during the tax year (ties broken by work days).[](https://www.taxadvisermagazine.com/article/statutory-residence-test-establishing-ties-uk)​ | UK Days (Tax Year) | Ties to Be Resident (Recent Leavers) | | ------------------ | ------------------------------------ | | Fewer than 16 | N/A (non-resident) | | 16-45 | 4+ ​ | | 46-90 | 3+ ​ | | 91-120 | 2+ ​ | | 121-182 | 1+ ​ | | 183+ | Automatic resident​ | ## Split-Year Rules The fundamental principle of the Statutory Residence Test (SRT) is that satisfying the residency conditions for part of a tax year results in being treated as a UK resident for the **entire** year. However, special provisions, known as **[Split-Year Treatment](https://www.gov.uk/hmrc-internal-manuals/residence-and-fig-regime-manual/rfig21000)**, allow the year of an individual’s arrival in or departure from the UK to be formally divided into resident and non-resident periods. This is a crucial exception for expats, as it ensures you are only taxed on worldwide income up to the date you genuinely leave, or from the date you genuinely arrive. Eligibility for this treatment is dependent on meeting one of several specific criteria and must be applied for via HMRC. ## Common Ties for Business Owners and Directors Business owners and directors face heightened SRT risks from **work** and **accommodation ties**. Here's how to identify and minimise them:[](https://www.gov.uk/hmrc-internal-manuals/residence-and-fig-regime-manual/rfig20560)​​ **Work Tie Risk (40+ days >3 hours UK work)**: - UK board meetings, site visits, or key decisions made **while physically in UK** count; even emails/phone calls if you're present. Remote UAE oversight doesn't trigger.[](https://www.charlesrussellspeechlys.com/en/insights/expert-insights/private-wealth/2025/tricky-traps-in-the-uks-statutory-residence-test/)​ - **Fix**: Appoint UK-based co-directors for decisions; limit to <40 full UK work days/year.[](https://mooreks.co.uk/insights/statutory-residence-test/)​ **Accommodation Tie Risk**: - Company properties or London rentals available 91+ days + 1 night stay = tie.​[](https://www.gov.uk/hmrc-internal-manuals/residence-and-fig-regime-manual/rfig22160)​ - **Fix**: Use short-term hotels/Airbnb (<91 days available); never stay overnight at business premises.[](https://www.taxd.co.uk/taxdpedia/the-accommodation-tie-srt)​ **Combined Impact:** Directors commonly accumulate **3+ ties** (work tie + 90-day history from prior years + accommodation tie) with just **46-90 UK days**, triggering residency under the sufficient ties test. This means even moderate UK visits, combined with ongoing director duties and property access, can make you UK tax resident despite and overseas base. Therefore, use a day-tracking app and target **<46 days + fewer than 3 ties** in your first overseas year to secure automatic non-residency.[](https://www.gov.uk/government/publications/rdr3-statutory-residence-test-srt/guidance-note-for-statutory-residence-test-srt-rdr3)​​ ## Special Rules for Recent Leavers and Temporary Non-Residence **Recent Leavers** (UK resident in 1+ of prior 3 years) face stricter sufficient ties thresholds; requiring fewer UK days before residency kicks in (e.g., 46 days + 3 ties = resident).[](https://www.taxtrends.co.uk/gb/uk-residency-rules-for-leavers-and-arrivers-what-every-expat-should-know/)​ **Temporary Non-Residence Rule**: If UK resident in **4+ of prior 7 years** and non-resident for **<5 years**, returning to UK triggers tax on **worldwide gains/income earned during absence** (e.g., overseas investments, director loans). An overseas 5 year relocation period avoids this trap entirely and 10 years currently shields from the UK's 40% Inheritance tax (IHT) tail.​ NB: For **IHT**, the new residence-based regime (April 2025) imposes a **3-10 year "tail"** after leaving: Long-term UK residents (10/20 prior years resident) remain liable for 40% IHT on worldwide assets during this period. A **10-year overseas stay** clears the maximum tail, limiting IHT to UK-situs assets only (property, shares). **Split-Year Treatment**: Genuine relocations (employment abroad, moving home) split the tax year with UK tax only until departure date. This has to be applied for via HMRC.[](https://www.litrg.org.uk/international/residence-and-domicile/uk-tax-residence/statutory-residence-test)​​ ## Practical Tips for UAE Relocators - **Track UK days rigorously**: Use apps to log midnights; file **[P85 form](https://www.gov.uk/guidance/get-your-income-tax-right-if-youre-leaving-the-uk-p85)** with HMRC declaring non-residency (attach UAE lease/visa).[](https://www.litrg.org.uk/international/residence-and-domicile/uk-tax-residence/statutory-residence-test)​ - **Day limits by year**: <46 days year 1 (automatic non-resident if prior clean); build to 90 days with <3 ties once history established.[](https://www.gov.uk/hmrc-internal-manuals/residence-and-fig-regime-manual/rfig20120)​ - **Prove overseas residency**: For example [UAE Golden Visa](https://u.ae/en/information-and-services/visa-and-emirates-id/residence-visas/golden-visa) (10-year, investment/property from AED 2M) + Emirates ID/utility bills = ironclad HMRC proof; no minimum stay required.[](https://www.shuraa.co.uk/uae-golden-visa/)​ - **Cut UK ties**: Relocate family if UK-based (family tie); avoid UK overnight stays.[](https://www.taxadvisermagazine.com/article/statutory-residence-test-establishing-ties-uk)​ - **Directors**: Delegate to UK co-directors; shift to non-executive (remote UAE decisions safe). Resign if possible to eliminate work tie.[](https://www.gov.uk/hmrc-internal-manuals/residence-and-fig-regime-manual/rfig20560)​ ## Penalties and Compliance Risks **Inaccuracy Penalties**: Claiming wrong residency status (e.g., non-resident with 3+ ties + 46 UK days) triggers a penalty of **0-100% of underpaid tax** per return: 0% for unprompted disclosure, 0-30% (carelessness), 20-70% (deliberate), 30-100% (deliberate/concealed). There is also a fixed late filing penalty of £100+ escalating to £1,900.[](https://www.gov.uk/government/publications/compliance-checks-penalties-for-inaccuracies-in-returns-or-documents-ccfs7a)​ **Interest**: Currently 7.75%+ on unpaid tax from due date (e.g., £1m underpaid = £77,500/year).[](https://durdanasaleem.com/2025/05/30/hmrc-penalties-for-late-tax-returns-and-late-payment-2025-update/)​ **HMRC Enforcement**: Ties audits use travel data, property records, director filings; SRT errors flagged in real-time via Making Tax Digital. Keep **6-year records** (passports, UAE visa, emails, midnight logs).[](https://www.icaew.com/insights/tax-news/2025/aug-2025/temporary-non-residents-asked-to-check-tax-returns)​ **Offshore Risk**: UAE income/gains misreporting = 100-200% "failure to correct" penalties. File P85 + SA non-residency promptly. ## Temporary Non-Residence Trap: Anti-Avoidance Rules HMRC employs strict anti-avoidance rules to prevent individuals from exploiting the SRT by becoming non-resident for a brief period solely to realise income or capital gains tax-free. This rule focuses on individuals who have a history of being a sole UK resident for at least **four out of the seven previous tax years**. To avoid the trap, you must maintain non-resident status for at least **five full UK tax years**. Failure to meet this five-year threshold means that certain income and **all capital gains** realized during the period of temporary non-residence will immediately become taxable in the UK in the tax year of your return. ## Gaines-Cooper Case Study: The Dangers of Pre-SRT Residency Rules [](https://lavenpartners.com/thought-leadership/worrying-news-ex-uk-residents-court-case-rules-fav/)​**The Case That Killed the "90-Day Myth"**: Before the SRT (pre-2013), Robert Gaines-Cooper, a wealthy businessman, moved to the Seychelles in 1976. He claimed non-UK residency by staying under 91 days/year average per HMRC's IR20 guidance. He owned an Isle of Wight estate (family home), kept vintage cars/paintings there, executed English wills, and visited frequently for business/social ties.[](https://www.supremecourt.uk/cases/uksc-2010-0057)​ **Supreme Court Ruling (2011)**: By 4-1 majority, judges ruled Gaines-Cooper remained UK resident for 1976-2004. Day-counting alone failed without a "distinct break" from the UK. Family ties, property, and "centre of gravity" in UK outweighed overseas home. He owed millions in back taxes.[](https://www.taxjournal.com/articles/gaines-cooper-decision-35021)​ **SRT Lesson**: This common-law vagueness led to SRT's creation. Ties (accommodation, family, work) now quantify the "break". Gaines-Cooper would fail sufficient ties test today (3+ ties at low days). The lesson is that relocators must sever all ties cleanly.[](https://www.litrg.org.uk/international/residence-and-domicile/uk-tax-residence/statutory-residence-test)​ ## Conclusion: Plan Ahead The Statutory Residence Test demands precision; common myths like "90-day rule" ignore ties, which determine residency when automatic tests fail. Business owners and directors risk automatic residency from UK work days, properties, or board meetings despite overseas bases. Professional tax advisors provide HMRC clearances, compliance audits, and split-year applications to secure non-residency status. Mastering SRT prevents penalties, IHT exposure, and unintended worldwide taxation. ## SRT FAQ: ## Common Questions for Taxpayers and Expats **Q: How many days can I spend in the UK without becoming tax resident?** A: No fixed number; depends on your "ties." Aim <46 days in year 1 (if prior non-resident) for automatic non-residency; with 3+ ties, even 46 days risks residency.​ **Q: Does renting a UK flat create an accommodation tie?** A: Yes, if available 91+ consecutive days and you stay 1+ night. Use hotels/Airbnb <91 days to avoid. Counts toward sufficient ties test. **Q: Can I remain a UK company director from UAE?** A: Yes, but UK board meetings count as work days/ties. Appoint UK co-directors; limit visits to avoid PAYE and SRT residency.[](https://www.rsmuk.com/insights/employment-matters/global-mobility/non-resident-directors-of-uk-companies-and-the-tax-implications)​ **Q: What's driving the 2025 UK millionaire exodus?** A: Tax hikes (non-dom abolition, CGT/IHT changes) push 16,500 HNWIs abroad per Henley; UAE gains 9,800 with 0% tax. SRT non-residency essential to join safely.[](https://www.henleyglobal.com/publications/henley-private-wealth-migration-report-2025/what-driving-uks-millionaire-exodus)​ **Q: How do I prove non-UK residency to HMRC?** A: File P85 form; keep travel records, overseas visa, <46-day logs. Penalties up to £3,000 for errors; track midnights daily.[](https://www.gov.uk/government/publications/rdr3-statutory-residence-test-srt/guidance-note-for-statutory-residence-test-srt-rdr3)​ **Q: What if I return to UK within 5 years?** A: If UK resident in 4+ of the 7 tax years before leaving and non-resident for 5 tax years or less (5 years + 1 day minimum to escape), temporary non-residence rules tax certain income and gains from your absence period (e.g., overseas investment gains, dividends, pensions) in your return year. This includes capital gains on pre-departure assets, company distributions, and foreign pensions - potentially massive for business owners. Commit to 5+ full tax years abroad (e.g., UAE Golden Visa plans) to avoid entirely; plan departures/returns precisely to count tax years correctly. Q: Do I need professional advice for SRT planning? A: Yes. SRT errors trigger audits and penalties up to 100% of tax. Tax advisors provide HMRC non-statutory clearances, split-year applications, and tie audits. Essential for directors and property owners. DIY risks Gaines-Cooper-style disputes. Q: Can I get HMRC clearance for non-residency? A: HMRC offers non-statutory pre-transaction clearances for complex SRT cases. Examples include director duties and UAE relocation. Submit full facts via letter or email. Response within 28 days. Not binding if facts change. Q: Does UAE company directorship affect UK SRT? A: No. UAE work does not create ties. UK company board meetings over 3 hours for 40+ days trigger work tie. Appoint UK proxies. Remote UAE decisions are safe. **Q: How does split-year treatment work?** **A**: Genuine relocations split tax year. UK tax applies only to departure date. Nine categories qualify. Apply via SA return. Ideal for mid-year UAE moves. Q: What records prove non-residency to HMRC? A: Passport stamps. Flight tickets. UAE Golden Visa and Emirates ID. Accommodation leases. Midnight logs. File P85 and retain 6 years for audits. --- # Upper Tribunal Appeals: Strategic 2026 Guide Source: https://taxdisputes.co.uk/2026/01/upper-tribunal-appeals-strategic-2026-guide/ [Appeals](https://lexlaw.co.uk/solicitors-london/late-hmrc-tax-tribunal-appeals-medpro-martland-your-options/) to the Upper Tribunal play a critical role in the UK tax litigation landscape. For taxpayers and businesses dissatisfied with a decision of the [First-tier Tribunal (Tax Chamber)](https://taxdisputes.co.uk/2025/10/first-tier-tax-tribunal-appeals-guide/), the Upper Tribunal represents the primary avenue for challenging errors of law, procedural unfairness, or misinterpretation of statutory provisions. This guide provides a detailed analysis of [Upper Tribunal](https://www.judiciary.uk/courts-and-tribunals/tribunals/upper-tribunal/) appeals, explaining how they work, when they are appropriate, and what strategic considerations apply. It examines the legal framework, grounds of appeal, procedural stages, and key case law, while addressing common client questions such as costs, prospects of success, and timeframes. ## What Is the Upper Tribunal (Tax and Chancery Chamber)? The Upper Tribunal (UT) is a superior court of record that hears appeals on points of law from decisions of the [First-tier Tribunal](https://lexlaw.co.uk/solicitors-london/tag/first-tier-tax-tribunal/) (FTT). In tax matters, the Tax and Chancery Chamber, which also hears cases relating to financial services, insolvency, and land registration, handle these appeals. | **Feature** | **First-tier Tribunal (FTT)** | **Upper Tribunal (UT)** | | ----------- | ----------------------------- | ----------------------- | | Role | Determines tax appeals at first instance | Hears appeals from the FTT | | Purpose | Establishes facts and decides liability | Determines whether the FTT erred in law | | Primary focus | Factual evidence and findings | Legal analysis and appellate review | | Nature of issues | Disputed facts and application of law | Errors of law and legal misdirection | | Statutory interpretation | Applies legislation to the facts | Reviews correctness of statutory interpretation | | Evidence | Considers documentary and expert evidence | Reviews whether relevant evidence was excluded or misunderstood | | Procedural matters | Conducts the original hearing | Examines procedural unfairness or irregularity | | Reassessment of facts | Full fact-finding role | Limited, only where factual findings disclose an error of law | | Outcomes | Issues an initial decision | May uphold, set aside, remake, or remit the decision | Decisions of the Upper Tribunal are binding on the FTT and frequently shape the development of UK tax law. ## Case Study Overview: Challenging an FTT Decision in the Upper Tribunal In [*HMRC v BlackRock Holdco* 5 LLC [2022] UKUT 199 (TCC)](https://www.bailii.org/uk/cases/UKUT/TCC/2022/199.html), [**HMRC **](https://lexlaw.co.uk/hmrc-tax-dispute-lawyers/)raised additional corporation [tax assessments](https://lexlaw.co.uk/practice-areas/solicitors-act-1974-client-legal-costs-detailed-assessments-scco/) following transfer pricing adjustments to intra-group financing arrangements involving a UK taxpayer. The dispute centered on whether the pricing of the loan arrangements complied with the arm’s length principle and whether the First-tier Tribunal had applied the correct legal framework when assessing the evidence. The taxpayer argued that HMRC’s approach was inconsistent with established transfer pricing principles and that insufficient weight had been given to the commercial and economic context of the transactions. The [First-tier Tribunal ](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/)allowed the taxpayer’s appeal, concluding that the arrangements were consistent with the arm’s length principle. HMRC appealed to the Upper Tribunal, contending that the First-tier Tribunal had erred in law by misapplying the relevant legal tests and by relying on an incorrect analytical framework. The Upper Tribunal agreed that the First-tier Tribunal had made material errors of law in its approach to the transfer pricing analysis and the treatment of the evidence. As a result, the decision was [set aside](https://lexlaw.co.uk/solicitors-london/tag/set-aside/) and the case remitted for reconsideration. The judgment illustrates the Upper Tribunal’s supervisory role in correcting legal misdirection in complex transfer pricing disputes and highlights the importance of applying the correct legal framework when evaluating arm’s length pricing. ## Grounds of Appeal to the Upper Tribunal An [appeal to the Upper Tribunal](https://www.gov.uk/administrative-appeals-tribunal/how-to-appeal) cannot be based simply on disagreement with the FTT’s findings of fact. There must be an identifiable error of law. The common grounds to appeal include: **1. Misinterpretation or Misapplication of the Law** : This includes incorrect construction of statutory provisions or failure to apply binding authority. In [*HMRC v Pendragon plc* [2015] UKSC 37](https://taxdisputes.co.uk/wp-content/uploads/2026/01/37.pdf), the Upper Tribunal emphasised that failure to apply the correct legal test constitutes an error of law. The Upper Tribunal (UT) is entitled to intervene and remake a decision from the First Tier Tribunal (FTT) where the FTT has erred in law. **2. Inadequate Reasons**: Tribunals are required to explain why they reached their conclusions. A decision that does not allow the losing party to understand the reasoning may be unlawful. **3. Procedural Unfairness**: Examples include refusal to admit relevant evidence, bias, or failure to allow proper submissions. Procedural fairness is a recurring theme in successful Upper Tribunal appeals. **4. Failure to Consider Relevant Evidence**: If the FTT ignores material [evidence](https://taxdisputes.co.uk/tag/evidence/) or misunderstands expert testimony, this may amount to an error of law. ## Permission to Appeal: The First Critical Hurdle Before an appeal can proceed, the appellant must obtain permission to appeal. ### Stage 1: Application to the First-tier Tribunal The appellant must first [apply ](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/)to the [FTT within 56 days of the decision.](https://www.gov.uk/tax-tribunal/the-tribunals-decision) This application must clearly identify the alleged errors of law, supporting legal arguments and relevant authorities. ### Stage 2: Renewed Application to the Upper Tribunal If the FTT refuses permission, the appellant may apply directly to the Upper Tribunal. In practice, well-drafted grounds of appeal significantly improve prospects. Generic or poorly articulated grounds are mostly rejected. ## Upper Tribunal Procedure: What to Expect Once permission to appeal has been granted, the Upper Tribunal appeal progresses through a series of structured [procedural](https://www.legislation.gov.uk/uksi/2008/2698/contents) stages. Both parties are required to prepare and exchange detailed skeleton arguments setting out their legal submissions and identifying the alleged errors of law relied upon. These submissions are supported by agreed or indexed bundles of authorities, which typically include statutory provisions, relevant case law, and any tribunal guidance on appellate principles. The appeal is listed for an oral hearing subsequently, usually before a panel comprising a High Court judge and a specialist Upper Tribunal judge. At this stage, the focus is firmly on points of law rather than factual disputes, with oral advocacy directed towards statutory interpretation, the correct application of legal tests, and the reasoning adopted by the First-tier Tribunal. Unlike the FTT, Upper Tribunal hearings are law-based. Advocacy focuses on statutory interpretation, [precedent](https://lexlaw.co.uk/solicitors-london/the-doctrine-of-legal-precedent-when-is-a-court-decision-binding/#:~:text=What%20is%20the%20doctrine%20of,the%20claim%20exceeds%20%C2%A315%2C000.), and appellate principles rather than mere factual disputes. ## Key Case Law Governing Upper Tribunal Appeals A number of judicial decisions have played a significant role in shaping the approach taken to appeals before the Upper Tribunal. In [*Edwards v Bairstow* [1956] AC 14](https://taxdisputes.co.uk/wp-content/uploads/2026/01/TC_36_207.pdf), the House of Lords confirmed that, while appellate courts will not ordinarily interfere with findings of fact, a tribunal might nonetheless err in law where its conclusions are unsupported by the evidence or where it has applied the wrong legal test. This principle remains central to Upper Tribunal appeals, as it defines the boundary between permissible factual assessment and appealable legal error. Similarly, in [*HMRC v Hok Ltd* [2012] UKUT 363](https://taxdisputes.co.uk/wp-content/uploads/2026/01/363.pdf), the Upper Tribunal emphasised that appellate intervention is limited and should not amount to a re-hearing of the case. The decision clarified that the Upper Tribunal’s role is to correct material errors of law rather than to substitute its own factual evaluation. ## Remedies Available in the Upper Tribunal If an appeal is successful, the [Upper Tribunal ](https://www.gov.uk/government/publications/upper-tribunal-procedure-rules)has a range of remedial powers depending on the nature of the error identified and the state of the factual findings. It may remake the decision itself by substituting its own conclusions where the factual record is complete and no further findings are required. Alternatively, the Upper Tribunal may remit the case to a differently constituted First-tier Tribunal with specific directions, particularly where further fact-finding or reconsideration of [evidence ](https://taxdisputes.co.uk/tag/evidence/)is necessary. In some cases, the Upper Tribunal may also dismiss the appeal and uphold the First-tier Tribunal’s decision if it concludes that, despite any minor errors, the outcome was legally sound**. **The principles governing such remedies are based on the fact that remittal is appropriate where fairness requires fresh findings of fact, while remaking the decision is suitable where the issues are purely legal and can be resolved without further evidential assessment. ## How LEXLAW can help Upper Tribunal appeals demand precise identification of errors of law, strong appellate advocacy, and careful strategic judgment. [LEXLAW ](https://lexlaw.co.uk/)advises taxpayers and businesses on whether an [appeal](https://lexlaw.co.uk/solicitors-london/tag/appeal/) is viable, drafts focused grounds of appeal, and represents clients throughout Upper Tribunal proceedings. Our [tax dispute team](https://lexlaw.co.uk/our-people/) provide clear, commercial advice on prospects of success, costs exposure, and strategic risk, including whether settlement with HMRC remains appropriate. Where appeals proceed, we handle all stages of the process, from permission applications to hearings before the Tax and Chancery Chamber. Our approach ensures that appeals are pursued efficiently, proportionately, and with a clear understanding of their wider legal and commercial implications. [Contact now](https://lexlaw.co.uk/?page_id=356) for [expert legal advice](https://lexlaw.co.uk/our-people/)! ### FREQUENTLY ASKED QUESTIONS (FAQs) **How long does an Upper Tribunal appeal take?** Typically between 9–18 months, depending on complexity. **Can new evidence be introduced?** Generally no, unless it relates directly to the alleged error of law. **Is settlement still possible?** Yes. Many cases settle during the appeal process, particularly after permission is granted. **Do Upper Tribunal decisions set precedent?** Yes. UT decisions are binding on the FTT and frequently cited in later cases. --- # HMRC PAYE Enforcement Powers: From Notices to Insolvency Action Source: https://taxdisputes.co.uk/2026/01/hmrc-paye-enforcement-powers-from-notices-to-insolvency-action/ [PAYE](https://taxdisputes.co.uk/paye-tax-investigation-disputes/) liabilities are treated by [HM Revenue & Customs (HMRC)](https://www.gov.uk/government/organisations/hm-revenue-customs) as some of the most serious tax debts a business can incur. Unlike corporation tax or [VAT](https://taxdisputes.co.uk/vat-evasion/), [PAYE](https://taxdisputes.co.uk/2025/10/late-payment-of-paye-nic-penalties-reasonable-excuse-and-appeals/) represents tax deducted from employees and held by the employer on trust for the [Exchequer](https://www.gov.uk/government/ministers/exchequer-secretary-to-the-treasury). As a result, [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) enforces [PAYE ](https://taxdisputes.co.uk/paye-tax-investigation-disputes/)arrears aggressively and often at an early stage. This guide explains how [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) enforces unpaid [PAYE](https://taxdisputes.co.uk/2025/10/late-payment-of-paye-nic-penalties-reasonable-excuse-and-appeals/), the escalation process from initial notices through to insolvency action, and what this means in practice for directors, business owners, and payroll decision-makers. ## Why HMRC Takes PAYE So Seriously [PAYE](https://www.legislation.gov.uk/uksi/2003/2682/contents) is not regarded as a normal trading debt. It represents money deducted from employees’ wages that should never form part of a business’s working capital, and [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) therefore treats non-payment as a misuse of funds rather than a simple cashflow issue. In enforcement terms, this approach results in faster escalation than for many other taxes, reduced tolerance for repeated late payment, and a greater willingness on [HMRC’s](https://www.gov.uk/government/organisations/hm-revenue-customs) part to pursue directors personally where appropriate. ## The PAYE Enforcement Framework [HMRC’s](https://www.gov.uk/government/organisations/hm-revenue-customs) [PAYE](https://www.legislation.gov.uk/uksi/2003/2682/contents) enforcement powers sit within its wider debt management and compliance regime. While individual cases differ, enforcement generally follows a structured escalation path. Understanding where your business sits on that path is critical to managing risk. ## Early Stage Enforcement: Notices and Demands When PAYE is not paid on time, [HMRC](https://www.gov.uk/contact-hmrc) will issue payment demands setting out: - The amount outstanding. - Interest accruing. - The deadline for payment. At this stage, [HMRC](https://taxdisputes.co.uk/hmrc-enforcement-action/) will often still engage constructively, particularly if the business has a good compliance history. Interest accrues automatically on unpaid PAYE from the due date. Penalties may also apply where payments are persistently late or deliberately withheld. Repeated PAYE default quickly marks a business as high risk within [HMRC’s](https://taxdisputes.co.uk/hmrc-penalties/) systems. ## Escalation Measures: When PAYE Remains Unpaid [HMRC](https://taxdisputes.co.uk/hmrc-statutory-demand/) may agree a Time to Pay (TTP) arrangement for PAYE arrears, but such arrangements are typically shorter in duration than those agreed for other types of tax, are subject to close monitoring by [HMRC](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/), and are strictly conditional on all future PAYE liabilities being paid in full and on time. Failure to maintain a PAYE TTP almost always triggers immediate enforcement. ## Direct Enforcement Powers Where voluntary payment is not forthcoming, [HMRC](https://taxdisputes.co.uk/hmrc-tax-investigations/) can deploy statutory enforcement tools. [HMRC](https://taxdisputes.co.uk/hmrc-penalties/) may instruct enforcement agents to recover PAYE debts. This can include taking control of goods, although this is often a precursor to more serious action rather than the end point. In limited circumstances, [HMRC](https://taxdisputes.co.uk/hmrc-tax-appeals/) has the power to recover tax debts directly from a business’s bank accounts. While subject to safeguards, this power reinforces [HMRC’s](https://taxdisputes.co.uk/hmrc-enforcement-action/) leverage in [PAYE cases](https://taxdisputes.co.uk/paye-tax-investigation-disputes/). ## Security Notices for PAYE ### What Is a Security Notice? [HMRC](https://taxdisputes.co.uk/hmrc-penalties/) can require an employer to provide financial security for future PAYE liabilities where it considers there is a serious risk of non-payment. In practice, security may be demanded where HMRC believes [PAYE](https://taxdisputes.co.uk/paye-tax-investigation-disputes/) has been deliberately withheld, where the business has a history of insolvency or phoenix activity, or where there is a real risk of future default. Failure to provide the required security is a criminal offence and will often result in immediate enforcement action, including steps that can effectively bring the business to an end. ## Personal Liability and Director Risk **Personal Liability Notices (PLNs)**: In cases involving fraud, neglect, or deliberate non-payment, [HMRC](https://taxdisputes.co.uk/legal-representation/hmrc-notice-requirement-tribunal-appeals-solicitor-legal-advice/) can issue Personal Liability Notices (PLNs), making directors personally responsible for unpaid PAYE and National Insurance contributions. In practice, PLNs are most commonly associated with repeated PAYE defaults, the use of PAYE deductions to fund business cashflow or other expenses, and situations where companies are placed into insolvency with significant PAYE arrears outstanding. **Directors’ Duties in Financial Distress**: Once a company is in financial difficulty, directors must consider creditor interests. Continuing to trade while withholding [PAYE](https://taxdisputes.co.uk/paye-tax-investigation-disputes/) can expose directors to personal claims beyond [HMRC](https://taxdisputes.co.uk/hmrc-winding-up-petitions/) enforcement alone. ## PAYE and Insolvency Action **Statutory Demands**: [HMRC](https://taxdisputes.co.uk/hmrc-tax-investigations/) may issue a statutory demand as a precursor to insolvency proceedings. This is often used tactically to force engagement rather than as an end in itself. **Winding-Up Petitions**: PAYE debts are one of the most common grounds on which HMRC issues winding-up petitions. In practice, [HMRC](https://taxdisputes.co.uk/hmrc-penalties/) frequently petitions where PAYE arrears exceed relatively modest thresholds, where Time to Pay arrangements have broken down, or where there is evidence of ongoing non-compliance. Once advertised, a winding-up petition can severely restrict a company’s ability to trade, making early professional advice essential. **What This Means for Employers and Directors**: From a practical perspective, PAYE enforcement is rarely sudden. [HMRC](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) typically escalates action after identifying warning signs such as repeated late payments, broken payment commitments, or the misuse of PAYE deductions. For employers, the key risks include rapid escalation once HMRC loses confidence, a significant loss of negotiation leverage after formal enforcement begins, and potential personal exposure for directors. Early, informed engagement can often prevent matters from progressing to more severe enforcement or insolvency action ## Challenging HMRC PAYE Enforcement While HMRC has wide enforcement powers, those powers are not unlimited. In appropriate cases, enforcement action can be challenged on grounds such as procedural unfairness, a disproportionate use of statutory powers, or an incorrect assessment of the underlying PAYE liability.[ Specialist advice](https://lexlaw.co.uk/) is particularly important where [HMRC](https://taxdisputes.co.uk/hmrc-penalties/) enforcement overlaps with insolvency proceedings or potential director liability. ### Frequently Asked Questions (FAQ's) How quickly can HMRC take action if PAYE is unpaid? HMRC can move quickly where PAYE remains unpaid, particularly where there is a pattern of late payment or non-compliance. It is not required to offer instalments, and Time to Pay arrangements are discretionary and assessed case by case. Will HMRC agree a Time to Pay arrangement for PAYE arrears? HMRC may agree a Time to Pay arrangement, but PAYE agreements are typically shorter, closely monitored, and conditional on full compliance going forward. Failed arrangements usually lead to enforcement. Can HMRC issue a winding-up petition based solely on PAYE arrears? Yes. PAYE arrears alone can support a winding-up petition, particularly where arrears are persistent, arrangements have failed, or non-compliance continues. Can HMRC PAYE enforcement action be challenged? In some cases. Challenges may arise where assessments are incorrect, procedures have not been followed, or enforcement is disproportionate. Each case turns on its facts, and early specialist advice is important. --- # HMRC Using MARD: How does International Tax Recovery Work? Source: https://taxdisputes.co.uk/2026/01/hmrc-using-mard-how-does-international-tax-recovery-work/ [Mutual Assistance in Recovery of Debt (MARD)](https://www.gov.uk/hmrc-internal-manuals/debt-management-and-banking/dmbm560015) is no longer a theoretical mechanism used only in exceptional cases. [HMRC](https://lexlaw.co.uk/solicitors-london/tag/hmrc-tax-investigations-solicitors/) increasingly relies on [international recovery arrangements](https://taxdisputes.co.uk/mutual-assistance-recovery-debt-mard-oecd-hmrc-international-debt-collection-tax/) to pursue UK tax debts across borders, often long after a taxpayer has moved overseas or restructured their affairs. For individuals and businesses affected, a [MARD](https://taxdisputes.co.uk/mutual-assistance-recovery-debt-mard-oecd-hmrc-international-debt-collection-tax/) recovery can be sudden, complex, and intimidating, particularly where a foreign tax authority at HMRC’s request takes enforcement action. This guide focuses on the practical and legal reality of MARD enforcement. It explains what happens once [HMRC initiates recovery](https://lexlaw.co.uk/hmrc-debt-enforcement-defence-statutory-demand-winding-up-peititon-solicitor-london/) through international assistance, what rights taxpayers retain, how such action can be challenged, and what steps should be taken immediately when a MARD request is received. ## Understanding MARD in the Enforcement Context MARD allows HMRC to request assistance from overseas tax authorities to recover UK tax debts as if those debts were owed domestically in the requested state. Following the UK’s exit from the European Union, these powers primarily arise under the [OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters](https://www.oecd.org/en/topics/convention-on-mutual-administrative-assistance-in-tax-matters.html) and the Protocol on Administrative Cooperation within the UK-EU Trade and Cooperation Agreement (TCA). Once a request is accepted, the foreign authority may take enforcement steps using its own domestic recovery procedures. This can include [freezing bank accounts](https://lexlaw.co.uk/solicitors-london/account-freezing-order-guide/), registering the debt locally, or [initiating collection proceedings](https://taxdisputes.co.uk/2021/07/hmrc-steps-up-tax-debt-collection-winding-up-petition-statutory-demand-advice/) without reopening the substantive merits of the underlying UK tax assessment. What makes MARD particularly powerful is that enforcement often occurs without prior engagement between the taxpayer and the overseas authority. In many cases, the first indication of MARD action is a demand or enforcement notice issued abroad. ## When HMRC Decides to Use MARD HMRC does not use MARD automatically. In practice, it is deployed where HMRC considers that domestic enforcement is ineffective or impossible. This commonly arises where a taxpayer has relocated, holds assets abroad, or operates through foreign structures. MARD is frequently triggered following unresolved disputes involving [Income Tax](https://lexlaw.co.uk/solicitors-london/tag/tax/), Capital Gains Tax, Corporation Tax, [PAYE](https://taxdisputes.co.uk/paye-tax-investigation-disputes/), or [VAT](https://lexlaw.co.uk/solicitors-london/tag/vat/). It is also used where assessments have become final due to missed appeal deadlines, or where HMRC believes recovery is at risk due to dissipation of assets. Importantly, HMRC’s decision to pursue MARD is an administrative one, but it must still comply with public law principles. Failure to consider relevant factors, [procedural unfairness](https://taxdisputes.co.uk/2026/01/upper-tribunal-appeals-strategic-2026-guide/), or misuse of powers may provide grounds for challenge. ## What Happens Once MARD Recovery Begins Once HMRC submits a MARD request, the overseas authority determines whether it meets the relevant legal conditions. If accepted, the foreign authority proceeds to recover the debt using its own enforcement mechanisms. The [debt](https://lexlaw.co.uk/debt-recovery-insolvency-county-court-proceedings-petitions-fixed-fee-lawyers-london/) is treated as if it were a domestic tax liability, even though it originates from the UK. At this stage, [taxpayers ](https://taxdisputes.co.uk/category/taxpayer/)often discover that their ability to challenge the underlying tax liability is limited. Foreign authorities typically do not re-examine the validity of the UK assessment. Their role is enforcement, not adjudication. This makes early action essential. Delays can result in enforcement steps being taken before meaningful representations are made. ## Can a MARD Recovery Be Challenged? Although MARD is a powerful tool, it is not immune from legal challenge. Challenges can arise at both the UK and overseas stages, depending on the circumstances. In the UK, taxpayers may [challenge HMRC’s decision](https://taxdisputes.co.uk/2025/10/how-to-challenge-hmrc-tax-assessments-and-protect-your-rights/) to issue or maintain a MARD request where there has been procedural unfairness, abuse of power, or failure to follow statutory requirements. The Courts have consistently held that decisions involving international cooperation remain subject to public law scrutiny. In *[R (Gaines-Cooper) v HMRC [2011] UKSC 47](https://www.casemine.com/commentary/uk/supreme-court-confirms-ordinary-law-over-hmrc-guidance-in-determining-tax-residence/view)*, the Supreme Court affirmed the importance of legitimate expectation and fairness in HMRC's conduct. [Judicial Review](https://lexlaw.co.uk/judicial-review-court-lawyers-london-hmrc-tax-dispute-decision-advice-representation/) is often the primary mechanism for challenging the process of the request, even if the underlying tax debt is technically final. ## The Importance of the Underlying UK Tax Position A critical issue in MARD cases is whether the underlying UK tax liability is final and enforceable. MARD should not be used to recover disputed amounts where appeal rights are still open or where enforcement is stayed. In [*HMRC v Beadle* [2020] EWCA Civ 562](https://www.bailii.org/ew/cases/EWCA/Civ/2020/562.pdf), the Court of Appeal confirmed that while the [First-tier Tribunal](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/) has limited jurisdiction over public law disputes, the validity of HMRC's underlying notices remains subject to the supervision of the High Court via Judicial Review. This makes correctly identifying the route of appeal; Tribunal vs. High Court, critical. Taxpayers should urgently review whether assessments are valid, whether appeal deadlines were correctly communicated, and whether any procedural defects exist. In some cases, it may still be possible to reopen matters or apply for late appeals. ## Time Limits and Historic Debts One of the most concerning aspects of MARD for taxpayers is that it is often used to recover historic liabilities. While domestic [time limits](https://lexlaw.co.uk/solicitors-london/tag/time-limits/) apply to the raising of assessments, once a debt is lawfully established, international recovery may occur years later. However, time limits and [limitation periods](https://lexlaw.co.uk/limitation-periods-time-limits-bar-statute-expired-start-claim-litigation-legal-advice/) under the requested state’s law can still be relevant. Some jurisdictions impose restrictions on the enforcement of foreign debts, even where international assistance applies. Disputes often arise where [HMRC ](https://lexlaw.co.uk/solicitors-london/late-hmrc-tax-tribunal-appeals-medpro-martland-your-options/)seeks to characterise conduct as "deliberate" in order to justify extended assessment periods. Such characterisations are frequently contested and can materially affect the enforceability of the debt. ## Interaction with Double Tax Treaties Taxpayers often assume that double tax treaties will prevent international recovery. In practice, treaties and MARD operate in parallel but serve different purposes. [Double tax](https://taxdisputes.co.uk/category/double-tax/) treaties allocate taxing rights and prevent double taxation, but they do not necessarily restrict recovery once a tax debt is established. However, treaty provisions may still be relevant where the underlying tax assessment conflicts with treaty protections. In [*Ben Nevis (Holdings) Ltd v HMRC* [2013] EWCA Civ 578](https://www.bailii.org/ew/cases/EWCA/Civ/2013/578.html), the Court of Appeal confirmed that treaty interpretation must be based in commercial reality and international context, rejecting arguments that the "revenue rule" (which historically prevented cross-border tax collection) applied to modern mutual assistance treaties. While this strengthens HMRC's hand, it also confirms that the specific terms of the relevant international instrument must be strictly adhered to. ## What to Do Immediately if You Receive a MARD Demand The most common mistake taxpayers make is engaging directly with the overseas authority without first assessing the UK position. This can prejudice later challenges and may accelerate enforcement. Immediate steps should include: - Reviewing the basis of the debt and confirmation of its finality. - Assessing procedural compliance by HMRC under the relevant MARD instrument. - Determining if enforcement can be paused via UK intervention. In some cases, representations to [HMRC](https://lexlaw.co.uk/solicitors-london/tag/hmrc-tax-investigations-solicitors/) can result in suspension of the MARD request while matters are reviewed. [Settlement](https://lexlaw.co.uk/solicitors-london/tag/settlement-advice/) may also be possible. HMRC retains discretion to withdraw or modify requests where a proportionate resolution is achieved. ## How Lexlaw Can Help MARD enforcement sits at the intersection of UK [tax law](https://taxdisputes.co.uk/), international cooperation, and public law. Effective representation requires a detailed understanding of HMRC’s internal decision-making processes, treaty frameworks, and cross-border enforcement mechanisms. [LEXLAW](https://lexlaw.co.uk/our-people/) advises individuals and businesses facing MARD recovery action, including challenges to HMRC’s use of international assistance, disputes over the underlying tax liability, and engagement with overseas authorities. We provide strategic advice at every stage, from urgent intervention to longer-term resolution. Our approach is legally rigorous, commercially focused, and tailored to the realities of international tax enforcement. If HMRC is seeking to recover tax through international assistance, specialist advice such as ours is essential. [Our specialist Tax Solicitors and Barristers](https://lexlaw.co.uk/our-people/) deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability. ### FREQUENTLY ASKED QUESTIONS (FAQS) What is HMRC MARD and when is it used? HMRC uses MARD to recover UK tax debts from taxpayers who are overseas or hold assets abroad, usually where domestic enforcement is not effective. Can HMRC recover tax internationally without a UK court judgment? Yes. Once a UK tax debt is final, HMRC can request overseas recovery without obtaining a separate UK court judgment. Can a MARD recovery action be challenged? Yes, but only on limited grounds, such as procedural unfairness, ongoing appeal rights, or unlawful use of HMRC’s powers. Does moving abroad protect me from HMRC tax recovery? No. HMRC can still recover UK tax debts internationally through cooperation with foreign tax authorities. Is settlement possible once MARD enforcement has started? In some cases, yes. HMRC may agree to settlement or payment arrangements depending on the circumstances. --- # HMRC’s New Digital VAT Correction: Legal Guidance & Appeals Source: https://taxdisputes.co.uk/2025/10/hmrcs-new-digital-vat-correction-legal-guidance-appeals/ ## What Businesses Need to Know [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) has fundamentally updated the process for correcting VAT return errors by withdrawing the [traditional VAT652 paper form](https://www.gov.uk/guidance/check-if-you-need-to-report-errors-in-your-vat-return) and making digital notification the standard route. Businesses and agents must now use the secure Government Gateway platform to disclose and correct errors efficiently, with digital submissions being processed far faster than previous written methods. This new approach reflects HMRC’s commitment to streamlined tax compliance but carries added risks for unwary taxpayers facing complex or historic [VAT mistakes.](https://taxdisputes.co.uk/2020/10/taxpayers-appeal-against-hmrcs-vat-misdeclaration-penalty-allowed/) ## Correction Thresholds – What Qualifies for Digital Notification? VAT errors can be remedied in different ways, according to their net value and percentage of overall sales: - If the net error is less than £10,000 (or up to £50,000 so long as it is less than 1% of total sales for the affected period), it may be adjusted in the next VAT return. - Errors exceeding these limits, or those involving deliberateness, must be disclosed directly through HMRC’s online system. - Critically, adjusting an error via the next return alone does **not** count as formal disclosure for penalty mitigation if HMRC later considers the error as careless; a separate notification is essential for protecting your interests. ## The Digital Correction Process Step-by-Step The digital VAT error correction form is live and accessible through your business’s [Government Gateway login](https://www.gov.uk/log-in-register-hmrc-online-services). Your tax agent can also submit corrections for you. The digital form automates error reporting and links it directly to your VAT account, but completeness and legal accuracy remain essential to avoid investigation and penalty escalation. For digitally exempt businesses, written notification is still allowed, sent either by post to BT VAT, HMRC, BX9 1WR, or by email to [inbox.btcnevaterrorcorrection@hmrc.gov.uk](mailto:inbox.btcnevaterrorcorrection@hmrc.gov.uk). Your submission must detail: - How each error arose - The affected VAT accounting period - Whether the issue involved input or output tax - Net values under/over declared and the calculations used - Any payments made to HMRC not due and the total adjustment amount Providing full specifics is vital for prompt and accurate resolution. ## Appealing to HMRC – Legal Advocacy is Essential When HMRC queries, disputes, or raises an assessment following a correction, or levies penalties, our experienced tax solicitors and barristers manage the entire process representing you directly and *solely* in your best interests, unlike accountants who may face conflicts or regulatory restrictions. ## Our Step-by-Step Legal Appeal Approach - **Step 1:** We serve a formal written appeal to HMRC within 30 days of any dispute or penalty notice, detailing all statutory grounds, evidence, VAT periods, and potential “[reasonable excuse](https://lexlaw.co.uk/solicitors-london/how-to-appeal-hmrc-vat-penalties-reasonable-excuse-defence-guide-2025/)” arguments, as well as mitigation strategies if proportionality or HMRC error is involved. - **Step 2:** If rejected, we escalate to HMRC’s statutory review process by an independent officer, strengthening your appeal with further evidence and persuasive legal submissions. - **Step 3:** [We represent you](https://lexlaw.co.uk/hmrc-tax-dispute-lawyers/) in the Tax Tribunal if necessary, where our specialist barristers deliver robust oral advocacy and submit all required factual and legal precedents. - **Step 4:** Where appropriate, we progress your appeal to the Upper Tribunal or higher courts, maximising your prospect of success on points of law or procedure. ## Specialist Legal Representation Unlike accountants, our solicitors and barristers are legally obligated to act in *your best interests*, with total independence and confidentiality. We bring: - Genuine independence from HMRC and accounting industry pressures - Statutory and procedural [expertise](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) for penalty reduction, reasonable excuse arguments, and proportionality challenges - First-hand experience in both negotiation and advocacy at Tribunal appeals - [Strategic planning](https://taxdisputes.co.uk/appeal-hmrc-vat-de-registration-cancel-number-taxable-goods-supplies-kittel-decision-letter-judicial-review-legal-advice/) for voluntary corrections that protect you before penalties arise ## Act Early – Protect Your Business and Minimise VAT Penalties Correcting VAT errors today is more efficient but potentially more exposed to scrutiny especially with new digital systems and updated penalty rules. Early legal intervention maximises your chances of a positive result and minimum penalty exposure. **Contact our VAT & Tax Disputes team today on 020 7183 0529, or email for a fixed-fee consultation with a leading tax solicitor or barrister.** ### FAQ Do I still need to notify HMRC if I adjust an error in my next VAT return? Yes, formal disclosure is still required to mitigate penalties, even if adjustments are made in your return. What if I’m digitally exempt? You can still notify HMRC by post or email, providing full error details and calculations. When should I seek legal advice for VAT errors? Legal support is critical if HMRC disputes your correction, issues penalties, or if you need to appeal. What VAT errors qualify for digital correction? Errors over £10,000, or more than 1% of the period's net sales, must be disclosed via the online system. --- # Directors’ NIC Liability (2026 Guide) Source: https://taxdisputes.co.uk/2026/01/directors-nic-liability-2026-guide/ [National Insurance Contributions (NICs)](https://taxdisputes.co.uk/2025/10/late-payment-of-paye-nic-penalties-reasonable-excuse-and-appeals/) are often viewed by company directors as a routine payroll obligation with limited personal exposure. In practice, [HMRC](https://taxdisputes.co.uk/) increasingly treats unpaid NICs as a gateway to [personal enforcement](https://taxdisputes.co.uk/2025/12/personal-liability-notices-plns-defence-strategies-for-directors/) against directors, particularly where [companies become insolvent](https://taxdisputes.co.uk/hmrc-winding-up-petitions/), [payroll obligations](https://taxdisputes.co.uk/paye-tax-investigation-disputes/) are mismanaged, or HMRC alleges [deliberate non-compliance](https://taxdisputes.co.uk/2026/01/hmrc-behaviour-assessments-careless-deliberate-or-concealed/). Over recent years, HMRC has expanded its use of statutory powers to transfer corporate NIC liabilities to directors personally. These powers include [Personal Liability Notices](https://taxdisputes.co.uk/2025/12/personal-liability-notices-plns-defence-strategies-for-directors/), [joint and several liability regimes](https://www.gov.uk/guidance/joint-and-several-liability-notices-and-penalties-for-facilitating-tax-avoidance-or-tax-evasion), and retrospective employment status determinations under [IR35](https://taxdisputes.co.uk/2025/06/ir35-case-study-tax-advisers-procedural-error-fatal-to-taxpayers-appeal-rights-professional-negligence-in-tax-tribunals/). The financial consequences can be severe, exposing directors to liabilities, [penalties](https://taxdisputes.co.uk/hmrc-penalties/), and, in extreme cases, [criminal investigation](https://taxdisputes.co.uk/wp-content/uploads/2018/05/KSA-Worried-Director-Guide-2018-LEXLAW-taxdisputes-solicitors-london-tax-disputes-hmrc-investigation.pdf) or [director disqualification proceedings](https://windinguppetitionsolicitors.co.uk/directors-disqualification-proceedings-defence-strategies/). ## What Are National Insurance Contributions and How Do They Apply to Directors? National Insurance Contributions fund the UK social security system and are payable by employees, employers, the self-employed, and company directors. Directors are treated as employees for NIC purposes, but their earnings are assessed on an annual basis rather than per pay period, which can significantly affect thresholds and liability calculations. Employer NICs are generally the responsibility of the company. Directors are personally liable for employee NICs deducted from their salary. However, HMRC can impose personal liability on directors for employer NICs in certain statutory circumstances, which has become a growing focus of enforcement activity. ## When Can HMRC Hold Directors Personally Liable for NICs? In most cases, a company’s failure to pay NICs does not automatically transfer liability to its directors. However, HMRC has statutory powers to pierce the corporate veil where specific conditions are met. ### Personal Liability Notices HMRC may issue a Personal Liability Notice where unpaid NICs are attributable to a director’s fraud or neglect. This power allows HMRC to transfer the company’s NIC debt to the director personally, bypassing the protections of limited liability. The legal threshold is significant. HMRC must demonstrate culpable conduct, not merely commercial failure, [insolvency](http://windinguppetitionsolicitors.co.uk), or poor trading conditions. The distinction between neglect and reasonable commercial decision-making is often central to disputes. ### Joint and Several Liability Regimes HMRC can impose joint and several liability in cases involving tax avoidance structures, managed service companies, offshore payroll arrangements, or disguised remuneration schemes. These powers allow HMRC to pursue directors, promoters, and associated persons for unpaid NICs where arrangements are considered abusive. ### IR35 and Off-Payroll Working Directors operating through personal service companies are increasingly exposed to retrospective [NIC assessments](https://taxdisputes.co.uk/2025/12/nic-reclassification-disputes-employment-vs-self-employment/) under IR35 and off-payroll working rules. HMRC frequently reclassifies dividends or consultancy income as employment income, triggering employer and employee NIC liabilities. Where companies are insolvent, directors can face personal exposure and behavioural penalties. ### Insolvency and Director Conduct Insolvency alone does not create personal NIC liability. However, [HMRC may pursue directors](https://windinguppetitionsolicitors.co.uk/step-by-step-guide-for-directors-responding-to-a-hmrc-winding-up-petition/) personally where NICs deducted from employees were not paid over, where funds were misappropriated, or where repeated insolvencies suggest phoenix activity. In serious cases, [HMRC may work alongside the Insolvency Service](https://windinguppetitionsolicitors.co.uk/can-hmrc-wind-up-my-company-directors-guide-to-winding-up-petitions/) to pursue [director disqualification](https://windinguppetitionsolicitors.co.uk/directors-disqualification-proceedings-defence-strategies/). ## HMRC Behaviour Assessments in NIC Cases When assessing [penalties](https://taxdisputes.co.uk/hmrc-penalties/) and [enforcement](https://taxdisputes.co.uk/hmrc-enforcement-action/) action, HMRC categorises conduct as [careless, deliberate, or deliberate and concealed](https://taxdisputes.co.uk/2026/01/hmrc-behaviour-assessments-careless-deliberate-or-concealed/). These classifications determine penalty levels and HMRC’s litigation posture. Careless behaviour arises where directors failed to take reasonable care, such as misunderstanding payroll obligations or misapplying director earnings rules. Deliberate behaviour involves conscious decisions not to operate PAYE or NICs correctly. Deliberate and concealed behaviour includes falsification of records or the use of offshore structures to hide liabilities and may trigger criminal investigation. Demonstrating reasonable care, reliance on [professional advice](https://lexlaw.co.uk/hmrc-tax-dispute-lawyers/), and transparency is often decisive in mitigating penalties and defeating HMRC’s assertions. ## Legal Principles and Case Law Relevant to Directors’ NIC Liability Although limited case law exists specifically on NIC Personal Liability Notices, broader tax jurisprudence informs how Tribunals assess director culpability and HMRC’s burden of proof. Tribunal decisions have consistently emphasised that HMRC must prove culpable conduct rather than relying on assumptions arising from insolvency. [Employment status cases](https://taxdisputes.co.uk/2025/07/hmrc-targets-employment-agencies-with-section-44-itepa-k5k-limited-loses-paye-and-nics-appeal/), including IR35 litigation, reinforce that substance prevails over form, and HMRC must analyse contractual and factual realities rather than relying solely on guidance. The courts have also confirmed that artificial tax structures can be disregarded, which is relevant in [disguised remuneration](https://taxdisputes.co.uk/disguised-remuneration-loan-charge-hmrc-tax-appeals-lawyers/) and [offshore](https://taxdisputes.co.uk/offshore-tax-evasion-tax-avoidance-solicitors-london/) payroll NIC disputes. ## How HMRC Investigates Directors’ NIC Compliance HMRC typically investigates NIC liabilities through employer compliance reviews, PAYE audits, IR35 enquiries, and intelligence gathered from insolvency proceedings. Data-sharing across government agencies has expanded, enabling HMRC to identify directors associated with repeated tax defaults. Common triggers include significant [unpaid PAYE/NIC](https://taxdisputes.co.uk/2025/10/late-payment-of-paye-nic-penalties-reasonable-excuse-and-appeals/) balances, dividend-heavy remuneration strategies, use of offshore payroll providers, and repeated [company liquidations with outstanding tax liabilities](https://windinguppetitionsolicitors.co.uk/can-hmrc-wind-up-my-company-directors-guide-to-winding-up-petitions/). ## Challenging NIC Assessments and Personal Liability Notices Directors have statutory rights to [challenge HMRC decisions](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/). The initial step is to request an internal HMRC review, which must usually be done within 30 days. If the outcome is unfavourable, directors can appeal to the [First-tier Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/), which will examine whether HMRC met the legal thresholds for fraud or neglect and whether assessments were calculated correctly. In exceptional cases, [judicial review](https://taxdisputes.co.uk/judicial-review-applications-against-hmrc-challenge-decision-advice/) may be available where HMRC has acted unfairly, disproportionately, or outside its statutory powers. ## Defence Strategies for Directors A central defence is demonstrating reasonable care, particularly where directors [relied on competent accountants](https://taxdisputes.co.uk/2025/06/ir35-case-study-tax-advisers-procedural-error-fatal-to-taxpayers-appeal-rights-professional-negligence-in-tax-tribunals/) or payroll advisers. HMRC bears the burden of proving fraud or neglect for Personal Liability Notices, and this burden is often difficult to discharge. Statutory time limits also provide protection, with HMRC generally limited to four years for careless behaviour, six years for deliberate behaviour, and up to twenty years for deliberate and concealed conduct. Employment status disputes under IR35 can be challenged using established legal tests, including mutuality of obligation, control, and substitution rights. Proportionality arguments may also be relevant where penalties are excessive. ## Practical Risks for Directors in 2026 HMRC’s enforcement capabilities have expanded significantly through data-sharing with Companies House, banks, and insolvency authorities. Directors associated with multiple insolvent companies are increasingly targeted, and HMRC has signalled greater use of Personal Liability Notices where PAYE and NICs were withheld but not paid. This environment means directors must treat NIC compliance as a strategic risk area, particularly in financially distressed companies. ## Why Early Legal Advice Is Critical Directors’ NIC disputes involve complex interactions between tax law, insolvency law, and employment status legislation. HMRC often issues assessments based on estimates or incomplete data, and liability notices can be successfully challenged with [early and structured legal intervention](https://taxdisputes.co.uk/). Our team of [tax disputes experts](https://lexlaw.co.uk/our-people/) can prevent personal liability, reduce penalties, secure payment arrangements, and avoid escalation to criminal investigation or director disqualification proceedings. ## Protecting Directors from Personal NIC Exposure Directors’ personal exposure to National Insurance liabilities is no longer exceptional. HMRC’s expanding powers and aggressive enforcement posture mean that directors must understand both their obligations and their rights of challenge. Whether arising from payroll errors, IR35 disputes, or insolvency investigations, NIC liability can often be contested. Outcomes frequently depend on how early the dispute is managed and whether HMRC’s assumptions are challenged with evidence and legal authority. ## HMRC NIC Disputes - Specialist Legal Advice Directors facing HMRC NIC assessments, Personal Liability Notices, or enforcement action should seek [specialist tax litigation advice](https://taxdisputes.co.uk/) immediately. Experienced tax disputes solicitors can challenge HMRC’s factual assumptions, contest behavioural allegations, and represent directors in Tribunal proceedings. Early intervention materially improves the prospects of avoiding personal liability and securing a proportionate resolution. [Contact ](https://lexlaw.co.uk/contact-us/)our specialist tax disputes team for confidential advice on protecting your personal position and challenging HMRC action. --- # Voluntary Disclosure to HMRC: Reducing Penalties and Prosecution Risk Source: https://taxdisputes.co.uk/2025/10/voluntary-disclosure-to-hmrc-reducing-penalties-and-prosecution-risk/ Making a [voluntary disclosure](https://taxdisputes.co.uk/hmrc-voluntary-disclosure-campaigns-solicitors-london/) to [HM Revenue & Customs (HMRC)](https://taxdisputes.co.uk/) is one of the most effective steps a taxpayer can take to [minimise penalties](https://taxdisputes.co.uk/hmrc-penalties/) and [avoid criminal prosecution](https://taxdisputes.co.uk/2025/05/how-to-respond-to-cop8-cop9-hmrc-tax-investigations-2025-guide/). Whether you are an individual with undeclared income or a business with historical VAT or corporation tax errors, coming forward before HMRC discovers the irregularities can significantly reduce the financial and reputational consequences. At LEXLAW Solicitors & Barristers, [our tax dispute experts](https://lexlaw.co.uk/our-people/) specialise in assisting clients with voluntary disclosures, ensuring that every submission to HMRC is accurate, strategic, and protected by legal privilege. Acting early with professional representation can mean the difference between a civil settlement and criminal investigation. ## What is a Voluntary Disclosure to HMRC? A voluntary disclosure is when a taxpayer proactively tells HMRC about previously undeclared or incorrect tax matters before the authority initiates an investigation. It applies across all taxes, including income tax, VAT, [PAYE](https://taxdisputes.co.uk/paye-tax-investigation-disputes/), capital gains tax (CGT), and corporation tax, and may extend to offshore income or assets, where HMRC’s data-sharing under the Common Reporting Standard (CRS) makes non-compliance easily traceable. The key factor is that the disclosure must be unprompted. Once [HMRC opens an enquiry](https://taxdisputes.co.uk/2024/05/managing-hmrc-tax-enquiry-investigations/), issues a compliance check notice, or sends a “[nudge letter](https://taxdisputes.co.uk/2020/10/hmrc-nudge-letters-capital-gains-tax-compliance-check-tax-investigation-voluntary-disclosure/),” the disclosure becomes prompted, reducing potential penalty mitigation. Voluntary disclosure is not an admission of guilt. It is a strategic legal decision that allows taxpayers to regularise their affairs through a civil route rather than face criminal proceedings. Our [tax disputes solicitors](https://lexlaw.co.uk/our-people/m-ali-akram/) ensure that every disclosure is prepared with forensic detail, evidential accuracy, and clear legal justification. ## Why Make a Voluntary Disclosure? [HMRC](https://taxdisputes.co.uk/) operates on the principle that taxpayers who come forward voluntarily will be treated more leniently than those who are discovered through enforcement activity. The benefits include: - **Reduced Penalties**: Depending on the circumstances, penalties can be reduced to as little as 0-10% for unprompted disclosures. - **Avoidance of Criminal Investigation**: In serious cases, voluntary disclosure can lead to civil settlement rather than prosecution. - **Protection of Reputation:** Early disclosure avoids HMRC’s public naming-and-shaming of deliberate tax defaulters. - **Certainty and Closure:** A full and honest disclosure allows the taxpayer to draw a line under past errors and move forward without ongoing risk. ## How HMRC Treats Voluntary Disclosures When reviewing a voluntary disclosure, HMRC’s approach depends on whether the error was careless, deliberate, or deliberate and concealed: - Careless errors involve mistakes despite reasonable care, often due to misinterpretation or administrative oversight. - Deliberate errors occur when a taxpayer knowingly provides incorrect information. - Deliberate and concealed errors involve intentional wrongdoing with efforts to hide the irregularity (e.g., falsified records). The level of penalty relief available reflects these categories: | **Behaviour** | **Unprompted Disclosure** | **Prompted Disclosure** | | ------------- | ------------------------- | ----------------------- | | Careless | 0–30% | 15–30% | | Deliberate | 20–70% | 35–70% | | Deliberate & concealed | 30–100% | 50–100% | Voluntary disclosure shifts the balance toward the “unprompted” category, which carries the lowest possible penalty range. However, disclosure must be full and complete; partial or misleading disclosures may result in harsher penalties or criminal referral. ## HMRC’s Digital Disclosure Service (DDS) Most voluntary disclosures are now made through [HMRC’s Digital Disclosure Service (DDS)](https://taxdisputes.co.uk/hmrc-voluntary-disclosure-campaigns-solicitors-london/). This secure online platform allows taxpayers and agents to submit detailed reports of irregularities efficiently and with digital confirmation. The process starts with notifying HMRC of your intent to disclose. HMRC then issues a unique Disclosure Reference Number (DRN) and provides 90 days to calculate the total tax, interest, and penalty due. During this window, taxpayers must compile evidence, explanations, and payment details. Although the DDS process appears straightforward, it demands accuracy. Errors or omissions can trigger follow-up [investigations](https://lexlaw.co.uk/hmrc-tax-investigation-penalty-advice-solicitors/) or re-characterisation as deliberate behaviour. Our [tax dispute specialists](https://lexlaw.co.uk/our-people/) ensure that your disclosure meets HMRC’s legal and evidential standards, providing you with the best chance of a fair settlement. Digitally exempt businesses can still make written disclosures by post or email. In those cases, the disclosure must detail the nature of the error, affected VAT periods, calculation methods, and corrective adjustments. HMRC will only treat such notifications as valid if they contain full, precise information supported by documentation. ## Code of Practice 9 (COP9) and the Contractual Disclosure Facility (CDF) Where HMRC suspects serious tax fraud, it may offer the taxpayer the opportunity to make a disclosure under [Code of Practice 9 (COP9)](https://taxdisputes.co.uk/2025/05/how-to-respond-to-cop8-cop9-hmrc-tax-investigations-2025-guide/) using the Contractual Disclosure Facility (CDF). This is HMRC’s formal civil investigation process for cases where deliberate conduct is suspected. Under COP9, the taxpayer receives a letter inviting them to admit any deliberate irregularities within 60 days. If accepted, they must provide an “outline disclosure” covering all tax years and all taxes affected. In return, HMRC agrees not to pursue criminal prosecution, provided the disclosure is full and accurate. A properly handled CDF can bring closure to long-standing tax issues, whereas an incomplete or misleading response can invalidate the agreement and result in criminal referral. [Professional legal oversight](https://taxdisputes.co.uk/contact-us/) is therefore essential. ## When Voluntary Disclosure May Not Be Enough In some instances, voluntary disclosure alone cannot prevent [enforcement action](https://taxdisputes.co.uk/hmrc-enforcement-action/). If HMRC has already issued a notice of enquiry or initiated a compliance check, the disclosure becomes prompted, and full penalty relief may no longer apply. Nevertheless, strategic handling by a tax dispute lawyer can still reduce exposure. At LEXLAW, [our team](https://lexlaw.co.uk/our-people/) often acts for clients who come to us after receiving a nudge letter or [investigation notice](https://taxdisputes.co.uk/hmrc-tax-investigations/). We assess whether HMRC’s approach was lawful, manage the disclosure in parallel with negotiations, and seek to mitigate penalties by demonstrating cooperation, proportionality, and reasonable excuse. Even where HMRC intends to publish details under its “deliberate defaulter” policy, we regularly succeed in preventing publication by proving good faith and corrective action. Early legal intervention remains the most powerful step in protecting both financial and reputational interests. ## How LEXLAW’s Tax Disputes Experts Can Help At LEXLAW Solicitors & Barristers, our [tax dispute experts](https://taxdisputes.co.uk/contact-us/), tax solicitors, and barristers are leaders in voluntary disclosure and tax fraud defence. We have extensive experience advising individuals, directors, and corporate entities in complex disclosure cases involving income tax, VAT, PAYE, and offshore assets. We act swiftly to assess your exposure, design a disclosure strategy, and liaise directly with HMRC’s Fraud Investigation Service. Our team includes former [HMRC lawyers and Big Four tax specialists](https://lexlaw.co.uk/andrew-young/), ensuring insider understanding of HMRC’s risk frameworks and negotiation tactics. We also represent clients at every stage, from initial disclosure and settlement discussions through to First-tier Tax Tribunal appeals, should disputes arise. Every disclosure is drafted with precision and supported by legal analysis that positions our clients for the best achievable outcome. ## Practical Takeaways Voluntary disclosure offers a crucial opportunity to regularise tax affairs and prevent severe sanctions. However, the process demands accuracy, transparency, and expert guidance. Taxpayers who attempt to manage disclosures without professional advice risk under-declaring liabilities or triggering further investigation. By engaging experienced [tax dispute lawyers](https://lexlaw.co.uk/hmrc-tax-dispute-lawyers/) early, you ensure your disclosure is complete, defensible, and strategically sound. This not only reduces penalties but can also protect against prosecution, reputational damage, and future HMRC scrutiny. ## HMRC Voluntary Disclosure Legal Advice If you suspect past tax irregularities, have undeclared income, or are concerned about HMRC investigation, now is the time to act. A voluntary disclosure made with expert legal guidance can save you from severe financial and criminal consequences. [Our London-based tax dispute solicitors and barristers](https://lexlaw.co.uk/) provide confidential, fixed-fee consultations on voluntary disclosures, COP9 cases, and HMRC settlements. We prepare and negotiate all submissions directly with HMRC, ensuring your rights and interests are fully protected. Call** 0207 183 0529** or email [**contact@lexlaw.co.uk**](mailto:contact@lexlaw.co.uk) to speak with a tax disputes expert today. Our team will advise you on the best strategy to resolve your case quickly, efficiently, and discreetly. --- # HMRC Rejected Review? What Happens Next Source: https://taxdisputes.co.uk/2026/01/hmrc-rejected-review-what-happens-next/ Receiving a letter from [HMRC ](https://lexlaw.co.uk/hmrc-tax-dispute-lawyers/)rejecting a [statutory review](https://lexlaw.co.uk/judicial-review-court-lawyers-london-hmrc-tax-dispute-decision-advice-representation/) can be deeply unsettling. Many taxpayers assume that a rejection means the end of the road, that HMRC’s decision is final, or that enforcement action will now follow automatically. In reality, a rejected review is often not the end of the [dispute ](https://lexlaw.co.uk/practice-areas/litigation-dispute-resolution-solicitors-london/)but the point at which strategic decisions become most important. This guide explains what a rejection by HMRC actually means, what options remain available, and what steps should be taken next. It addresses the legal framework governing [appeals](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/), the role of the [tribunals](https://lexlaw.co.uk/email-addresses-and-telephone-numbers-for-courts-in-england-and-wales/), and the practical considerations that often determine whether a dispute can still be resolved favorably. ## Understanding What HMRC Has Rejected Before deciding what to do next, it is critical to understand precisely what HMRC has rejected. In many cases, HMRC has not rejected an appeal entirely but has issued a conclusion following an [internal statutory review](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/). In other cases, HMRC may assert that a review is invalid, late, or outside jurisdiction. A [statutory review](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/) is an internal reconsideration carried out by a different HMRC officer. While reviews are intended to provide an independent check, they are still conducted within HMRC and do not bind the taxpayer. A review conclusion does not determine the dispute conclusively. It simply confirms HMRC’s position and triggers the next stage of the formal dispute process. Where HMRC has rejected outrightly, the reasons given should be examined carefully. Rejections are often based on[ procedural grounds](https://www.gov.uk/hmrc-internal-manuals/self-assessment-manual/sam10030) rather than the substantive merits of the tax position. ## Does a Rejected Appeal Mean HMRC Is Right? A rejected review does not mean HMRC’s position is legally correct. HMRC rejects a significant proportion of appeals that later succeed before the [First-tier Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/). The tribunal is an independent judicial body and is not bound by HMRC’s view of the facts or the law. In [*Hok Ltd v HMRC* [2012] UKUT 363 (TCC)](https://taxdisputes.co.uk/wp-content/uploads/2026/01/363-1.pdf), the [Upper Tribunal ](https://taxdisputes.co.uk/2026/01/upper-tribunal-appeals-strategic-2026-guide/)emphasised that HMRC’s conclusions are not determinative and that disputes must be resolved by applying the correct legal tests to the evidence. This principle underpins the entire tribunal system. It is therefore a mistake to assume that a rejection reflects the strength of HMRC’s case. Often it reflects HMRC’s [litigation ](https://lexlaw.co.uk/practice-areas/litigation-dispute-resolution-solicitors-london/)strategy or a narrow interpretation of the facts. ## What Are the Next Formal Options? Once HMRC has issued a review conclusion, the next step is usually an appeal to the [First-tier Tribunal (Tax Chamber)](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/first-tier-tribunal-tax-chamber/). Strict time limits apply. In most cases, the taxpayer has [30 days](https://www.gov.uk/tax-tribunal/appeal-to-tribunal) from the date of HMRC’s decision to lodge an [appeal ](https://www.gov.uk/tax-tribunal/appeal-to-tribunal)with the tribunal. The [tribunal appeal ](https://taxdisputes.co.uk/2025/10/first-tier-tax-tribunal-appeals-guide/)is the first point at which the dispute is considered independently of HMRC. The tribunal has full jurisdiction to consider the facts, apply the law, and determine whether [HMRC’s decision ](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/)was correct. In [*Harrison v HMRC* [2022] UKUT 216 (TCC)](https://taxdisputes.co.uk/wp-content/uploads/2026/01/216.pdf), the [Upper Tribunal](https://taxdisputes.co.uk/2026/01/upper-tribunal-appeals-strategic-2026-guide/) reviewed how the First-tier Tribunal applied legal principles and stated guidance on when appellate intervention is appropriate, reinforcing the idea that a tribunal decision can be challenged for [errors of law](https://taxdisputes.co.uk/2026/01/upper-tribunal-appeals-strategic-2026-guide/). This remains a cornerstone of tax litigation and provides protection against decisions based on assumption or misdirection. ## What If the Appeal Deadline Has Been Missed? Many taxpayers only seek legal advice after HMRC has rejected an appeal or review and the tribunal deadline has passed. Missing a deadline does not necessarily mean the dispute is lost. The [First-tier Tribunal](https://lexlaw.co.uk/solicitors-london/tag/first-tier-tax-tribunal/) has discretion to allow late appeals where it is fair and just to do so. The tribunal considers factors such as the length of the delay, the reasons for it, the merits of the underlying appeal, and any prejudice to HMRC. In [Martland v HMRC [2018] UKUT 178 (TCC)](https://taxdisputes.co.uk/wp-content/uploads/2026/01/178.pdf), the Upper Tribunal confirmed that the tribunal must balance procedural discipline against the overriding objective of dealing with cases fairly and justly. Strong substantive merits can weigh heavily in favour of allowing a [late appeal](https://lexlaw.co.uk/solicitors-london/late-hmrc-tax-tribunal-appeals-medpro-martland-your-options/). ## Can HMRC Enforce the Tax After Rejecting a Review? [HMRC ](https://taxdisputes.co.uk/2025/10/how-to-challenge-hmrc-tax-assessments-and-protect-your-rights/)may seek to enforce a[ tax assessment](https://taxdisputes.co.uk/2025/10/how-to-challenge-hmrc-tax-assessments-and-protect-your-rights/) once it considers the dispute concluded. However, enforcement is not automatic in every case and may be inappropriate where an appeal to the tribunal is pending or where enforcement would cause disproportionate hardship. In certain circumstances, it is possible to seek a postponement of [tax pending appeal](https://lexlaw.co.uk/solicitors-london/tag/tax-appeals/). This can be critical where immediate payment would cause severe financial difficulty or undermine the taxpayer’s ability to continue trading. HMRC’s enforcement powers must still be exercised lawfully and proportionately. In [*R (on* *the application of HMRC)* v FTT [2017] UKSC 23](https://taxdisputes.co.uk/wp-content/uploads/2026/01/23.pdf), the tribunal scrutinised HMRC’s approach to recovery action in the context of ongoing disputes, emphasising the tribunal’s jurisdiction and the limits of HMRC’s procedural powers. ## Is Alternative Dispute Resolution Still Available? Even after a review has been rejected, [alternative dispute resolution](https://lexlaw.co.uk/solicitors-london/alternative-dispute-resolution-adr-mediation-v-arbitration-pros-and-cons-second-opinion/) may still be appropriate. HMRC’s ADR process allows disputes to be mediated by an independent facilitator and can be particularly effective where the disagreement concerns factual interpretation or evidential weight rather than pure points of law. ADR does not suspend tribunal deadlines, so it must be approached strategically. In many cases, ADR is pursued alongside protective [tribunal appeals](https://taxdisputes.co.uk/2025/09/tax-tribunal-process-guide-benefits-and-strategy-for-hmrc-tax-disputes-in-the-uk/) to preserve procedural rights. ## What Happens at the First-tier Tribunal? [Tribunal proceedings](https://taxdisputes.co.uk/category/tribunal-proceedings/) are less formal than court litigation but remain legally rigorous. Evidence is tested, witnesses may be cross-examined, and legal submissions are made on statutory interpretation and case law. The tribunal’s role is to decide the dispute afresh. It is not limited to reviewing HMRC’s reasoning. Many taxpayers misunderstand this critical distinction. In [*HMRC v Pendragon plc *[2015] UKSC 37](https://taxdisputes.co.uk/wp-content/uploads/2026/01/37-1.pdf), the Supreme Court reaffirmed that tax disputes must be resolved by applying the law correctly, even where HMRC’s approach has been long-standing or administratively convenient. ## What If the Tribunal Decision Is Unfavourable? If the First-tier Tribunal dismisses the appeal, further options may still exist. [Appeals ](https://www.gov.uk/administrative-appeals-tribunal)to the [Upper Tribunal](https://taxdisputes.co.uk/2026/01/upper-tribunal-appeals-strategic-2026-guide/) may be available where the First-tier Tribunal has made an error of law. Errors of law include misinterpretation of legislation, failure to apply binding authority, or procedural unfairness. ## Common Mistakes After An Unfavourable decision One of the most common mistakes is doing nothing. Silence is often interpreted by HMRC as acceptance of its position and may lead to [enforcement](https://lexlaw.co.uk/solicitors-london/tag/hmrc-enforcement/) escalation. Another frequent error is corresponding extensively with HMRC without protecting tribunal [deadlines](https://lexlaw.co.uk/solicitors-london/tag/court-deadlines-uk/). Informal engagement does not stop the clock. Finally, many taxpayers underestimate the technical complexity of tribunal litigation. Appeals succeed or fail on legal framing and evidential preparation, not on assertions of unfairness alone. ## How Lexlaw Can Help A rejected review is often the point at which specialist legal advice makes the greatest difference. [LEXLAW ](https://lexlaw.co.uk/contact-us/)advises individuals and businesses at all stages of [tax disputes](https://lexlaw.co.uk/hmrc-tax-dispute-lawyers/), including [post-review strategy](https://lexlaw.co.uk/legal-second-opinion-solicitor-barrister/), [tribunal appeals](https://taxdisputes.co.uk/2026/01/upper-tribunal-appeals-strategic-2026-guide/),[ late appeal](https://lexlaw.co.uk/solicitors-london/late-hmrc-tax-tribunal-appeals-medpro-martland-your-options/) applications, and enforcement challenges. [We ](https://lexlaw.co.uk/about/)assess the strength of the underlying tax position, identify procedural and substantive weaknesses in HMRC’s case, and advise on the most effective route forward. Our approach is strategic, proportionate, and focused on achieving the best available outcome. ### FREQUENTLY ASKED QUESTIONS (FAQs) Does HMRC rejecting my review mean the tax is now final? No. A rejection by HMRC does not make the decision final. In most cases, you still have the right to appeal to the First-tier Tribunal, subject to strict time limits. How long do I have to appeal after HMRC rejects my review? Can I still appeal if I missed the tribunal deadline? Can HMRC start enforcement action after rejecting my review? HMRC may seek to enforce the tax, but enforcement can sometimes be postponed if an appeal is ongoing or if recovery would be disproportionate. Is Alternative Dispute Resolution still available after a rejection? Yes. ADR may still be appropriate in some cases, particularly where the dispute involves factual or evidential issues, but it does not stop tribunal deadlines. --- # Late Payment of PAYE & NIC: Penalties, Reasonable Excuse and Appeals Source: https://taxdisputes.co.uk/2025/10/late-payment-of-paye-nic-penalties-reasonable-excuse-and-appeals/ Late payment of [PAYE (Pay As You Earn)](https://taxdisputes.co.uk/paye-tax-investigation-disputes/) and [National Insurance Contributions (NICs)](https://taxdisputes.co.uk/legal-representation/hmrc-notice-requirement-tribunal-appeals-solicitor-legal-advice/) is one of the most common reasons [HMRC imposes financial penalties](https://taxdisputes.co.uk/hmrc-penalties/) on UK employers. The PAYE system, governed by the [Income Tax (Pay As You Earn) Regulations 2003](https://www.legislation.gov.uk/uksi/2003/2682/contents) and [Schedule 56 of the Finance Act 2009](https://www.legislation.gov.uk/ukpga/2009/10/schedule/56/enacted), requires employers to make timely payments of all deductions made from employees’ wages. Missing a deadline, even inadvertently, can result in automatic penalties, surcharges, and interest charges. However, not every delay warrants a penalty. Employers and company directors have statutory rights to [challenge HMRC’s decision](https://taxdisputes.co.uk/2025/10/how-to-challenge-hmrc-tax-assessments-and-protect-your-rights/) and [appeal penalties](https://taxdisputes.co.uk/hmrc-penalties/), particularly where they can show that a [reasonable excuse](https://lexlaw.co.uk/solicitors-london/how-to-appeal-hmrc-vat-penalties-reasonable-excuse-defence-guide-2025/) caused the late payment. This article provides a detailed breakdown of how HMRC’s PAYE and NIC penalty regime operates, what constitutes a valid reasonable excuse, and the legal steps involved in mounting an effective appeal. ## Understanding PAYE & NIC Payment Obligations Every employer is legally required to remit PAYE income tax and NICs deducted from employees’ salaries by the 22nd of each month if paying electronically, or by the 19th if paying by post. Large employers with monthly payrolls must also file [Real Time Information (RTI)](https://www.gov.uk/hmrc-internal-manuals/paye-manual/paye5001) submissions to HMRC, reporting the payments made to each employee. Smaller or irregular employers may be eligible for quarterly deadlines, but they too must adhere strictly to payment dates. When PAYE and NIC payments are late, HMRC’s system records a “default.” Even short delays can trigger warning notices, and repeated offences attract escalating penalties. HMRC’s digital systems calculate penalties automatically, and interest begins to accrue daily from the due date until payment is received. This means that a pattern of delays can quickly become costly if not rectified. Engaging [specialist tax dispute experts](https://taxdisputes.co.uk/) at an early stage can prevent these issues from worsening. At LEXLAW, understand how HMRC’s digital enforcement systems operate and can identify administrative or procedural errors that may have caused penalties to be issued unfairly. We can also intervene promptly to negotiate [time-to-pay arrangements](https://taxdisputes.co.uk/2025/04/what-is-a-hmrc-time-to-pay-tpp-arrangement-a-guide-to-securing-a-tpp-agreement/), request penalty suspension, or prepare [detailed appeals](https://taxdisputes.co.uk/2025/10/first-tier-tax-tribunal-appeals-guide/) demonstrating that a reasonable excuse applies. ## The Legal Framework for PAYE & NIC Penalties The power to penalise employers for late PAYE and NIC payments derives from [Schedule 56 to the Finance Act 2009](https://www.legislation.gov.uk/ukpga/2009/10/schedule/56/enacted), which sets out a tiered penalty system based on both the number of late payments in a tax year and the length of each delay. For the first default in a tax year, HMRC typically [issues a warning](https://taxdisputes.co.uk/2022/06/dealing-with-a-hmrc-7-day-letter-before-winding-up-action/) rather than a financial penalty. However, subsequent defaults can attract penalties ranging from 1% to 4% of the unpaid amount, depending on the frequency and timing of the breaches. If a payment remains outstanding for more than six months, HMRC imposes an additional 5% penalty. Another 5% is added if the amount remains unpaid after twelve months. These charges are in addition to statutory interest, which accrues daily under [section 101 of the Finance Act 2009](https://www.legislation.gov.uk/ukpga/2009/10/section/101). The system is intentionally strict, designed to encourage employers to maintain timely compliance. However, the law also provides safeguards where employers can show that circumstances outside their control caused the delay. In such cases, support from [experienced PAYE and NIC dispute specialists](https://lexlaw.co.uk/hmrc-tax-dispute-lawyers/) can be invaluable. Skilled advisers can assess whether the facts genuinely amount to a “reasonable excuse” under HMRC’s penalty framework and help compile persuasive evidence, such as financial records, correspondence, or system error reports, to substantiate the claim. By ensuring that the employer’s explanation aligns with statutory and case law criteria, professional representation significantly strengthens the prospect of a successful appeal or penalty reduction. ## What Counts as a Reasonable Excuse? The legislation allows employers to appeal a penalty if they can demonstrate a reasonable excuse for the failure and that the delay was corrected as soon as the cause ceased to exist. [Paragraph 16 of Schedule 56 of the Finance Act 2009](https://www.legislation.gov.uk/ukpga/2009/10/schedule/56/enacted) gives this right explicitly. HMRC’s own [Compliance Handbook (CH160000) ](https://www.gov.uk/hmrc-internal-manuals/compliance-handbook/ch160000)and a wealth of case law help define what amounts to a reasonable excuse. A reasonable excuse must be assessed objectively: it is what a prudent and conscientious employer would have done in the same circumstances. In practice, tribunals often accept serious illness, unexpected IT breakdowns, or banking failures as valid excuses, provided the employer took prompt corrective action once the problem was identified. ## Common Causes of PAYE and NIC Penalties HMRC’s automated penalty system often fails to distinguish between deliberate non-compliance and genuine administrative oversight. Many employers incur penalties not through neglect, but because of system errors or simple misunderstandings. Common causes include payroll software miscalculations, delays in bank processing, or misallocation of payments within HMRC’s internal systems. Staff illness or turnover can also disrupt payroll schedules, especially in small businesses without dedicated finance departments. Other cases arise when accountants or payroll providers submit incorrect RTI filings or when businesses misunderstand whether they qualify for quarterly rather than monthly payment deadlines. Even small delays can create a record of default, and these accumulate quickly if not corrected. Early detection and communication with HMRC can prevent penalties from escalating unnecessarily. ## Appealing a PAYE or NIC Penalty Employers have the legal right to [appeal a penalty](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/) if they believe it has been wrongly issued or that mitigating circumstances apply. Appeals must generally be filed within 30 days of receiving HMRC’s penalty notice. This can be done online or by post and should set out, in clear terms, the reasons for the late payment, the steps taken to avoid it, and supporting documentation such as bank statements, correspondence, or medical evidence. If HMRC rejects the initial appeal, the employer can request a statutory review under [section 49C of the Taxes Management Act 1970](https://www.legislation.gov.uk/ukpga/1970/9/section/49C), which allows an independent HMRC officer not previously involved in the case to reconsider the decision. If the review does not result in cancellation, the employer may then escalate the matter to the [First-tier Tribunal (Tax Chamber)](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/), a fully independent judicial body with the power to overturn HMRC penalties. At Tribunal, the key question is not whether the payment was late, but whether the employer had a reasonable excuse and acted promptly once able to comply. In *[BPP Holdings Ltd v HMRC [2017] UKSC 55](https://taxdisputes.co.uk/wp-content/uploads/2025/10/BPP-Holdings-Ltd-and-others-Respondents-v.pdf)*, the Supreme Court underscored the importance of fairness and proportionality in HMRC’s dealings with taxpayers, holding that rigid enforcement must not override reasoned judgment or procedural fairness. ## Evidence and Tribunal Considerations Tribunal judges place great emphasis on the credibility and consistency of the employer’s evidence. Employers who can produce a clear paper trail, such as contemporaneous correspondence with banks, payroll agents, or HMRC, stand a better chance of success. The Tribunal looks favourably on those who acted responsibly, notified HMRC promptly, and took steps to prevent recurrence. By contrast, generic claims such as “we forgot,” “we were too busy,” or “our accountant was unavailable” rarely succeed. The focus is on whether the taxpayer took reasonable care to comply, even if things went wrong. Employers who can demonstrate proactive behaviour, such as setting up payment reminders, monitoring RTI submissions, or seeking clarification from HMRC, reinforce their credibility significantly. ## Preventing Future PAYE and NIC Defaults The best way to avoid penalties is through prevention and procedural diligence. Employers should ensure that payment systems are automated where possible and that payroll responsibilities are clearly delegated. Establishing dual controls, for example, requiring a second sign-off on payments, can reduce the risk of oversight. Regular reconciliation of PAYE accounts with HMRC records helps detect misallocations or underpayments early. Employers should also maintain accurate logs of all communications with HMRC, including telephone notes and copies of correspondence. Conducting periodic internal audits, particularly after staffing or software changes, can also help prevent errors from recurring. A structured and transparent compliance process not only reduces the likelihood of late payments but also provides persuasive evidence of diligence if an appeal is necessary. ## When HMRC Enforcement Escalates Persistent defaults or unpaid liabilities can lead to severe consequences beyond financial penalties. HMRC may initiate Time-to-Pay (TTP) arrangements, allowing businesses to pay arrears in instalments, but only where it is satisfied that the business is viable and compliant going forward. In more serious cases, HMRC may issue a [Personal Liability Notice (PLN)](https://taxdisputes.co.uk/2025/10/upper-tribunal-refuses-late-vat-appeal-personal-liability-notice-directors-delay-of-3-years/) to directors, holding them personally responsible for unpaid NICs if the non-payment resulted from neglect or deliberate default. Under the [Social Security (Transfer of Functions) Act 1999](https://www.legislation.gov.uk/id/ukpga/1999/2), this power is designed to prevent abuse by insolvent or phoenix companies. Where HMRC suspects deliberate evasion or dishonesty, it can also pursue civil or criminal enforcement, including distraint over assets or [winding-up petitions](https://lexlaw.co.uk/winding-up-petition-court-hearing-representation-advocacy-solicitors-london/). Prompt engagement and full disclosure are critical to avoiding such outcomes. ## Why Acting Promptly Matters Once a payment is late, HMRC’s automated systems record the default immediately, and penalty notices are often generated without human review. Delaying your response can compound penalties and interest. Acting swiftly to explain the circumstances, supply supporting evidence, and request suspension or review can often prevent escalation and demonstrate good faith. Tribunals have consistently criticised HMRC for excessive reliance on automated enforcement. Employers who engage early, maintain transparent records, and cooperate with HMRC investigations generally achieve far more favourable outcomes. ## Practical Takeaways PAYE and NIC penalties can impose serious financial and reputational costs, but employers have clear legal routes to appeal and defend their position. The key is preparation: identify the precise cause of the delay, act quickly within statutory deadlines, and document every step taken to comply. Employers should also ensure that future systems are robust enough to prevent recurrence. When penalties are significant, or when there are repeated defaults, professional legal advice can make a decisive difference. [Experienced tax dispute specialists](https://taxdisputes.co.uk/) can evaluate whether HMRC acted proportionately, prepare detailed submissions, and represent the business effectively before the Tribunal. Such representation ensures procedural accuracy, persuasive advocacy, and a fair hearing of your case. ## HMRC Tax Disputes Legal Advice & Defence Our lawyers have a proven track record of successfully challenging HMRC decisions before the First-tier Tribunal and higher courts. We provide urgent, strategic advice from the outset, analysing the merits of your case in an initial consultation with leading (ex-HMRC and Big 4) tax litigation counsel. At LEXLAW, our [unique team of solicitors and barristers](https://lexlaw.co.uk/our-people/) specialise in VAT appeals, penalty disputes, corporation tax, PAYE and income tax appeals, R&D tax relief disputes, and HMRC information notice challenges. We combine legal precision with commercial insight, ensuring taxpayer rights are protected while disputes are resolved efficiently. [Contact us](https://lexlaw.co.uk/contact-us/) today for expert legal guidance and proactive representation. --- # HMRC Tax Disputes Resolved Through ADR (Alternative Dispute Resolution) Source: https://taxdisputes.co.uk/2026/01/hmrc-tax-disputes-resolved-through-adr-alternative-dispute-resolution/ [Alternative Dispute Resolution](https://lexlaw.co.uk/alternative-dispute-resolution-lawyers-london/) has become an increasingly utilised mechanism in UK [tax disputes](https://lexlaw.co.uk/hmrc-tax-dispute-lawyers/), particularly where disagreements arise from factual misunderstandings, valuation issues, or the interpretation of HMRC guidance rather than points of pure law. [HMRC’s ADR process](https://www.gov.uk/guidance/tax-disputes-alternative-dispute-resolution-adr) allows an independent HMRC mediator to facilitate discussions between the taxpayer and the decision-making team, with the aim of resolving disputes before they progress to the Tax Tribunal. For individuals and businesses facing enquiries, assessments, or penalties, ADR can operate alongside formal appeal rights under the [Taxes Management Act 1970](https://www.legislation.gov.uk/ukpga/1970/9/contents). When deployed strategically, ADR aligns with wider dispute-avoidance trends seen across insolvency, professional negligence, and commercial litigation, including those addressed by specialist solicitors acting in complex tax disputes. As with [winding-up petition](https://lexlaw.co.uk/winding-up-petition-lawyers/) threats and enforcement proceedings, early intervention often determines whether disputes escalate or resolve efficiently. ADR therefore represents a critical option within the modern UK tax dispute framework, particularly when supported by experienced advisers who understand both HMRC procedure and litigation risk. ## Understanding HMRC Alternative Dispute Resolution [HMRC ADR](https://lexlaw.co.uk/hmrc-tax-dispute-lawyers/) is designed to resolve disputes where communication has broken down rather than where the dispute turns solely on statutory interpretation. It is particularly effective in cases involving disputed facts, mixed questions of fact and law, or where correspondence has become protracted without meaningful progress. [ADR](https://lexlaw.co.uk/alternative-dispute-resolution-lawyers-london/) does not replace the statutory appeals process but operates alongside it, preserving the taxpayer’s right to appeal to the [First-tier Tribunal](https://lexlaw.co.uk/solicitors-london/tag/first-tier-tax-tribunal/) if resolution is not achieved. The process is voluntary and, if accepted, involves an HMRC mediator who has had no prior involvement in the case. The mediator’s role is not to impose a decision but to facilitate constructive dialogue, clarify misunderstandings, and identify practical routes to settlement. From experience in broader dispute resolution contexts, including [insolvency litigation](https://lexlaw.co.uk/solicitors-london/tag/insolvency-litigation/) and [professional negligence claims](https://lexlaw.co.uk/practice-areas/professional-negligence-solicitors-london/), structured mediation frequently narrows issues even where full settlement is not immediately reached. ## When ADR Is Appropriate in Tax Disputes [ADR](https://lexlaw.co.uk/alternative-dispute-resolution-lawyers-london/) is most effective where disputes have stalled due to entrenched positions rather than legal impossibility. Common examples include disagreements over the accuracy of accounting records, the commercial rationale for transactions, residency or domicile status, and penalty mitigation arguments. In these scenarios, ADR allows parties to move beyond rigid correspondence and address the underlying points of contention directly. Conversely, ADR is less suitable where the dispute turns entirely on a point of law that requires judicial determination. Understanding this distinction is essential, as unsuccessful ADR applications can delay resolution if pursued without [strategic assessment](https://lexlaw.co.uk/contact-us/). As with defending claims in [insolvency](https://lexlaw.co.uk/solicitors-london/tag/insolvency-litigation/) or enforcement contexts, selecting the correct procedural tool is often determinative of outcome. ## Strategic Benefits of ADR Compared to Tribunal Litigation [ADR](https://lexlaw.co.uk/adr-alternative-dispute-resolution-second-opinion-legal-advice/) can materially reduce the financial and operational burden associated with prolonged [tax disputes](https://lexlaw.co.uk/hmrc-tax-dispute-lawyers/). [Tribunal proceedings](https://taxdisputes.co.uk/2025/09/tax-tribunal-process-guide-benefits-and-strategy-for-hmrc-tax-disputes-in-the-uk/) often involve extensive disclosure, witness evidence, and expert reports, with associated costs and management distraction. ADR, by contrast, is typically concluded within months rather than years, offering commercial certainty and allowing businesses to refocus on operations. There is also a reputational dimension. While [tax tribunal](https://taxdisputes.co.uk/2025/09/tax-tribunal-process-guide-benefits-and-strategy-for-hmrc-tax-disputes-in-the-uk/) decisions are public, ADR discussions remain confidential. For [directors](https://lexlaw.co.uk/solicitors-london/tag/directors-duties/), professionals, and high-net-worth individuals, this discretion mirrors the benefits seen in negotiated resolutions of [professional negligence disputes](https://lexlaw.co.uk/practice-areas/professional-negligence-solicitors-london/) and [insolvency claims](https://lexlaw.co.uk/winding-up-petition-lawyers/), where public judgments may carry lasting consequences beyond the immediate financial exposure. ## Legal Representation in HMRC ADR Proceedings Although [ADR](https://lexlaw.co.uk/adr-alternative-dispute-resolution-second-opinion-legal-advice/) is presented as an informal process, it remains adversarial in substance. HMRC will attend with trained officers who understand the department’s internal governance and settlement parameters. [Taxpayers](https://taxdisputes.co.uk/2025/10/how-to-challenge-hmrc-tax-assessments-and-protect-your-rights/) who approach ADR without structured legal preparation risk conceding ground inadvertently or failing to present their position persuasively. Effective representation involves forensic preparation of the factual matrix, anticipation of HMRC’s risk assessments, and a clear understanding of how the dispute would likely be viewed by the [Tribunal](https://lexlaw.co.uk/solicitors-london/tag/first-tier-tax-tribunal/) if ADR fails. This mirrors best practice in defending complex claims more generally, including those addressed in LexLaw’s legal guide to defending claims from litigation funders and other high-value disputes. ## Interaction Between ADR and Other Enforcement Risks Unresolved [tax disputes](https://lexlaw.co.uk/contact-us/) can escalate into enforcement action, including [security demands](https://taxdisputes.co.uk/2025/06/understanding-hmrcs-notice-of-requirement-security-demands-for-vat-paye-and-nics/), [insolvency proceedings](https://lexlaw.co.uk/winding-up-petition-lawyers/), and [winding-up petitions](https://lexlaw.co.uk/winding-up-petition-lawyers/). Where ADR succeeds, it can interrupt this trajectory entirely. Where it fails, it often clarifies the issues sufficiently to enable focused appeals or negotiations before enforcement crystallises. This interaction is particularly relevant for companies already facing financial pressure, where tax disputes intersect with cashflow constraints. In such circumstances, coordinated advice across tax disputes and insolvency risk, including potential exposure to winding-up petitions, is essential. ## How LexLaw Solicitors Can Assist With HMRC ADR [LexLaw Solicitors](https://lexlaw.co.uk/) advise individuals, directors, and companies at all stages of HMRC tax disputes, including strategic preparation for [Alternative Dispute Resolution](https://lexlaw.co.uk/adr-alternative-dispute-resolution-second-opinion-legal-advice/). Our approach focuses on early assessment of dispute suitability, evidential structuring, and positioning the taxpayer’s case in a manner consistent with HMRC’s internal settlement frameworks. Drawing on experience across [tax disputes](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/), [professional negligence claims](https://lexlaw.co.uk/practice-areas/professional-negligence-solicitors-london/), and [insolvency-related litigation](https://lexlaw.co.uk/solicitors-london/category/insolvency/), we understand how unresolved tax liabilities can escalate into enforcement action or winding-up petitions. By integrating ADR strategy with wider risk management, including appeal preservation and enforcement defence, we assist clients in achieving proportionate outcomes while safeguarding their legal and commercial position. ### Frequently Asked Questions (FAQ's) Is ADR available for all HMRC tax disputes? ADR is available for most direct and indirect tax disputes, though HMRC may refuse applications where the dispute turns solely on a point of law or where litigation is already well advanced. Does applying for ADR suspend appeal deadlines? ADR does not automatically stop statutory appeal time limits. Protective appeals are often required to preserve Tribunal rights while ADR is ongoing. Who acts as the mediator in HMRC ADR? The mediator is an HMRC officer independent of the original decision-making team and trained specifically in mediation techniques. Can ADR result in penalties being reduced? Yes. Where disputes involve behaviour-based penalties, ADR can facilitate agreement on mitigation, cooperation, and reasonable excuse arguments. Is ADR suitable for complex corporate tax disputes? ADR is increasingly used in complex cases, particularly where disputes involve factual interpretation of large volumes of material or commercial context. What happens if ADR fails? If ADR does not resolve the dispute, the taxpayer retains full appeal rights, and the process often helps narrow the issues for Tribunal determination. Should taxpayers attend ADR meetings themselves? Attendance depends on the case. In many situations, legal representatives attend alongside directors or finance officers to ensure both factual and legal issues are addressed coherently. --- # Voluntary Disclosure for Avoiding Prosecution Source: https://taxdisputes.co.uk/2026/01/voluntary-disclosure-for-avoiding-prosecution/ Voluntary disclosure sits at the intersection of cooperation and legal self‑protection. It commonly arises in cases involving undeclared income, VAT errors, offshore assets, or regulatory non‑compliance. In the UK, the outcome depends not only on what is disclosed, but on timing, structure, and the legal framework used. HMRC’s published guidance, statutory powers, and internal fraud decision‑making all play a decisive role, which is why disclosure is rarely a purely administrative exercise. ## What Is Voluntary Disclosure? [Voluntary disclosure](https://taxdisputes.co.uk/hmrc-voluntary-disclosure-campaigns-solicitors-london/) is the process by which a taxpayer or regulated entity proactively informs a regulator of errors, omissions, or wrongdoing before those matters are uncovered through enforcement action. In tax matters, this most often involves [HMRC](https://taxdisputes.co.uk/hmrc-penalties/), but similar principles apply across other regulatory regimes. The legal importance of disclosure lies in whether it is unprompted or prompted. An unprompted disclosure, made before [HMRC ](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/)has opened an enquiry or obtained third‑party intelligence, is treated as strong evidence that the behaviour was not deliberately concealed. This distinction directly affects [penalty levels](https://taxdisputes.co.uk/hmrc-penalties/) and whether a matter is dealt with civilly or considered for [criminal investigation](https://taxdisputes.co.uk/tax-evasion-hmrc-code-practice-9-investigations/), an assessment regularly shaped by specialist legal input. ## HMRC Disclosure Frameworks in Practice [HMRC](https://taxdisputes.co.uk/hmrc-enforcement-action/) operates several formal disclosure routes, each designed for different risk profiles. For suspected [serious tax fraud](https://taxdisputes.co.uk/2013/11/two-brothers-jailed-over-6-4m-alcohol-duty-tax-fraud/), [HMRC](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) uses [Code of Practice 9 (COP9)](https://taxdisputes.co.uk/tax-evasion-hmrc-code-practice-9-investigations/), which offers access to the [Contractual Disclosure Facility (CDF)](https://taxdisputes.co.uk/2025/09/have-you-underpaid-your-tax-voluntary-disclosures-to-hmrc/). This allows taxpayers to admit deliberate conduct in exchange for a commitment from [HMRC](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) not to pursue criminal prosecution, provided the disclosure is full and truthful. For offshore matters, the [Worldwide Disclosure Facility (WDF)](https://www.gov.uk/guidance/worldwide-disclosure-facility-make-a-disclosure) remains the primary route for correcting [overseas non‑compliance](https://taxdisputes.co.uk/2026/01/hmrc-using-mard-how-does-international-tax-recovery-work/). The choice of framework is critical. Entering the wrong process, or engaging without legal oversight, can unintentionally increase exposure rather than reduce it, particularly where [HMRC’s Fraud Investigation Service](https://taxdisputes.co.uk/2022/11/what-is-the-hmrc-fraud-investigation-service-fis/) is involved. ## Legal Framework Governing Disclosure [HMRC’s](https://taxdisputes.co.uk/2020/11/eat-out-to-help-out-fraud-compliance-checks-hmrc-investigation-penalty-criminal-voluntary-disclosure/) powers to [assess tax](https://taxdisputes.co.uk/2026/01/hmrc-behaviour-assessments-careless-deliberate-or-concealed/), impose [penalties](https://taxdisputes.co.uk/hmrc-penalties/), and pursue[ criminal prosecution](https://taxdisputes.co.uk/tax-evasion-hmrc-code-practice-9-investigations/) derive from legislation including the [Taxes Management Act 1970](https://www.legislation.gov.uk/ukpga/1970/9/contents), the [Finance Acts](https://www.legislation.gov.uk/ukpga/2025/8/contents), and criminal statutes addressing fraud and dishonesty. These powers have been expanded and refined by recent legislation, including [Finance Act 2025](https://www.legislation.gov.uk/ukpga/2025/8/contents) amendments affecting [penalties](https://taxdisputes.co.uk/hmrc-penalties/), [offshore compliance](https://taxdisputes.co.uk/2020/08/hmrc-new-nudge-letter-offshore-assets-disclosure-tax-investigation-advice/), and[ information powers](https://taxdisputes.co.uk/2020/10/hmrc-to-gain-further-powers-to-gather-information-from-third-parties/). Decisions on whether a case proceeds civilly or criminally depend on evidential sufficiency and the public interest. [HMRC’s Fraud Investigation Service](https://taxdisputes.co.uk/2022/11/what-is-the-hmrc-fraud-investigation-service-fis/) formally distinguishes between civil fraud investigations and criminal fraud reviews. [Voluntary disclosure](https://taxdisputes.co.uk/2025/10/voluntary-disclosure-to-hmrc-reducing-penalties-and-prosecution-risk/) influences this assessment by demonstrating cooperation and reducing the perceived need for prosecution, though it mitigates risk rather than eliminating discretion entirely. ## When Voluntary Disclosure Can Prevent Prosecution Disclosure is most effective before [HMRC](https://taxdisputes.co.uk/hmrc-interviews/) has obtained independent evidence through [third‑party reporting](https://taxdisputes.co.uk/2020/10/hmrc-to-gain-further-powers-to-gather-information-from-third-parties/), data exchange, or [whistleblowers](https://taxdisputes.co.uk/2025/03/uk-introduces-tax-avoidance-whistleblower-scheme/). Once that evidence exists, the opportunity to [characterise behaviour](https://taxdisputes.co.uk/2026/01/hmrc-behaviour-assessments-careless-deliberate-or-concealed/) as [careless](https://taxdisputes.co.uk/2026/01/hmrc-behaviour-assessments-careless-deliberate-or-concealed/) rather than [deliberate](https://taxdisputes.co.uk/2026/01/hmrc-behaviour-assessments-careless-deliberate-or-concealed/) narrows sharply. A well‑timed disclosure helps establish a clear narrative that a mistake was an error, not [deliberate fraud](https://taxdisputes.co.uk/2021/01/third-party-defence-failure-to-file-tax-return-deliberate-penalty-assessment-hmrc-tribunal-reasonable-excuse-accountant-tax-agent/). Because[ criminal liability ](https://taxdisputes.co.uk/tax-evasion-hmrc-code-practice-9-investigations/)depends on intent, early disclosure can keep a matter within HMRC’s civil settlement regime, an outcome frequently achieved where [specialist advice](https://lexlaw.co.uk/contact-us/) is obtained at the outset. ## Prompted vs Unprompted Disclosure A [prompted disclosure](https://taxdisputes.co.uk/2025/09/have-you-underpaid-your-tax-voluntary-disclosures-to-hmrc/) follows contact from [HMRC](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/), such as an enquiry letter or information notice. While still capable of reducing penalties, it carries less weight and increases the likelihood of escalation. [Unprompted disclosure](https://taxdisputes.co.uk/2025/10/voluntary-disclosure-to-hmrc-reducing-penalties-and-prosecution-risk/), by contrast, signals transparency before [HMRC](https://taxdisputes.co.uk/legal-representation/hmrc-notice-requirement-tribunal-appeals-solicitor-legal-advice/) has committed investigative resources. This distinction is embedded within [HMRC ](https://taxdisputes.co.uk/hmrc-tax-investigations/)guidance and internal risk‑rating processes, and understanding how those processes operate in practice often determines whether a case remains civil. ## Scope and Content of an Effective Disclosure A [proper disclosure](https://taxdisputes.co.uk/2025/10/voluntary-disclosure-to-hmrc-reducing-penalties-and-prosecution-risk/) must be complete, accurate, and supported by evidence. Partial disclosures frequently undermine credibility and trigger [broader investigation](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/). Typically, disclosure includes a factual explanation of the issue, quantification of liabilities, identification of root causes, and confirmation of corrective steps. The order and framing of these elements matters. [Solicitor‑led disclosures](https://lexlaw.co.uk/contact-us/) are commonly structured to preserve privilege while ensuring [HMRC](https://taxdisputes.co.uk/hmrc-penalties/) receives sufficient clarity to resolve the matter civilly. ## Interaction With Criminal Investigation Powers [HMRC](https://taxdisputes.co.uk/hmrc-interviews/) retains discretion to pursue [criminal investigation ](https://taxdisputes.co.uk/2011/06/hmrc-opens-16-criminal-cases-over-tax-evasion/)even after disclosure. However, where [disclosure](https://taxdisputes.co.uk/2025/10/voluntary-disclosure-to-hmrc-reducing-penalties-and-prosecution-risk/) is early, comprehensive, and credible, criminal routes are often deprioritised in favour of [civil resolution](https://taxdisputes.co.uk/2026/01/how-to-respond-to-cop8-cop9-hmrc-tax-investigations-2026-guide/). Authorities consider conduct history, scale, and deterrence. [HMRC’s](https://taxdisputes.co.uk/hmrc-penalties/) approach is informed by the [Fraud Investigation Service (FIS) Manual](https://taxdisputes.co.uk/2022/11/what-is-the-hmrc-fraud-investigation-service-fis/), which distinguishes between civil fraud investigations and criminal fraud reviews. [Legal advisers](https://lexlaw.co.uk/contact-us/) experienced in [HMRC](https://taxdisputes.co.uk/hmrc-enforcement-action/) fraud work understand how to align cooperation with these criteria while limiting unnecessary exposure. ## Disclosure and Penalty Mitigation [Civil tax penalties](https://taxdisputes.co.uk/hmrc-penalties/) are assessed by reference to behaviour categories such as [careless, deliberate, or deliberate](https://taxdisputes.co.uk/2026/01/hmrc-behaviour-assessments-careless-deliberate-or-concealed/) with concealment. Disclosure directly affects how behaviour is classified. [Early disclosure](https://taxdisputes.co.uk/hmrc-voluntary-disclosure-campaigns-solicitors-london/) can reduce [penalties](https://taxdisputes.co.uk/hmrc-penalties/) substantially and may lead to suspension or mitigation where conditions are met. [Strategic advice](https://lexlaw.co.uk/contact-us/) at this stage focuses on evidencing the correct behaviour classification rather than simply negotiating figures. ## Offshore and International Considerations [International cases](https://taxdisputes.co.uk/2020/08/hmrc-new-nudge-letter-offshore-assets-disclosure-tax-investigation-advice/) are affected by automatic exchange of information under the [Common Reporting Standard (CRS)](https://www.gov.uk/hmrc-internal-manuals/international-exchange-of-information/ieim400080). Once CRS data is received by [HMRC](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/), disclosure may be treated as reactive rather than [voluntary.](https://taxdisputes.co.uk/hmrc-voluntary-disclosure-campaigns-solicitors-london/) Legal teams familiar with [CRS](https://www.gov.uk/hmrc-internal-manuals/international-exchange-of-information/ieim400080) reporting timelines often assess whether disclosure should be made before[ HMRC](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) receives [overseas data](https://taxdisputes.co.uk/mutual-assistance-recovery-debt-mard-oecd-hmrc-international-debt-collection-tax/), a decision that can materially change the outcome of an[ investigation](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/). ## Corporate and Director Exposure For [companies](https://taxdisputes.co.uk/2022/12/hmrcs-crackdown-on-umbrella-companies/), disclosure decisions can affect directors personally. Failure to disclose known issues may later be characterised as misconduct or breach of [statutory duties](https://taxdisputes.co.uk/hmrc-statutory-demand/). Early legal involvement ensures disclosures are structured to resolve corporate liabilities while protecting officers, particularly where [insolvency](https://taxdisputes.co.uk/2026/01/hmrc-paye-enforcement-powers-from-notices-to-insolvency-action/) or restructuring risks exist. ## Common Errors in Voluntary Disclosure Many disclosures fail because individuals engage [HMRC](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) too quickly without[ legal advice](https://lexlaw.co.uk/contact-us/). Unstructured admissions can expand the scope of investigation rather than contain it. Another common mistake is failing to address all relevant periods or taxes. [HMRC](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) expects comprehensive resolution, and omissions damage credibility. ## Legal Privilege and Disclosure Strategy [Legal professional privilege](https://lexlaw.co.uk/contact-us/) allows preparatory investigations to be conducted without immediate exposure. This enables informed decision‑making before any approach to [HMRC](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/). Maintaining clear privilege boundaries ensures that only controlled, accurate information is disclosed, protecting against unintended self‑incrimination while demonstrating cooperation. ## Voluntary Disclosure and the HMRC Fraud Investigation Service In practice, where [HMRC](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) suspects deliberate behaviour, cases are assessed by the [Fraud Investigation Service](https://taxdisputes.co.uk/2022/11/what-is-the-hmrc-fraud-investigation-service-fis/) to determine whether they should proceed through a civil fraud route, such as[ COP9](https://taxdisputes.co.uk/tax-evasion-hmrc-code-practice-9-investigations/), or escalate into a criminal investigation. Early, well‑structured disclosure can influence that decision by clarifying intent, cooperation, and proportionality at a critical stage. ### Frequently Asked Questions (FAQ's) Can voluntary disclosure guarantee avoidance of prosecution? No. Disclosure reduces risk but does not remove HMRC’s discretion. Its effectiveness depends on timing, framework, and conduct history. Is disclosure advisable once HMRC has contacted me? Often yes, but strategy becomes more complex. Legal advice is critical at this stage. Should disclosure be handled by a solicitor or accountant? Where prosecution risk exists, solicitor‑led disclosure protects privilege and controls exposure more effectively. Can multiple issues be disclosed together? Yes. HMRC generally expects full resolution rather than piecemeal engagement. What happens after disclosure is made? HMRC reviews the disclosure, seeks clarification, and negotiates settlement within a civil framework. Does disclosure affect public naming regimes? Effective disclosure can reduce publication risk, particularly where penalties are mitigated. How long does the process take? Timescales vary depending on complexity and cooperation. --- # Couple Wins £1.7M Stamp Duty Refund Battle Against HMRC Source: https://taxdisputes.co.uk/2025/12/couple-wins-1-7m-stamp-duty-refund-battle-against-hmrc/ In the high-stakes world of luxury property transactions, [stamp duty land tax (SDLT)](https://www.gov.uk/stamp-duty-land-tax/residential-property-rates) can add millions to acquisition costs, but savvy taxpayers armed with [precise legal advice](https://taxdisputes.co.uk/contact-us/) continue to secure substantial refunds against [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs). The latest triumph comes from Raj and Varsha Sehgal, who in 2022 purchased a stunning £18.25 million apartment in London's prestigious [Grosvenor Square](https://en.wikipedia.org/wiki/Grosvenor_Square), only to face a hefty residential SDLT bill. By leveraging a modest basement storage unit as the key to a 'mixed use' classification, they convinced the [First-tier Tribunal Tax (FTT)](https://www.gov.uk/courts-tribunals/first-tier-tribunal-tax) to slash their liability by £1,749,250. This demonstrates once again how technical compliance with [Finance Act 2003, Schedule 6A](https://www.legislation.gov.uk/ukpga/2003/14/schedule/6A) can unlock multimillion-pound savings even in the face of HMRC resistance. This case builds on a series of taxpayer victories, including [Christian Candy's £4.3 million refund on a £68 million mansion](https://taxdisputes.co.uk/2025/04/christian-candy-wins-stamp-duty-refund-battle-against-hmrc-over-68-million-mansion/) through garden recharacterisation, a £47,000 win via non-residential evidence, and a £20,000 recovery after rigorous scrutiny of ancillary spaces, underscoring the critical need for meticulous documentation from day one. ## £18.25m Grosvenor Square Flat In a landmark [First-tier Tribunal Tax (FTT)](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/first-tier-tribunal-tax-chamber/) decision, Raj and Varsha Sehgal successfully challenged HMRC's £1.7 million [stamp duty land tax (SDLT)](https://www.gov.uk/stamp-duty-land-tax/residential-property-rates) assessment on their 2022 purchase of a luxury £18.25 million apartment in Grosvenor Square, London. The couple argued the property qualified as 'mixed use' due to a separate basement storage unit measuring less than 2x4 metres, preventing classification as entirely residential under Finance Act 2003, Schedule 6A, which triggers higher SDLT rates only for wholly residential premises. The tribunal acknowledged a "strained interpretation" but ruled that the legislation's explicit wording compelled the lower mixed-use rates, because the storage unit on a different floor created non-residential elements, despite its minor value relative to the flat. ## HMRC Tax Disputes Legal Advice & Defence [Our lawyers](https://lexlaw.co.uk/contact-us/) have a [track record](https://taxdisputes.co.uk/success/) of successfully challenging HMRC decisions and will assist you to get an optimal result. We analyse the merits at the very outset in an [initial video conference](https://lexlaw.co.uk/legal-case-assessment/) together with leading (ex-HMRC and Big 4) [tax litigation Counsel](https://lexlaw.co.uk/andrew-young/). We provide [urgent advice and representation](https://lexlaw.co.uk/legal-second-opinion-solicitor-barrister/) to clients from our unique expert team of established [Tax specialist Solicitors](https://lexlaw.co.uk/our-people/m-ali-akram/) and [Barristers](https://lexlaw.co.uk/andrew-young/) with a proven track record of delivering results. Call us on 02071830529, or [fill our online form](https://lexlaw.co.uk/legal-case-assessment/). ## Taxpayers' Mixed-Use Claim v HMRC Rejection HMRC initially classified the entire acquisition as residential, applying top SDLT bands to the flat plus storage unit. The Sehgals amended their return, claiming mixed-use treatment for a substantial refund, but HMRC refused, insisting the cupboard served domestic purposes ancillary to the dwelling. The appeal hinged on whether the "whole of the premises" met residential criteria, with the separate-floor location proving pivotal. ## Evidence: Storage Unit Dimensions, Location and Statutory Test Critical evidence included floor plans showing the <2x4m cupboard in the basement, distinct from the apartment, supporting non-residential use. Finance Act 2003, Sch 6A para 7 defines dwellings strictly; any non-residential land precludes higher rates. The FTT rejected HMRC's dominance argument, prioritising literal statutory compliance over policy intent. ## First Tier (Tax) Tribunal Ruling: £1.7M Refund Ordered The tribunal ruled for the Sehgals, directing HMRC to reclassify as mixed-use and refund £1,749,250 precisely. It noted the "surprising result" but upheld the law's clarity: residential rates demand 100% residential land. HMRC must now adjust, highlighting tribunal deference to technical arguments in high-value disputes. ## Key Takeaways for SDLT Buyers and Planners - Secure detailed plans and usage affidavits for ancillary spaces like storage from acquisition to support mixed-use claims. - Separate locations (e.g., basement units) strengthen cases against HMRC's ancillary-use defence. - Decision aligns with precedents like Candy, where minor features yielded multimillion refunds; act swiftly on amendments within statutory windows. ## Broader Implications Amid SDLT Reform Pressures Experts predict budget scrutiny on such loopholes yet current law binds HMRC and tribunals. Buyers of London luxury flats should evaluate mixed-use potential proactively, especially post-2022 purchase spikes. ## LEXLAW: Specialist SDLT Dispute Resolution [Our ex-HMRC Barristers](https://lexlaw.co.uk/andrew-young/) and [dual-qualified Solicitors](https://lexlaw.co.uk/our-people/m-ali-akram/) in [Middle Temple](https://www.middletemple.org.uk/) excel in [SDLT appeals](https://www.gov.uk/guidance/sdlt-appeal-against-a-penalty), mirroring successes in Candy-style refunds and tribunal victories. We provide privileged strategy to maximise refunds confidentially. ## Expert London Tax Dispute Lawyers Navigating [tax disputes](https://taxdisputes.co.uk/) with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) can be a complex and stressful process. [Our specialist team](https://lexlaw.co.uk/our-people/christopher-snell/) of tax dispute lawyers, including experienced solicitors and barristers, provides expert legal advice and robust representation to individuals and businesses facing [challenges from HMRC](https://taxdisputes.co.uk/hmrc-tax-appeals/). Whether you are dealing with stamp duty issues, income tax assessments, or other tax investigations, we offer tailored solutions to protect your interests. Our services include: - Comprehensive assessment of your tax situation and potential liabilities. - Expert advice on HMRC tax appeals and the relevant legal procedures. - Strategic negotiation with HMRC to achieve the most favourable outcome. - Experienced representation at the First Tier Tax Tribunal and higher courts. If you are involved in a tax dispute with HMRC, including matters related to stamp duty, it is crucial to [seek timely and expert legal advice](https://lexlaw.co.uk/legal-second-opinion-solicitor-barrister/). Contact our team today for a [confidential consultation](https://lexlaw.co.uk/legal-case-assessment/) to discuss your case and understand how our expertise in tax law can assist you in achieving a successful resolution. Our simple enquiry form goes immediately to our tax litigators in Middle Temple, London. You can call us on 02071830529 from 9am-6pm. --- # Personal Liability Notices (PLNs): Defence Strategies for Directors Source: https://taxdisputes.co.uk/2025/12/personal-liability-notices-plns-defence-strategies-for-directors/ [HMRC’s](https://lexlaw.co.uk/hmrc-tax-dispute-lawyers/) use of [Personal Liability Notices](https://taxdisputes.co.uk/2025/10/upper-tribunal-refuses-late-vat-appeal-personal-liability-notice-directors-delay-of-3-years/) (PLNs) has increased significantly in recent years as the department seeks to hold [directors personally liable](https://taxdisputes.co.uk/2021/01/vat-fraud-tribunal-rules-both-company-and-director-liable-for-hmrc-costs-appeal-advice/) for unpaid [National Insurance Contributions](https://taxdisputes.co.uk/2025/10/late-payment-of-paye-nic-penalties-reasonable-excuse-and-appeals/) and related tax losses. A PLN is a powerful statutory tool which effectively pierces the corporate veil and exposes directors, shadow directors, and company officers to personal financial liability, often at a time when the business is already facing [cash-flow pressures](https://taxdisputes.co.uk/2023/10/obtaining-hmrc-time-to-pay-agreements-ttp/), [creditor action](https://lexlaw.co.uk/winding-up-petition-lawyers/), or [insolvency issues](https://windinguppetitionsolicitors.co.uk/). If you have received a PLN or HMRC has indicated that it is considering issuing one, you must seek urgent specialist legal advice. HMRC allegations of “fraud” or “neglect” are extremely serious, and the consequences of inaction can be financially devastating. Our LEXLAW tax disputes team consists of [expert solicitors](https://taxdisputes.co.uk/tax-solicitors/) and [leading tax litigation counsel](https://taxdisputes.co.uk/expert-advice/) who have an outstanding track record of successfully challenging HMRC assessments and preventing directors from becoming personally liable. ## What Is a Personal Liability Notice (PLN)? A PLN is issued under section [121C of the Social Security Administration Act 1992](https://www.legislation.gov.uk/ukpga/1992/5/section/121C) and allows HMRC to transfer a company’s unpaid NIC liabilities onto an individual. This mechanism is intended to target directors whose conduct HMRC alleges was culpable, dishonest, reckless, or negligent in relation to the company’s NIC compliance obligations. Unlike ordinary tax debts owed by a company, which are usually limited to the corporate body, a PLN specifically removes that protection. Once issued, the individual becomes directly liable to HMRC for the amount stated in the notice, together with interest and penalties. HMRC uses PLNs to pursue recovery even if the company enters liquidation or is dissolved. HMRC must, however, demonstrate on the balance of probabilities that the non-payment of NIC was attributable to the officer’s fraud or neglect. This statutory test is frequently misunderstood by directors, and HMRC’s interpretation is often challengeable, particularly where the non-payment results from genuine financial distress, reliance on professional advice, or commercial decisions taken in good faith. ## Who Can HMRC Target with a PLN? The PLN regime applies not only to formally appointed directors but also to individuals who HMRC considers to have been in control of the company’s affairs, regardless of title. This can include de facto directors, shadow directors, dominant shareholders, or senior managers with decision-making authority. - HMRC routinely investigates: - Company directors involved in financial oversight - Persons responsible for payroll functions - Officers who authorised payments during periods of arrears - Individuals within group structures suspected of phoenix arrangements In many cases, HMRC will attempt to target more than one individual, arguing that each contributed to the circumstances leading to non-payment. It is essential to respond rapidly to such allegations with a structured defence. ## When Does HMRC Issue a PLN? PLNs typically arise after an extended period of [non-payment of NICs](https://taxdisputes.co.uk/2025/10/late-payment-of-paye-nic-penalties-reasonable-excuse-and-appeals/) or following an [insolvency event](https://lexlaw.co.uk/winding-up-petition-lawyers/). Before issuing the notice, HMRC will undertake an [internal investigation](https://taxdisputes.co.uk/hmrc-tax-investigations/) and engage with the company to obtain records, board minutes, financial data, and explanations for the arrears. Often, these cases hinge on HMRC’s subjective assessment of conduct rather than proven wrongdoing. Directors frequently receive PLNs even when they acted reasonably in difficult financial circumstances. ## Understanding HMRC’s Legal Test: Fraud or Neglect The central statutory question is whether the failure to pay NICs was attributable to the fraud or neglect of the individual. HMRC often interprets “neglect” in an overly broad way, asserting that any failure to ensure timely NIC payments constitutes neglect. However, the courts have repeatedly made clear that neglect is not the same as mere oversight. The relevant question is whether the director failed to take reasonable care in the circumstances. A director facing unexpected cash-flow problems, unforeseen market conditions, or professional accounting errors may have acted entirely reasonably. Where appropriate, [our tax disputes team](http://taxdisputes.co.uk) prepare comprehensive representations that demonstrate the commercial reality of the company’s position and explain why HMRC’s opinion is unfounded or legally flawed. ## Practical Defence Strategies Against a PLN Our tax disputes team is skilled in dismantling HMRC’s assertions and exposing weaknesses in their factual or legal reasoning. The following aspects frequently form the foundation of a robust defence: ### Demonstrating Reasonable Behaviour by the Director We gather detailed evidence to show that the director acted conscientiously and responsibly, even if the company was under financial pressure. This may include correspondence with [accountants](https://professionalnegligenceclaimsolicitors.co.uk/compensation-negligent-accountants-financial-tax-advisors/), steps taken to raise funds, board decision-making processes, cash-flow forecasts, and decisions prioritising company survival. Demonstrating that the director made informed decisions based on reasonable commercial judgment can be decisive. We frequently rebut [HMRC’s claims of neglect](https://taxdisputes.co.uk/2025/10/how-to-challenge-hmrc-tax-assessments-and-protect-your-rights/) by showing that the company’s problems were caused by legitimate business challenges, not culpable conduct. ### Challenging HMRC’s Factual Assumptions HMRC often misinterprets financial records, draws incorrect inferences, or fails to appreciate the context behind certain decisions. We undertake a forensic review of HMRC’s case file to expose inconsistencies, procedural errors, or flawed reasoning. If HMRC cannot establish a clear causal link between the director’s actions and the unpaid liability, the PLN cannot lawfully stand. ### Highlighting HMRC’s Procedural Errors [HMRC must follow strict procedures](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) when deciding whether to issue a PLN. If they fail to give the director an opportunity to provide explanations, overlook representations, or act prematurely in issuing the notice, these procedural failures may render the PLN invalid. We frequently succeed in having PLNs withdrawn on this basis alone. ### Showing Reliance on Professional Advice HMRC often downplays the significance of directors relying on accountants, payroll agents, or tax advisers. However, case law recognises that taking and following professional advice is powerful evidence of reasonable, non-negligent conduct. We collate documents, emails, and advisory notes that demonstrate the director acted responsibly and transparently. ### Using Early Negotiation to Avoid Issue of the PLN In many cases, intervention by [specialist lawyers](https://taxdisputes.co.uk/tax-barristers/) before the notice is issued can prevent HMRC from proceeding. [Our team](https://lexlaw.co.uk/our-people/) regularly engages with HMRC Debt Management, Fraud Investigation Service, and Specialist Investigations units to negotiate outcomes that protect directors from personal exposure. ## Consequences of Ignoring a PLN Failing to act immediately after receiving a PLN can have severe consequences. HMRC may begin recovery action against the director personally, including enforcement, litigation, or bankruptcy proceedings. The individual may become liable for NIC arrears, interest, and potentially penalties, irrespective of the company’s insolvency status. PLNs can also have reputational consequences, including disqualification proceedings, difficulties obtaining credit or acting as a director in future companies, and complications with insolvency practitioners investigating director conduct. Prompt engagement with specialist legal advisers is essential to avoid or mitigate these outcomes. ## Our Expertise in PLN Defence & HMRC Disputes LEXLAW has one of the [UK’s leading specialist tax disputes practices](https://taxdisputes.co.uk/). We combine the experience of solicitors and barristers, including former [HMRC lawyers, Big 4 tax experts, and highly skilled litigators](https://taxdisputes.co.uk/expert-advice/) who specialise exclusively in tax investigations and disputes. We have acted for directors across all sectors, from SMEs to large corporate groups, and successfully defended PLNs involving hundreds of thousands of pounds. If you have received a Personal Liability Notice, are under HMRC investigation, or suspect that HMRC may pursue personal liability against you, contact us immediately. Time is critical. Early legal intervention greatly increases your chances of avoiding personal liability and successfully resolving the dispute. [Contact us](https://lexlaw.co.uk/contact-us/) today for expert legal guidance and proactive representation. --- # HMRC Rejected Your R&D Tax Relief Claim? Legal Defence Guide Source: https://taxdisputes.co.uk/2025/10/hmrc-rejected-your-rd-tax-relief-claim-legal-defence-guide/ [R&D tax relief](https://taxdisputes.co.uk/2024/07/guide-to-unlocking-hmrcs-rd-tax-relief/) remains a key economic incentive for innovative businesses in the UK. Yet [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) are increasingly disputing whether activities truly constitute qualifying [R&D](https://taxdisputes.co.uk/tag/rd-tax-relief-disputes/) under the [BEIS Guidelines](https://www.gov.uk/government/publications/guidelines-on-the-meaning-of-research-and-development-for-tax-purposes). Companies who acted responsibly and in good faith are now being pursued for repayments and penalties, even where professional advisors prepared their claims. This guide explains how businesses can respond when HMRC say a project lacks advancement, accuse directors of carelessness, or overlook technical complexity. Drawing on recent [First-tier Tribunal](https://taxdisputes.co.uk/2025/10/first-tier-tax-tribunal-appeals-guide/) decisions including [Get Onbord Ltd](https://find-and-update.company-information.service.gov.uk/company/12060557), [Collins Construction Ltd](https://find-and-update.company-information.service.gov.uk/company/00560487) and [Stage One Creative Services Ltd](https://find-and-update.company-information.service.gov.uk/company/03150434), it is evident that [taxpayers](https://taxdisputes.co.uk/category/taxpayer/) may succeed where they can demonstrate genuine scientific or technological uncertainty. ## HMRC’s R&D Crackdown: Why Legitimate Claims Are Being Challenged HMRC’s compliance strategy has shifted significantly since 2020, with far more enquiries being opened into claims in software, engineering, construction and manufacturing. [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) argue that much of the work represents routine commercial development or adaptation of existing tools. These positions are sometimes taken without reference to competent sector professionals, and businesses are told that their work does not amount to an advancement in technology. [Penalties](https://lexlaw.co.uk/hmrc-tax-penalty-appeal-solicitor-london/) are being issued more readily, even in cases involving reliance on reputable R&D specialists and professional due diligence. Many claimants are left facing repayment demands and the risk of inaccurate allegations of misconduct. ## Recent Case Law Shows Taxpayers Can Win R&D Disputes ### Get Onbord Ltd v HMRC (2024) HMRC rejected a software development R&D claim, asserting no qualifying advancement. [The Tribunal](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/) accepted that genuine technological uncertainty existed, based on detailed evidence from a competent professional involved in the project. [The taxpayer’s appeal](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/) succeeded, reinforcing the importance of robust technical justification. ### Collins Construction Ltd v HMRC (2024) [The Tribunal](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/) confirmed that bespoke engineering solutions within construction can constitute [qualifying R&D](https://taxdisputes.co.uk/2024/07/guide-to-unlocking-hmrcs-rd-tax-relief/) where they require non-routine problem-solving. HMRC’s characterisation of the activities as standard practices was rejected in part, demonstrating that commercial delivery may still involve scientific or technological uncertainty. ### Stage One Creative Services Ltd v HMRC (2024) [The Tribunal](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/) held that uncertainty must be judged at the outset, not retrospectively following project success. HMRC’s hindsight approach was found incorrect. The case supports the position that overcoming practical unknowns during experimentation can fall within the legislation. These judgments indicate a consistent judicial expectation that [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) properly evaluate expert evidence and apply the statutory test correctly. ## Defending a Claim: How to Respond When HMRC Challenge R&D Relief [Defending an enquiry](https://taxdisputes.co.uk/contact-us/) requires a strategic approach tailored to HMRC’s concerns. The first step is to carefully analyse the basis of HMRC’s challenge, as their understanding of the project’s scope or complexity is often incomplete. A clear and technically detailed response should be coordinated with the individuals responsible for undertaking the development work, ensuring that explanations directly address why uncertainties existed at the outset and how they were tackled through experimentation, trial, and error. [Legal representatives](https://taxdisputes.co.uk/contact-us/) can play a critical role in ensuring HMRC’s questions remain within statutory boundaries and that the company does not inadvertently concede points through unclear or overly brief responses. Where HMRC seek to impose [penalties](https://lexlaw.co.uk/hmrc-tax-penalty-appeal-solicitor-london/), representations must demonstrate that the company took “reasonable care,” which may include reliance on [qualified advisors](https://taxdisputes.co.uk/contact-us/), internal controls, and documentation that was prepared contemporaneously. If HMRC issue a [closure notice](https://lexlaw.co.uk/hmrc-tax-penalty-appeal-solicitor-london/) or formal amendment, [lodging an appeal](https://lexlaw.co.uk/hmrc-tax-penalty-appeal-solicitor-london/) prevents enforcement and triggers independent oversight through internal review or referral to the [First-tier Tribunal](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/). Litigation becomes necessary if HMRC persist with a flawed interpretation of the legislation, ignore industry-accepted technical evidence, or attempt to substantiate conclusions based solely on assumption rather than fact. Properly conducted, the defence process often results in successful negotiation or full restoration of relief. ## Director Liability: Preventing Personal Exposure in R&D Disputes Where HMRC believe there is a risk that relief may not be recoverable from the company, they increasingly raise concerns regarding potential personal [accountability of directors](https://lexlaw.co.uk/solicitors-london/tag/personal-liability-of-directors-uk/), particularly in situations involving insolvency or where HMRC allege that the claim was knowingly overstated. Directors must therefore protect their position by ensuring record-keeping demonstrates that they relied upon competent internal project leads and external [professional advisors](https://taxdisputes.co.uk/contact-us/) when approving the claim. Maintaining evidence of transparent governance, risk assessment, and prompt engagement with HMRC enquiries will typically rebut allegations of carelessness or deliberate wrongdoing. It is also essential that directors avoid making repayments or entering instalment arrangements without [legal advice](https://taxdisputes.co.uk/contact-us/), as doing so may prejudice later arguments against liability. Early engagement with [specialist legal advisors](https://taxdisputes.co.uk/contact-us/) ensures directors understand their statutory protections under company law and tax legislation, reducing both personal risk and the likelihood of HMRC attempting to escalate matters beyond the corporate entity. ## The Burden of Proof: Why Businesses Must Act Proactively Once HMRC dispute qualification, the legal burden shifts to the [taxpayer](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/) to prove that the statutory tests have been met. Businesses should therefore produce comprehensive evidence of the technological challenges faced, development iterations undertaken, and why existing public knowledge did not provide a straightforward solution. This proactive presentation of documented uncertainty is key to demonstrating compliance with the [BEIS Guidelines](https://www.gov.uk/government/publications/guidelines-on-the-meaning-of-research-and-development-for-tax-purposes) and [s.1044 CTA 2009](https://www.legislation.gov.uk/ukpga/2009/4/section/1044). Adopting a reactive stance may allow misunderstandings to harden into HMRC conclusions, whereas early, well-structured submissions can significantly shape the enquiry’s outcome. Expert input from competent professionals carries substantial evidential weight and is often persuasive in overturning HMRC assumptions[. The Tribunal](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/) is consistently clear that its purpose is to prevent unjust decisions and ensure HMRC do not apply an incorrect or overly narrow interpretation of [R&D legislation](https://taxdisputes.co.uk/2024/07/guide-to-unlocking-hmrcs-rd-tax-relief/). Businesses who actively assert their position at the earliest stage frequently secure favourable results before disputes escalate into litigation. ## Why Involving LexLaw at the Earliest Stage Makes a Measurable Difference [LexLaw’s specialist tax dispute lawyers](https://lexlaw.co.uk/hmrc-tax-dispute-lawyers/) frequently act in matters involving [R&D tax enquiries](https://taxdisputes.co.uk/2024/07/guide-to-unlocking-hmrcs-rd-tax-relief/), repayment demands, and [penalty appeals](https://lexlaw.co.uk/hmrc-tax-penalty-appeal-solicitor-london/). With experience in both defending compliance challenges and conducting litigation before the [First-tier Tribunal (Tax Chamber)](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/), the firm is well-placed to ensure HMRC apply the correct legal tests and properly consider sector-specific technical evidence. Early intervention can prevent a dispute escalating unnecessarily and can increase the likelihood of HMRC reversing incorrect decisions without litigation. ### Frequently Asked Questions (FAQ's) Can I challenge HMRC if a specialist advisor prepared the claim? Yes. Reliance on professional advice may demonstrate reasonable care and reduce or eliminate penalties. HMRC may still require technical justification of the underlying uncertainty. HMRC say the project was routine, can that be defended? Yes. If the development required overcoming non-obvious uncertainties faced by a competent professional, Tribunal case law supports its qualification. What if HMRC have already issued repayment demands? An appeal suspends enforced recovery while the matter proceeds through statutory review or litigation. Do Tribunal decisions help other taxpayers? Yes. Although fact-specific, recent decisions clearly influence how HMRC must interpret the legislation and evaluate expert evidence. Could HMRC pursue directors personally? Potentially in limited circumstances, particularly during insolvency. Legal advice is vital to safeguard statutory protections. --- # R&D Tax Relief Enquiries & Penalty Mitigation Source: https://taxdisputes.co.uk/2025/12/rd-tax-relief-enquiries-penalty-mitigation/ [Research & Development (R&D) tax relief](https://taxdisputes.co.uk/2025/10/hmrc-rejected-your-rd-tax-relief-claim-legal-defence-guide/) remains one of the most valuable incentives available to UK companies, particularly in innovation-driven sectors such as technology, manufacturing, engineering, life sciences, and software development. However, it has also become one of the most heavily scrutinised areas of [HM Revenue & Customs (HMRC)](https://taxdisputes.co.uk/2025/10/how-to-challenge-hmrc-tax-assessments-and-protect-your-rights/) compliance activity. Over the past several years, HMRC has significantly expanded its use of [R&D tax relief enquiries](https://taxdisputes.co.uk/2024/07/guide-to-unlocking-hmrcs-rd-tax-relief/), with a marked increase in claim rejections, clawbacks, and [penalty assessments](https://taxdisputes.co.uk/hmrc-penalties/). For many businesses, an R&D enquiry arises years after a claim has been submitted and the relief already utilised. When HMRC challenges eligibility or expenditure, the financial exposure can be substantial, often involving repayment of the relief, interest, and behavioural penalties for alleged careless or deliberate inaccuracies. In more serious cases, HMRC may escalate matters to [civil fraud investigations](https://taxdisputes.co.uk/2022/11/what-is-the-hmrc-fraud-investigation-service-fis/) or pursue [personal liability](https://taxdisputes.co.uk/2025/12/personal-liability-notices-plns-defence-strategies-for-directors/) where [directors](https://taxdisputes.co.uk/2021/01/vat-fraud-tribunal-rules-both-company-and-director-liable-for-hmrc-costs-appeal-advice/) are alleged to have been complicit. ## Why HMRC R&D Enquiries Are Increasing HMRC’s compliance focus on R&D tax relief has intensified following concerns about error, abuse, and the involvement of [unregulated advisers](https://taxdisputes.co.uk/2025/06/ir35-case-study-tax-advisers-procedural-error-fatal-to-taxpayers-appeal-rights-professional-negligence-in-tax-tribunals/). Legislative reforms, including the introduction of additional information requirements and restrictions on overseas expenditure, reflect HMRC’s broader strategy to tighten access to the regime. R&D enquiries are commonly triggered by factors such as unusually large claims, year-on-year increases in expenditure, claims from first-time applicants, or submissions prepared by advisers previously flagged by HMRC. However, many enquiries arise even where claims were made in good faith, supported by professional advice, and based on genuine innovation. Importantly, an enquiry does not automatically mean a claim is invalid. HMRC frequently opens enquiries as a fact-finding exercise, but the approach taken by the taxpayer during the early stages can materially influence the outcome. ## The Legal Framework Governing R&D Claims R&D tax relief is governed primarily by the [Corporation Tax Act 2009](https://www.legislation.gov.uk/id/ukpga/2009/4), with separate regimes applying to SME claims and the Research and Development Expenditure Credit (RDEC). Eligibility turns on whether the company was undertaking qualifying R&D activity, defined by reference to scientific or technological uncertainty, and whether the expenditure claimed meets the statutory criteria. [HMRC’s Corporate Intangibles Research and Development Manual (CIRD)](https://www.gov.uk/hmrc-internal-manuals/corporate-intangibles-research-and-development-manual) provides guidance but does not have the force of law. In disputes, the Tribunal will apply statutory interpretation and established principles of evidence rather than defer automatically to HMRC’s internal guidance. In recent [Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) decisions, judges have emphasised that eligibility is a question of fact and degree. The existence of uncertainty, the advancement sought, and the baseline of existing knowledge must be assessed objectively, taking into account the company’s specific field and capabilities. ## Case Study: Quinn (London) Ltd v HMRC [Quinn (London) Ltd](https://find-and-update.company-information.service.gov.uk/company/04005400) was a construction company specialising in high-value and technically complex heritage refurbishment projects, including work on Grade II listed properties. In delivering these projects, the company undertook innovative construction activities involving significant scientific and technological uncertainty, such as bespoke structural solutions, material analysis of historic fabric, and novel remediation techniques required to comply with conservation constraints. Quinn submitted claims for SME R&D tax relief in respect of these activities. Importantly, HMRC accepted that qualifying R&D had been carried out and that qualifying expenditure had been incurred. The enquiry did not concern eligibility under the statutory definition of R&D. Instead, HMRC challenged the claims on the basis that the expenditure was “subsidised” within the meaning of [section 1138(1)(c) Corporation Tax Act 2009](https://www.legislation.gov.uk/ukpga/2009/4/section/1138), arguing that because Quinn was paid by its clients under commercial construction contracts, the R&D expenditure was met by third parties. ### HMRC’s Argument HMRC contended that customer payments under the building contracts effectively funded the R&D activities and therefore disqualified the expenditure from SME relief. This reflected a common HMRC approach in construction, engineering, and manufacturing cases, where R&D is embedded within commercial delivery rather than carried out as a standalone research exercise. Under this analysis, any R&D undertaken in the course of fulfilling a customer contract would be excluded from relief, regardless of where the commercial and financial risk lay. ## The Tribunal’s Findings The Tribunal rejected HMRC’s analysis and allowed the appeal. It reaffirmed that The Tribunal rejected HMRC’s argument in clear terms. It held that a commercial contract to provide a finished product or service for an agreed price is not a subsidy, even if the price charged is intended to cover costs that include R&D expenditure. The correct statutory test is not whether R&D costs are ultimately recovered through trading income, but whether the expenditure is “met directly or indirectly” by another person in a way that removes the claimant’s financial risk. On the facts, the Tribunal found that: - Quinn bore the financial risk of undertaking the R&D; - the clients did not commission or fund R&D as such; - there was no contractual earmarking of payments for R&D activities; and - the R&D was undertaken to enable Quinn to fulfil its contractual obligations, not to produce a research output for the client. Accordingly, the expenditure was not subsidised, and the SME R&D relief claims were valid. ## Read the Judgment Here: ## Significance of Quinn for R&D Enquiries The decision in *Quinn* is a key authority for businesses whose R&D is carried out in the course of commercial projects. It confirms that HMRC cannot automatically treat customer funding as a disqualifying subsidy and must instead analyse where financial risk and control genuinely lie. In practice, HMRC enquiries frequently conflate commercial income with subsidisation, particularly in sectors such as construction, engineering, software development, and manufacturing. *Quinn* provides a strong basis for challenging that approach and re-focusing the enquiry on the statutory framework rather than HMRC guidance. ## How Quinn Informs Strategic Defence in R&D Enquiries The lessons from *Quinn* are directly applicable to many live R&D enquiries. Where HMRC accepts that qualifying R&D has occurred but seeks to deny relief on funding grounds, [early legal intervention](http://taxdisputes.co.uk) is critical. A structured response will typically involve: - analysing contractual arrangements to demonstrate that clients did not fund R&D as such; - evidencing that the claimant bore commercial and financial risk; - rebutting HMRC’s assumption that cost recovery equates to subsidisation; and - grounding submissions firmly in Tribunal authority rather than HMRC manuals. At LEXLAW, *Quinn* is regularly deployed as part of wider representations to prevent HMRC from advancing unsustainable subsidy arguments and to limit the scope of enquiries before they escalate into penalty disputes. ## Interaction with Penalty Risk and Schedule 24 FA 2007 Although *Quinn* itself did not concern penalties, the reasoning is highly relevant to penalty mitigation in R&D cases. HMRC frequently relies on rejected technical arguments to assert that inaccuracies were careless or deliberate under [Schedule 24 Finance Act 2007](https://www.legislation.gov.uk/ukpga/2007/11/schedule/24/enacted). Where a taxpayer has adopted a position supported by Tribunal authority, including *Quinn*, it is extremely difficult for HMRC to sustain allegations of careless behaviour. Reliance on [professional advice](http://lexlaw.co.uk) and a reasonable interpretation of the legislation are powerful indicators that reasonable care was taken. In many cases, successfully dismantling HMRC’s substantive position also leads to the withdrawal of penalty assertions, even where adjustments to expenditure are ultimately agreed. ## HMRC R&D Tax Disputes: Legal Advice & Representation R&D tax relief enquiries are no longer routine compliance exercises. They are legal disputes involving statutory interpretation, evidential analysis, and an increasing risk of penalties and repayment demands. LEXLAW’s [specialist tax disputes team](https://lexlaw.co.uk/our-people/) advises companies at every stage of the R&D enquiry process, from initial information notices through to Tribunal appeals. We regularly rely on authorities such as *Quinn (London) Ltd v HMRC* to challenge HMRC’s funding and subsidy arguments, defend penalty assessments, and secure proportionate outcomes that protect cash flow and commercial stability. If your business is facing an HMRC R&D enquiry, repayment demand, or penalty assessment, early specialist advice is essential. Timely intervention can prevent escalation, control the narrative, and significantly reduce financial exposure. [Contact us](https://lexlaw.co.uk/contact-us/) today for expert legal guidance and proactive representation. --- # Tribunal Rules No Jurisdiction on Legitimate Expectation in Tax Appeal Source: https://taxdisputes.co.uk/2025/11/tribunal-rules-no-jurisdiction-on-legitimate-expectation-in-tax-appeal/ The decision in [Robin Houldsworth v HMRC [2024] UKFTT 00224 (TC)](https://www.bailii.org/uk/cases/UKFTT/TC/2024/TC09106.pdf) clarifies the limits of the [First-tier Tribunal’s](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) jurisdiction when considering [appeals](https://taxdisputes.co.uk/2025/10/first-tier-tax-tribunal-appeals-guide/) concerning UK tax residency determinations. Tribunal Judge Anne Scott reaffirmed that the [Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) has no power to adjudicate on public law arguments, including claims of “legitimate expectation” or “abuse of power,” which must instead be pursued through judicial review in the High Court. The case highlights the continuing importance of statutory interpretation under the [Taxes Management Act 1970](https://www.legislation.gov.uk/ukpga/1970/9/contents) and the boundaries set out in recent authorities such as [Caerdav Ltd v HMRC [2023] UKUT 179 (TCC)](https://assets.publishing.service.gov.uk/media/64bfa2b890b54500143e822e/Caerdav_v_HMRC_final_decision__002_.pdfhttps:/assets.publishing.service.gov.uk/media/64bfa2b890b54500143e822e/Caerdav_v_HMRC_final_decision__002_.pdf) and [Shinelock Ltd v HMRC [2023] UKUT 107 (TCC)](https://assets.publishing.service.gov.uk/media/6464b6c6e140700013b6e0ba/Shinelock_Ltd_v_HMRC_decision.pdf). The ruling will have significant implications for taxpayers seeking to rely on [HMRC’s](https://lexlaw.co.uk/solicitors-london/landmark-tax-tribunal-win-for-vat-recovery-rights-hastings-insurance-services-v-hmrc/) guidance (such as IR20) in residency disputes, and underscores the procedural precision required when mounting a [tax appeal](https://taxdisputes.co.uk/2025/10/first-tier-tax-tribunal-appeals-guide/). The ruling further highlights the need to instruct [specialist tax solicitors](https://taxdisputes.co.uk/hmrc-tax-appeals/) from the onset. ## Case Background The appellant, [Mr Robin Houldsworth](https://www.bailii.org/uk/cases/UKFTT/TC/2024/TC09106.pdf), had spent several years working internationally and, in 2004, accepted a full-time employment position with a Swiss-based company. He left the United Kingdom on 1 April 2004 to begin work abroad, believing that under [HMRC’s](https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt55170) then-current guidance, [IR20](https://taxdisputes.co.uk/2011/10/supreme-court-backs-hmrc-in-key-uk-ir20-tax-residency-case-residence-ordinary-residence/) (“Residents and Non-Residents: Liability to Tax in the United Kingdom”), he would be treated as non-resident for the tax year ending 5 April 2005. According to his understanding, IR20 stated that an individual who left the UK to take up full-time employment abroad for at least one complete tax year, while visiting the UK for fewer than 183 days in any one year and fewer than 91 days on average, would not be regarded as UK resident. Despite this, in 2018, over a decade after the relevant tax year, [HMRC](https://taxdisputes.co.uk/hmrc-tax-appeals/) issued a [Closure Notice](https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt55170) under [s.28A TMA 1970](https://www.legislation.gov.uk/ukpga/1970/9/section/28A), concluding that Mr Houldsworth was *UK resident* during the 2004–05 tax year and therefore liable to UK income tax on dividends totalling approximately £1.3 million. [HMRC’s assessment](https://taxdisputes.co.uk/2025/10/how-to-challenge-hmrc-tax-assessments-and-protect-your-rights/) added £323,528.32 in tax. The appellant appealed the [Closure Notice](https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt55170), arguing first that he was not UK resident and, secondly, that even if he were, HMRC was bound by legitimate expectation arising from its published IR20 guidance to treat him as non-resident. [HMRC](https://taxdisputes.co.uk/hmrc-tax-appeals/) responded by applying to strike out the legitimate expectation ground (“Ground 3”) under [Rule 8(2)(a) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009](https://www.legislation.gov.uk/uksi/2009/273/contents), asserting that the Tribunal has no jurisdiction to consider public law arguments. Judge Anne Scott agreed, holding that legitimate expectation and abuse of power claims lie within the supervisory jurisdiction of the High Court, not the [Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/). The decision leaves only the factual issue of residence (Ground 2) for the substantive hearing. For individuals, it is of crucial importance to advance legally sound arguments which is why [instructing expert solicitors](https://lexlaw.co.uk/our-people/) is the absolutely important. ## Read the Full Judgment: [![](https://taxdisputes.co.uk/wp-content/uploads/2025/11/Judgment-Cover-Page-724x1024.jpg)](https://www.bailii.org/uk/cases/UKFTT/TC/2024/TC09106.pdf) ## Key Findings in Robin Houldsworth v HMRC ### Jurisdiction on Legitimate Expectation Ground Judge Scott held that the [Tribunal’s jurisdiction](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) under [s.31 and s.50 TMA 1970](https://www.legislation.gov.uk/ukpga/1970/9/contents) is strictly confined to determining the “matter in question”, namely, the conclusions and amendments contained within a [Closure Notice](https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt55170). The Tribunal cannot review the procedural fairness or policy consistency of HMRC’s actions. As she noted, “either the Tribunal has jurisdiction, or it does not… The Tribunal is a creature of statute with no inherent jurisdiction.” [(para 60, 79)](https://www.bailii.org/uk/cases/UKFTT/TC/2024/TC09106.pdf). ### Assessment of Tax Residency The judge emphasised that the underlying dispute over residence was factual and would be decided separately. The present ruling was confined to jurisdiction. Importantly, HMRC’s IR20 guidance was held not to form part of the statutory framework, and any failure by [HMRC](https://taxdisputes.co.uk/hmrc-tax-appeals/) to follow it could not confer jurisdiction on the [Tribunal](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/). ### Statutory Framework under the TMA Drawing on authorities such as [Daarasp v HMRC [2021] UKUT 87 (TCC)](https://assets.publishing.service.gov.uk/media/6075834bd3bf7f4014aa853c/_1__Daarasp_LLP__2__Betex_LLP_v_HMRC.pdf) and [Shinelock Ltd v HMRC [2023] UKUT 107 (TCC)](https://assets.publishing.service.gov.uk/media/6464b6c6e140700013b6e0ba/Shinelock_Ltd_v_HMRC_decision.pdf), the Tribunal reaffirmed that the right of appeal under [s.31 TMA 1970](https://www.legislation.gov.uk/ukpga/1970/9/section/31) is limited to the contents of the [Closure Notice](https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt55170) and does not extend to public law complaints. [Section 50(6)–(7)](https://www.legislation.gov.uk/ukpga/1970/9/section/50) authorises only the adjustment of the assessment amount; it does not allow the Tribunal to adjudicate on legitimate expectation, fairness, or HMRC policy. ## Implications of Robin Houldsworth The decision has substantial consequences for the management and structuring of [UK tax appeals](https://taxdisputes.co.uk/2025/10/first-tier-tax-tribunal-appeals-guide/). It reinforces the principle that public law arguments must be raised through judicial review, not before the [First-tier Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/). This means that even if HMRC departs from its published guidance, such as IR20, the Tribunal cannot overturn a [Closure Notice](https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt55170) on that basis alone. Instead, the taxpayer must bring a separate judicial review claim in the Administrative Court, typically within three months of the disputed decision. [Timely legal advice](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) from [experts](https://lexlaw.co.uk/our-people/) is essential at this stage. For practitioners, this judgment draws a sharp procedural line between appeals on the merits and challenges on fairness or abuse of power. The Tribunal’s role remains confined to assessing whether the taxpayer’s return and HMRC’s amendments correctly apply the law and facts, not whether [HMRC](https://taxdisputes.co.uk/2025/10/how-to-challenge-hmrc-tax-assessments-and-protect-your-rights/) acted fairly. In doing so, the Tribunal aligned itself with [Caerdav Ltd v HMRC [2023] UKUT 179 (TCC)](https://assets.publishing.service.gov.uk/media/64bfa2b890b54500143e822e/Caerdav_v_HMRC_final_decision__002_.pdfhttps:/assets.publishing.service.gov.uk/media/64bfa2b890b54500143e822e/Caerdav_v_HMRC_final_decision__002_.pdf), which both underscore that Parliament did not intend the FTT to have a general supervisory jurisdiction. The ruling also has broader significance in residency and domicile disputes, where [HMRC](https://taxdisputes.co.uk/2025/10/how-to-challenge-hmrc-tax-assessments-and-protect-your-rights/) guidance has historically influenced taxpayer behaviour. It reaffirms that reliance on HMRC’s statements of practice, even where clear, cannot substitute for statutory analysis. The Court in [Gaines-Cooper v HMRC [2011] UKSC 47](https://supremecourt.uk/uploads/uksc_2010_0057_judgment_537ceb85c3.pdf) had already limited reliance on IR20; [Houldsworth](https://www.bailii.org/uk/cases/UKFTT/TC/2024/TC09106.pdf) now confirms that the Tribunal cannot entertain arguments based on legitimate expectation arising from such guidance. This creates an important procedural roadmap for advisers managing cross-border residence disputes. This case is an example of why it is absolutely crucial to obtain [expert tax guidance](https://taxdisputes.co.uk/contact-us/) from [solicitors ](https://lexlaw.co.uk/legal-case-assessment/)who have been successfully tested in [litigation ](https://taxdisputes.co.uk/2025/10/first-tier-tax-tribunal-appeals-guide/)against HMRC. ## Instruct Expert London Tax Solicitors Taxpayers facing [HMRC Closure Notices](https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt55170) must take great care to distinguish between factual disputes, which can be litigated before the [Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/), and public law issues, which must be pursued by way of [judicial review](https://taxdisputes.co.uk/2024/10/judicial-review-of-hmrc-decisions-a-guide-to-the-application-process/). Attempting to combine both within the same appeal risks delay, additional cost, and the likely striking-out of public law grounds. [Early legal analysis](https://lexlaw.co.uk/contact-us/) and advice from [expert legal professionals](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) is therefore crucial. Advisers should frame their Grounds of Appeal within the scope of [s.50 TMA 1970](https://www.legislation.gov.uk/ukpga/1970/9/section/50), focusing on demonstrable factual errors or misapplication of tax law. For example, in residency disputes, this would involve evidencing physical presence patterns, employment terms, and habitual abode, rather than alleging that [HMRC](https://taxdisputes.co.uk/2025/10/how-to-challenge-hmrc-tax-assessments-and-protect-your-rights/) breached fairness or its own guidance. Where HMRC’s conduct may be procedurally unfair or inconsistent with legitimate expectation, advisers must consider issuing [judicial review proceedings](https://taxdisputes.co.uk/2024/10/judicial-review-of-hmrc-decisions-a-guide-to-the-application-process/) promptly, ideally in parallel with any appeal. From a strategic standpoint, this decision reinforces the importance of expert legal advice at the pre-assessment stage. At [LEXLAW](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/), we regularly advise on managing concurrent [appeal](https://taxdisputes.co.uk/2025/10/first-tier-tax-tribunal-appeals-guide/) and [judicial review processes](https://taxdisputes.co.uk/2024/10/judicial-review-of-hmrc-decisions-a-guide-to-the-application-process/), ensuring procedural compliance while maximising the client’s legal position against [HMRC](https://taxdisputes.co.uk/2025/10/how-to-challenge-hmrc-tax-assessments-and-protect-your-rights/). [Contact now](https://lexlaw.co.uk/contact-us/) for [expert legal advice](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/)! ### FAQs: Tax Residency and Tribunal Jurisdiction **What is a Closure Notice under s.28A TMA 1970?** A Closure Notice marks the formal end of HMRC’s enquiry into a tax return. It must state HMRC’s conclusion (e.g., that the taxpayer was UK-resident) and make any necessary amendments to the return. It creates the right of appeal under s.31 TMA. **Can the Tribunal decide whether HMRC breached a taxpayer’s legitimate expectation?** No. The Tribunal has no jurisdiction to hear public law complaints such as legitimate expectation or abuse of power. These can only be pursued via judicial review in the High Court. **How does IR20 guidance interact with statutory residency rules?** IR20 was HMRC’s non-statutory guidance on residence before the introduction of the Statutory Residence Test (SRT) in 2013. While informative, it has no legal force. Tax liability ultimately depends on statutory provisions and case law, not HMRC guidance. **When must a taxpayer bring a judicial review instead of a Tribunal appeal?** Judicial review is appropriate when the taxpayer alleges procedural unfairness, legitimate expectation, or irrationality by HMRC. Appeals to the Tribunal are confined to factual or legal errors within the Closure Notice. **How did *Caerdav* and *Shinelock* influence this decision?** Both authorities confirmed that the Tribunal’s jurisdiction depends on statutory wording. Unless legislation expressly provides for public law review, such jurisdiction is excluded. *Houldsworth* applies that principle to the TMA. **Does the Tribunal ever consider fairness or proportionality arguments?** Only where fairness affects statutory construction or evidence assessment, not as a free-standing public law ground. Broader fairness challenges must go to the Administrative Court. --- # Judicial Review Granted Over HMRC IR20 Residency Guidance Source: https://taxdisputes.co.uk/2025/11/judicial-review-granted-over-hmrc-ir20-residency-guidance/ The judgment [R (Houldsworth) v HMRC [2025] EWHC 2848 (Admin)](https://www.bailii.org/ew/cases/EWHC/Admin/2025/2848.html), reinforces long-standing principles governing fairness in [HMRC tax enforcement](https://lexlaw.co.uk/hmrc-debt-enforcement-defence-statutory-demand-winding-up-peititon-solicitor-london/) and the [protection of taxpayers](https://taxdisputes.co.uk/2025/10/how-to-challenge-hmrc-tax-assessments-and-protect-your-rights/) who rely upon published HMRC guidance. Residency disputes are increasingly common in HMRC investigations, often triggered by international data exchange and retrospective enquiries. [Taxpayers](https://taxdisputes.co.uk/2025/10/how-to-challenge-hmrc-tax-assessments-and-protect-your-rights/) confronted with [tax assessments and penalties](https://lexlaw.co.uk/hmrc-tax-penalty-appeal-solicitor-london/) based solely on HMRC’s new interpretation of old rules should consider urgent legal advice from specialist advisers such as [LexLaw Solicitors & Barristers](https://lexlaw.co.uk/) and our dedicated HMRC dispute resolution team at [TaxDisputes.co.uk](https://taxdisputes.co.uk/). Our [experts](https://lexlaw.co.uk/our-people/) regularly defend high-value residency and domicile disputes before the Tax Tribunal and through judicial review. ## Case Background: Closure Notice and Protracted Appeals The dispute concerns a [closure notice](https://taxdisputes.co.uk/2014/02/case-study-tax-tribunal-directs-hmrc-to-issue-closure-notice/) issued in June 2018 assessing £323,528.32 tax for 2004/05 on the basis that Mr Houldsworth was UK resident during that year, despite his departure from the UK for full-time employment overseas. He returned permanently in April 2005 and asserted full compliance with [IR20](https://taxdisputes.co.uk/tag/ir20/)’s day-count and employment conditions. [The First-tier Tribunal](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/) dealt with procedural issues for years, eventually striking out the legitimate expectation ground with reasons running to six months’ judicial consideration. At every stage [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs) maintained that reliance on [IR20](https://taxdisputes.co.uk/tag/ir20/) was irrelevant, insisting the guidance was merely illustrative and non-binding. However, judicial comment in Gaines-Cooper and Weis indicates courts remain prepared to hold HMRC to their public statements where taxpayers have arranged affairs on that basis and where unfairness would otherwise result. ## High Court Analysis: What the Permission Decision Means ### A Pragmatic Approach to Delay [Mr Justice Foxton](https://www.judiciary.uk/guidance-and-resources/mr-justice-foxton/) rejected the idea that delay alone should bar the claim, given that [judicial review](https://lexlaw.co.uk/judicial-review-court-lawyers-london-hmrc-tax-dispute-decision-advice-representation/) was only necessary once HMRC successfully removed Ground 3 from the Tribunal. The court acknowledged that [judicial review](https://lexlaw.co.uk/judicial-review-court-lawyers-london-hmrc-tax-dispute-decision-advice-representation/) is not intended to duplicate tribunal proceedings but instead safeguards fairness in HMRC’s public administration. ### Arguable Legitimate Expectation The core issue concerns whether [IR20](https://taxdisputes.co.uk/tag/ir20/) provided unequivocal assurance that full-time workers abroad who complied with defined conditions “would be treated as non-resident and not ordinarily resident” for UK tax purposes. The Court concluded this contention has real prospects of success and is of wider public importance to taxpayers. ### Potential Impact on HMRC Practice [The Court](https://www.bailii.org/ew/cases/EWHC/Admin/2025/2848.html) signalled that where HMRC guidance is drafted clearly and relied upon extensively, HMRC may still be bound even if disclaimers appear elsewhere in the text. The analysis suggests HMRC cannot undermine the certainty that the tax system requires through retrospective reinterpretation or selective reliance on caveats. ## View The PDF Judgment below [![](https://taxdisputes.co.uk/wp-content/uploads/2025/11/R-Houldsworth-v-HMRC-2025-EWCH-2848-Admin-724x1024.png)](https://www.bailii.org/ew/cases/EWHC/Admin/2025/2848.pdf) ## Wider Implications: Residency, Tax Guidance and HMRC Accountability This decision comes at a critical time for [residency enforcement](https://lexlaw.co.uk/hmrc-debt-enforcement-defence-statutory-demand-winding-up-peititon-solicitor-london/). HMRC has sharpened its focus on internationally mobile individuals, challenging day-count calculations, ties to the UK and alleged failure to make a “distinct break”. Complex cases arise where investment income, retained property, family presence or bonus payments remain connected to the UK. Taxpayers may now refer to this ruling where HMRC has: 1) Relied on post-dated residency criteria rather than contemporaneous guidance 2) Attempted to withdraw concessions previously applied 3) Challenged reliance on official advice without warning [This judgement](https://www.bailii.org/ew/cases/EWHC/Admin/2025/2848.html) may prevent [injustice](https://lexlaw.co.uk/hmrc-debt-enforcement-defence-statutory-demand-winding-up-peititon-solicitor-london/) where taxpayers face devastating liabilities based on HMRC policy shifts years after reliance was reasonably placed on HMRC’s own published rules. ## What Happens Next? [The judicial review](https://lexlaw.co.uk/judicial-review-court-lawyers-london-hmrc-tax-dispute-decision-advice-representation/) will now progress to full substantive hearing. A win for Mr Houldsworth could result in: 1) HMRC being compelled to apply IR20 conditions as originally drafted 2) Recognition that legitimate expectation overrides HMRC reinterpretation 3) Reassessment of many legacy residency enquiries driven by international information sharing Given [HMRC’s aggressive approach](https://taxdisputes.co.uk/2025/09/tax-tribunal-process-guide-benefits-and-strategy-for-hmrc-tax-disputes-in-the-uk/) to older tax years and offshore compliance, the final outcome could resonate across thousands of historic assessments issued since IR20 was retired in 2009. Taxpayers with IR20-era enquiries should urgently evaluate whether claims can be brought or revived while the opportunity remains active and before limitation issues arise. ## Tactical Defence in HMRC Residency Challenges Those who worked abroad for full-time employment during IR20’s lifespan (particularly 1999–2009) should evaluate reliance carefully. Evidence of employment status, days spent abroad, intent to relocate and reliance on HMRC representation often proves decisive[. Judicial review](https://lexlaw.co.uk/judicial-review-court-lawyers-london-hmrc-tax-dispute-decision-advice-representation/) can supplement tribunal appeals where fairness and procedural legitimacy are at stake. [Specialist legal advice](https://taxdisputes.co.uk/contact-us/) can prevent HMRC from fast-tracking debt recovery, bankruptcy, or enforcement while residency remains contested. ## How LexLaw Can Help with HMRC Residency Disputes [LEXLAW’s specialist tax solicitors and barristers](https://lexlaw.co.uk/hmrc-tax-dispute-lawyers/) have extensive experience advising individuals and businesses facing HMRC residency investigations, closure notices, legitimate expectation challenges and [judicial review](https://lexlaw.co.uk/judicial-review-court-lawyers-london-hmrc-tax-dispute-decision-advice-representation/) proceedings. We robustly defend clients where HMRC disputes non-resident status, applies retrospective interpretations of IR20 guidance or seeks tax, [penalties](https://lexlaw.co.uk/hmrc-tax-penalty-appeal-solicitor-london/) and interest many years after the events in question. [Our experts](https://taxdisputes.co.uk/contact-us/) handle appeals before the [First-tier Tribunal ](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/)and [Upper Tribunal](https://lexlaw.co.uk/), manage all correspondence with HMRC, and deploy strategic public law arguments to prevent unfair enforcement. ### Frequently Asked Questions (FAQ's) Does HMRC have to honour its own guidance? Where it contains a clear and unambiguous promise, courts may rule HMRC bound to apply it consistently, even if a later reinterpretation occurs. Can I still challenge an old residency assessment? Yes, provided statutory appeal or public law remedies remain available. Delay is not automatically fatal if legitimate dispute resolution steps were pursued first. Is IR20 still relevant today? Although withdrawn, IR20 remains the governing guidance for tax years before the Statutory Residence Test began in 2013, especially in fairness-based challenges. What if HMRC says IR20 was misunderstood? The High Court is signalling that HMRC’s caveats do not dissolve expressed assurances drafted in clear terms. Is my case similar to Houldsworth? If you worked full-time abroad under contract and adhered to IR20 day limits, immediate legal advice may help preserve rights affected by this litigation. Should taxpayers litigate or negotiate? Strong negotiation positions rely on early legal analysis and clear presentation of reliance evidence. HMRC often reconsiders when faced with judicial review proceedings. --- # HMRC Crypto Information Requests: What UK Taxpayers Must Disclose Source: https://taxdisputes.co.uk/2026/01/cryptocurrency-users-must-share-details-with-hmrc-a-case-study-on-the-uks-crypto-tax-crackdown/ [Cryptocurrency](https://lexlaw.co.uk/cryptocurrency-bitfinex-tether-manipulation-bitcoin-market-litigation-claims/) has moved rapidly from the margins of finance into mainstream investment and commercial use. Millions of UK taxpayers now hold, trade, or transact using cryptoassets, including Bitcoin, Ethereum, stablecoins, and a wide range of tokens used for investment, trading, decentralised finance (DeFi), and online payments. Alongside this growth, [HM Revenue & Customs (HMRC)](https://taxdisputes.co.uk/) has significantly intensified its compliance activity in relation to crypto taxation. Recent announcements confirm that cryptocurrency users must now share detailed information with HMRC as part of a wider crackdown on perceived tax evasion and non-compliance. Through expanded data-gathering powers, international information exchange, and cooperation with crypto exchanges, HMRC is increasingly able to identify individuals and businesses who have failed to declare crypto gains, income, or transactions correctly. ## Why HMRC Is Cracking Down on Cryptocurrency HMRC has made no secret of its view that crypto assets present a significant [compliance risk](https://www.gov.uk/guidance/hm-revenue-and-customs-large-business). The decentralised nature of cryptocurrency, historic assumptions about anonymity, and the rapid pace of innovation have led HMRC to conclude that under-reporting is widespread. In recent years, HMRC has invested heavily in specialist crypto compliance teams, blockchain analytics software, international data-sharing arrangements and targeted “[nudge letters](https://taxdisputes.co.uk/2025/07/hmrc-nudge-letters-explained-expert-legal-guidance-for-taxpayers/)” and [formal enquiries](https://taxdisputes.co.uk/hmrc-tax-investigations/). Public reporting indicates that HMRC believes billions of pounds in tax may have gone undeclared through crypto transactions. This perception has driven a more aggressive enforcement posture, particularly towards individuals who have traded frequently, used offshore exchanges, or participated in DeFi and staking arrangements without understanding the tax consequences. Crucially, HMRC’s strategy is no longer reactive. It is now proactively gathering data and matching it against Self Assessment returns, PAYE records, and known wallet activity. ## The Legal Basis for HMRC Demanding Crypto Information HMRC’s powers to obtain information about cryptocurrency users derive from multiple sources of UK tax law and international cooperation frameworks. ### Domestic Information Powers Under [Schedule 36 to the Finance Act 2008](https://taxdisputes.co.uk/2013/12/disclosure-to-hmrc-implications-of-schedule-36-information-notice/), HMRC can issue information notices to taxpayers and third parties requiring the production of documents and data reasonably required to check a tax position. These powers apply equally to crypto exchanges, wallet providers, and other intermediaries operating in or with the UK. Failure to comply can result in penalties, and in serious cases, enforcement action through the courts. ### International Data Exchange HMRC is also implementing international crypto reporting frameworks designed to remove cross-border opacity. These regimes require cryptoasset service providers to collect and share detailed user information, including: - identity details; - transaction histories; - wallet addresses; and - value of holdings and disposals. This information is then shared between tax authorities, meaning offshore exchanges are no longer a reliable shield against UK tax scrutiny. For taxpayers who assumed that historic crypto activity would remain invisible, this represents a fundamental shift in enforcement capability. ## What Crypto Users Must Disclose to HMRC HMRC expects UK taxpayers to declare all taxable crypto activity accurately and in full. This includes, but is not limited to: - disposals of crypto assets subject to Capital Gains Tax; - income from mining, staking, or DeFi lending; - airdrops received in return for services or activities; - crypto paid as employment income or trading receipts; and - profits arising from frequent or organised trading activity. Importantly, HMRC does not accept that cryptocurrency is “outside” the tax system. Its [Crypto assets Manual](https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual) makes clear that tax treatment follows established principles of income tax, corporation tax, and capital gains tax, applied to the specific facts of each case. Disputes often arise not because taxpayers deliberately sought to [evade tax](https://taxdisputes.co.uk/vat-evasion/), but because the technical analysis is complex and HMRC’s interpretation is not always straightforward or consistent. ## How a Crypto Enquiry Typically Arises By way of illustration, consider a UK-resident individual who began trading cryptocurrency several years ago using a combination of UK and overseas exchanges. Over time, they made multiple trades, transferred assets between wallets, and participated in staking and token swaps. Gains were reinvested rather than withdrawn to fiat currency. Several years later, HMRC issues a letter stating that it has received information suggesting the individual has engaged in crypto transactions and asking them to review and amend their tax returns. The letter may initially appear informal, but it often marks the beginning of a formal compliance check. When [HMRC later opens an enquiry](https://taxdisputes.co.uk/2024/05/managing-hmrc-tax-enquiry-investigations/), it requests full transaction histories, wallet addresses, exchange statements, and explanations of the taxpayer’s activities. It may also indicate that penalties are being considered under [Schedule 24 Finance Act 2007](https://www.legislation.gov.uk/ukpga/2007/11/schedule/24/enacted). ## HMRC’s Common Arguments in Crypto Tax Disputes In crypto enquiries, HMRC frequently advances a number of recurring arguments. ### Under-Declaration of Capital Gains HMRC often asserts that taxpayers failed to calculate gains correctly, particularly where multiple transactions, token swaps, or transfers between wallets occurred. The application of pooling rules and valuation in sterling frequently becomes contentious. ### Misclassification of Income vs Capital Another common dispute concerns whether crypto activity amounts to investment (subject to CGT) or trading (subject to income tax). HMRC may argue that frequency, organisation, and intention indicate a trading activity, significantly increasing tax exposure. ### Failure to Declare Staking or DeFi Income Many taxpayers are unaware that staking rewards, yield farming returns, or certain airdrops may constitute taxable income at the point of receipt. HMRC increasingly scrutinises these activities. ### Allegations of Careless or Deliberate Behaviour Where HMRC believes that a taxpayer “should have known” about their obligations, it may assert careless or deliberate conduct, triggering substantial penalties. These behavioural characterisations are often contestable. ## The Role of Penalties and the Importance of Behavioural Analysis [Penalty](https://taxdisputes.co.uk/hmrc-penalties/) exposure frequently represents the most significant financial risk in crypto disputes. Under Schedule 24 FA 2007, penalties depend on whether inaccuracies were careless, deliberate, or deliberate and concealed. HMRC often adopts an aggressive stance, particularly where crypto activity was not disclosed at all. However, [Tribunals](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) have repeatedly emphasised that complexity, novelty, and [reliance on professional advice](https://lexlaw.co.uk) are highly relevant to the question of reasonable care. In many cases, it is possible to demonstrate that the taxpayer acted in good faith, misunderstood complex rules, or relied on incomplete guidance. Successfully reframing behaviour can dramatically reduce or eliminate penalties, even where tax is ultimately payable. ## How Crypto Disputes Are Resolved Resolution pathways vary depending on the facts, but typically include, structured [written representations](https://taxdisputes.co.uk/legal-representation/) to HMRC, [voluntary disclosure](https://taxdisputes.co.uk/2025/10/voluntary-disclosure-to-hmrc-reducing-penalties-and-prosecution-risk/) or amendments where appropriate, internal HMRC reviews, and appeals to the First-tier Tribunal (Tax Chamber). Tribunal decisions in tax cases consistently show that HMRC’s guidance is not determinative. The Tribunal applies statute, case law, and evidence, often rejecting HMRC’s assumptions where they are not supported by law. Early legal intervention is critical. Poorly framed responses or incomplete disclosures can harden HMRC’s position and increase penalty risk unnecessarily. ## Interaction with Wider Enforcement Powers Crypto tax enquiries rarely exist in isolation. HMRC may also consider: - assessments against companies where crypto was used in business; - enquiries into directors or partners; - unexplained wealth or lifestyle discrepancies; and - insolvency or enforcement action where liabilities are significant. In high-value cases, HMRC may escalate matters to its Fraud Investigation Service, dramatically increasing complexity and risk. ## Why Specialist Advice Matters in Crypto Tax Investigations Cryptocurrency disputes sit at the intersection of tax law, technology, and evidence. They require more than basic accounting input. Understanding blockchain records, exchange data, and the legal characterisation of novel transactions is essential. LEXLAW’s [specialist tax disputes team](https://lexlaw.co.uk/our-people/) regularly advises individuals and businesses facing HMRC crypto enquiries. The team combines technical tax expertise with litigation experience, allowing disputes to be handled strategically rather than reactively. ## HMRC Cryptocurrency Tax Disputes: Legal Advice & Representation HMRC’s crackdown on cryptocurrency is intensifying, and the risks of inaction are increasing. What may begin as a simple request for information can quickly escalate into a multi-year dispute involving significant tax, penalties, and enforcement action. LEXLAW provides [specialist legal advice and representation](https://taxdisputes.co.uk/) in cryptocurrency tax disputes, compliance checks, and appeals. Our focus is on controlling the narrative, applying the correct legal framework, and securing proportionate outcomes that protect our clients’ financial and commercial position. If you have received correspondence from HMRC concerning cryptocurrency, or are concerned about historic non-disclosure, early specialist advice is essential. Timely intervention can prevent escalation, mitigate penalties, and significantly reduce overall exposure. [Contact us](https://lexlaw.co.uk/contact-us/) today for expert legal guidance and proactive representation. --- # HMRC Behaviour Assessments: Careless, Deliberate, or Concealed? Source: https://taxdisputes.co.uk/2026/01/hmrc-behaviour-assessments-careless-deliberate-or-concealed/ HMRC behaviour assessments sit at the heart of many UK tax disputes. Whether [HMRC](https://taxdisputes.co.uk/) categorises a taxpayer’s conduct as careless, deliberate, or deliberate and concealed can have profound consequences, affecting not only the level of penalties imposed but also the scope of [HMRC’s assessment](https://taxdisputes.co.uk/2025/10/how-to-challenge-hmrc-tax-assessments-and-protect-your-rights/) powers, the length of enquiry windows, and the risk of escalation into civil fraud or criminal investigation. In practice, disputes over behaviour frequently become more significant than the underlying [tax liability](https://taxdisputes.co.uk/hmrc-tax-investigations/) itself. [Penalties](https://taxdisputes.co.uk/hmrc-penalties/) under [Schedule 24 Finance Act 2007](https://www.legislation.gov.uk/ukpga/2007/11/schedule/24/enacted) can reach up to 100% of the tax understated, and in cases of alleged concealment, HMRC may seek to extend assessment time limits to 20 years, reopen historic periods, or pursue [personal liability against directors](https://taxdisputes.co.uk/2025/12/personal-liability-notices-plns-defence-strategies-for-directors/). ## Why HMRC Behaviour Assessments Matter Behaviour assessments are not merely descriptive labels. They are statutory classifications that determine the seriousness of the alleged inaccuracy and shape [HMRC’s enforcement strategy](https://taxdisputes.co.uk/hmrc-enforcement-action/). Where HMRC alleges careless behaviour, penalties are typically capped at 30% of the tax understated. Deliberate behaviour increases exposure to 70%, while deliberate and concealed behaviour can attract penalties of up to 100%. These classifications also affect whether HMRC may publish the taxpayer’s details under [naming and shaming rules](https://taxdisputes.co.uk/2013/11/hmrc-name-and-shame-deliberate-tax-defaulters/) and whether civil fraud procedures are invoked. Beyond penalties, behaviour findings influence HMRC’s perception of the taxpayer’s credibility. Once HMRC forms the view that conduct was deliberate, future dealings often become adversarial, with reduced scope for cooperative resolution. [Challenging behaviour assessments](https://taxdisputes.co.uk/2025/10/how-to-challenge-hmrc-tax-assessments-and-protect-your-rights/) early is therefore a critical strategic priority in most disputes. ## The Statutory Framework: Schedule 24 Finance Act 2007 Behaviour assessments are governed by Schedule 24 FA 2007, which applies where a taxpayer has submitted a return or document containing an inaccuracy that results in an understatement of tax, an overstatement of relief, or a failure to notify a liability. The statute distinguishes between three categories of behaviour: - **Careless**: a failure to take reasonable care. - **Deliberate**: knowingly providing inaccurate information or omitting relevant facts. - **Deliberate and concealed**: deliberate behaviour coupled with active steps to hide the inaccuracy. The burden rests on HMRC to establish the relevant behaviour on the balance of probabilities. This is a point often misunderstood or misapplied during enquiries, with HMRC relying on inference or assumption rather than evidence. ## Careless Behaviour: Failure to Take Reasonable Care Careless behaviour is the lowest level of culpability but remains a frequent area of dispute. HMRC often equates errors with carelessness, particularly where professional advisers were involved or where record-keeping is imperfect. [Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) authority consistently confirms that carelessness is not established simply because an error occurred. The correct question is whether the taxpayer took reasonable care in the circumstances, assessed objectively but with regard to the taxpayer’s experience, knowledge, and reliance on advice. In **[Hanson v HMRC [2012] UKFTT 314 (TC)](https://taxdisputes.co.uk/wp-content/uploads/2026/01/Hanson-v-HMRC.pdf)**, the Tribunal emphasised that reasonable care does not require perfection. Taxpayers are entitled to rely on competent professional advice, provided they supply accurate and complete information. Where advice is taken and followed, this will often defeat an allegation of careless behaviour, even if the technical position later proves incorrect. Common scenarios where carelessness is successfully challenged include reliance on accountants, good-faith interpretation of complex legislation, and errors arising from evolving or ambiguous areas of tax law. ## Deliberate Behaviour: Knowing Inaccuracy Allegations of deliberate behaviour significantly escalate the dispute. HMRC must show that the taxpayer knew the return was inaccurate at the time it was submitted. This requires more than suspicion or hindsight; it requires evidence of intention. In practice, HMRC often seeks to infer deliberateness from factors such as repeated errors, large amounts, or perceived sophistication of the taxpayer. Tribunals have repeatedly cautioned against this approach. In **[Tooth v HMRC [2021] UKSC 17](https://taxdisputes.co.uk/wp-content/uploads/2026/01/2021-1-W.L.R.-2811.pdf.pdf)**, although concerned primarily with [discovery assessments](https://taxdisputes.co.uk/2022/09/robert-don-hunter-dougan-v-hmrc-ftt-cancels-discovery-assessments-and-late-filing-penalties/), the Supreme Court made clear that deliberate behaviour requires conscious wrongdoing, not mere carelessness or misunderstanding. The decision reinforces the principle that intention must be proved, not assumed. Deliberate behaviour is frequently alleged in cases involving [offshore income](https://taxdisputes.co.uk/offshore-tax-evasion-tax-avoidance-solicitors-london/), [R&D tax relief](https://taxdisputes.co.uk/2025/12/rd-tax-relief-enquiries-penalty-mitigation/), [VAT suppression](https://taxdisputes.co.uk/vat-evasion/), or [employment status disputes](https://taxdisputes.co.uk/2025/12/nic-reclassification-disputes-employment-vs-self-employment/). However, where the taxpayer has disclosed their position transparently and engaged with HMRC openly, allegations of deliberateness are often unsustainable. ## Deliberate and Concealed Behaviour: The Highest Threshold Deliberate and concealed behaviour represents the most serious category and carries the harshest consequences. HMRC must prove not only deliberate inaccuracy but also active concealment, such as falsified records, misleading explanations, or steps taken to prevent HMRC discovering the truth. Tribunal decisions confirm that concealment requires positive action. Silence, delay, or failure to appreciate an error does not amount to concealment. HMRC frequently overreaches in alleging concealment, particularly in cash-based businesses or complex corporate structures. Such allegations must be scrutinised carefully, as they often collapse under evidential challenge. ## Behaviour Reclassification in Practice A recurring pattern in disputes involves HMRC initially categorising behaviour as deliberate, only to downgrade or withdraw the allegation following [specialist representations](http://lexlaw.co.uk). In a recent case involving historic VAT assessments, HMRC alleged deliberate suppression of sales based on discrepancies identified during a systems review. The taxpayer demonstrated that the discrepancies arose from legacy software migration issues and that the business had relied on external advisers throughout the relevant periods. By producing contemporaneous correspondence, audit trails, and adviser engagement letters, the taxpayer successfully rebutted the allegation of intent. HMRC ultimately accepted that the behaviour was neither deliberate nor careless, resulting in the withdrawal of penalties altogether. This outcome illustrates the importance of evidence-based rebuttal and the dangers of allowing behaviour allegations to go unchallenged. ## HMRC’s Common Errors in Behaviour Assessments Behaviour disputes frequently reveal systemic weaknesses in HMRC’s analysis. A common issue is conflating technical disagreement with culpable conduct. The fact that HMRC disagrees with a taxpayer’s interpretation of the law does not, without more, justify penalties. Another recurring error is retrospective reasoning. HMRC often relies on information uncovered during an enquiry to assert that the taxpayer must have known the position at the time of filing. Tribunals have consistently rejected this approach, emphasising that behaviour must be assessed based on what the taxpayer knew or reasonably believed at the relevant time. Failure to consider [professional advice](https://taxdisputes.co.uk/) properly is also widespread. HMRC frequently downplays reliance on advisers, despite clear judicial authority that such reliance is a key indicator of reasonable care. ## Interaction with Time Limits and Discovery Assessments Behaviour classifications directly affect HMRC’s ability to assess historic periods. Where behaviour is careless, HMRC is generally limited to four or six years, depending on the tax. Deliberate behaviour extends this to 20 years. This makes behaviour disputes strategically critical. Successfully challenging a deliberate allegation may render entire assessments invalid on [limitation grounds](https://taxdisputes.co.uk/2013/02/jurisdictional-limitations-of-the-first-tier-tribunal-tax/), even if HMRC’s technical position is otherwise arguable. In many cases, limitation arguments run in parallel with penalty disputes and should be addressed together as part of a coordinated defence. ## Strategic Defence and Penalty Mitigation Effective defence against behaviour allegations requires early intervention and structured analysis. The focus should be on evidencing the taxpayer’s decision-making process, the advice taken, and the steps taken to comply with tax obligations. Where errors are identified, unprompted disclosure and cooperation can significantly reduce penalties, even where carelessness is accepted. HMRC’s own guidance recognises reductions for disclosure, cooperation, and quality of information provided. However, mitigation should never involve accepting an unjustified behaviour classification. Concessions made early in correspondence can be difficult to reverse and may shape HMRC’s approach throughout the enquiry. ## HMRC Behaviour Assessments: Legal Advice & Representation Behaviour assessments are among the most contentious and high-risk aspects of HMRC disputes. They sit at the intersection of factual evidence, statutory interpretation, and Tribunal jurisprudence, and are frequently mishandled without specialist input. LEXLAW’s [tax disputes team](https://lexlaw.co.uk/our-people/) advises individuals and businesses facing HMRC allegations of careless, deliberate, or concealed behaviour across all taxes, including VAT, income tax, corporation tax, PAYE, and R&D relief. The team regularly challenges penalty assessments, defeats extended time-limit claims, and secures substantial reductions or complete cancellation of penalties. By grounding submissions in Tribunal authority, evidential analysis, and procedural fairness, LEXLAW ensures that behaviour assessments are tested against the law rather than HMRC assumption. Where disputes cannot be resolved, the team provides full representation before the First-tier Tribunal and higher courts. If you are facing an HMRC enquiry involving penalties or behaviour allegations, early specialist advice is essential. Prompt intervention can prevent escalation, protect your position, and significantly reduce financial exposure. [Contact us](https://lexlaw.co.uk/contact-us/) today for expert legal guidance and proactive representation. --- # How to Respond to COP8 & COP9 HMRC Tax Investigations (2026 Guide) Source: https://taxdisputes.co.uk/2026/01/how-to-respond-to-cop8-cop9-hmrc-tax-investigations-2026-guide/ [HMRC](https://taxdisputes.co.uk/) [COP8](https://taxdisputes.co.uk/tax-avoidance-cop-8-investigations-solicitors-london/) and [COP9 ](https://taxdisputes.co.uk/tax-evasion-hmrc-code-practice-9-investigations/)investigations represent the most serious forms of UK civil tax enforcement and are now a central feature of HMRC’s Fraud Investigation Service strategy. Businesses and individuals facing these enquiries often underestimate the procedural risks, particularly where an initially “civil” COP8 enquiry escalates into a COP9 fraud investigation. As [specialist solicitors](https://lexlaw.co.uk/contact-us/) regularly advising on complex tax disputes, we see repeated cases where early missteps materially worsen outcomes. This detailed guide explains how COP8 and COP9 investigations operate, the legal risks they present, and how taxpayers should respond. It draws on statutory powers under the [Taxes Management Act 1970](https://www.legislation.gov.uk/ukpga/1970/9/contents), HMRC’s Codes of Practice, and tribunal-level enforcement trends, with reference to [LEXLAW’s](https://lexlaw.co.uk/) experience in defending [HMRC investigations](https://taxdisputes.co.uk/2025/10/how-to-challenge-hmrc-tax-assessments-and-protect-your-rights/), [tax appeals](https://taxdisputes.co.uk/2024/12/ir35-tax-appeals-gary-linekers-off-payroll-working-dispute-with-hmrc/), and associated [winding-up petitions](https://windinguppetitionsolicitors.co.uk/what-is-the-process-of-winding-up-procedure/). Readers facing parallel exposure, such as director liability or insolvency pressure, should also be aware of overlapping risks arising under HMRC enforcement powers, creditor-driven recovery strategies and the need for [expert legal advice](https://taxdisputes.co.uk/second-opinion/). ## Understanding COP8 and COP9 Investigations COP8 and COP9 investigations are both conducted by [HMRC’s Fraud Investigation Service](https://taxdisputes.co.uk/2022/11/what-is-the-hmrc-fraud-investigation-service-fis/), but they are fundamentally different in legal character, evidential burden, and consequences. A COP8 investigation is a civil enquiry into suspected [tax underpayment](https://taxdisputes.co.uk/2025/09/have-you-underpaid-your-tax-voluntary-disclosures-to-hmrc/), commonly arising from complex tax planning, avoidance structures, offshore arrangements, or technical VAT positions. At the outset, HMRC does not allege fraud, but it retains the power to escalate the investigation if deliberate behaviour is later identified. By contrast, a COP9 investigation is commenced only where [HMRC](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) suspects deliberate tax fraud. The opening letter expressly alleges dishonesty and invites the taxpayer to enter the [Contractual Disclosure Facility (CDF)](https://taxdisputes.co.uk/2025/10/voluntary-disclosure-to-hmrc-reducing-penalties-and-prosecution-risk/), a formal agreement under which full disclosure of deliberate conduct is exchanged for HMRC’s undertaking not to pursue criminal prosecution for the disclosed matters. ## Key Differences Between COP8 and COP9 (2026) | **Feature** | **COP8** | **COP9** | | ----------- | -------- | -------- | | Nature of allegation | Suspected tax underpayment or avoidance | Suspected deliberate tax fraud | | Fraud allegation | Not alleged at outset | Alleged from commencement | | Disclosure requirement | No formal disclosure report | Mandatory full disclosure via CDF | | Criminal prosecution risk | Low initially, but can escalate | High if CDF rejected or breached | | Typical penalties | Careless or deliberate (lower range) | Deliberate and concealed (highest range) | This distinction is critical. Errors made during a COP8 investigation, such as inconsistent explanations or incomplete disclosure, are frequently relied upon by HMRC to justify a later transition to COP9. ## COP8 Investigations: Legal Risks and Strategy COP8 investigations typically involve prolonged scrutiny of tax returns, accounts, banking records, and third-party information obtained using [HMRC’s statutory powers](https://taxdisputes.co.uk/2024/02/hmrcs-assessment-powers/). HMRC may issue extensive information notices, conduct meetings under caution-like conditions, and challenge the legal basis of tax planning arrangements. From a defence perspective, the principal risk is inadvertently creating a narrative of deliberate behaviour. [HMRC ](https://taxdisputes.co.uk/2022/06/dealing-with-a-hmrc-7-day-letter-before-winding-up-action/)routinely reassesses penalties mid-investigation, moving from “careless” to “deliberate” classifications where explanations evolve or documentation is incomplete. As we have seen in contested tax tribunal litigation, early forensic review of HMRC’s assumptions is essential. This includes stress-testing technical positions, reconstructing transaction flows, and identifying where [HMRC’s](https://taxdisputes.co.uk/2022/06/dealing-with-a-hmrc-7-day-letter-before-winding-up-action/) analysis overreaches, particularly in avoidance cases involving VAT, payroll, or offshore income streams. [Strategic engagement](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) at this stage can prevent escalation and preserve appeal rights before the [First-tier Tax Tribunal](https://www.gov.uk/courts-tribunals/first-tier-tribunal-tax). ## COP9 Investigations and the Contractual Disclosure Facility A COP9 investigation carries materially higher stakes. Acceptance of the Contractual Disclosure Facility requires the taxpayer to admit [deliberate conduct](https://taxdisputes.co.uk/2026/01/hmrc-behaviour-assessments-careless-deliberate-or-concealed/) and to provide a complete and accurate disclosure of all tax irregularities, including those unrelated to the original [HMRC ](https://taxdisputes.co.uk/2026/01/hmrc-behaviour-assessments-careless-deliberate-or-concealed/)suspicion. The disclosure process typically involves an Outline Disclosure followed by a detailed Formal Disclosure Report, supported by certified schedules of worldwide assets, liabilities, bank accounts, and transactional histories. Any omission, inconsistency, or understatement can invalidate the CDF and expose the taxpayer to criminal investigation. In practice, the most significant errors arise where taxpayers attempt partial disclosure or rely on advisers without specialist COP9 experience. As demonstrated in our work defending HMRC fraud investigations, the legal framing of [“deliberate behaviour”](https://taxdisputes.co.uk/2026/01/hmrc-behaviour-assessments-careless-deliberate-or-concealed/) must be tightly controlled to avoid unnecessary expansion of liability and penalties. ## Implications for Directors and Businesses For company directors, COP8 and COP9 investigations frequently overlap with [personal liability exposure](https://taxdisputes.co.uk/2025/12/personal-liability-notices-plns-defence-strategies-for-directors/), including PAYE determinations, [VAT assessments](https://taxdisputes.co.uk/tax-evasion-hmrc-code-practice-9-investigations/), and director penalty notices. Where HMRC alleges dishonesty, it may also pursue winding-up petitions, security notices, or parallel insolvency-based recovery. Recent enforcement trends show HMRC coordinating civil fraud investigations with insolvency and enforcement teams, increasing pressure on both corporate and personal finances. Directors should be particularly cautious where historic tax positions intersect with dividend payments, loan accounts, or shareholder transactions that may later be scrutinised. ## Instruct Expert London Tax Lawyers Effective defence requires early intervention and disciplined strategy. In many cases, this includes forensic accounting analysis to challenge HMRC’s loss calculations, careful control of written and oral communications, and proactive management of disclosure scope. Where penalties are inevitable, negotiation on categorisation and mitigation remains critical to reducing financial exposure. [LEXLAW's](https://lexlaw.co.uk/) experience across [tax disputes](https://lexlaw.co.uk/hmrc-tax-dispute-lawyers/), tribunal litigation, and [professional negligence claims](https://lexlaw.co.uk/practice-areas/professional-negligence-solicitors-london/) arising from failed tax advice allows us to identify where investigations can be narrowed or redirected. This integrated approach is often decisive in preventing escalation and protecting long-term commercial viability. [Contact now](https://lexlaw.co.uk/?page_id=356) for [expert legal advice](https://lexlaw.co.uk/our-people/)! ### Frequently Asked Questions (FAQ's) **Can a COP8 investigation become a COP9?** Yes. HMRC may escalate a COP8 investigation to COP9 if it concludes that deliberate behaviour is present. This commonly occurs where explanations change or documents contradict earlier statements. **Do I have to cooperate fully with HMRC?** Statutory information notices must be complied with, but cooperation does not mean volunteering unnecessary material. Legal advice is essential to control scope and narrative. **What happens if I reject the COP9 Contractual Disclosure Facility?** Rejection significantly increases the risk of criminal investigation and prosecution. This decision should never be made without specialist legal advice. **Can HMRC investigate earlier tax years?** Yes. In cases of alleged deliberate behaviour, HMRC can assess up to 20 years retrospectively. **Are penalties inevitable under COP9?** Penalties are expected, but their level depends on the quality of disclosure, cooperation, and mitigation. Early strategy can materially reduce outcomes. **Can HMRC involve third parties such as banks?** Yes. HMRC routinely uses third-party information powers during COP8 and COP9 investigations. **What if my tax position was based on professional advice?** This may support a defence of reasonable care or form the basis of a professional negligence claim, which we regularly pursue via [https://professionalnegligenceclaimsolicitors.co.uk/](https://professionalnegligenceclaimsolicitors.co.uk/) **Will HMRC issue a winding-up petition during an investigation?** It can, particularly where assessments are raised and unpaid. Immediate advice from specialist winding-up petition solicitors is critical: [https://windinguppetitionsolicitors.co.uk/](https://windinguppetitionsolicitors.co.uk/). --- # Section 396B ITTOIA 2005: HMRC Phoenixing TAAR & Winding-Up Distributions Explained Source: https://taxdisputes.co.uk/2025/12/section-396b-ittoia-2005-hmrc-phoenixing-taar-winding-up-distributions-explained/ [Section 396B of the Income Tax (Trading and Other Income) Act 2005](https://www.legislation.gov.uk/ukpga/2005/5/section/396B) (ITTOIA) is a targeted anti-avoidance rule (TAAR) that affects many owner-managed companies, landlords operating through corporate vehicles, and high-net-worth individuals planning solvent liquidations. It allows [HMRC](https://taxdisputes.co.uk/2024/10/judicial-review-of-hmrc-decisions-a-guide-to-the-application-process/) to reclassify certain [winding-up distributions](https://windinguppetitionsolicitors.co.uk/) as income, rather than capital, where the taxpayer goes on to carry out the same or a similar trade. This can dramatically increase the tax payable, particularly where shareholders expected capital gains treatment or [Business Asset Disposal Relief](https://www.gov.uk/business-asset-disposal-relief), and instead face higher dividend rates. Unsurprisingly, [Section 396B](https://www.legislation.gov.uk/ukpga/2005/5/section/396B) issues now feature regularly in [HMRC enquiries](https://taxdisputes.co.uk/hmrc-interviews/), compliance checks, and correspondence with accountants or insolvency practitioners. This article explains how the provision works, the tests [HMRC](https://taxdisputes.co.uk/contact-us/) applies, common risk scenarios, and what practical steps clients and advisers should take. Our [expert solicitors](https://lexlaw.co.uk/our-people/) are regularly instructed by individuals, directors, shareholders, and professional firms in [contentious tax matters](https://taxdisputes.co.uk/news/), including disputes involving [Section 396B](https://www.legislation.gov.uk/ukpga/2005/5/section/396B) and allegations of phoenixing. ## What Is Section 396B ITTOIA? [Section 396B](https://www.legislation.gov.uk/ukpga/2005/5/section/396B) is designed to counter “phoenixing”, a behaviour [HMRC](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) views as abusive. Phoenixing occurs where an individual [winds up](https://windinguppetitionsolicitors.co.uk/news/) a close company, extracts the accumulated profits as a capital distribution in a [Members’ Voluntary Liquidation (MVL)](https://www.gov.uk/liquidate-your-company/members-voluntary-liquidation), and then continues the same business through a new company or structure. Without this rule, an owner could repeatedly convert what HMRC considers to be income into capital taxed at lower rates. Section 396B prevents this by treating the [winding-up distribution](https://windinguppetitionsolicitors.co.uk/what-is-the-process-of-winding-up-procedure/) as if it were an income distribution where certain legal conditions are met. The rule does not apply to every [liquidation](https://windinguppetitionsolicitors.co.uk/what-is-the-process-of-winding-up-procedure/). It only applies where four statutory tests, Conditions A to D, are all satisfied. The legislation is purposely broad, and HMRC often applies it assertively. Understanding the triggers and obtaining [structured legal advice](https://taxdisputes.co.uk/contact-us/) is therefore critical for anyone planning a corporate exit or restructuring. ## When Section 396B Applies: Key Conditions [Section 396B](https://www.legislation.gov.uk/ukpga/2005/5/section/396B) applies only if all four statutory conditions are satisfied. If any condition fails, capital treatment is preserved. ### Condition A: 5% Interest Before Winding-Up The individual must hold at least 5% of: - the ordinary share capital, and - the voting rights. This typically captures owner-managers but excludes small minority shareholders. ### Condition B: The Company Is or Was a Close Company A close company is broadly one controlled by five or fewer participators or by its directors. Most family-owned companies and SMEs meet this condition by default. ### Condition C: Carrying On the Same or a Similar Trade Within two years of the distribution, the individual (or a connected person) must: - carry on the same or similar trade, or - be involved in the carrying on of that trade. This is often the most contentious condition. [HMRC](https://taxdisputes.co.uk/hmrc-penalties/) interprets “similar trade” widely. Changes in branding, location, or scale rarely prevent similarity; the focus is on the underlying business activity. It is important to be guided by [legal experts](https://taxdisputes.co.uk/contact-us/) who can negotiate when HMRC applies this condition broadly. “Connected persons” includes spouses, civil partners, certain relatives, partners, trustees, and companies controlled by the individual or those connected with them. However, the connected person’s trade only counts if the taxpayer is involved with it. ### Condition D: Main-Purpose (or One of the Main Purposes) Is Tax Avoidance [HMRC](https://taxdisputes.co.uk/hmrc-tax-appeals/) must reasonably conclude that avoiding or reducing Income Tax was a main purpose of the winding-up. Relevant factors may include: - whether the new business closely resembles the old trade; - the speed of restarting activity; - whether past behaviour shows a pattern of similar liquidations; - genuine commercial events (retirement, ill health, sale of premises, change of career). This is an objective test. [Tax planning](https://taxdisputes.co.uk/hmrc-tax-appeals/) alone is not prohibited, but the reasoning behind the liquidation must be clearly evidenced with [proper legal guidance](https://taxdisputes.co.uk/hmrc-tax-appeals/). ## How HMRC Approaches Section 396B in Practice HMRC’s interest in Section 396B has increased significantly in recent years, and several patterns are emerging in how enquiries typically begin. Many cases start with routine [self-assessment enquiries](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) focused on the year of the [liquidation distribution](https://windinguppetitionsolicitors.co.uk/contact-us/), where HMRC asks for details about the taxpayer’s post-liquidation activities. Others arise through discovery assessments, particularly where HMRC believes that the taxpayer did not sufficiently disclose the circumstances of the liquidation or subsequent trade in the “white space.” HMRC also frequently gathers information from liquidators and accountants, comparing the taxpayer’s explanation with [Companies House](https://www.gov.uk/government/organisations/companies-house) filings and other public records. Compliance checks often broaden into questions about the taxpayer’s involvement with new businesses, related companies, or connected persons. In situations involving multiple liquidations or rapid restarts of trading activity, [HMRC](https://taxdisputes.co.uk/hmrc-tax-appeals/) tends to scrutinise the case closely and may assume phoenixing unless convincing evidence is provided. In more complex scenarios, especially where HMRC suspects wider tax irregularities, other anti-avoidance regimes may be considered alongside [Section 396B](https://www.legislation.gov.uk/ukpga/2005/5/section/396B), even though the TAAR itself is not part of the [COP9 process](https://www.gov.uk/government/publications/apply-to-make-decisions-on-someones-behalf-notification-form-cop9). The cumulative result is that taxpayers often experience sustained, detailed questioning that can be difficult to manage without strong contemporaneous evidence and [specialist legal advice](https://lexlaw.co.uk/our-people/). ## Risks of Getting It Wrong If [HMRC](https://taxdisputes.co.uk/hmrc-tax-appeals/) successfully applies Section 396B, the consequences can be significant. ### Financial exposure - Distribution reclassified as income - Higher dividend tax rates - Potential loss of Business Asset Disposal Relief - Interest on underpaid tax ### Penalty risk [Penalties](https://taxdisputes.co.uk/hmrc-penalties/) depend on behaviour. Where [HMRC](https://taxdisputes.co.uk/hmrc-penalties/) considers that the taxpayer took reasonable care, penalties may be reduced or eliminated. However, if HMRC believes the taxpayer failed to disclose relevant information, penalties can escalate. ### Extended time limits In some cases, [HMRC](https://taxdisputes.co.uk/hmrc-penalties/) may rely on extended assessment periods if they suspect careless or deliberate behaviour. ### Practical stress and cost Disputes can last months or even years, consuming substantial time and professional fees. ## Practical Steps to Take Now Anyone [contemplating a liquidation](https://windinguppetitionsolicitors.co.uk/news/) should begin by clearly recording the commercial reasons behind the decision. Rather than relying on memory later, it is far more effective to [seek specialist advice now](https://taxdisputes.co.uk/contact-us/) and maintain detailed board minutes, email trails and [professional advice notes](https://taxdisputes.co.uk/contact-us/) showing why the business closed, for example, the sale or loss of trading premises, strategic restructuring, health issues or a genuine change of direction. HMRC places significant weight on contemporaneous evidence, and well-documented reasons help demonstrate that tax avoidance was not a main purpose. It is also sensible to reflect on whether the [planned liquidation](https://windinguppetitionsolicitors.co.uk/winding-up-procedure/) resembles a pattern of repeated closures followed by similar new businesses. Where this pattern exists, [HMRC scrutiny](https://taxdisputes.co.uk/news/) becomes more likely, and taxpayers should ensure they can point to strong commercial circumstances that independently justified each winding-up. Careful explanation in the self-assessment return can also help. A clear and accurate “white space” disclosure outlining why Section 396B is or is not thought to apply may prevent [HMRC](https://taxdisputes.co.uk/news/) from arguing that the taxpayer failed to take reasonable care or from raising discovery assessments in later years. Close communication with accountants and [insolvency practitioners](https://windinguppetitionsolicitors.co.uk/our-success-case-studies-successful-insolvency-law-firm-london/) is equally important. Early alignment helps to ensure that all explanations given to HMRC, [Companies House](https://www.gov.uk/government/organisations/companies-house) and [professional advisers](https://taxdisputes.co.uk/news/) are consistent and properly supported. Above all, taxpayers should avoid ignoring or delaying responses to HMRC. Prompt, complete and accurate interaction usually leads to smoother progress, whereas incomplete or late replies often create unnecessary suspicion. For any liquidation involving significant retained profits or any situation where a post-closure business could resemble the previous trade, taking [specialist advice](https://taxdisputes.co.uk/news/) is strongly recommended. ## Instruct Expert London Tax Dispute Solicitors [Section 396B](https://www.legislation.gov.uk/ukpga/2005/5/section/396B) issues often escalate quickly and require a blend of tax technical knowledge, litigation experience, and an understanding of how [HMRC conducts enquiries](https://taxdisputes.co.uk/hmrc-penalties/). [LEXLAW’s specialist tax disputes team](https://lexlaw.co.uk/our-people/) advises company directors, shareholders, professional advisers, and insolvency practitioners on all aspects of Section 396B risk and HMRC’s phoenixing challenges. We assist with reviewing [proposed liquidations](https://windinguppetitionsolicitors.co.uk/our-success-case-studies-successful-insolvency-law-firm-london/), preparing risk assessments, drafting white-space disclosures, handling [HMRC investigations](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/), responding to information notices, negotiating settlements, and conducting appeals before the [Tax Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/). We also coordinate with accountants and [insolvency professionals](https://windinguppetitionsolicitors.co.uk/our-success-case-studies-successful-insolvency-law-firm-london/), ensuring a consistent and protected strategy, including the use of legal privilege where appropriate. Where the stakes are high, particularly with significant retained profits or complex group structures, expert input is absolutely necessary. [Contact now for expert legal guidance](https://taxdisputes.co.uk/contact-us/)! ### FAQs on Section 396B ITTOIA When does Section 396B apply to a winding-up distribution? Section 396B applies only when all four statutory conditions (A–D) are satisfied. These include having a 5% interest in the company immediately before winding-up, the company being a close company, the individual (or a connected person) carrying on or being involved in the same or a similar trade within two years, and the winding-up having a main purpose of obtaining an Income Tax advantage. If any condition fails, the distribution remains taxed as capital. How does HMRC decide whether a new business is a “same or similar” trade? HMRC looks at what the old company actually did and compares it to what the individual or connected person does after liquidation. Minor differences—such as a new brand, different premises or changes in scale—generally do not prevent similarity. HMRC focuses on the substance of the activities, the nature of services or products offered, and whether the customers or market are materially the same. What evidence helps show that tax avoidance was not a main purpose of the liquidation? Contemporaneous documents carry the greatest weight. This includes board minutes explaining commercial reasons for closure, emails with accountants or insolvency practitioners, evidence of genuine business pressures, and any documentation showing changes in strategy, health, premises or personal circumstances. Detailed “white space” disclosures in the tax return can also help demonstrate transparency. What happens if HMRC successfully applies Section 396B? If Section 396B is triggered, the liquidation distribution is reclassified as an income distribution and taxed at dividend rates rather than Capital Gains Tax rates. This can result in much higher tax liabilities, along with interest and potentially penalties depending on HMRC’s view of the taxpayer’s behaviour. Business Asset Disposal Relief normally becomes unavailable. Can HMRC open a Section 396B enquiry after the liquidation has completed? Yes. HMRC can raise enquiries into the tax year in which the distribution was made, or issue a discovery assessment if it believes the taxpayer did not fully disclose relevant facts. Full and accurate disclosure in the tax return helps reduce this risk and may limit HMRC’s ability to rely on extended time limits. Does Section 396B affect every Members’ Voluntary Liquidation (MVL)? No. Many MVLs fall entirely outside Section 396B. Genuine retirements, career changes, cessation of trade due to commercial pressures, and liquidations linked to restructuring that does not involve continuing a similar trade typically do not meet Conditions C or D. The provision is targeted at situations HMRC considers to be phoenixing behaviour. --- # How to Challenge a VAT Assessment (2026 Guide) Source: https://taxdisputes.co.uk/2026/01/how-to-challenge-a-vat-assessment-2026-guide/ [VAT assessments](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/online-sellers-businesses-vat-compliance-hmrc-tax-liability-fraud-evasion-investigation-penalty-assessments/) issued by [HM Revenue & Customs (HMRC)](https://taxdisputes.co.uk/2024/02/hmrcs-assessment-powers/) are among the most serious and financially disruptive [enforcement tools](https://taxdisputes.co.uk/hmrc-enforcement-action/) available to the department. They can arise suddenly, cover multiple accounting periods, and involve substantial sums once tax, interest, and [penalties](https://taxdisputes.co.uk/hmrc-penalties/) are aggregated. For businesses already operating under cash-flow pressure, an unexpected VAT assessment can threaten trading continuity or trigger [insolvency](https://windinguppetitionsolicitors.co.uk/summary-determination-of-vat-appeals-in-winding%E2%80%91up-petition-proceedings-first%E2%80%91tier-tribunal-guide/) concerns. Despite HMRC’s authoritative tone, a VAT assessment is not the end of the road. UK tax law provides clear statutory rights to [challenge assessments](https://taxdisputes.co.uk/2025/10/how-to-challenge-hmrc-tax-assessments-and-protect-your-rights/), dispute HMRC’s methodology, and [appeal to an independent Tribunal](https://taxdisputes.co.uk/2025/10/first-tier-tax-tribunal-appeals-guide/). Many assessments are reduced or cancelled entirely when subjected to proper legal and evidential scrutiny. ## What Is a VAT Assessment? A VAT assessment is [HMRC’s formal determination](https://taxdisputes.co.uk/2024/02/hmrcs-assessment-powers/) that a taxpayer has underpaid VAT. Assessments are most commonly issued under [section 73 of the Value Added Tax Act 1994](https://www.legislation.gov.uk/ukpga/1994/23/section/73), where HMRC believes VAT has been misdeclared, reclaimed incorrectly, or not accounted for at all. Assessments may follow routine VAT compliance visits, targeted audits, or wider investigations triggered by discrepancies in VAT returns, sector-specific risk profiling, or information obtained from third parties. In some cases, assessments are raised many years after the relevant accounting periods, particularly where [HMRC alleges careless or deliberate conduct](https://taxdisputes.co.uk/2026/01/hmrc-behaviour-assessments-careless-deliberate-or-concealed/). Crucially, a [VAT assessment](https://taxdisputes.co.uk/2025/10/how-to-challenge-hmrc-tax-assessments-and-protect-your-rights/) represents HMRC’s view, not a judicial finding. The assessment must be legally justified, correctly calculated, and issued within statutory time limits. Each of these elements can be challenged. ## Common Reasons HMRC Issues VAT Assessments VAT assessments arise across a wide range of industries, but recurring themes appear in many [disputes](https://taxdisputes.co.uk/). HMRC frequently challenges input tax recovery, alleging that expenditure does not relate to taxable supplies or that invoices are invalid. Output tax assessments often arise where HMRC alleges undeclared sales, misclassification of supplies, or incorrect application of zero-rating or exemptions. Other common triggers include partial exemption errors, VAT grouping disputes, reverse charge failures, and alleged participation in supply chains involving missing trader fraud. In [construction](https://taxdisputes.co.uk/2021/02/construction-industry-domestic-reverse-charge-to-apply-from-1-march-2021/), assessments frequently relate to the [Domestic Reverse Charge](https://taxdisputes.co.uk/2021/02/construction-industry-domestic-reverse-charge-to-apply-from-1-march-2021/) or [zero-rating of property transactions](https://taxdisputes.co.uk/2023/03/paradise-wildlife-park-vs-hmrc-charitable-tax-exemption/). In hospitality and retail, HMRC often relies on estimated takings or till analysis. In many cases, HMRC’s conclusions rest on assumptions, indirect evidence, or sampling exercises rather than direct proof of under-declaration. This creates significant scope for challenge. ## The Legal Framework for Challenging a VAT Assessment VAT appeals are governed by the [Value Added Tax Act 1994 ](https://www.legislation.gov.uk/ukpga/1994/23/contents)and [the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules](https://www.legislation.gov.uk/uksi/2009/273/contents). A taxpayer has a [statutory right to appeal](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/) a VAT assessment to [the First-tier Tribunal (Tax Chamber)](http://the First-tier Tribunal (Tax Chamber)). Before an appeal reaches the Tribunal, the taxpayer must usually notify [HMRC of the appeal within 30 days of the assessment being issued](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/). The appeal can be accompanied by a request for a [statutory review](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/), which requires an HMRC officer to reconsider the decision. Alternatively, the taxpayer may proceed directly to Tribunal. The Tribunal hears VAT appeals on a full merits basis. This means it is not limited to reviewing HMRC’s process but can re-examine the facts, evidence, and law from the beginning and substitute its own decision. ## Time Limits and HMRC’s Powers A critical aspect of challenging a VAT assessment is determining whether HMRC was entitled to issue it at all. Under [section 73(6) VATA 1994](https://www.legislation.gov.uk/ukpga/1994/23/section/73), HMRC must generally issue an assessment within four years of the end of the relevant VAT period. This extends to six years where the under-declaration is alleged to be careless and up to twenty years where HMRC alleges deliberate conduct. Tribunals regularly scrutinise [HMRC’s behaviour allegations](https://taxdisputes.co.uk/2026/01/hmrc-behaviour-assessments-careless-deliberate-or-concealed/) because they directly affect time limits and penalty exposure. Where HMRC cannot prove careless or deliberate conduct, assessments issued outside the standard time limit may be invalid. Case law confirms that HMRC bears the burden of proving dishonesty or deliberate conduct. Assertions alone are insufficient. ## Challenging HMRC’s Methodology and Estimates Many VAT assessments are based on estimates rather than precise calculations. HMRC is permitted to estimate under-declared VAT where records are incomplete, but the estimate must be reasonable and grounded in evidence. In **[Rahman t/a Khayam Restaurant v HMRC](https://taxdisputes.co.uk/wp-content/uploads/2026/01/Rahman-Khayam-Restaurant-v-HMRC.pdf)**, the Tribunal emphasised that HMRC’s assessment must be “best judgment” and not arbitrary. This requires HMRC to take reasonable steps to arrive at a fair figure, consider alternative explanations, and engage with the taxpayer’s evidence. Where HMRC relies on sampling, extrapolation, or industry benchmarks, these methods can be challenged if they do not accurately reflect the taxpayer’s actual trading position. In many cases, Tribunal appeals succeed because HMRC’s methodology is shown to be fundamentally flawed. ## Input Tax Disallowance and Kittel Allegations A frequent basis for VAT assessments is the disallowance of input tax on the grounds that the taxpayer “knew or should have known” that transactions were connected with fraud. This principle derives from the ECJ decision in **[Kittel v Belgium](https://taxdisputes.co.uk/wp-content/uploads/2025/08/Kittel-v-Belgium.pdf)**. HMRC often seeks to apply Kittel aggressively, particularly in sectors involving high-value goods or complex supply chains. However, the legal threshold is high. HMRC must prove not only that fraud occurred somewhere in the supply chain but that the taxpayer had actual or constructive knowledge of it. Tribunals consistently [reject Kittel assessments where HMRC relies on hindsight](https://taxdisputes.co.uk/2025/08/hmrc-loses-9-3m-kittel-vat-case-what-it-means-for-businesses-facing-allegations-of-fraud/), generalised risk factors, or industry-wide suspicion rather than evidence specific to the taxpayer. ## Appealing a VAT Assessment to the Tribunal Once an [appeal is lodged](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/), HMRC is required to produce a Statement of Case setting out the legal and factual basis for the assessment. This often reveals weaknesses in HMRC’s position that were not apparent from earlier correspondence. The Tribunal process involves exchange of evidence, [witness statements](https://taxdisputes.co.uk/taxpayer-witness-statement-drafting-representation-hmrc-advice/), and [legal submissions](https://taxdisputes.co.uk/legal-representation/). Unlike HMRC reviews, the Tribunal is independent and not bound by HMRC guidance. Judges frequently remind HMRC that internal manuals do not override statute or case law. Importantly, the Tribunal has the power to cancel assessments entirely, reduce them, or remit matters back to HMRC for reconsideration. ## Payment, Postponement, and Cash-Flow Protection One of the most pressing concerns for businesses facing VAT assessments is whether payment must be made while an appeal is ongoing. In most VAT cases, payment is automatically suspended once a valid appeal is lodged. HMRC may apply for a direction requiring payment, but the Tribunal will consider [hardship](https://taxdisputes.co.uk/hmrc-hardship-application-dispute-vat-assessment-appeal-tribunal-successful-outcome/) and fairness before granting such an order. This protection is vital. It allows businesses to defend assessments without suffering immediate financial collapse. However, procedural errors can undermine these safeguards, making [early legal advice](http://taxdisputes.co.uk) essential. ## Penalties and Behaviour Classification VAT assessments are often accompanied by penalty assessments under [Schedule 24 Finance Act 2007](https://www.legislation.gov.uk/ukpga/2007/11/schedule/24/enacted). [Penalty](https://taxdisputes.co.uk/hmrc-penalties/) levels depend on whether HMRC categorises the behaviour as careless, deliberate, or deliberate and concealed. Many penalty assessments fall away once the substantive VAT assessment is successfully challenged. Even where VAT adjustments remain, penalties can often be reduced or cancelled entirely where the taxpayer demonstrates reasonable care, reliance on professional advice, or full cooperation. Tribunal decisions repeatedly stress that errors do not automatically equate to careless behaviour. ## Strategic Considerations When Challenging an Assessment Successfully [challenging a VAT assessment](https://taxdisputes.co.uk/2025/10/how-to-challenge-hmrc-tax-assessments-and-protect-your-rights/) requires more than disputing figures. It involves understanding HMRC’s internal reasoning, identifying procedural weaknesses, and presenting evidence in a legally coherent way. [Early engagement](https://taxdisputes.co.uk/legal-representation/) can prevent matters escalating into allegations of dishonesty or wider investigations. Conversely, informal or poorly framed responses can entrench HMRC’s position and increase risk. In many cases, decisive intervention before the appeal deadline significantly improves outcomes. ## Why Specialist VAT Dispute Advice Matters VAT assessments sit at the intersection of tax law, evidence, and procedure. They often involve complex factual analysis and aggressive HMRC positions. Businesses that attempt to manage appeals without specialist support frequently underestimate the evidential burden and strategic complexity involved. [Experienced VAT dispute lawyers ](https://lexlaw.co.uk/andrew-young/)understand how HMRC builds cases, how Tribunals assess credibility, and how to deploy case law effectively. This expertise often makes the difference between cancellation, reduction, or prolonged litigation. ## HMRC VAT Disputes: Legal Advice & Representation Challenging a VAT assessment is a legal process, not an administrative formality. The financial and commercial consequences can be severe, but UK law provides robust protections for taxpayers who act promptly and strategically. [Specialist VAT dispute teams](https://lexlaw.co.uk/our-people/) regularly assist businesses facing assessments, penalty exposure, and enforcement risk. From early-stage representations to full Tribunal advocacy, professional support ensures that HMRC’s assumptions are tested, statutory safeguards are enforced, and disputes are resolved on a fair and lawful basis. If your business has received a VAT assessment or is under HMRC investigation, early advice is critical. Timely action can preserve cash-flow, prevent escalation, and significantly improve the prospects of a successful challenge. [Contact us](https://lexlaw.co.uk/contact-us/) today for expert legal guidance and proactive representation. --- # HMRC Discovery Assessments Explained Source: https://taxdisputes.co.uk/2026/05/hmrc-discovery-assessments-explained/ *When taxpayers believe a tax year is closed, an unexpected HMRC discovery assessment can arrive with little warning, reopening matters they considered long resolved. These assessments are among the most contentious tools available to HMRC, carrying significant financial and legal consequences. Whether you are an individual, a business owner, or a company director, understanding what a discovery assessment is, when it can lawfully be issued, and how it can be challenged is critical to protecting your position. This guide sets out the essential legal framework in plain terms.* ## What Is an HMRC Discovery Assessment? A discovery assessment is a formal notice issued by [HMRC](https://taxdisputes.co.uk/2026/03/ultimate-guide-to-avoiding-paye-nic-penalties-in-2026/) under section 29 of the Taxes Management Act 1970. It allows HMRC to assess a taxpayer for additional tax in respect of a year of assessment that has already passed, even where a tax return was filed and accepted at the time. The legal basis for such an assessment is that [HMRC](https://taxdisputes.co.uk/2026/03/ultimate-guide-to-avoiding-paye-nic-penalties-in-2026/) has made a "discovery" that income or gains have been insufficient assessed, or that an excessive loss or relief has been claimed. The concept of discovery is broader than it first appears. It is not limited to new information coming to light from an external source. [HMRC](https://taxdisputes.co.uk/2026/05/late-self-assessment-tax-returns-hmrc-penalties-and-enforcement-process/) officers can rely on information already held within their own systems if they form the view, upon fresh consideration, that tax has been lost. This wide interpretation has been a persistent source of dispute between taxpayers and [HMRC](https://taxdisputes.co.uk/2026/05/late-self-assessment-tax-returns-hmrc-penalties-and-enforcement-process/), and it is precisely the kind of scenario where taking [specialist tax dispute advice](https://taxdisputes.co.uk/) at an early stage can make a decisive difference. If you have received a discovery assessment or are concerned that one may be forthcoming, early [legal guidance ](https://lexlaw.co.uk/contact-us/)is strongly advisable before responding to [HMRC](https://taxdisputes.co.uk/2026/05/late-self-assessment-tax-returns-hmrc-penalties-and-enforcement-process/). ## When Can HMRC Issue a Discovery Assessment? [HMRC ](https://taxdisputes.co.uk/2026/05/late-self-assessment-tax-returns-hmrc-penalties-and-enforcement-process/)cannot issue a discovery assessment simply because it changes its view of an established legal position or because an officer now considers a previously accepted return to have been incorrect. The legislation imposes strict conditions that must be satisfied before a discovery assessment is valid. First, [HMRC](https://taxdisputes.co.uk/2026/05/late-self-assessment-tax-returns-hmrc-penalties-and-enforcement-process/) must have made a genuine discovery that a taxpayer's chargeable income or gains have been under-assessed. Second, and critically, the discovery assessment is only available where the loss of tax is attributable to certain causes. If an [HMRC](https://taxdisputes.co.uk/2026/05/late-self-assessment-tax-returns-hmrc-penalties-and-enforcement-process/) officer could not reasonably have been expected to be aware of the under-assessment at the time the enquiry window closed, a standard four-year time limit applies. Where the loss of tax is attributable to careless conduct by the taxpayer or their agent, the time limit extends to six years. Where deliberate conduct is involved, HMRC has up to twenty years to issue a discovery assessment. The distinction between [careless and deliberate](https://taxdisputes.co.uk/2026/01/hmrc-behaviour-assessments-careless-deliberate-or-concealed/) conduct is therefore fundamental to the scope of [HMRC](https://taxdisputes.co.uk/2026/01/how-to-challenge-a-vat-assessment-2026-guide/)'s powers. Careless conduct generally means a failure to take reasonable care in submitting returns or documents. Deliberate conduct implies an intentional suppression or misrepresentation of information. The classification has profound implications, not only for the time limit applicable, but also for any penalties that may accompany the assessment. Understanding where your circumstances fall within these legal thresholds is not straightforward, and professional advice from a firm experienced in [complex tax and regulatory disputes](https://lexlaw.co.uk/) can help clarify your exposure before a formal response is submitted. ## Discovery Assessment vs Standard HMRC Enquiry: Key Differences It is essential to distinguish between a discovery assessment and a standard HMRC enquiry, as the legal rights and procedural options available to a taxpayer differ significantly between the two. | Feature | HMRC Discovery Assessment | Standard HMRC Enquiry | | ------- | ------------------------- | --------------------- | | **Legal Basis** | Section 29, Taxes Management Act 1970 | Section 9A / 12AC, Taxes Management Act 1970 | | **Standard Time Limit** | 4 years from end of tax year | Must be opened within 12 months of filing date | | **Extended Time Limit (Careless)** | 6 years from end of tax year | Not applicable (separate penalty provisions apply) | | **Extended Time Limit (Deliberate)** | 20 years from end of tax year | Not applicable | | **Scope** | Targeted at specific under-assessed income or gains | Can be a full or aspect enquiry into the entire return | | **Precondition** | HMRC must have made a valid "discovery" | No precondition beyond filing a return | | **Challenge Mechanism** | Appeal to First-tier Tribunal; procedural challenges available | Appeal or application to close enquiry via Tribunal | | **Legal Risk Level** | High — can extend to insolvency proceedings in serious cases | Medium — determined by scope and findings of enquiry | | **Penalty Exposure** | Significant, linked to conduct classification | Moderate, with mitigation available through disclosure | ## How to Challenge a Discovery Assessment A [discovery assessment](https://taxdisputes.co.uk/2026/05/no-penalties-without-notice-gerrit-wals-v-hmrc-2026/) is not automatically valid simply because [HMRC](https://taxdisputes.co.uk/2026/05/no-penalties-without-notice-gerrit-wals-v-hmrc-2026/) has issued it. Taxpayers have a right of appeal and several substantive grounds on which an assessment can be challenged, reduced, or set aside entirely. The most fundamental challenge is to the validity of the discovery itself. If [HMRC](https://taxdisputes.co.uk/2026/05/no-penalties-without-notice-gerrit-wals-v-hmrc-2026/) cannot demonstrate that a genuine discovery was made, or if the information underlying the assessment was already available to the officer at the time the enquiry window closed, the assessment may be flawed as a matter of law. This is known as a "staleness" argument, and it has proved an effective line of defence in many cases. Procedural grounds also arise frequently. [HMRC](https://taxdisputes.co.uk/2026/05/late-self-assessment-tax-returns-hmrc-penalties-and-enforcement-process/) must follow its own published guidance and statutory obligations in the process of raising and issuing assessments. Errors in procedure or failures of natural justice can provide additional grounds of challenge, particularly when combined with substantive arguments on quantum or liability. Where a taxpayer faces both a discovery assessment and broader financial pressure, the risk of escalation into debt enforcement or, in the most serious cases, winding-up proceedings should not be underestimated. The team at [winding-up petition](https://windinguppetitionsolicitors.co.uk/) can advise on protecting your business interests if [HMRC](https://taxdisputes.co.uk/2026/05/late-self-assessment-tax-returns-hmrc-penalties-and-enforcement-process/) has moved beyond assessment into enforcement action. ## Defence Strategies and Procedural Arguments Building an effective defence to a [discovery assessment](https://taxdisputes.co.uk/2026/05/late-self-assessment-tax-returns-hmrc-penalties-and-enforcement-process/) requires a careful analysis of the legal, factual, and procedural position. There is rarely a single line of argument that resolves matters on its own. Experienced Tax Counsel will typically pursue a layered strategy that addresses validity, conduct classification, quantum, and procedure in parallel. On the question of validity, the enquiry focuses on what the hypothetical [HMRC](https://taxdisputes.co.uk/2026/05/late-self-assessment-tax-returns-hmrc-penalties-and-enforcement-process/) officer could reasonably have been expected to be aware of at the relevant time. This involves a careful review of the information that was submitted to [HMRC](https://taxdisputes.co.uk/2026/05/late-self-assessment-tax-returns-hmrc-penalties-and-enforcement-process/), what was publicly available, and what internal [HMRC](https://taxdisputes.co.uk/2026/05/late-self-assessment-tax-returns-hmrc-penalties-and-enforcement-process/) data existed. If the information was already in [HMRC's](https://taxdisputes.co.uk/2026/05/late-self-assessment-tax-returns-hmrc-penalties-and-enforcement-process/) possession and the failure was simply a failure to act upon it in time, the discovery may lack a valid legal foundation. The [tax disputes specialists](https://taxdisputes.co.uk/) at LexLaw are experienced in handling precisely these layered arguments, both in pre-Tribunal negotiations with HMRC and in formal Tribunal proceedings where settlement cannot be reached. If matters remain unresolved, the First-tier Tribunal (Tax Chamber) provides an independent judicial forum in which the merits of the [assessment](https://taxdisputes.co.uk/2022/09/robert-don-hunter-dougan-v-hmrc-ftt-cancels-discovery-assessments-and-late-filing-penalties/) can be fully tested. Preparation for Tribunal proceedings requires detailed witness evidence, legal submissions, and expert reports where figures are in dispute. Investing in proper legal representation at an early stage significantly improves the prospects of a successful outcome. Where the sums at issue are substantial or where HMRC has indicated an intention to pursue enforcement, seeking immediate advice from [LEXLAW's specialist legal team](https://lexlaw.co.uk/) can help prevent an escalating situation from becoming irreversible. ### Frequently Asked Questions (FAQ's) 1. What is the difference between a discovery assessment and a tax investigation? A tax investigation, or enquiry, is opened by HMRC while a tax return is still within the enquiry window. HMRC writes to inform the taxpayer that it is checking their return and may request information, documents or explanations. A discovery assessment, by contrast, is issued after the enquiry window has closed. It is HMRC's mechanism for recovering tax it believes was under-assessed in a year that would otherwise be considered final. The two processes carry different procedural rules and different grounds of challenge, which is why identifying the correct legal framework from the outset is essential. 2. How far back can HMRC go with a discovery assessment? The answer depends on the nature of the conduct alleged. In ordinary circumstances, where there is no suggestion of careless or deliberate conduct, HMRC has four years from the end of the relevant tax year to issue a discovery assessment. Where careless conduct is in issue, this extends to six years. In cases of deliberate conduct, meaning an intentional failure to disclose income or an active attempt to mislead HMRC, the time limit extends to twenty years. These are not merely administrative guidelines; they are statutory limits, and an assessment issued outside the applicable period is unlawful and can be overturned on appeal. 3. Can I challenge HMRC's classification of my conduct? Yes, and doing so is often one of the most important elements of any defence. The classification of conduct as careless or deliberate is a legal determination, not simply a matter of HMRC's opinion. If HMRC seeks to rely on an extended time limit by characterising your conduct as careless or deliberate, it must be able to support that characterisation on the facts. In many cases, what HMRC labels as careless conduct may on proper analysis amount to nothing more than an innocent error or an ambiguity in the law, neither of which should justify an extended time limit. A successful challenge to the conduct classification can render the assessment out of time and therefore invalid. 4. What is a "staleness" argument in the context of a discovery assessment? The staleness argument is a procedural challenge to the validity of the discovery itself. The law requires that HMRC's discovery be genuine, in the sense that the officer forms a fresh view that tax has been lost. If the information on which HMRC relies was already available to it at the time the enquiry window closed, and if a diligent officer would have acted on it at that time, the discovery may be considered "stale." A stale discovery cannot support a valid assessment. This argument has been recognised as a legitimate line of challenge and, where the factual evidence supports it, can be highly effective in defeating an assessment without the need to address the substantive tax question at all. 5. What happens if I ignore a discovery assessment? Ignoring a discovery assessment is one of the most serious mistakes a taxpayer can make. If no appeal is lodged within the required thirty-day period, the assessment becomes final and the tax becomes immediately due and payable. HMRC can then pursue enforcement action, which may include the issue of a formal debt demand, the commencement of county court or High Court proceedings, and in serious cases, the presentation of a winding-up petition against a company or a bankruptcy petition against an individual. Once an assessment becomes final through failure to appeal, the grounds for challenge are significantly narrowed. --- # Schedule 36 Notices Explained: Your Rights and Obligations Source: https://taxdisputes.co.uk/2026/03/schedule-36-notices-explained-your-rights-and-obligations/ Schedule 36 notices form part of [HM Revenue & Customs](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/)’ statutory powers under the [Finance Act 2008](https://www.legislation.gov.uk/ukpga/2008/9/contents), enabling the inspection of records and information to ensure accurate tax reporting. These notices can apply to both individuals and companies, covering income tax, corporate tax, [VAT](https://taxdisputes.co.uk/hmrc-vat-investigations-evasion-input-ouput-double-taxation-tribunal-legal-advice/), and PAYE obligations. Properly responding to a Schedule 36 notice requires a clear understanding of your rights, including limitations on the scope and duration of requests. For business owners and directors, [legal advice](https://lexlaw.co.uk/) is often essential to manage responses, prevent inadvertent errors, and minimise the risk of [penalties](https://taxdisputes.co.uk/hmrc-penalties/). This tax investigations guide provides in-depth resources on [HMRC](https://taxdisputes.co.uk/hmrc-penalties/) compliance. ### Understanding Schedule 36 Notices [Schedule 36 ](https://taxdisputes.co.uk/2013/12/disclosure-to-hmrc-implications-of-schedule-36-information-notice/)notices allow [HMRC ](https://taxdisputes.co.uk/hmrc-penalties/)to request documents, explanations, or access to records relevant to a taxpayer’s liabilities. The notices are issued when [HMRC ](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/)identifies potential discrepancies, unusual transactions, or when a deeper audit is warranted. Compliance with these notices is legally binding, but taxpayers retain rights to challenge requests that are disproportionate or beyond the scope of statutory authority. [Schedule 36](https://taxdisputes.co.uk/2013/12/disclosure-to-hmrc-implications-of-schedule-36-information-notice/) can encompass a wide range of information, including financial records, contracts, invoices, and correspondence. Notices are typically time-bound, requiring responses within a reasonable period, but the timeline can vary depending on the complexity of the investigation. Engaging legal counsel early ensures responses are thorough, accurate, and legally compliant. ### Your Legal Rights Taxpayers have several important rights when responding to a[ Schedule 36 notice](https://taxdisputes.co.uk/2013/12/disclosure-to-hmrc-implications-of-schedule-36-information-notice/). They have the right to clarity, meaning [HMRC ](https://taxdisputes.co.uk/hmrc-penalties/)must specify which records are required and why they are relevant. Taxpayers also have the right to challenge overbroad requests if they are not proportional or exceed [HMRC](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/)’s statutory powers. Additionally, individuals and businesses have the right to reasonable time to collect, review, and submit the requested documentation. Finally, taxpayers have the right to legal representation, enabling solicitors to handle responses and communications with[ HMRC](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/). Understanding and exercising these rights helps prevent over-disclosure, ensures proper document management, and reduces the risk of penalties. [Legal guidance](https://lexlaw.co.uk/) allows taxpayers to distinguish between routine compliance checks and enquiries that could escalate into more serious investigations. ### How to Respond Effectively Responding to a[ Schedule 36](https://taxdisputes.co.uk/2013/12/disclosure-to-hmrc-implications-of-schedule-36-information-notice/) notice involves more than simply providing documents. The first step is to conduct a thorough review of all requested records to ensure they are accurate, complete, and properly organised. Responses must be submitted within the stated timeframe, but extensions can be requested if necessary. It is strongly advised that a solicitor reviews all submissions to verify compliance and avoid inadvertent admissions. Taxpayers should also ensure that [HMRC’](https://taxdisputes.co.uk/hmrc-penalties/)s requests are reasonable in scope and formally object to any that are excessive or irrelevant. Maintaining professional and documented communication with[ HMRC](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) throughout the process demonstrates good faith and reduces the risk of penalties, audits, or prolonged investigations. ### Implications for Businesses and Individuals [Schedule 36](https://taxdisputes.co.uk/2013/12/disclosure-to-hmrc-implications-of-schedule-36-information-notice/) notices can intersect with broader business and personal risks, particularly for directors and high-net-worth individuals. For companies, compliance checks can highlight weaknesses in internal controls, accounting practices, and corporate governance. Directors must ensure that pre-insolvency transactions, unusual payments, or related-party dealings are accurately recorded and disclosed. Individuals with complex financial arrangements, such as multiple income streams or offshore accounts, should take particular care when preparing for a Schedule 36 notice. Timely and structured legal advice ensures responses are accurate, protects personal and corporate interests, and demonstrates good faith to [HMRC](https://taxdisputes.co.uk/hmrc-penalties/). The use of data analytics by [HMRC](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) to identify discrepancies makes thorough record-keeping and expert [legal support](https://lexlaw.co.uk/) increasingly important in preventing disputes and minimising exposure. ### Defending Against Overbroad Requests Taxpayers can take tactical steps if a [Schedule 36](https://taxdisputes.co.uk/2013/12/disclosure-to-hmrc-implications-of-schedule-36-information-notice/) notice appears excessive or unreasonable. This includes formally objecting to requests that are irrelevant to the tax period or liability under review, and engaging with [HMRC](https://taxdisputes.co.uk/hmrc-penalties/) to clarify and narrow the documents required. Conducting detailed accounting reviews before submission allows taxpayers to identify errors or inconsistencies and correct them in advance. Where full disclosure would be disproportionate, negotiations can be made to agree on phased or partial submissions. [LEXLAW](https://lexlaw.co.uk/contact-us/)’s experience demonstrates that structured legal strategies can protect clients while ensuring compliance and maintaining a constructive relationship with [HMRC](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/). ## Consequences of Ignoring a Schedule 36 Notice Failing to respond to a [Schedule 36](https://taxdisputes.co.uk/2013/12/disclosure-to-hmrc-implications-of-schedule-36-information-notice/) notice can have serious consequences. [HMRC](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) may impose penalties for non-compliance, make additional tax assessments based on available information, or escalate the matter to a more formal investigation. In extreme cases, persistent failure to cooperate could lead to legal proceedings, increased scrutiny on previous filings, and reputational risks for directors and business owners. Engaging [legal advice](https://lexlaw.co.uk/) promptly not only ensures compliance but also helps mitigate these potential consequences by demonstrating good faith and facilitating a structured, accurate response. ### Frequently Asked Questions (FAQ's) What is a Schedule 36 notice and when can HMRC issue one? A Schedule 36 notice is a statutory instrument under the Finance Act 2008 that allows HMRC to request documents, explanations, or access to records relevant to a taxpayer’s liabilities. HMRC may issue such notices when they identify potential discrepancies, unusual transactions, or when a deeper review of tax filings is warranted. What are my legal rights when responding to a Schedule 36 notice? Taxpayers have several key legal rights when responding to a Schedule 36 notice. These include the right to clarity, meaning HMRC must specify which records are required and why; the right to challenge requests that are overbroad or disproportionate; the right to a reasonable period to gather and submit information; and the right to legal representation to manage communications with HMRC. Exercising these rights effectively ensures compliance while protecting against unnecessary or excessive demands. How long do I have to respond to a Schedule 36 notice? The period for response will be stated within the notice itself, and HMRC generally allows a reasonable timeframe to gather the requested records. The exact duration depends on the complexity of the enquiry and the volume of documentation requested. Where additional time is required, taxpayers can formally request an extension. Engaging legal advice promptly can help negotiate reasonable deadlines and ensure that all submissions remain compliant and complete. Can I challenge or limit an overbroad Schedule 36 request? Yes, taxpayers can challenge requests that appear to exceed HMRC’s statutory authority or are disproportionate to the tax enquiry What happens if I fail to comply with a Schedule 36 notice? Failure to respond to a Schedule 36 notice can lead to serious consequences. HMRC may impose penalties, make additional tax assessments, or escalate the matter to a formal investigation. --- # Careless vs Deliberate PAYE Failures: Penalty Exposure Explained Source: https://taxdisputes.co.uk/2026/02/careless-vs-deliberate-paye-failures-penalty-exposure-explained/ Facing a [PAYE](https://taxdisputes.co.uk/2025/10/late-payment-of-paye-nic-penalties-reasonable-excuse-and-appeals/) penalty from [HMRC](https://taxdisputes.co.uk/hmrc-penalties/) can be stressful and confusing. You may have received a notice for late or incorrect payments, or discovered that [HMRC](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) has classified your conduct as careless or deliberate, raising your potential financial exposure. This article explores how [HMRC](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) determines behavioural classifications, the differences between careless and deliberate failures, the impact on [penalty exposure ](https://taxdisputes.co.uk/hmrc-penalties/)and assessment time limits, and the practical implications of escalation, providing context so you understand the issues involved. ### The Legal Framework for PAYE Behavioural Penalties [PAYE](https://taxdisputes.co.uk/2025/10/late-payment-of-paye-nic-penalties-reasonable-excuse-and-appeals/) behavioural penalties are governed by Schedule 24 to the [Finance Act 2007](https://www.legislation.gov.uk/ukpga/2007/11/contents). The legislation applies where a taxpayer gives [HMRC](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) a document containing an inaccuracy that results in an understatement of tax, or where tax is not assessed correctly because required information was not provided. In [PAYE](https://taxdisputes.co.uk/2025/10/late-payment-of-paye-nic-penalties-reasonable-excuse-and-appeals/) cases, this commonly arises through incorrect Real Time Information submissions, failure to account for [PAYE](https://taxdisputes.co.uk/2026/01/hmrc-paye-enforcement-powers-from-notices-to-insolvency-action/) deducted from employees, or misclassification of earnings. The statute requires [HMRC](https://taxdisputes.co.uk/hmrc-penalties/) to determine the behaviour that led to the inaccuracy. A failure is careless if the employer did not take reasonable care. It is deliberate if the employer knew the return or submission was wrong and chose not to correct it. [Deliberate and concealed behaviour](https://taxdisputes.co.uk/2026/01/hmrc-behaviour-assessments-careless-deliberate-or-concealed/) requires an additional element of active concealment. The behavioural finding dictates both the penalty range and the time limits available to HMRC for assessment. PAYE is treated more harshly in practice than some other taxes because employers hold [PAYE](https://taxdisputes.co.uk/2026/01/hmrc-paye-enforcement-powers-from-notices-to-insolvency-action/) amounts on trust for [HMRC](https://taxdisputes.co.uk/hmrc-interviews/). Where deductions have been made from employees but not paid over, [HMRC](https://taxdisputes.co.uk/hmrc-penalties/) often views the failure through a compliance and integrity lens rather than as a simple accounting error. That approach is frequently contested, and careful legal analysis is required to test whether [HMRC’s interpretation of behaviour ](https://taxdisputes.co.uk/2026/01/hmrc-behaviour-assessments-careless-deliberate-or-concealed/)is supported by evidence. [LEXLAW](https://lexlaw.co.uk/contact-us/) regularly advises employers where [HMRC’s characterisation ](https://taxdisputes.co.uk/2026/01/hmrc-behaviour-assessments-careless-deliberate-or-concealed/)goes beyond what the facts justify. ### What HMRC Means by a Careless PAYE Failure A careless [PAYE failure](https://taxdisputes.co.uk/2026/01/hmrc-paye-enforcement-powers-from-notices-to-insolvency-action/) arises where an employer has not taken reasonable care to comply with its [PAYE obligations](https://taxdisputes.co.uk/paye-tax-investigation-disputes/). In practice, [HMRC](https://taxdisputes.co.uk/hmrc-tax-investigations/) often accepts that behaviour is careless where errors result from misunderstanding complex payroll rules, reliance on incorrect professional advice, software problems, or administrative failures that were not intentional. [Penalty](https://taxdisputes.co.uk/hmrc-penalties/) ranges for [careless behaviour](https://taxdisputes.co.uk/2026/01/hmrc-behaviour-assessments-careless-deliberate-or-concealed/) are lower, and mitigation is available through unprompted or prompted disclosure. [HMRC ](https://taxdisputes.co.uk/hmrc-tax-appeals/)is also required to consider suspension of penalties in certain careless cases, particularly where future compliance conditions can be imposed. Disputes arise because [HMRC](https://taxdisputes.co.uk/hmrc-tax-appeals/) sometimes equates repeated non-payment or persistent errors with a lack of reasonable care, even where there is evidence of attempts to comply. Employers frequently assume that cash-flow problems automatically justify a careless classification, but [HMRC](https://taxdisputes.co.uk/hmrc-penalties/) does not accept financial difficulty as a defence to penalties. The real issue is whether reasonable care was taken in managing [PAYE obligations](https://taxdisputes.co.uk/2025/10/late-payment-of-paye-nic-penalties-reasonable-excuse-and-appeals/) alongside those difficulties. These cases often turn on detailed evidence about systems, advice received, and internal decision-making. [Specialist legal advice](https://lexlaw.co.uk/contact-us/) is commonly needed to demonstrate that [HMRC](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) has overstated the level of culpability. [LEXLAW ](https://lexlaw.co.uk/contact-us/)regularly challenges careless classifications that are based on assumption rather than proof. ### When HMRC Alleges Deliberate PAYE Conduct [HMRC](https://taxdisputes.co.uk/hmrc-interviews/) alleges deliberate [PAYE behaviour](https://taxdisputes.co.uk/2026/01/hmrc-behaviour-assessments-careless-deliberate-or-concealed/) where it believes the employer knowingly failed to operate [PAYE](https://taxdisputes.co.uk/2026/01/hmrc-paye-enforcement-powers-from-notices-to-insolvency-action/) correctly or deliberately chose not to pay over deductions. This may include situations where payroll was manipulated, earnings were knowingly excluded, or [PAYE](https://taxdisputes.co.uk/2026/01/hmrc-paye-enforcement-powers-from-notices-to-insolvency-action/) funds were diverted to meet other liabilities. In many [PAYE disputes](https://taxdisputes.co.uk/2026/01/hmrc-paye-enforcement-powers-from-notices-to-insolvency-action/), [HMRC ](https://taxdisputes.co.uk/hmrc-enforcement-action/)does not rely on direct evidence of intent. Instead, it infers [deliberate behaviour](https://taxdisputes.co.uk/2026/01/hmrc-behaviour-assessments-careless-deliberate-or-concealed/) from patterns such as [repeated late payment](https://taxdisputes.co.uk/2025/10/late-payment-of-paye-nic-penalties-reasonable-excuse-and-appeals/), ongoing arrears, or inconsistent explanations. While such factors can be relevant, they are not determinative. [Deliberate behaviour](https://taxdisputes.co.uk/2026/01/hmrc-behaviour-assessments-careless-deliberate-or-concealed/) requires knowledge and choice, not merely persistence of error or financial pressure. A deliberate finding dramatically increases penalty exposure and extends [HMRC’s assessment window](https://taxdisputes.co.uk/2025/10/how-to-challenge-hmrc-tax-assessments-and-protect-your-rights/). It also increases the risk of escalation into civil fraud investigations. Given the seriousness of such allegations, early legal intervention is critical. Firms such as [LEXLAW](https://lexlaw.co.uk/contact-us/) specialise in [PAYE disputes](https://taxdisputes.co.uk/2026/01/hmrc-paye-enforcement-powers-from-notices-to-insolvency-action/) where [HMRC](https://taxdisputes.co.uk/hmrc-penalties/) alleges intent without sufficient evidential foundation. ### Penalty Exposure Compared | Behaviour | Penalty Range | Disclosure | Assessment | Escalation Risk | | --------- | ------------- | ---------- | ---------- | --------------- | | Careless | Lower statutory range | Reduced penalties for disclosure | Standard extended limits | Limited | | Deliberate | Significantly higher | Disclosure less effective | Extended assessment period | High | | Deliberate and concealed | Maximum exposure | Minimal mitigation | Longest assessment window | Very high | The table illustrates how behavioural classification drives outcomes. The same [PAYE](https://taxdisputes.co.uk/2025/10/late-payment-of-paye-nic-penalties-reasonable-excuse-and-appeals/) shortfall can produce radically different consequences depending on [HMRC’s view of conduct](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/). This is why behavioural disputes often become the central battleground rather than the underlying tax calculation. ### Assessment Time Limits and Escalation Risk Behaviour directly affects how far back [HMRC](https://taxdisputes.co.uk/2025/10/how-to-challenge-hmrc-tax-assessments-and-protect-your-rights/) can assess [PAYE liabilities](https://taxdisputes.co.uk/2025/10/late-payment-of-paye-nic-penalties-reasonable-excuse-and-appeals/). Careless behaviour allows [HMRC to assess over a longer period](https://taxdisputes.co.uk/2025/10/how-to-challenge-hmrc-tax-assessments-and-protect-your-rights/) than innocent error, while deliberate behaviour opens the door to significantly extended time limits. In [PAYE cases](https://taxdisputes.co.uk/2025/10/late-payment-of-paye-nic-penalties-reasonable-excuse-and-appeals/), this can bring historic periods back into scope that employers assumed were closed. Deliberate findings also increase the likelihood of escalation into [COP 8](https://taxdisputes.co.uk/tax-avoidance-cop-8-investigations-solicitors-london/) or [COP 9 investigations](https://taxdisputes.co.uk/tax-evasion-hmrc-code-practice-9-investigations/), particularly where [HMRC](https://taxdisputes.co.uk/hmrc-penalties/) believes [PAYE ](https://taxdisputes.co.uk/paye-tax-investigation-disputes/)was knowingly withheld. How an employer responds at an early stage can influence whether a case escalates or remains a penalty dispute. This is an area where [experienced tax dispute solicitors](https://lexlaw.co.uk/contact-us/) play a critical role in controlling risk and narrative. ### Challenging HMRC’s Behavioural Classification Employers can [challenge PAYE penalties](https://taxdisputes.co.uk/paye-tax-investigation-disputes/) through statutory appeal, internal [HMRC](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/) review, and ultimately the [First-tier Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/). [HMRC](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) bears the burden of proving deliberate behaviour, but in practice that burden is often discharged through inference unless it is actively contested. Successful challenges focus on contemporaneous evidence, decision-making processes, and the distinction between inability to pay and intention not to comply. Tribunal decisions repeatedly emphasise that [deliberate behaviour ](https://taxdisputes.co.uk/2026/01/hmrc-behaviour-assessments-careless-deliberate-or-concealed/)cannot be assumed simply because [PAYE](https://taxdisputes.co.uk/2026/01/hmrc-paye-enforcement-powers-from-notices-to-insolvency-action/) remained unpaid. Given the financial and reputational consequences of adverse findings, many employers instruct specialist advisers at an early stage. [LEXLAW](https://lexlaw.co.uk/contact-us/) acts in PAYE penalty appeals where [behavioural classification is disputed](https://taxdisputes.co.uk/2026/01/hmrc-behaviour-assessments-careless-deliberate-or-concealed/), often resolving matters before escalation into litigation. ### Frequently Asked Questions (FAQ's) Does late payment of PAYE automatically mean deliberate behaviour? No. Late payment alone does not establish intent. HMRC must show that the employer knowingly chose not to comply, rather than being unable to pay despite reasonable care. Can careless PAYE penalties be suspended? Yes, in appropriate cases. HMRC must consider suspension where conditions can be set to improve future compliance. How does HMRC prove deliberate behaviour? HMRC relies on evidence of knowledge and choice, often inferred from patterns. These inferences can be challenged with proper evidence. Does reliance on an accountant amount to reasonable care? It can, depending on the circumstances. Reliance must be reasonable, and advice must relate to the relevant PAYE issue. How far back can HMRC assess PAYE where behaviour is deliberate? Deliberate behaviour allows HMRC to assess over significantly extended periods, bringing historic liabilities into scope. Can directors be personally affected by deliberate PAYE findings? Yes. Deliberate non-payment can increase the risk of personal liability notices and disqualification proceedings Is financial difficulty a defence to PAYE penalties? Financial difficulty is not a defence to penalties, but it may be relevant to behavioural analysis if reasonable care was taken. --- # HMRC Debt Escalation: Your Rights When Facing Tax Enforcement Source: https://taxdisputes.co.uk/2026/02/hmrc-debt-escalation-your-rights-when-facing-tax-enforcement/ When [VAT](https://lexlaw.co.uk/solicitors-london/tag/vat/), [PAYE](https://taxdisputes.co.uk/paye-tax-investigation-disputes/), [Corporation Tax](https://lexlaw.co.uk/solicitors-london/category/tax-law/) or Self-Assessment liabilities fall into arrears, HM Revenue & Customs (HMRC) follows a structured enforcement pathway grounded in statute, including the [Taxes Management Act 1970](https://www.legislation.gov.uk/ukpga/1970/9/contents), the Finance Acts, [the Tribunals, Courts and Enforcement Act 2007](https://www.legislation.gov.uk/ukpga/2007/15/contents) and the [Insolvency Act 1986](https://www.legislation.gov.uk/ukpga/1986/45/contents). What begins as routine correspondence can rapidly develop into formal enforcement, court proceedings, or insolvency action. Since December 2020, HMRC has held secondary preferential status in insolvency for certain taxes, strengthening its recovery position. However, HMRC’s powers are not unlimited. Taxpayers retain [rights of appeal](https://lexlaw.co.uk/contact-us/), procedural safeguards and access to court protection where enforcement is premature or disputed. As solicitors [experienced](https://lexlaw.co.uk/practice-areas/) in complex [tax disputes](https://lexlaw.co.uk/practice-areas/taxation-solicitors-london/) and [insolvency defence](https://lexlaw.co.uk/winding-up-petition-lawyers/), we regularly advise businesses on preventing escalation before matters reach a critical stage. Early legal intervention can preserve trading continuity, director protection and reputational stability. # How HMRC Debt Escalation Works in the UK [HMRC enforcement](https://lexlaw.co.uk/hmrc-debt-enforcement-defence-statutory-demand-winding-up-peititon-solicitor-london/) typically progresses in identifiable stages. The process usually begins with reminder letters and formal payment demands following an assessment or determination. Where payment is not made and no acceptable arrangement is agreed, HMRC may offer the opportunity to enter into a Time to Pay arrangement, requiring full financial disclosure and a realistic repayment proposal. If arrears persist or arrangements are breached, HMRC may issue a Notice of Enforcement under [Schedule 12 of the Tribunals, Courts and Enforcement Act 2007](https://www.legislation.gov.uk/ukpga/2007/15/schedule/12). This permits enforcement agents to attend business premises and take control of goods under the Taking Control of Goods Regulations 2013. Where substantial sums remain unpaid, HMRC may escalate further by serving a statutory demand. For companies, failure to comply within 21 days can result in a [winding-up petition](https://lexlaw.co.uk/practice-areas/winding-up-petitions-solicitors-london/) under [section 122(1)(f) of the Insolvency Act 1986](https://www.legislation.gov.uk/ukpga/1986/45/part/IV/chapter/VI/crossheading/grounds-and-effect-of-windingup-petition) on the basis that the company is unable to pay its debts. Once advertised in the Gazette, banks commonly freeze company accounts to avoid unlawful asset dispositions. For individuals, HMRC may present a bankruptcy petition in respect of personal tax debts. # Your Legal Rights When Facing HMRC Enforcement Action Even where tax is overdue, you retain enforceable legal rights. If an [assessment](https://lexlaw.co.uk/solicitors-london/tag/detailed-assessment/) is incorrect or excessive, you may appeal to the [First-tier Tribunal (Tax Chamber)](https://lexlaw.co.uk/solicitors-london/tag/first-tier-tax-tribunal/) within statutory time limits. Where a genuine and substantial dispute exists, insolvency proceedings should not be used as a debt collection mechanism. If a [winding-up petition](https://lexlaw.co.uk/practice-areas/winding-up-petitions-solicitors-london/) is threatened or issued, urgent advice is essential. Applications may be made to restrain advertisement where there is a bona fide dispute or procedural irregularity. Acting before advertisement is critical, as account freezing typically follows public notice. Taxpayers also have the right to seek a Time to Pay arrangement. HMRC will assess affordability, compliance history and future viability before agreeing terms. Strict adherence to any agreed schedule is vital, as breach may result in immediate escalation without further warning. # Director Liability and Personal Risk Exposure [Directors](https://lexlaw.co.uk/solicitors-london/category/directors-duties/) are not automatically personally liable for company tax debts. However, personal exposure can arise in defined circumstances. HMRC may issue [Personal Liability Notices](https://lexlaw.co.uk/solicitors-london/tag/personal-liability-notice/) in relation to certain penalties, particularly involving PAYE or VAT failures. Joint and several liability notices may also apply in cases involving [insolvency](https://lexlaw.co.uk/solicitors-london/category/insolvency/) and repeated tax avoidance or evasion. If a company enters [liquidation](https://lexlaw.co.uk/solicitors-london/tag/liquidation/), a liquidator must investigate director conduct under the Insolvency Act 1986. Continuing to trade while knowingly insolvent, preferring certain creditors, or misapplying company funds can expose directors to claims for wrongful trading, misfeasance or [breach of duty](https://lexlaw.co.uk/practice-areas/professional-negligence-solicitors-london/). Maintaining accurate accounting records and seeking timely professional advice are critical protective measures. # Consequences of Ignoring HMRC Tax Arrears Failure to engage constructively with HMRC significantly reduces available options. Escalation may include enforcement visits, seizure of goods, [statutory demands](https://lexlaw.co.uk/set-aside-statutory-demand-insolvency-legal-advice/), County Court Judgments, winding-up petitions or bankruptcy proceedings. Since HMRC regained secondary preferential status for certain taxes in December 2020, its recovery prospects in insolvency have strengthened. This can affect the distribution to other unsecured creditors and complicate restructuring efforts. Beyond financial consequences, reputational risk is substantial. Public advertisement of insolvency proceedings can impact supplier relationships, banking facilities and contractual stability. Delay often results in avoidable loss of control over the outcome. # Strategic Defence to HMRC Recovery and Winding-Up Action Effective [defence](https://lexlaw.co.uk/contact-us/) begins with an immediate assessment of whether the liability is accurately calculated and lawfully enforceable. If the debt is overstated or based on incorrect assumptions, prompt appeal action may suspend or challenge enforcement. Where the issue is cash flow rather than liability, structured repayment proposals or formal restructuring mechanisms such as a [Company Voluntary Arrangement](https://www.gov.uk/company-voluntary-arrangements) may provide protection and breathing space. Timing is critical. Acting before a petition is advertised preserves leverage and banking continuity. In circumstances where enforcement action is disproportionate or procedurally flawed, court intervention may be appropriate. Strategic litigation planning, supported by forensic financial analysis, often determines whether a business stabilises or enters compulsory insolvency. # HMRC Debt Defence Solicitors - How LexLaw Can Protect Your Business When HMRC escalation reaches enforcement notice or winding-up stage, immediate and technically precise intervention is essential. [LexLaw](https://lexlaw.co.uk/contact-us/) advises directors, shareholders and companies facing HMRC recovery action, combining [tax dispute expertise](https://lexlaw.co.uk/hmrc-tax-dispute-lawyers/) with insolvency litigation strategy. We assist in challenging disputed assessments, negotiating viable [Time to Pay arrangements](https://lexlaw.co.uk/solicitors-london/hmrc-time-to-pay-arrangement-guide-2025-how-to-negotiate-a-repayment-plan-for-unpaid-tax/), and seeking urgent court relief where enforcement threatens trading continuity. Where winding-up proceedings are imminent or issued, we assess whether a genuine dispute exists, whether procedural defects can be relied upon, and whether urgent injunctive relief is justified. Our team also advises directors on personal exposure, including potential personal liability notices, wrongful trading allegations and conduct investigations following insolvency. [Early engagement](https://lexlaw.co.uk/contact-us/) frequently improves the prospects of avoiding compulsory liquidation or bankruptcy and enables a controlled, strategic resolution. ### Frequently Asked Questions (FAQ's) Can HMRC send enforcement agents without going to court? Yes. After issuing a Notice of Enforcement under Schedule 12 of the Tribunals, Courts and Enforcement Act 2007, HMRC can instruct enforcement agents to take control of goods without first obtaining a County Court Judgment. What is a statutory demand from HMRC? It is a formal written demand requiring payment within 21 days. Failure to comply may lead to winding-up proceedings for companies or bankruptcy proceedings for individuals. Will my company bank account be frozen immediately? Bank accounts are commonly frozen after advertisement of a winding-up petition, as banks seek to avoid unlawful dispositions of company assets. Can I stop a winding-up petition? If the debt is genuinely disputed or capable of immediate settlement, urgent court applications may restrain advertisement or seek dismissal. What is a Time to Pay arrangement? A structured agreement with HMRC allowing staged repayment of tax arrears, subject to financial disclosure and strict compliance. When should I seek legal advice? Immediately upon receipt of a statutory demand, enforcement notice or winding-up threat. Early advice significantly improves outcome prospects. --- # How to Apply for a Hardship Direction in VAT Cases? Source: https://taxdisputes.co.uk/2026/02/how-to-apply-for-a-hardship-direction-in-vat-cases/ Taxpayers facing a [disputed VAT assessment](https://taxdisputes.co.uk/2026/01/how-to-challenge-a-vat-assessment-2026-guide/) often encounter a procedural barrier before they can have their appeal heard: the requirement to pay, or deposit with [HM Revenue & Customs (HMRC)](https://taxdisputes.co.uk/), the full disputed amount. Under [section 84 of the Value Added Tax Act 1994](https://www.legislation.gov.uk/ukpga/1994/23/section/84), an [appeal](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) relating to a VAT decision generally cannot be entertained by the [First-tier Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) until the contested VAT has been paid in full. However, the law and HMRC’s own procedures recognise that payment may be impossible or commercially ruinous for some businesses. In such circumstances, a taxpayer can apply for a “[hardship direction](https://taxdisputes.co.uk/2025/11/delaying-payments-during-an-appeal/)” to suspend the payment requirement, allowing the appeal to proceed while safeguarding trading viability. This article examines the legal framework for hardship directions in VAT cases, explains how and when to apply, explores the evidence required, considers recent tribunal decisions, and sets out practical strategies for maximising the chances of success. It is written for businesses and advisers navigating challenging VAT disputes who need clarity, legal insight, and confidence in the process. ## Why Hardship Directions Matter in VAT Appeals Unlike direct tax appeals, where a mere lodgement of an appeal can suspend payment pending determination, VAT appeals are subject to different rules. The standard position under section 84(3) of the Value Added Tax Act 1994 is that the First-tier Tribunal cannot entertain an appeal against a VAT assessment unless the amount which HMRC has determined to be payable has been paid or deposited. This requirement can trap businesses in a Catch-22: they are prevented from challenging a VAT assessment that they believe to be incorrect until they pay the disputed tax, but paying may inflict severe financial harm, disrupt cashflow, and even threaten insolvency. The hardship regime is designed to address this dilemma by enabling taxpayers to argue that paying the disputed amount would cause them financial hardship. Hardship applications thus serve a critical function: they ensure that taxpayers are not compelled to choose between compliance and commercial survival. The availability of a hardship direction can mean the difference between pursuing a substantive appeal and being forced into [settlement ](https://taxdisputes.co.uk/2026/01/hmrc-tax-disputes-resolved-through-adr-alternative-dispute-resolution/)or [liquidation](https://taxdisputes.co.uk/hmrc-winding-up-petitions/). ## Legal Framework Governing Hardship Directions The statutory provision for hardship applications is found in section 84(3B) of the Value Added Tax Act 1994. It provides that, where paying or depositing the disputed VAT would cause the taxpayer hardship, the tribunal may still entertain an appeal if: - [HMRC accepts that payment would cause hardship](https://taxdisputes.co.uk/hmrc-hardship-application-dispute-vat-assessment-appeal-tribunal-successful-outcome/), or - the First-tier Tribunal, on application, determines that the taxpayer would suffer hardship. HMRC’s internal guidance in the [Appeals, Reviews and Tribunals Guidance (ARTG)](https://www.gov.uk/hmrc-internal-manuals/economic-crime-supervision-handbook/ecsh91000) confirms that hardship is a fact-specific evaluation. The taxpayer bears the burden of demonstrating that payment of the disputed amount would cause serious financial difficulty or jeopardise the viability of their business. Hardship applications can be made first to HMRC. If HMRC refuses the taxpayer’s application, the taxpayer can then apply directly to the First-tier Tribunal for its own determination. The tribunal will consider the application in its own right and may decide that HMRC’s refusal was unreasonable or that, on the facts, hardship exists. ## When to Make a Hardship Application A hardship application must be made at the appropriate stage of the VAT dispute process. A taxpayer should seek a hardship direction: - **[When lodging an appeal](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/)** against a VAT assessment that has not been paid and - **[Before HMRC has enforced payment](https://taxdisputes.co.uk/hmrc-penalties/)**, such as through enforcement notices or distraint. Applications can be submitted simultaneously with the notice of appeal or shortly thereafter. Crucially, if an appeal proceeds without payment and without a pending, properly made hardship application, HMRC may request the tribunal to strike out the proceedings for lack of jurisdiction. In practice, hardship applications often arise in situations where large VAT assessments are raised after an enquiry, sometimes years after the [return was filed](https://taxdisputes.co.uk/2021/01/third-party-defence-failure-to-file-tax-return-deliberate-penalty-assessment-hmrc-tribunal-reasonable-excuse-accountant-tax-agent/). Businesses that find themselves unable to meet the full payment, because of cashflow constraints, trading losses, or imminent insolvency, need to consider hardship as a procedural gateway to the substantive appeal. ## What Evidence Is Required to Support a Hardship Application Section 84 does not specify a rigid set of evidential requirements. There is no statutory list of documents that must be provided. However, HMRC’s own guidance makes clear that an applicant must satisfy the decision-maker that paying the disputed tax would cause hardship, and this generally requires clear financial evidence and explanation. The type of evidence that supports hardship includes: - audited accounts and management accounts showing income, liabilities, and net cashflow; - bank statements demonstrating liquidity or overdraft position; - cashflow forecasts covering a reasonable future period; - details of assets and liabilities, including fixed assets, real property, or investments; and - evidence of steps already taken to address the liabilities, such as negotiations with lenders or restructuring plans. Where applicable, director [witness statements](https://taxdisputes.co.uk/taxpayer-witness-statement-drafting-representation-hmrc-advice/) explaining the commercial impact of payment on ongoing trading operations can be highly persuasive. HMRC’s hardship team will not accept vague assertions of difficulty; the applicant must demonstrate, on the balance of probabilities, that the business would suffer material financial hardship if required to pay the VAT prior to the resolution of the appeal. ## How HMRC Assesses Hardship Applications When HMRC receives a hardship application, it is considered by the Legal Group’s Indirect Hardship Team, which reviews all supporting evidence and makes a decision in accordance with [ARTG3330](https://www.gov.uk/hmrc-internal-manuals/appeals-reviews-and-tribunals-guidance/artg3330). The decision-maker must assess each case on its facts and should not decide arbitrarily or on the basis of a checklist alone. In assessing hardship, HMRC considers whether the taxpayer’s evidence demonstrates that payment would cause genuine financial stress. The decision-maker will weigh business prospects, available reserves, and the potential impact on operations. It is important to recognise that the fact that a taxpayer could meet the payment through selling assets or liquidating investments does not automatically mean that hardship does not exist; what matters is whether payment would materially impair the taxpayer’s ability to trade or meet other essential obligations. Where HMRC accepts the hardship application, the taxpayer will be notified that payment is suspended and that the appeal can proceed without deposit of the VAT. ## What Happens if HMRC Refuses a Hardship Application If HMRC refuses the hardship application, the taxpayer has a separate right to [apply to the First-tier Tribunal for its own consideration](https://taxdisputes.co.uk/2025/10/first-tier-tax-tribunal-appeals-guide/) of hardship. The tribunal’s jurisdiction in this regard is distinct; it can decide whether hardship exists even if HMRC has refused the original application. An application to the tribunal in these circumstances allows the taxpayer to put forward evidence anew. The tribunal will evaluate the hardship evidence afresh, considering whether HMRC’s refusal was reasonable and whether, objectively, hardship is demonstrated. If the tribunal concludes that hardship exists, it will grant a hardship direction, thereby enabling the appeal to be entertained without payment or deposit. Failing to engage with the hardship process can be fatal to an appeal. Unless the amount is paid or a hardship direction is granted, the tribunal simply does not have jurisdiction to hear the appeal under section 84(3). ## Tribunal Cases Demonstrating Hardship Principles Recent tribunal decisions show how the hardship framework operates in practice. In *[Clear Pay Payroll Ltd v HMRC [2025] UKFTT 916 (TC)](https://www.iclr.co.uk/document/2025035762/2025ukftt916tc_TNA/html)*, the First-tier Tribunal allowed the appellant’s hardship application, finding that payment of the disputed VAT would cause the company material hardship and that the tribunal had jurisdiction to hear the substantive appeal without payment. The tribunal carefully considered the financial position and the consequences of requiring payment before the appeal could be entertained. Older decisions also demonstrate that hardship can be accepted where the evidence of financial difficulty is clear and coherent. For example, in *[HMRC v Elbrook (Cash & Carry) Ltd [2017] UKUT 0181](https://assets.publishing.service.gov.uk/media/5912f3a1ed915d59de00000e/HMRC_v_Elbrook_Cash_and_Carry.pdf)*, the [Upper Tribunal](https://taxdisputes.co.uk/2026/01/upper-tribunal-appeals-strategic-2026-guide/) upheld a finding of hardship where the taxpayer proved that paying a substantial VAT assessment would adversely affect its core business activities, rather than simply being a matter of liquidity or access to finance. ## Common Pitfalls and Strategic Considerations One common error is relying on insufficient evidence or failing to demonstrate the specific effects of payment on future trading. A taxpayer should not assume that producing accounts alone will satisfy HMRC. Hardship needs a narrative backed by documentation explaining how payment would affect cashflow, operations, employment, or the ability to meet other creditors. Another pitfall is waiting too long to apply. A hardship application should ideally accompany the [notice of appeal](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/) or be made promptly thereafter. Delays can signal to HMRC a lack of urgency or seriousness, undermining the credibility of the application. Taxpayers should also be mindful of procedural requirements: if HMRC refuses a hardship application, an immediate application should be lodged with the tribunal, before pressing the underlying appeal. This preserves the taxpayer’s rights and avoids unnecessary jurisdictional complications. ## Practical Steps for Applying for a Hardship Direction To maximise the likelihood of success, a hardship application should: - **Be made in writing** at the earliest stage possible, ideally together with a notice of appeal. - **Clearly identify the disputed VAT amount** and the basis of the substantive appeal. - **Explain why payment would cause hardship**, with reference to specific financial effects on the taxpayer’s business. - **Include comprehensive supporting evidence**, such as recent audited accounts, forecasts, and bank statements. - **Address any HMRC requests for further information promptly** and substantively. Failure to provide sufficient evidence often leads to refusal by HMRC, which then requires a tribunal application that could have been avoided with a well-prepared original submission. ## Why Specialist Representation Matters Hardship applications sit at the intersection of procedural law, financial evidence, and commercial litigation strategy. HMRC’s internal manual and tribunals apply the statutory framework strictly, and success often depends on presenting evidence in a legally coherent form rather than simply submitting financial statements. Legal advisers experienced in VAT disputes can assist from the outset by structuring the hardship application correctly, advising on which documents to include, and ensuring that the written narrative aligns with tribunal expectations. This often involves converting raw financial material into persuasive legal evidence, anticipating HMRC’s arguments, and preparing for potential tribunal hearings if HMRC refuses the application. ## Conclusion: Hardship Directions as a Procedural Gateway Hardship directions are a critical procedural mechanism, without them, many meritorious VAT appeals simply cannot be heard. By understanding the statutory basis in section 84(3B), the evidential requirements, and the tribunal’s power to grant hardship where HMRC refuses, taxpayers can protect their right to challenge VAT assessments without compromising their commercial viability. [Early advice](http://taxdisputes.co.uk), timely application, and robust evidential support are essential components of a successful hardship strategy. In many cases, securing a hardship direction determines whether an appeal will proceed at all, and can secure breathing space critical to the ongoing survival of the business. --- # Can HMRC Skip Tribunal Proceedings and Go Straight to Enforcement? Source: https://taxdisputes.co.uk/2026/02/can-hmrc-skip-tribunal-proceedings-and-go-straight-to-enforcement/ For many taxpayers and businesses, the tribunal system is seen as the central route for resolving disputes with [HMRC](https://www.gov.uk/government/organisations/hm-revenue-customs). The common expectation is that where tax is disputed, [HMRC](https://lexlaw.co.uk/hmrc-tax-dispute-lawyers/) must wait for the matter to be determined by the [First-tier Tribunal](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/) before taking enforcement action. In practice, the position is more complex. HMRC possesses extensive statutory powers and, in certain circumstances, may begin [enforcement](https://taxdisputes.co.uk/hmrc-enforcement-action/) even while disputes remain unresolved. This creates significant anxiety for businesses and individuals who believe they are still engaged in legitimate appeal or review processes. This guide examines how HMRC enforcement powers operate, when enforcement may lawfully begin, what protections taxpayers have, and what legal remedies exist if HMRC acts prematurely or disproportionately. ## The Role of the Tax Tribunal in HMRC Disputes The [First-tier Tribunal (Tax Chamber)](https://www.gov.uk/courts-tribunals/first-tier-tribunal-tax) exists to provide independent oversight of tax disputes. It allows taxpayers to challenge [assessments](https://lexlaw.co.uk/solicitors-london/tag/hmrc-assessments/), [penalties](https://www.gov.uk/guidance/penalties-an-overview-for-agents-and-advisers), and other HMRC decisions before an impartial judicial body. The [tribunal](https://lexlaw.co.uk/solicitors-london/tag/first-tier-tax-tribunal/) does not act as part of HMRC; rather, it serves as the primary safeguard against incorrect or unfair decisions. Ordinarily, where a valid [appeal](https://lexlaw.co.uk/solicitors-london/tag/tax-tribunal-appeals/) has been lodged, collection of the disputed tax may be postponed pending the outcome. This is why many taxpayers assume enforcement cannot begin until [tribunal proceedings](https://taxdisputes.co.uk/2025/09/tax-tribunal-process-guide-benefits-and-strategy-for-hmrc-tax-disputes-in-the-uk/) conclude. However, this protection depends heavily on the type of tax, whether postponement applies, and whether appeal rights have been properly exercised. ## HMRC’s Enforcement Powers Explained HMRC’s powers to recover tax arise under various statutory regimes, including [direct recovery powers](https://www.gov.uk/government/publications/direct-recovery-of-debts-and-vulnerable-customers), [debt collection procedures](https://lexlaw.co.uk/debt-recovery-insolvency-county-court-proceedings-petitions-fixed-fee-lawyers-london/), and [insolvency](https://lexlaw.co.uk/solicitors-london/tag/insolvency/)-based enforcement. Where tax becomes due and payable, HMRC is entitled to pursue recovery like any other creditor. [Enforcement](https://lexlaw.co.uk/enforcement-recovery-judgment-debt-solicitors-london/) measures may include debt collection through civil processes, use of enforcement officers, [charging orders,](https://lexlaw.co.uk/enforcement-recovery-judgment-debt-solicitors-london/) or insolvency proceedings such as [winding-up petitions](https://lexlaw.co.uk/practice-areas/winding-up-petitions-solicitors-london/) or [bankruptcy petitions](https://lexlaw.co.uk/bankruptcy-petition-and-annulment-solicitors/). These steps do not necessarily require a tribunal decision beforehand if HMRC considers the debt legally due. This often surprises taxpayers who assume that disagreement alone prevents enforcement. ## When HMRC Can Enforce Without Waiting for a Tribunal The key issue is whether the tax is legally “due and payable.” If an [appeal](https://lexlaw.co.uk/solicitors-london/category/appeal-process-and-procedure/) has not been lodged correctly, or if payment has not been postponed, HMRC may treat the amount as enforceable even where arguments continue informally. HMRC is entitled to rely on statutory enforcement powers where tax liabilities have crystallised, even where taxpayers argue that disputes remain unresolved. As found in [R (oao Delve) v HMRC [2018] 1 W.L.R. 3039](https://windinguppetitionsolicitors.co.uk/wp-content/uploads/2018-1-W.L.R.-3039.pdf.pdf)******[ ](https://uk.practicallaw.thomsonreuters.com/Link/Document/Blob/I303793D973A64497BDAAC83FB7F96B8B.pdf?imageFileName=%5B2018%5D%201%20W.L.R.%203039.pdf&targetType=inline&originationContext=document&transitionType=DocumentImage&uniqueId=1f85bcac-1445-4e69-908d-44fe053d8a52&ppcid=21b16c9a28b844d3ab82b2a214f43be3&contextData=(sc.Default)&comp=pluk)**, the Court of Appeal considered HMRC’s powers in the context that HMRC may lawfully require payment before final tribunal determination where Parliament has created a statutory regime permitting this. These authorities demonstrate that tribunal proceedings and enforcement can, in certain circumstances, proceed on parallel tracks. ## The Importance of Postponement and Appeal Rights The most significant protection against enforcement lies in ensuring that [appeals](https://lexlaw.co.uk/solicitors-london/tag/appeal/) are properly made and that payment of disputed tax has been formally postponed where available. Where [postponement](https://taxdisputes.co.uk/tag/postponement-request/) applies, [HMRC](https://lexlaw.co.uk/hmrc-debt-enforcement-defence-statutory-demand-winding-up-peititon-solicitor-london/) is generally prevented from enforcing until the dispute is resolved. However, [postponement](https://taxdisputes.co.uk/tag/postponement-request/) is not automatic in every case. Certain tax regimes, including some accelerated payment and follower notice cases, require payment regardless of ongoing litigation. In [HMRC v Hok Ltd [2012] UKUT 363 (TCC)](https://www.casemine.com/judgement/uk/5a938cea60d03e601f972b4a), the [Upper Tribunal](https://taxdisputes.co.uk/2026/01/upper-tribunal-appeals-strategic-2026-guide/) emphasised that procedural compliance with appeal requirements is essential. Taxpayers who fail to follow statutory processes may lose protections they assume they have. ## Can HMRC Use Insolvency Proceedings Before Tribunal Determination? One of the most controversial areas involves [HMRC issuing winding-up petitions](https://taxdisputes.co.uk/hmrc-winding-up-petitions/) or bankruptcy proceedings while disputes remain live. [Insolvency](https://lexlaw.co.uk/solicitors-london/category/insolvency/) action exerts substantial pressure and can cause immediate commercial harm. The courts have repeatedly confirmed that [insolvency proceedings](https://lexlaw.co.uk/solicitors-london/tag/insolvency-law/) must not be used as debt-collection tools where liability is genuinely disputed. In [Re Bayoil SA [1999] 1 WLR 147,](https://windinguppetitionsolicitors.co.uk/wp-content/uploads/1999-1-W.L.R.-147.pdf.pdf) the Court of Appeal held that [winding-up petitions](https://windinguppetitionsolicitors.co.uk/winding-up-petition-timeline-what-creditors-and-debtors-need-to-know-in-2025/) should not proceed where the debt is disputed on substantial grounds. This principle applies equally to HMRC as it does to private [creditors](https://windinguppetitionsolicitors.co.uk/creditor-rights-in-uk-insolvency-an-all-encompassing-guide-for-2025/). Where HMRC seeks insolvency enforcement while genuine disputes exist, the court retains the power to restrain or dismiss such action. Nevertheless, HMRC will often proceed where it considers disputes weak, procedural rights exhausted, or liabilities final. ## Enforcement During Reviews and Internal HMRC Processes Many taxpayers misunderstand the role of [HMRC’s internal review process](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/). A [statutory review](https://lexlaw.co.uk/judicial-review-court-lawyers-london-hmrc-tax-dispute-decision-advice-representation/) is not the same as a [tribunal appeal](https://lexlaw.co.uk/solicitors-london/tag/tax-tribunal-appeals/) and does not always prevent enforcement unless specific statutory protections apply. [HMRC](https://lexlaw.co.uk/solicitors-london/tag/hmrc/) may therefore continue collection activity during or immediately after a review if no effective postponement exists. The safest assumption is that internal correspondence with [HMRC](https://lexlaw.co.uk/solicitors-london/tag/hmrc/) alone does not guarantee protection from enforcement. This distinction frequently catches businesses off guard, particularly where review outcomes are delayed. ## When Enforcement May Be Unlawful or Challengeable Although HMRC has broad powers, enforcement is not unlimited. Courts may intervene where HMRC acts unfairly, irrationally, or contrary to [statutory safeguards](https://windinguppetitionsolicitors.co.uk/understanding-and-responding-to-statutory-demands/). [Judicial review](https://lexlaw.co.uk/judicial-review-court-lawyers-london-hmrc-tax-dispute-decision-advice-representation/) may be available where enforcement is initiated despite valid [appeal rights](https://lexlaw.co.uk/solicitors-london/damages-based-agreements-permission-to-appeal-to-supreme-court-refused-in-zuberi-dba-case-commentary-analysis/) or where HMRC fails to consider relevant factors. The courts have emphasised that public authorities must act proportionately and fairly when exercising statutory powers. Challenges often focus on procedural error rather than the underlying tax merits. Timing is therefore crucial. ## Practical Scenarios Where Problems Arise In practice, enforcement disputes commonly arise where [appeal deadlines](https://lexlaw.co.uk/solicitors-london/late-hmrc-tax-tribunal-appeals-medpro-martland-your-options/) were missed, where advisers assumed postponement applied automatically, or where taxpayers relied on ongoing negotiations with HMRC as a substitute for formal proceedings. Another frequent issue arises where HMRC issues [enforcement notices](https://lexlaw.co.uk/solicitors-london/tag/hmrc-enforcement-action/) shortly after concluding a review, leaving little time for taxpayers to lodge [tribunal appeals](https://lexlaw.co.uk/solicitors-london/tag/tax-tribunal-appeals/). Without rapid action, enforcement may escalate quickly. Understanding procedural timelines and enforcement triggers is therefore as important as the tax dispute itself. ## What to Do If HMRC Starts Enforcement Early The first step is to determine whether the tax is genuinely due and whether appeal protections exist. If appeal rights remain open, urgent steps may be required to lodge a [tribunal appeal](https://lexlaw.co.uk/solicitors-london/tag/tax-tribunal-appeals/) or seek postponement. Where enforcement has already begun, applications for [injunctions](https://lexlaw.co.uk/injunctive-relief-interim-remedies-urgent-injunction-freezing-order-second-opinion-litigation-advice/) or [judicial review](https://lexlaw.co.uk/judicial-review-court-lawyers-london-hmrc-tax-dispute-decision-advice-representation/) may be appropriate in some cases. In insolvency situations, courts can restrain petitions where disputes are genuine and substantial. Delays significantly reduce available options. Early legal intervention often prevents escalation. ## How LEXLAW Can Help Disputes involving simultaneous [HMRC](https://taxdisputes.co.uk/legal-representation/) enforcement and tribunal issues require careful strategic handling. [We](https://lexlaw.co.uk/about/) advise businesses and individuals facing [enforcement action](https://lexlaw.co.uk/solicitors-london/tag/hmrc-enforcement-action/) while appeals or reviews are ongoing, including challenges to winding-up petitions, enforcement injunctions, and tribunal strategy. [Our](https://lexlaw.co.uk/contact-us/) approach focuses on protecting cash flow, preserving appeal rights, and ensuring HMRC exercises its powers lawfully and proportionately. --- # Understanding HMRC Letters Source: https://taxdisputes.co.uk/2026/04/understanding-hmrc-letters/ *[HMRC](https://taxdisputes.co.uk/hmrc-penalties/) correspondence is one of the most common entry points into tax disputes for individuals, company directors, and businesses operating in the United Kingdom. Letters can range from administrative reminders to formal statutory notices issued under provisions such as the [Taxes Management Act 1970](https://www.legislation.gov.uk/id/ukpga/1970/9) and [Schedule 36 of the Finance Act 2008](https://www.legislation.gov.uk/ukpga/2008/9/schedule/36). Understanding the nature and purpose of each type of letter is critical, particularly where matters may escalate into formal enquiries, assessments, or recovery action. Issues arising from [HMRC](https://taxdisputes.co.uk/hmrc-penalties/) correspondence often intersect with broader legal risks, including tax investigations and disputes. * ### Routine Reminder and Nudge Letters Routine reminder and nudge letters are typically administrative communications issued where [HMRC](https://taxdisputes.co.uk/hmrc-penalties/) records indicate that a taxpayer may have outstanding obligations, such as filing a return, making a payment, or updating details. These letters are often automated and do not imply wrongdoing, but they should not be ignored, as failure to act may result in[ penalties](https://taxdisputes.co.uk/hmrc-penalties/) or progression into more formal compliance activity. The appropriate response requires identifying the relevant deadline, ensuring that any outstanding obligations are addressed promptly, and retaining evidence of compliance to mitigate future disputes. ### Information Requests and Schedule 36 Notices [HMRC ](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/)may issue information requests requiring the provision of documents or explanations to verify a taxpayer’s position. In more formal cases, this takes the form of a [Schedule 36](https://www.legislation.gov.uk/ukpga/2008/9/schedule/36) notice under the [Finance Act 2008](https://www.legislation.gov.uk/id/ukpga/2008/9), which carries statutory force and may be enforceable through the tribunal if challenged. These notices must be reasonably required, and taxpayers have limited rights to object where requests are excessive or disproportionate. Responding requires careful assessment of the scope of the notice, ensuring that only relevant information is disclosed, and considering whether a formal objection is appropriate within the statutory timeframe. ### Compliance Check Letters Compliance check letters indicate that [HMRC](https://taxdisputes.co.uk/hmrc-tax-appeals/) is reviewing specific aspects of a taxpayer’s return, such as declared income, expenses, [VAT](https://taxdisputes.co.uk/vat-evasion/) treatment, or payroll reporting. These checks are targeted and do not necessarily suggest deliberate non-compliance, but they do require the taxpayer to substantiate their position with appropriate records and explanations. The process typically involves ongoing correspondence and may expand in scope if discrepancies are identified. A structured and proportionate response is essential to ensure that the matter does not escalate into a formal enquiry or assessment. To respond appropriately, it is advisable to obtain [expert legal advice](https://lexlaw.co.uk/). ### Formal Enquiry Letters Formal enquiry letters represent a more serious level of [HMRC](https://taxdisputes.co.uk/hmrc-interviews/) scrutiny and are issued under statutory powers to examine the accuracy of a submitted tax return. These enquiries may be full or aspect-based and allow [HMRC](https://taxdisputes.co.uk/hmrc-winding-up-petitions/) to request detailed documentation and explanations over an extended period. The scope of the enquiry can widen depending on findings, and the outcome may include amendments to[ tax liabilities](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) or further investigative action. Responding effectively requires careful management of communications and supporting evidence to ensure that exposure is minimised and procedural rights are preserved. ### Penalty and Assessment Letters [Penalty](https://taxdisputes.co.uk/hmrc-penalties/) and assessment letters are issued where [HMRC](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) determines that there has been non-compliance, such as late filing, late payment, or inaccuracies in [returns](https://taxdisputes.co.uk/vat-evasion/). These letters set out the basis of the penalty or assessment, the amount due, and the taxpayer’s rights to appeal or request a review. In certain cases, HMRC may issue discovery assessments in relation to historic tax periods where underpayment is alleged. Responding requires a detailed review of the basis for the penalty, consideration of available defences, and timely action within statutory appeal deadlines. Seeking [expert legal advice](https://lexlaw.co.uk/) to respond to HMRC helps you prepare adequately. ### Debt and Enforcement Letters [Debt](https://taxdisputes.co.uk/2026/02/hmrc-debt-escalation-your-rights-when-facing-tax-enforcement/) and [enforcement](https://taxdisputes.co.uk/2026/02/can-hmrc-skip-tribunal-proceedings-and-go-straight-to-enforcement/) letters are typically issued after earlier correspondence has failed to secure payment of outstanding liabilities. These letters signal that [HMRC](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) may pursue recovery action, which can include formal proceedings, [insolvency measures](https://taxdisputes.co.uk/2026/01/hmrc-paye-enforcement-powers-from-notices-to-insolvency-action/), or enforcement through the courts. At this stage, the risks are significantly heightened, and the scope for informal resolution may be limited. Taxpayers must act promptly to assess whether liabilities can be disputed or whether payment arrangements can be negotiated to avoid further escalation. ### Escalation Stages | Stage | Letter Type | Risk Level | Statutory Basis | | ----- | ----------- | ---------- | --------------- | | 1 | Reminder and Nudge | Low | Administrative | | 2 | Information Request / Schedule 36 | Low to Medium | Finance Act 2008 | | 3 | Compliance Check | Medium | HMRC Compliance Framework | | 4 | Formal Enquiry | High | Taxes Management Act 1970 | | 5 | Penalty / Assessment | High | Taxes Management Act 1970 | | 6 | Debt Enforcement | Very High | Taxes Management Act 1970 | ### Implications of HMRC Correspondence The type of [HMRC](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) letter received will often determine the trajectory of a matter and the level of risk involved. While early-stage correspondence may be resolved through straightforward compliance, later-stage letters, such as [enquiries](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) or [assessments](https://taxdisputes.co.uk/2026/01/hmrc-behaviour-assessments-careless-deliberate-or-concealed/), can lead to significant financial exposure and procedural complexity. In practice, failure to respond appropriately at an early stage is one of the most common reasons matters escalate unnecessarily into disputes or enforcement proceedings. Early intervention, [expert legal advice](https://lexlaw.co.uk/) and structured responses are key to limiting exposure. ### Defending HMRC Claims [Defending](https://taxdisputes.co.uk/2026/01/hmrc-tax-disputes-resolved-through-adr-alternative-dispute-resolution/) positions raised by [HMRC](https://taxdisputes.co.uk/hmrc-interviews/) requires a combination of accurate record-keeping, careful legal analysis, and strategic communication. This may involve reconstructing financial records, identifying weaknesses in [HMRC](https://taxdisputes.co.uk/hmrc-interviews/)’s assumptions, and ensuring that disclosures are proportionate to the scope of the issue. Where matters escalate, taxpayers may need to engage with formal review processes or appeals. A proactive approach to defending tax positions can significantly improve outcomes and reduce the risk of enforcement action. ### Frequently Asked Questions (FAQ's) What should I do if I receive a letter from HMRC? You should carefully review the contents of the letter, identify the type of correspondence, and ensure that you respond within the specified deadline while preserving all relevant records. Are all HMRC letters serious? Not all letters indicate wrongdoing, as many are administrative in nature, but any correspondence should be treated with caution to avoid escalation. Can HMRC reopen previous tax years? Yes, in certain circumstances, HMRC can revisit historic tax periods, particularly where underpayment is suspected. What triggers a compliance check? Compliance checks may arise from inconsistencies in returns, unusual claims, or discrepancies between reported figures and HMRC data. How long does an HMRC enquiry last? The duration varies depending on the complexity of the issues and the extent of documentation required. What happens if I ignore HMRC letters? Ignoring correspondence can result in penalties, assessments, or escalation into enforcement action. --- # 2026 HMRC Penalty Rules: What Taxpayers Need to Know Source: https://taxdisputes.co.uk/2026/04/2026-hmrc-penalty-rules-what-taxpayers-need-to-know/ The rules governing how [HMRC ](https://www.gov.uk/government/organisations/hm-revenue-customs)penalises taxpayers have changed. From April 2026, a new penalty regime long in development and already applied to VAT since January 2023 now extends to Income Tax Self-Assessment (ITSA) under the government's Making Tax Digital (MTD) programme. For sole traders and landlords with income above £50,000, this is no longer a future concern. It is the present reality. Understanding what has changed, how the new system operates, and critically how it affects your right to appeal is essential. Taxpayers who are not paying attention risk far greater financial exposure than they may realise. ## Overview of the 2026 HMRC Penalty Reform The reform is rooted in the [Finance Act 2021](https://www.legislation.gov.uk/ukpga/2021/26) and forms part of HMRC’s broader ambition to create a fairer, more consistent approach to tax compliance. It replaces the blunt instrument of the old fixed-penalty structure with two distinct components: a points-based late submission penalty and a percentage-based late payment penalty. ### Points-Based Late Filing Penalties Rather than issuing a fine immediately after a missed deadline, taxpayers now accumulate penalty points each time they submit late. A financial penalty is only triggered once a threshold is reached. For taxpayers filing annually, two penalty points will trigger a fine; for quarterly filers, four penalty points are required. Once the threshold is reached, a £200 penalty is applied, with each additional late submission resulting in a further £200 penalty until compliance improves. Penalty points expire after 24 months, provided the threshold has not been reached and all outstanding returns are up to date. At [Budget 2025](https://www.gov.uk/government/collections/budget-2025), it was confirmed that no penalty points would be issued for the late submission of the first four quarterly updates for individuals joining MTD in April 2026 though quarterly updates must still be submitted before the end-of-year tax return can be filed. ### Late Payment Penalties Under the reformed regime, HMRC distinguishes clearly between late submission penalties (points and fixed charges) and late payment penalties and interest. Critically, no penalty arises if tax is paid within 15 days of the due date. After that, penalties apply in stages: 2% of the unpaid tax at 15 days, a further 2% at 30 days, and an additional penalty accruing daily from day 31 at an annual rate of 4%, with interest running separately on any outstanding balance. ### Phased Rollout The reform came into effect for VAT customers for accounting periods beginning on or after 1 January 2023. For ITSA customers with business or property income over £50,000 per year, it applies from the tax year beginning 6 April 2026. Those with income over £30,000 per year follow from 6 April 2027. Those outside MTD scope remain subject to the old regime under Schedules 55 and 56 of the Finance Act 2009 for the time being meaning two parallel systems now operate concurrently. ### Proportionality and the Tribunal’s Role In [*BPP Holdings Ltd v HMRC* [2017] UKSC 55](https://www.supremecourt.uk/cases/uksc-2016-0069), the Supreme Court underscored the importance of fairness and proportionality in HMRC’s dealings with taxpayers, highlighting the importance of procedural fairness in HMRC decision-making, although within the framework of statutory requirements . This principle remains highly relevant under the new regime, particularly where HMRC’s automated penalty system generates charges that do not reflect a taxpayer’s actual conduct or compliance history. ## Impact on Taxpayers and Appeals ### Tighter Deadlines and Greater Vigilance Required Under the new regime, the 30-day appeal deadline from the date of a penalty notice becomes even more critical. [Appeals ](https://lexlaw.co.uk/hmrc-tax-penalty-appeal-solicitor-london/)must be made within 30 days of the penalty notice being issued. If HMRC rejects the appeal, the taxpayer can request an internal review, carried out by an HMRC officer not previously involved in the matter. If the review upholds the penalty, the taxpayer may appeal to the First-tier Tribunal (Tax). Do not allow a deadline to slip. The consequences of a time-barred appeal can be severe, leaving taxpayers with no further recourse regardless of the underlying merits of their case. [The specialist tax solicitors in our team](https://lexlaw.co.uk/our-people/) regularly act for clients where prompt intervention has preserved appeal rights that would otherwise have been lost. ### Dual-Regime Confusion The concurrent operation of old and new regimes creates real risk of error. Taxpayers, accountants, and even HMRC caseworkers may apply the wrong regime, calculate thresholds incorrectly, or overlook the interaction between MTD quarterly obligations and annual filings. Where a penalty has been raised under the wrong framework, this forms a legitimate ground of challenge before the [HMRC Tax Tribunal](https://taxdisputes.co.uk). ### Insolvency Intersection [HMRC penalty debt ](https://lexlaw.co.uk/hmrc-debt-enforcement-defence-statutory-demand-winding-up-peititon-solicitor-london/)can crystallise quickly and, if unpaid, may contribute to a winding up petition. For company directors facing escalating tax liabilities, understanding the new penalty structure is a matter of financial survival, not merely compliance. If your company has received a statutory demand or is facing [winding up proceedings](https://windinguppetitionsolicitors.co.uk), obtaining [specialist legal advice](https://lexlaw.co.uk/contact-us/) immediately is paramount. ## Act Early, Appeal Strategically The 2026 HMRC penalty reform represents the most significant overhaul of the late filing and late payment landscape in over a decade. The new system is more granular, more behaviour-focused, and for those caught on the wrong side of it potentially more costly than its predecessor. Whether you are a sole trader newly mandated into MTD, a business navigating the dual-regime transition, or a taxpayer facing a penalty you believe is wrong, the advice is the same: act promptly, document everything, and take specialist legal advice before deadlines expire. For detailed guidance on contesting HMRC penalties or pursuing a tax appeal, visit [gov.uk’s official penalty guidance](https://www.gov.uk/government/publications/interest-harmonisation-and-penalties-for-late-submission-and-late-payment-of-tax) or consult the [HMRC tax dispute solicitors ](https://lexlaw.co.uk/hmrc-tax-dispute-lawyers/)in our team,a dual-qualified team of solicitors and barristers with direct experience on both sides of HMRC proceedings. Stay informed and protected with our authoritative guide to the 2026 HMRC penalty reforms. As HMRC introduces a more complex, behaviour-driven penalty regime, the risks of non-compliance and costly mistakes are rising. Backed by the expertise of [our specialist tax team](https://lexlaw.co.uk/our-people/), we provide clear, strategic insight to help you challenge unfair penalties, safeguard your position, and act decisively before deadlines close. ### Frequently Asked Question's (FAQ's) What is the HMRC penalty reform introduced in 2026? The 2026 HMRC penalty reform introduces a new system combining points-based penalties for late submissions and percentage-based penalties for late payments. It replaces the previous fixed penalty regime and applies to Income Tax Self-Assessment (ITSA) taxpayers under the Making Tax Digital (MTD) framework, starting with those earning over £50,000 annually. How does the points-based penalty system work for late tax returns? Under the new regime, taxpayers receive a penalty point each time they miss a filing deadline. Once a threshold is reached (e.g. two points for annual filers or four for quarterly filers), a £200 penalty is issued. Additional late submissions after the threshold trigger further £200 penalties until compliance improves. Can HMRC penalties under the new regime be appealed? Yes, taxpayers can appeal HMRC penalties within 30 days of the penalty notice. If rejected, they may request an internal HMRC review and subsequently appeal to the First-tier Tribunal (Tax). Grounds for appeal may include reasonable excuse, procedural errors, or incorrect application of the penalty regime. What happens if I miss the 30-day deadline to appeal an HMRC penalty? Missing the 30-day appeal deadline can significantly limit your options. While late appeals may be accepted in exceptional circumstances, they are not guaranteed. A time-barred appeal may leave you with no legal recourse, even if the penalty was incorrectly issued. How do late payment penalties differ from late filing penalties under the new regime? Under the 2026 system, late filing and late payment are treated separately. Late filing triggers penalty points that can lead to fixed fines, while late payment results in percentage-based penalties applied in stages after 15 days, along with accruing interest. This distinction means taxpayers must manage both submission deadlines and payment timelines carefully to avoid compounded penalties. --- # HMRC Barred After Breaching Unless Order (Carbon Six Engineering Ltd v HMRC) Source: https://taxdisputes.co.uk/2026/02/hmrc-barred-after-breaching-unless-order-carbon-six-engineering-ltd-v-hmrc/ The decision in [Carbon Six Engineering Ltd v HMRC](https://caselaw.nationalarchives.gov.uk/ukftt/tc/2026/177?tribunal=ukftt%2Ftc) is one of the clearest recent examples of the [First-tier Tribunal](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/first-tier-tribunal-tax-chamber/) enforcing procedural discipline against [HMRC](https://lexlaw.co.uk/solicitors-london/case-study-hmrc-security-notices-overturned-duma-rockey-v-hmrc-tribunal-tax-appeal/). At the heart of the case was a failure to comply with an Unless Order, the Tribunal’s most serious case management tool. Despite arguments about administrative oversight, team handovers and related Managed Service Company (MSC) lead litigation, the Tribunal refused to grant relief from sanctions. Applying the structured test in [Martland v HMRC](https://lexlaw.co.uk/solicitors-london/late-hmrc-tax-tribunal-appeals-medpro-martland-your-options/) and following the approach endorsed in [Chappell v HMRC](https://assets.publishing.service.gov.uk/media/5765267040f0b66bda00007b/Andrew__Chappell-v_HMRC.pdf), the Tribunal concluded that HMRC’s breach was serious, inadequately explained, and that maintaining the barring order was proportionate. The [appeal](https://lexlaw.co.uk/solicitors-london/late-hmrc-tax-tribunal-appeals-medpro-martland-your-options/) was then summarily allowed. The case provides essential guidance for taxpayers engaged in MSC and complex tax appeals before the [First-tier Tribunal](https://lexlaw.co.uk/solicitors-london/case-study-hmrc-security-notices-overturned-duma-rockey-v-hmrc-tribunal-tax-appeal/). Furthermore, the case underscores the necessity of [engaging specialist](https://lexlaw.co.uk/solicitors-london/case-study-hmrc-security-notices-overturned-duma-rockey-v-hmrc-tribunal-tax-appeal/) [tax litigation firms](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/). ## Case Background: HMRC’s Procedural Failures HMRC issued income tax and [National Insurance (NIC)](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) determinations against [Carbon Six Engineering Ltd](https://caselaw.nationalarchives.gov.uk/ukftt/tc/2026/177?tribunal=ukftt%2Ftc) on the basis that it was a Managed Service Company. The original decision letter incorrectly referred to the MSC provider CKA. That error was later corrected in correspondence, with [HMRC](https://lexlaw.co.uk/solicitors-london/late-hmrc-tax-tribunal-appeals-medpro-martland-your-options/) asserting that the relevant provider was TAAG. The company appealed before the [First-Tier Tribunal (Tax Chamber)](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/first-tier-tribunal-tax-chamber/). From that point forward, the litigation became defined less by the substantive MSC issues and more by HMRC’s procedural non-compliance. Over a period of months, [HMRC](https://lexlaw.co.uk/solicitors-london/case-study-hmrc-security-notices-overturned-duma-rockey-v-hmrc-tribunal-tax-appeal/) failed to comply with six Tribunal directions, including: - Late provision of a contact email address; - Failure to serve a statement of case; - Late and incomplete responses to case management directions; - Failure to comply with an Unless Order requiring a fully reasoned response to the taxpayer’s barring applications. The decisive failure concerned the second Unless Order. ## Read the Full Judgment Below: ![](https://taxdisputes.co.uk/wp-content/uploads/2026/02/Extracted-pages-from-Carbon-Six-Engineering-Limited-v-The-Commissioners-for-HMRC-2026-UKFTT-177-TC-724x1024.jpg) ## The Central Issue: Breach of the Unless Order An Unless Order is not an ordinary direction. It is the [Tribunal’s](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) clearest warning: comply by the stated deadline, or a specified sanction will automatically follow. In this case, the sanction was barring [HMRC](https://lexlaw.co.uk/solicitors-london/late-hmrc-tax-tribunal-appeals-medpro-martland-your-options/) from further participation in the proceedings. The Unless Order required [HMRC](https://lexlaw.co.uk/solicitors-london/case-study-hmrc-security-notices-overturned-duma-rockey-v-hmrc-tribunal-tax-appeal/) to provide a fully reasoned response to the taxpayer’s applications under [rule 8(3)](https://www.legislation.gov.uk/uksi/2009/273/article/8). The deadline passed without compliance. Under [rule 8(1) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009](https://www.legislation.gov.uk/uksi/2009/273/article/8), the effect was automatic. HMRC was barred. HMRC subsequently applied to set aside the barring order and sought relief from sanctions. The Tribunal’s refusal to do so is what makes this decision so significant. ## Applying the Martland Three-Stage Test The [Tribunal](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/first-tier-tribunal-tax-chamber/) followed the now well-established approach to relief from sanctions derived from *Martland* and confirmed in *Chappell*. Read more on Martland [here](https://lexlaw.co.uk/solicitors-london/late-hmrc-tax-tribunal-appeals-medpro-martland-your-options/). ### Stage 1: Was the Breach Serious or Significant? The Tribunal held unequivocally that failure to comply with an Unless Order is inherently serious and significant. Unless Orders represent a “second chance.” They are typically imposed following earlier non-compliance. The breach must therefore be assessed in context, including the underlying procedural history. [HMRC](https://lexlaw.co.uk/solicitors-london/case-study-hmrc-security-notices-overturned-duma-rockey-v-hmrc-tribunal-tax-appeal/) had already failed to comply with multiple earlier directions. The Unless Order was not an isolated event. It was the culmination of repeated defaults. The Tribunal rejected HMRC’s characterisation of the breach as “moderate.” Failure to comply with an Unless Order goes to the heart of effective case management. It undermines procedural fairness and the Tribunal’s ability to control proceedings efficiently. Therefore, it is necessary to [instruct experts](https://taxdisputes.co.uk/contact-us/) [well versed](https://lexlaw.co.uk/solicitors-london/case-study-hmrc-security-notices-overturned-duma-rockey-v-hmrc-tribunal-tax-appeal/) in Tribunal proceedings. ### Stage 2: Was There a Good Reason? [HMRC](https://lexlaw.co.uk/solicitors-london/late-hmrc-tax-tribunal-appeals-medpro-martland-your-options/) argued that: - There had been a change in the legal team; - The appeal had been mistakenly assumed to be stayed; - Communications sent to the clearing house email address had not been properly passed on. The [Tribunal](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/first-tier-tribunal-tax-chamber/) accepted that the breach was not deliberate. However, it concluded that these explanations were “bad” reasons in relief-from-sanctions jurisprudence. Internal administrative errors, ineffective handovers, and mistaken assumptions about a stay do not amount to good reason. The Tribunal also found that it was not reasonable for [HMRC](https://lexlaw.co.uk/solicitors-london/case-study-hmrc-security-notices-overturned-duma-rockey-v-hmrc-tribunal-tax-appeal/) to assume a stay had been granted without formal confirmation. This is why instructing experts is necessary. Procedural assumptions, particularly in grouped MSC litigation, can carry fatal consequences if not rigorously checked and managed by [specialists](https://lexlaw.co.uk/solicitors-london/case-study-hmrc-security-notices-overturned-duma-rockey-v-hmrc-tribunal-tax-appeal/). ### Stage 3: All the Circumstances of the Case At the third stage, the Tribunal evaluated proportionality and fairness, giving particular weight to: - The need for litigation to be conducted efficiently; - The importance of enforcing compliance with rules and directions; - The cumulative history of non-compliance. HMRC argued that barring it would create an unjust “windfall” for the taxpayer, particularly given that [Carbon Six’s appeal](https://caselaw.nationalarchives.gov.uk/ukftt/tc/2026/177?tribunal=ukftt%2Ftc) formed part of wider TAAG-related MSC litigation. The Tribunal rejected this submission. The authorities demonstrate that “windfall” arguments carry little weight except in exceptional circumstances. None existed here. The Tribunal also rejected the suggestion that the appeal should be stayed behind the TAAG lead cases. Granting a stay would effectively allow [HMRC](https://lexlaw.co.uk/solicitors-london/case-study-hmrc-security-notices-overturned-duma-rockey-v-hmrc-tribunal-tax-appeal/) to influence the outcome indirectly, undermining the sanction imposed. The barring order was therefore maintained. ## Summary Determination in the Taxpayer’s Favour Having refused relief, the [Tribunal](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/first-tier-tribunal-tax-chamber/) exercised its discretion under [rule 8(8)](https://www.legislation.gov.uk/uksi/2009/273/article/8) to summarily allow the appeal. [HMRC](https://lexlaw.co.uk/solicitors-london/late-hmrc-tax-tribunal-appeals-medpro-martland-your-options/) had filed no statement of case and advanced no pleaded factual or legal position. In those circumstances, the Tribunal was entitled to determine the issues against HMRC. This outcome demonstrates that procedural discipline can determine the result of tax litigation independently of the substantive merits. In MSC disputes, often involving hundreds of related appeals, parties sometimes assume that procedural defaults can later be remedied. This case demonstrates otherwise. This is why [instructing experts](https://lexlaw.co.uk/solicitors-london/case-study-hmrc-security-notices-overturned-duma-rockey-v-hmrc-tribunal-tax-appeal/) is necessary. Tribunal litigation is not merely about substantive tax law. It is about procedural strategy, compliance, and tactical timing. ## Wider Implications for MSC and Tax Tribunal Litigation Although fact-specific, this decision carries broader significance: First, it confirms that the [First-tier Tribunal](https://taxdisputes.co.uk/2026/02/can-hmrc-skip-tribunal-proceedings-and-go-straight-to-enforcement/) will enforce Unless Orders robustly, even against [HMRC](https://lexlaw.co.uk/solicitors-london/late-hmrc-tax-tribunal-appeals-medpro-martland-your-options/). Secondly, it reinforces that institutional litigants are not afforded special indulgence. Administrative disorganisation is not a shield against sanctions. Thirdly, it demonstrates that related lead litigation does not automatically justify relaxation of procedural discipline in [individual appeals](https://taxdisputes.co.uk/2026/02/can-hmrc-skip-tribunal-proceedings-and-go-straight-to-enforcement/). For taxpayers engaged in MSC disputes, [IR35 appeals](https://taxdisputes.co.uk/2025/06/ir35-case-study-tax-advisers-procedural-error-fatal-to-taxpayers-appeal-rights-professional-negligence-in-tax-tribunals/), PAYE determinations or NIC challenges, this judgement underscores the strategic importance of proactive case management and [specialist representation](https://lexlaw.co.uk/andrew-young/). At [LEXLAW](https://lexlaw.co.uk/), [our specialist team](https://taxdisputes.co.uk/contact-us/) regularly advises on [Tribunal strategy](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/first-tier-tribunal-tax-chamber/), relief from sanctions applications, and procedural enforcement within MSC and employment status disputes. Our [expertise across tax litigation](https://lexlaw.co.uk/andrew-young/) ensures that procedural positioning is treated as seriously as substantive law. ## Instruct Expert London Tax Lawyers [Complex tax appeals](https://lexlaw.co.uk/solicitors-london/late-hmrc-tax-tribunal-appeals-medpro-martland-your-options/) are not won on technical arguments alone. They are won through disciplined procedural strategy, forensic case management, and meticulous compliance with Tribunal rules. The [Carbon Six decision](https://caselaw.nationalarchives.gov.uk/ukftt/tc/2026/177?tribunal=ukftt%2Ftc) demonstrates what happens when procedural obligations are not treated with sufficient seriousness. Unless Orders are not administrative formalities, they are decisive instruments. At [LEXLAW](https://lexlaw.co.uk/solicitors-london/case-study-hmrc-security-notices-overturned-duma-rockey-v-hmrc-tribunal-tax-appeal/), our [tax litigation](https://lexlaw.co.uk/solicitors-london/case-study-hmrc-security-notices-overturned-duma-rockey-v-hmrc-tribunal-tax-appeal/) solicitors specialise exclusively in complex tax disputes and [First-tier Tribunal appeals](https://www.judiciary.uk/courts-and-tribunals/tribunals/first-tier-tribunal/first-tier-tribunal-tax-chamber/), bringing focused expertise to every stage of contentious proceedings. We provide strategic, commercially astute advice on barring applications, relief from sanctions, and applications for summary determination, ensuring that procedural opportunities are identified and acted upon decisively. Where [HMRC](https://taxdisputes.co.uk/2025/10/medpro-v-hmrc-revised-tribunal-principles-on-late-vat-appeals/) fails to comply with Tribunal directions, we move swiftly and tactically to protect our clients’ positions. At the same time, we ensure that our clients’ own compliance record is beyond challenge, delivering a robust and carefully managed litigation strategy designed to achieve the strongest possible outcome. [Early strategic intervention](https://lexlaw.co.uk/?page_id=356) can protect your position and prevent avoidable procedural missteps. If you are facing an [HMRC enquiry](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/), MSC determination, or [active Tribunal appeal](https://lexlaw.co.uk/solicitors-london/late-hmrc-tax-tribunal-appeals-medpro-martland-your-options/), [specialist representation](https://lexlaw.co.uk/andrew-young/) is critical. [Contact now](https://taxdisputes.co.uk/contact-us/) for [specialist advice](https://lexlaw.co.uk/solicitors-london/case-study-hmrc-security-notices-overturned-duma-rockey-v-hmrc-tribunal-tax-appeal/)! ### Frequently Asked Questions **1. What is an Unless Order in the First-tier Tribunal?** An Unless Order is a conditional direction stating that unless a party complies by a specified deadline, a sanction will automatically apply. In Carbon Six, failure to comply resulted in HMRC being barred from further participation. **2. Why was HMRC barred in this case?** HMRC failed to comply with multiple directions and, critically, failed to comply with a second Unless Order requiring a fully reasoned response. The Tribunal held that the breach was serious and inadequately explained. **3. What test applies when seeking relief from sanctions?** The Tribunal applies the three-stage test from *Martland v HMRC*: seriousness of the breach, reason for the breach, and all the circumstances of the case including proportionality and procedural efficiency. **4. Can a tax appeal be allowed without a full hearing?** Yes. Where a party is barred and has filed no case or evidence, the Tribunal may summarily determine the appeal in favour of the opposing party. **5. Does related lead litigation prevent a barring order?** No. The Tribunal held that the existence of TAAG-related MSC lead cases did not justify lifting the barring order or staying the appeal. **6. Are Unless Orders strictly enforced against HMRC?** Yes. The Tribunal confirmed that HMRC is subject to the same procedural standards as any other litigant. **7. What practical lesson does this case provide for taxpayers?** Procedural compliance is critical. Monitoring Tribunal directions, responding promptly, and seeking expert legal advice can materially affect the outcome of tax litigation. --- # Farmers Win VAT Appeal at the Tribunal: A Landmark Decision on Agricultural VAT Penalties Source: https://taxdisputes.co.uk/2026/02/farmers-win-vat-appeal-at-the-tribunal-a-landmark-decision-on-agricultural-vat-penalties/ A recent decision of the [First-tier Tribunal (Tax Chamber)](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) has provided significant relief to a group of UK farmers who successfully overturned a substantial [VAT penalty](https://taxdisputes.co.uk/hmrc-penalties/) imposed by [HMRC](https://taxdisputes.co.uk/) following changes to agricultural VAT rules. The case highlights the importance of understanding VAT compliance obligations, the limits of [HMRC’s penalty powers](https://taxdisputes.co.uk/hmrc-penalties/), and the circumstances in which [taxpayers can successfully challenge assessments before the Tribunal](https://taxdisputes.co.uk/2025/10/how-to-challenge-hmrc-tax-assessments-and-protect-your-rights/). For farmers, landowners, and rural businesses, VAT disputes can arise unexpectedly, particularly where regulatory reforms introduce complex and technical requirements. This case study explores how the Tribunal approached the issues, why the farmers succeeded, and what lessons agricultural businesses can draw when facing HMRC enquiries, assessments, or civil penalties. If you are currently dealing with an HMRC VAT assessment or penalty, [our specialist team ](https://lexlaw.co.uk/our-people/)can advise on your options and the prospects of appeal. ## VAT Reform and Agricultural Businesses VAT compliance in the agricultural sector often involves unique and highly technical considerations. Farmers may operate under the [Flat Rate Scheme for Farmers](https://www.gov.uk/guidance/agricultural-flat-rate-scheme-notice-70046), face partial exemption issues, recover input tax on capital assets such as machinery and buildings, or make complex supplies involving land, livestock, and agricultural services. Even minor legislative amendments can therefore have material consequences. In this case, [HMRC issued a penalty](https://taxdisputes.co.uk/hmrc-penalties/) reportedly exceeding £40,000 after concluding that the farmers had failed to comply with revised VAT requirements affecting agricultural operations. The alleged failure did not concern hidden income or fraudulent conduct. Instead, it related to a technical interpretation of new VAT rules introduced as part of regulatory reform. The farmers argued that they had acted in good faith, had historically complied with their obligations, and had taken reasonable steps to ensure their VAT returns were accurate. They maintained that any error arose from genuine misunderstanding of complex legislative change, rather than careless conduct. ## The Legal Framework HMRC’s powers to impose penalties for inaccuracies in VAT returns derive primarily from [Schedule 24 to the Finance Act 2007](https://www.legislation.gov.uk/ukpga/2007/11/schedule/24). Under this regime, a penalty may arise where a document submitted to HMRC contains an inaccuracy that leads to an understatement of tax, an overstatement of a repayment, or a false statement of loss. However, the mere existence of an inaccuracy is not sufficient. HMRC must establish that the inaccuracy resulted from careless or deliberate behaviour. The burden rests on HMRC to prove the [behavioural categorisation](https://taxdisputes.co.uk/2026/01/hmrc-behaviour-assessments-careless-deliberate-or-concealed/) it alleges. Where a taxpayer can demonstrate that they took reasonable care, no penalty should arise. The concept of reasonable care has been examined in numerous Tribunal authorities. In [*Hanson v HMRC* [2012] UKFTT 314 (TC)](https://www.bailii.org/uk/cases/UKFTT/TC/2012/TC02000.html), the Tribunal confirmed that the standard is that of a prudent and reasonable taxpayer in comparable circumstances. Likewise, in [*Perrin v HMRC* [2018] UKUT 156 (TCC)](https://assets.publishing.service.gov.uk/media/5af9caf440f0b622d18b2e86/Christine_Perrin_v_HMRC.pdf), the [Upper Tribunal](https://taxdisputes.co.uk/2026/01/upper-tribunal-appeals-strategic-2026-guide/) emphasised that the assessment of reasonable excuse must be objective and fact-specific. These authorities continue to shape how Tribunals approach VAT penalty disputes across all sectors, including agriculture. ## The Tribunal’s Analysis ### Was There a VAT Inaccuracy? The Tribunal first examined whether the farmers’ VAT returns were technically incorrect under the revised legislative framework. The dispute centred on the interpretation of a relatively obscure VAT reform that had altered the treatment of certain agricultural supplies. Importantly, the Tribunal recognised that the legislation and HMRC guidance were not drafted in a manner that made the change immediately transparent to small and medium-sized rural enterprises. The case did not involve fabricated invoices, suppressed sales, or systemic accounting failures. Rather, it concerned a narrow and technical point of statutory construction. Although the Tribunal accepted that an inaccuracy had occurred, that finding alone did not determine the outcome. The central question remained whether the farmers’ conduct amounted to carelessness. ### Did the Farmers Take Reasonable Care? In determining whether reasonable care had been taken, the Tribunal considered the farmers’ overall compliance history and conduct during the [enquiry](https://taxdisputes.co.uk/hmrc-tax-investigations/). The evidence demonstrated that the business had historically filed accurate VAT returns and had engaged [professional advisers](https://taxdisputes.co.uk/professional-negligence-negligent-tax-advice-sue-accountant-claims/) to assist with compliance. When HMRC raised the issue, the farmers cooperated fully and sought clarification promptly. The Tribunal placed weight on the fact that the alleged error arose during a period of regulatory transition. The complexity of the reform meant that even diligent taxpayers could reasonably misunderstand its application. Reliance on competent professional advice, particularly in the context of technical legislative amendments, was considered relevant to the assessment of reasonable care. ### Proportionality and Behavioural Categorisation Although UK VAT penalties are statutory and formula-driven, the Tribunal retains jurisdiction to assess whether HMRC has correctly [categorised behaviour as careless or deliberate](https://taxdisputes.co.uk/2026/01/hmrc-behaviour-assessments-careless-deliberate-or-concealed/). In this case, the Tribunal concluded that the farmers’ conduct did not justify a finding of carelessness. There was no evidence of indifference, recklessness, or failure to implement basic compliance systems. Once the behavioural finding fell away, the legal basis for the penalty collapsed. The penalty was therefore overturned in full. ## Why This Decision Matters for Farmers? Agricultural businesses frequently operate at the intersection of land law, subsidy regimes, diversification projects, and specialist VAT rules. Many farms now combine traditional agricultural activity with holiday accommodation, farm shops, renewable energy installations, and commercial property letting. Each of these activities may carry distinct VAT consequences, particularly where options to tax land are exercised or partial exemption rules apply. This case demonstrates that HMRC’s increasing compliance activity in specialist sectors does not displace the fundamental requirement to prove careless or deliberate conduct. Where a dispute arises from technical reform or ambiguous drafting, Tribunals are prepared to scrutinise HMRC’s position rigorously. For farmers and rural enterprises, the decision offers reassurance that genuine misunderstanding of complex VAT change will not automatically result in financial penalty. ## What Should You Do If You Receive a VAT Penalty? If HMRC issues a VAT penalty, it is essential to act promptly. Taxpayers generally have [30 days to lodge an appeal](https://taxdisputes.co.uk/2026/01/hmrc-rejected-review-what-happens-next/). Ignoring the notice can result in [enforcement action](https://taxdisputes.co.uk/hmrc-enforcement-action/) and loss of appeal rights. An initial step may involve requesting an [internal statutory review by HMRC](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/). This provides an opportunity for a different officer to reconsider the decision. In some cases, matters can be resolved at this stage without proceeding to litigation. Where the dispute turns on reasonable care, it is critical to gather evidence demonstrating the systems in place, advice obtained, training undertaken, and the steps taken to comply with legislative requirements. Documentary records often prove decisive before the Tribunal. If the matter proceeds to the First-tier Tribunal, the appeal process is independent of HMRC. The Tribunal will examine both the legal framework and the factual evidence. While proceedings may take many months, early strategic preparation significantly improves prospects of success. ## Broader Implications for VAT Reform Disputes Legislative reform inevitably creates transitional uncertainty. Businesses are required to interpret statutory amendments that may be technical, cross-referential, and accompanied by evolving HMRC guidance. In such circumstances, it is neither realistic nor legally correct to assume that every error is careless. This case reinforces the principle that penalties are not automatic consequences of HMRC disagreement. The statutory framework requires careful analysis of behaviour, context, and evidence. Where HMRC cannot discharge its burden of proof, penalties must be set aside. The decision also serves as a reminder that Tribunal litigation remains a meaningful safeguard against disproportionate enforcement. ## The Importance of Specialist VAT Representation VAT disputes frequently involve detailed statutory interpretation, procedural time limits, and evidential burdens. Agricultural cases may also require understanding of land transactions, diversification models, and sector-specific practices. [Early specialist advice](https://taxdisputes.co.uk/second-opinion/) can assist in identifying the strengths and weaknesses of HMRC’s position, preserving appeal rights, and presenting a structured and persuasive case. Strategic engagement may also facilitate settlement where appropriate, avoiding the cost and delay of a full hearing. Our firm regularly represents taxpayers in high-value VAT disputes and Schedule 24 penalty appeals. We advise on HMRC enquiries, behavioural categorisation challenges, and complex Tribunal proceedings. Our approach combines technical expertise with pragmatic litigation strategy. ## Instruct Expert London Tax Lawyers The successful appeal by these farmers represents a significant and principled outcome in the field of VAT penalty enforcement. It confirms that technical misunderstanding of legislative reform does not automatically equate to carelessness, and that HMRC’s assertions must withstand independent judicial scrutiny. For agricultural businesses navigating complex VAT obligations, the case underscores both the importance of compliance and the availability of effective legal remedies where disputes arise. If you are facing a VAT assessment, penalty, or ongoing HMRC enquiry, timely advice is essential. Our specialist tax disputes team can assess your position, protect your appeal rights, and guide you through the Tribunal process with clarity and confidence. [Contact us](https://taxdisputes.co.uk/contact-us/) now. --- # HMRC Escalates VAT Enforcement Against Large Companies (Insolvency & Directors’ Duties) Source: https://taxdisputes.co.uk/2026/04/hmrc-escalates-vat-enforcement-against-large-companies-insolvency-directors-duties/ In the past 12 months [HMRC](https://lexlaw.co.uk/hmrc-vat-de-registration-tax-appeal-kittel-decision-input-tax-decision-letter-judicial-review-legal-advice/) has intensified its [VAT recovery measures](https://lexlaw.co.uk/hmrc-vat-de-registration-tax-appeal-kittel-decision-input-tax-decision-letter-judicial-review-legal-advice/), particularly against mid‑sized and large companies facing liquidity pressures. The shift reflects HMRC’s post‑pandemic enforcement strategy and its renewed focus on compliance yield, with VAT arrears now one of the most aggressively pursued categories of tax debt. This development converges with an uptick in formal insolvency actions, including the use of [winding‑up petitions](https://lexlaw.co.uk/practice-areas/winding-up-petitions-solicitors-london/), an area in which our [insolvency lawyers](https://lexlaw.co.uk/our-people/christopher-snell/) regularly defend directors. The legal implications extend beyond tax: directors who fail to act properly when insolvency is likely may face allegations of wrongful trading under section 214 of the Insolvency Act 1986, or misfeasance claims under section 212, depending on the circumstances. This article examines HMRC’s enforcement trend, the escalation routes available to it, and the potential exposure for directors during financial distress. ## Case Background: VAT Arrears and Corporate Insolvency Pressures Over the past year, a growing number of large companies have reported intensified scrutiny from HMRC regarding [VAT submissions](https://lexlaw.co.uk/hmrc-vat-de-registration-tax-appeal-kittel-decision-input-tax-decision-letter-judicial-review-legal-advice/), repayment claims, and quarterly liabilities. While VAT compliance checks have long been a routine feature of HMRC’s risk‑based approach, the current environment demonstrates a shift towards more aggressive follow‑up actions, particularly when companies show signs of financial difficulty. Several businesses have encountered rapid escalations particularly where HMRC identifies patterns of non compliance or increased risk to revenue. What historically began with a time‑to‑pay negotiation may, in some cases, progress to Notices of Requirement to provide security (under Schedule 11 of the VAT Act 1994), penalty assessments or formal [enforcement](https://windinguppetitionsolicitors.co.uk) instructions to HMRC’s Solicitor’s Office. These escalations align with HMRC’s own published data showing billions in outstanding VAT debt and increased recovery expectations placed on its enforcement divisions. For companies already facing cashflow strain including those in retail, construction, and logistics  a sudden VAT demand can create a tipping point. When directors fail to respond appropriately, the consequences may lead directly into the territory of [wrongful trading allegations](https://lexlaw.co.uk/practice-areas/winding-up-petitions-solicitors-london/), especially where the company continued to trade while incurring further VAT liabilities it could not meet. ## Key Findings: HMRC’s Enforcement Powers and Their Insolvency Consequences ### HMRC’s Use of Winding‑Up Petitions HMRC is one of the most frequent petitioning creditors in the [High Court](https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&cad=rja&uact=8&ved=2ahUKEwihrJyCxoOUAxXpR0EAHT_1LygQFnoECBUQAQ&url=https%3A%2F%2Fwww.judiciary.uk%2Fcourts-and-tribunals%2Fhigh-court%2F&usg=AOvVaw1oJhB8uyDVF6HjNHQnKzEY&opi=89978449) in cases involving unpaid tax liabilities, although the volume and circumstances vary. It may present winding up petitions where VAT arrears remain unresolved, particularly where engagement breaks down or Time-to-Pay arrangements are not maintained. The courts generally uphold HMRC’s right to petition, subject to the usual requirement that the debt is not genuinely disputed on substantial grounds even where the company disputes the debt, unless the dispute is genuine and substantial ([per *Mann v Goldstein* [1968] 1 WLR 1091)](https://en.wikipedia.org/wiki/Mann_v_Goldstein). ### Rejection of “Cashflow Timing Issues” Courts will examine whether VAT arrears arise from temporary cash flow pressures or reflect underlying insolvency, applying statutory cash flow and balance sheet tests. Repeated defaults or late filings may be relevant evidence, but each case is assessed on its own facts. ### Director Exposure for Trading Through VAT Arrears Wrongful trading arises where directors knew or ought to have concluded that there was no reasonable prospect of avoiding insolvent liquidation, and failed to take every step to minimise loss to creditors . Judgments over recent years highlight that repeated failure to pay VAT can be treated as evidence that directors knew, or ought to have known, the business was insolvent. [Wrongful trading liability](https://lexlaw.co.uk/solicitors-london/sections-235-and-236-insolvency-act-1986-directors-duties-to-co-operate-with-liquidators/) under s.214 Insolvency Act 1986 may arise even if no dividends or asset transfers occurred. Misfeasance claims under section 212 **may arise in appropriate cases**, particularly where directors have misapplied company fund. ## Implications: HMRC Enforcement as a Trigger for Personal Liability ### 1. Intensified Scrutiny Equals Increased Insolvency Risk The surge in compliance investigations means large companies are far more likely to encounter sudden, significant VAT demands. [Directors](https://lexlaw.co.uk/solicitors-london/manolete-case-study-court-orders-director-to-repay-0-92m-directors-insolvency-duty-breach/) must recognise these as legal red flags requiring [immediate specialist advice](https://lexlaw.co.uk/?page_id=356). ### 2. Preference and Transactions-at-Undervalue Concerns Where companies prioritise trade suppliers or related entities ahead of VAT, liquidators may later bring preference claims under s.239 Insolvency Act 1986 or undervalue claims under s.238. HMRC arrears provide clear evidence of [prejudice to creditors](https://lexlaw.co.uk/solicitors-london/quick-guide-s-994-companies-act-unfair-prejudice-petitions/). ### 3. Dangers of Continuing to Trade While Insolvent Continuing to accept customer funds or incur PAYE/VAT liabilities while insolvent may result in [personal contribution orders](https://lexlaw.co.uk/solicitors-london/personal-liability-notices-plns-guide-2026-what-directors-need-to-know/). Courts consider VAT arrears to be a strong indicator of insolvency, given the strict statutory obligations to account for it. ### 4. The Risk of Director Disqualification Directors who demonstrate persistent non‑payment of VAT, or misuse of VAT funds, face [disqualification under the Company Directors Disqualification Act 1986](https://lexlaw.co.uk/solicitors-london/company-directors-disqualified-cdda-1986/), often for periods exceeding six years. ## Defending Director Claims: Practical Strategies Effective defence typically involves early and coordinated action. Key strategies [our team](https://lexlaw.co.uk/our-people/christopher-snell/) routinely employs include: ### Challenging HMRC Calculations: Forensic review of HMRC assessments often reveals [incorrect estimates or assumptions](https://lexlaw.co.uk/solicitors-london/challenging-validity-of-discovery-assessments-robert-don-hunter-dougan-v-hmrc/), particularly where HMRC applies “best judgment” methodology. ### Demonstrating Reasonable Steps Taken: Well‑kept board minutes, cashflow projections, and evidence of professional advice are critical in showing directors [acted responsibly](https://lexlaw.co.uk/solicitors-london/sections-235-and-236-insolvency-act-1986-directors-duties-to-co-operate-with-liquidators/). ### Negotiating Revised Time‑to‑Pay Agreements: Where solvency can be restored, a robust [TTP proposal](https://lexlaw.co.uk/solicitors-london/hmrc-time-to-pay-arrangement-guide-2026-how-to-negotiate-a-repayment-plan-for-unpaid-tax/) may halt enforcement action, including petitions. ### Contesting Petitions Based on Genuine Disputes: If VAT assessments are incorrect or under appeal, the company may successfully seek to restrain advertisement of a petition. ### Mitigating Preference and Misfeasance Allegations: Tracing fund flows and establishing commercial justification for payments can significantly [reduce director exposure.](https://lexlaw.co.uk/solicitors-london/manolete-case-study-directors-found-liable-for-misfeasance-and-dishonest-assistance-breach-of-insolvency-duties/) For companies under immediate threat, our insolvency litigation solicitors provide urgent representation in the High Court, often preventing the advertisement of petitions which can otherwise destroy trading viability. ## Instruct Expert London Tax Lawyers HMRC investigations require swift, strategic intervention, and experience matters. [LEXLAW’s team](https://lexlaw.co.uk/our-people/christopher-snell/) of London‑based Tax Dispute and Insolvency Solicitors & Barristers act for company directors, shareholders, and in‑house legal counsel who face complex VAT or compliance issues. We combine immediate response capability with deep knowledge of HMRC procedures, the [Insolvency Act 1986](https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&cad=rja&uact=8&ved=2ahUKEwjR9aG9koGUAxX0NfsDHfApMA0QFnoECA0QAQ&url=https%3A%2F%2Fwww.legislation.gov.uk%2Fukpga%2F1986%2F45%2Fcontents&usg=AOvVaw25zUSp9kTV3v26_z69Hsw4&opi=89978449), and directors’ duties under sections 171–177 of the** **[Companies Act 2006](https://assets.publishing.service.gov.uk/media/5a7cadbae5274a38e575616d/09_FSB__Member_Services__Ltd_Approved_Consititution.pdf). [Our lawyers](https://lexlaw.co.uk/our-people/christopher-snell/) represent clients in negotiations, tribunal hearings, and High Court proceedings, providing discreet, commercially focused solutions that protect business continuity and reputation. If HMRC has contacted your company about VAT arrears or launched a compliance review, contact [our experts](https://lexlaw.co.uk/our-people/christopher-snell/) today for confidential, [urgent](https://lexlaw.co.uk/?page_id=356) advice tailored to your circumstances. ### FAQ on HMRC VAT Enforcement and Director Liability **Can HMRC petition to wind up a company for VAT arrears?** Yes. HMRC routinely petitions where a company fails to pay VAT or breaches a Time‑to‑Pay Agreement. The court only restrains advertisement if there is a genuinely disputed debt supported by solid evidence. A bare assertion of disagreement rarely succeeds**.** **Can directors be personally liable for unpaid VAT?** Potentially, yes. Under wrongful trading provisions and misfeasance rules, directors who continue to trade despite knowing the company cannot meet VAT liabilities may be ordered to contribute personally to the company’s assets. Personal liability also arises if a director diverts VAT receipts to other uses. **Does a Time‑to‑Pay arrangement prevent enforcement?** It suspends enforcement only while every scheduled payment is made on time. A single missed or late payment can invalidate the agreement and allow HMRC to issue a statutory demand or petition immediately**.** **Can a company dispute a VAT assessment and still face a petition?** Yes. Unless the appeal or dispute is based on substantial evidence of error and properly communicated to HMRC, enforcement may proceed. The courts expect directors to show that any appeal has merit and that payment has been withheld for legitimate reasons, not convenience. **Can directors be disqualified for unpaid VAT?** Persistent VAT defaults are taken seriously by the Insolvency Service. Directors of companies with a track record of non‑payment may face disqualification for up to fifteen years where behaviour demonstrates unfitness or disregard for statutory duties. **Does HMRC offer flexibility to large businesses?** While HMRC remains open to negotiation, it now demands detailed financial evidence and payment guarantees before granting extensions. The pandemic leniency seen in earlier years has largely ended. **When should directors seek legal advice?** Immediately upon receiving a VAT demand, compliance notice, or early indication of enforcement. Early specialist involvement provides negotiation leverage and can prevent irreversible steps such as bank account freezes or petition advertisement**.** --- # HMRC Time to Pay Arrangements Explained Source: https://taxdisputes.co.uk/2026/04/hmrc-time-to-pay-arrangements-explained/ If you have received a demand from [HMRC](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) and are unable to pay the full amount, the situation can quickly become stressful, particularly where deadlines are short and the risk of penalties or enforcement action is increasing. [Time to Pay](https://taxdisputes.co.uk/2025/04/what-is-a-hmrc-time-to-pay-tpp-arrangement-a-guide-to-securing-a-tpp-agreement/) arrangements offer a way to manage tax debt through structured instalments, but they are not guaranteed and depend on how you present your financial position. Many taxpayers find themselves under pressure from mounting liabilities, uncertainty about what [HMRC](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) will do next, and concern about the potential consequences for their business or personal finances. Acting early, understanding your options, and putting forward a realistic proposal can make a significant difference in preventing escalation and regaining control of the situation. ## Eligibility for Time to Pay Arrangements [HMRC](https://taxdisputes.co.uk/hmrc-interviews/) does not automatically grant [Time to Pay](https://taxdisputes.co.uk/2025/04/what-is-a-hmrc-time-to-pay-tpp-arrangement-a-guide-to-securing-a-tpp-agreement/) arrangements and will assess each request based on the taxpayer’s financial position, compliance history, and ability to meet proposed instalments. The taxpayer must demonstrate that they are temporarily unable to pay but can realistically clear the debt over time. This involves presenting accurate financial information, including income, expenditure, and available assets, to justify the proposed repayment structure. In practice, [HMRC](https://taxdisputes.co.uk/hmrc-enforcement-action/) expects full transparency and will scrutinise the credibility of any proposal before agreeing to defer collection action. To respond effectively, it is a good idea to get [expert legal advice](https://lexlaw.co.uk/contact-us/). Many taxpayers in this position are unsure what [HMRC](https://taxdisputes.co.uk/hmrc-interviews/) expects or how much information should be disclosed, which can lead to delays or proposals being rejected. It is common to feel under pressure when facing mounting tax liabilities alongside ongoing business or personal financial commitments. Seeking early [legal advice](https://lexlaw.co.uk/contact-us/) can help you understand your options, present your financial position clearly, and put forward a realistic proposal that [HMRC](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) is more likely to accept. ## The Application Process A request for a [Time to Pay](https://taxdisputes.co.uk/2025/04/what-is-a-hmrc-time-to-pay-tpp-arrangement-a-guide-to-securing-a-tpp-agreement/) arrangement can be made directly to [HMRC](https://taxdisputes.co.uk/hmrc-voluntary-disclosure-campaigns-solicitors-london/), either through online services for smaller liabilities or through direct engagement for more complex or higher-value debts. The process requires clear communication of the taxpayer’s financial circumstances and a realistic proposal for repayment over a defined period. [HMRC](https://taxdisputes.co.uk/) will evaluate whether the proposal reflects the taxpayer’s capacity to pay while ensuring that the debt is cleared within a reasonable timeframe. Where proposals are considered unrealistic or unsupported by evidence, [HMRC](https://taxdisputes.co.uk/hmrc-penalties/) may reject the request or seek revised terms. ## Key Considerations in HMRC Decision Making [HMRC](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/)’s decision to accept or reject a [Time to Pay](https://taxdisputes.co.uk/2025/04/what-is-a-hmrc-time-to-pay-tpp-arrangement-a-guide-to-securing-a-tpp-agreement/) arrangement is influenced by several factors, including the size of the debt, the taxpayer’s previous compliance behaviour, and whether the liability arose from avoidable non-compliance. Greater scrutiny is applied where there is a history of late payment or inaccurate reporting. [HMRC](https://taxdisputes.co.uk/mutual-assistance-recovery-debt-mard-oecd-hmrc-international-debt-collection-tax/) will also consider whether the taxpayer has prioritised other creditors over tax liabilities, which can affect credibility. A well-structured proposal supported by evidence is therefore essential in demonstrating both willingness and ability to comply. ## Terms and Ongoing Obligations Once a [Time to Pay](https://taxdisputes.co.uk/2025/04/what-is-a-hmrc-time-to-pay-tpp-arrangement-a-guide-to-securing-a-tpp-agreement/) arrangement is agreed, the taxpayer must adhere strictly to the agreed instalment schedule while continuing to meet all current tax obligations as they fall due. Any failure to maintain payments or comply with ongoing filing requirements may result in the arrangement being terminated, with [HMRC](https://taxdisputes.co.uk/hmrc-hardship-application-dispute-vat-assessment-appeal-tribunal-successful-outcome/) resuming enforcement action. The arrangement is therefore not a permanent solution but a conditional agreement dependent on sustained compliance and financial discipline. It is advisable to seek [specialist legal advice](https://lexlaw.co.uk/contact-us/) to ensure your response is handled properly. ## Risks of Rejection or Default Where a [Time to Pay](https://taxdisputes.co.uk/2025/04/what-is-a-hmrc-time-to-pay-tpp-arrangement-a-guide-to-securing-a-tpp-agreement/) request is rejected, or an existing arrangement is breached, [HMRC](https://taxdisputes.co.uk/hmrc-penalties/) may proceed with recovery action. This can include the imposition of further penalties, initiation of enforcement proceedings, or escalation into insolvency measures in more serious cases. The consequences of default can be significant, particularly for businesses where cash flow constraints are already present. Early intervention and proactive engagement are therefore critical in managing exposure and avoiding escalation. To respond effectively, it is a good idea to get expert [legal advice](https://lexlaw.co.uk/contact-us/). ## Time to Pay Assessment Overview | Factor | HMRC Consideration | Risk Level | | ------ | ------------------ | ---------- | | Financial Position | Ability to meet instalments | Medium | | Compliance History | Previous filings and payments | Medium to High | | Debt Size | Total outstanding liability | Medium | | Proposal Credibility | Realistic repayment plan | High | | Ongoing Compliance | Ability to meet current obligations | High | ## Implications of Time to Pay Arrangements [Time to Pay arrangements](https://taxdisputes.co.uk/2023/10/obtaining-hmrc-time-to-pay-agreements-ttp/) offer a structured route to managing tax liabilities, but they also place taxpayers under continued scrutiny. While they can prevent immediate enforcement action, they do not remove the underlying liability and may involve ongoing engagement with [HMRC](https://taxdisputes.co.uk/hmrc-enforcement-action/). As demonstrated in matters involving tax disputes and recovery proceedings, failure to comply with agreed terms can quickly lead to escalation. A disciplined and [legally informed](https://lexlaw.co.uk/contact-us/) approach is therefore essential in ensuring that such arrangements achieve their intended purpose.[](https://www.gov.uk/difficulties-paying-hmrc/pay-in-instalments) ## Defending HMRC Positions and Managing Exposure Where [HMRC](https://taxdisputes.co.uk/hmrc-tax-appeals/) challenges a proposed [Time to Pay arrangement](https://taxdisputes.co.uk/2025/04/what-is-a-hmrc-time-to-pay-tpp-arrangement-a-guide-to-securing-a-tpp-agreement/) or seeks to enforce payment, taxpayers may need to review the basis of [HMRC](https://taxdisputes.co.uk/hmrc-tax-investigations/)’s position and consider whether it can be negotiated or contested. This may involve reassessing financial disclosures, restructuring proposals, or engaging with formal review processes. [Legal advice](https://lexlaw.co.uk/contact-us/) and strategic handling of [HMRC](https://taxdisputes.co.uk/hmrc-winding-up-petitions/) interactions can significantly influence outcomes and reduce the risk of adverse enforcement measures. ### Frequently Asked Questions (FAQ's) What is a Time to Pay arrangement? A Time to Pay arrangement is an agreement with HMRC allowing tax liabilities to be paid in instalments over an agreed period rather than in a single payment. Who qualifies for a Time to Pay arrangement? Eligibility depends on demonstrating an inability to pay immediately while showing that the debt can be cleared over time. How long can a Time to Pay arrangement last? The duration varies depending on the size of the debt and the taxpayer’s financial position. Can HMRC refuse a Time to Pay request? Yes, HMRC may refuse where proposals are unrealistic or unsupported by financial evidence. What happens if I miss a payment? Missing a payment may result in termination of the arrangement and potential enforcement action. Does a Time to Pay arrangement stop penalties? Penalties may still apply depending on the circumstances, although enforcement action may be paused. --- # Food Wholesaler Overturns HMRC VAT Assessment (Innovative Bites Ltd v HMRC 2026) Source: https://taxdisputes.co.uk/2026/04/food-wholesaler-overturns-hmrc-vat-assessment-innovative-bites-ltd-v-hmrc-2026/ In a decision that will be welcomed by food businesses across the United Kingdom, the First-tier Tax Tribunal (FTT) has again ruled in favour of Innovative Bites Ltd on remittal after the Court of Appeal allowed HMRC’s appeal and sent the case back for reconsideration, confirming that its oversized 'Mega Marshmallows' are zero-rated for VAT as food and do not constitute confectionery. The case raises important questions about how UK VAT law determines the classification of food products, what 'confectionery' really means within [Schedule 8](https://www.legislation.gov.uk/ukpga/1994/23/schedule/8) to the [Value Added Tax Act 1994 (VATA 1994)](https://www.legislation.gov.uk/ukpga/1994/23/contents), and what practical lessons businesses can take from a dispute that turned quite remarkably on how a marshmallow is typically eaten. For any business operating in the food sector that is subject to HMRC scrutiny over VAT classification, this case is essential reading. Our specialist team at [LEXLAW Solicitors & Barristers](https://lexlaw.co.uk/our-people/) regularly advises on complex VAT disputes and [HMRC tax assessments](https://taxdisputes.co.uk/). ## Background: What Is Innovative Bites Ltd and Why Did HMRC Assess Them? Innovative Bites Ltd is a UK wholesaler of American-style sweets and treats. Among its product range are 'Mega Marshmallows’ marshmallows substantially larger than the standard UK market variety. The product is marketed primarily as a campfire or barbecue food, intended to be roasted on a skewer or stick before being consumed or incorporated into the American treat known as a 's'more': a sandwich of roasted marshmallow and chocolate pressed between two biscuits. On 14 August 2019, HMRC issued assessments to Innovative Bites Ltd covering VAT periods between June 2015 and June 2019, totalling **£472,928**. HMRC's position was that Mega Marshmallows fell within the definition of 'confectionery' under Note 5 to Group 1 of [Schedule 8 VATA 1994](https://www.legislation.gov.uk/ukpga/1994/23/schedule/8), attracting the standard rate of VAT at 20%, rather than being zero-rated as food. The statutory definition at the heart of the dispute is contained in Note 5, which provides that 'confectionery' includes *"chocolates, sweets and biscuits; drained, glacé or crystallised fruits; and any item of sweetened prepared food which is normally eaten with the fingers."* HMRC argued that Mega Marshmallows were 'sweetened prepared food normally eaten with the fingers.' Innovative Bites disagreed and ultimately, the Tribunal agreed with the taxpayer. ## Read the Full Judgment Below: [![](https://taxdisputes.co.uk/wp-content/uploads/2026/04/Cover-Page-2-e1780312078394.jpg)](https://www.iclr.co.uk/document/2026002227/2026ukftt500tc_TNA/html)Food Wholesaler Overturns HMRC VAT Assessment (Innovative Bites Ltd v HMRC 2026) ## The Litigation Journey: FTT, Upper Tribunal, Court of Appeal, and Back Again The case has had an unusually complex litigation history, passing through four separate hearings at three levels of the UK's tax and judicial hierarchy before arriving at its final resolution. **First-tier Tribunal (September 2022): **The original FTT found in favour of Innovative Bites, concluding that Mega Marshmallows were not confectionery in the ordinary sense. The Tribunal applied a multi-factorial assessment considering the product's size, its marketing as a roasting product, its packaging, its positioning in supermarket aisles (barbecue and world foods sections), and the seasonal fluctuation in its sales. The FTT notably stated that it did 'not give particular weight to the means of eating.' **Upper Tribunal (April 2024): **HMRC appealed. The Upper Tribunal upheld the FTT's decision, finding that the statutory definition in Note 5 was non-conclusive and that contextual factors including how a product is marketed and consumed could influence its VAT classification. HMRC pressed further. **Court of Appeal (March 2025):** In March 2025, the Court of Appeal allowed HMRC’s appeal and held that the key question was whether the product was ‘normally eaten with the fingers. Lord Justice Newey, giving the principal judgement, held that Note 5's reference to 'sweetened prepared food normally eaten with the fingers' was the determining statutory test, and that the FTT had not properly resolved whether Mega Marshmallows satisfied it. The Court remitted the case to a differently constituted FTT with specific directions to determine, on the existing evidence, whether the product was 'normally eaten with the fingers.' This remittal was significant. It stripped away the multi-factorial analysis and narrowed the question to a single, focused factual enquiry: does the product meet the statutory criterion? The stage was set for the FTT's definitive 2026 ruling.The First-tier Tribunal ultimately ruled in favour of Innovative Bites Ltd, holding that its “Mega Marshmallows” are not confectionery for VAT purposes as a result, the product qualifies as zero-rated food, and HMRC’s £472,928 VAT assessment was overturned in full, bringing the long-running dispute to a close. If you face a similarly contested VAT assessment from HMRC, our team at [taxdisputes.co.uk](https://taxdisputes.co.uk/) can advise on your prospects at every stage of the appeals process. ## Why Does This Case Matter? Implications for Food Business VAT Classification This decision is of broader significance for food businesses and their advisers across the UK. It provides important guidance on how the 'confectionery' exception to food zero-rating operates in practice. **1. The 'normally eaten with the fingers' test is a concrete factual enquiry. **The Court of Appeal's 2025 judgment confirmed that the key statutory test under Note 5 VATA 1994 is primarily a factual question about how a product is 'normally' consumed. The 2026 FTT decision demonstrates that tribunals will conduct a granular, evidence-based analysis of actual consumer behaviour counting and weighing the different modes of consumption rather than relying solely on the product's physical characteristics or general perception. **2. Context and purpose of consumption are legally relevant. **The predominantly culinary or cooking-ingredient function of Mega Marshmallows was central to the FTT's reasoning in 2022 and remained relevant to the remitted hearing. Businesses whose products have a primarily cooking use even if they are physically capable of being eaten with the fingers may be able to challenge HMRC's confectionery classifications on similar grounds. **3. Marketing, packaging, and retail positioning carry real evidential weight. **From the very first hearing, the FTT gave weight to Mega Marshmallows' marketing as a campfire food, their placement in the barbecue and world foods sections of supermarkets, and the seasonal pattern of their sales. For food businesses, this underlines the importance of ensuring that a product's presentation is consistent with its intended use and that this evidence is preserved and documented from the outset. **4. Even if HMRC issues an assessment, it can be successfully challenged. **This case demonstrates that HMRC's VAT assessments even where the legal arguments are sophisticated and well-resourced can and do fail when challenged by appropriately advised taxpayers. A specialist [VAT and tax dispute solicitor](https://taxdisputes.co.uk/) will conduct a thorough analysis of your position and advise on the realistic prospects and economics of an appeal before a penny is spent on litigation. ## What Should Your Business Do If HMRC Challenges Your VAT Classification? If your business has received a VAT assessment from HMRC, or if you are concerned that HMRC may challenge the VAT treatment of one of your products, the following steps are essential. **Act promptly - strict time limits apply. **Under section 83G VATA 1994, a taxpayer must notify HMRC of an appeal within 30 days of a VAT assessment (subject to the possibility of requesting a review). The First-tier Tribunal imposes its own procedural deadlines. Missing these deadlines can prevent an otherwise meritorious appeal from proceeding. **Gather and preserve evidence of how your product is actually used. **The Innovative Bites case demonstrates that factual evidence of consumer behaviour marketing materials, packaging, retailer positioning, social media content, survey evidence, and witness evidence is legally significant and potentially determinative. This evidence should be compiled and preserved from the moment you first become aware of a dispute. **Consider requesting a statutory review before appealing to the Tribunal. **HMRC offers a statutory review process under section [83C VATA 1994](https://www.legislation.gov.uk/ukpga/1994/23/section/83C), in which an independent HMRC officer reviews the original decision. This can result in the assessment being reduced or cancelled without the cost and delay of tribunal proceedings, and can be a valuable first step. **Instruct specialist VAT and tax litigation solicitors. **As the Innovative Bites case vividly illustrates, VAT classification disputes can become extraordinarily complex and expensive if not managed carefully. Instructing specialist lawyers at [LEXLAW Solicitors & Barristers](https://lexlaw.co.uk/) or our dedicated [tax disputes team](https://taxdisputes.co.uk/) ensures that you receive advice on merits, strategy, and funding options from the outset, before significant costs are incurred. **How We Can Help with VAT Disputes** The Innovative Bites case highlights just how quickly VAT classification disputes can escalate in complexity and cost without the right approach. By instructing [our specialist team](https://lexlaw.co.uk/our-people/), you gain early access to expert advice on the merits of your position, the most effective strategy, and potential funding routes before substantial costs arise. We take a proactive, commercially driven approach to safeguarding your interests and strengthening your ability to successfully challenge decisions made by HM Revenue & Customs. ### Frequently Asked Questions (FAQ's) Why were Mega Marshmallows challenged by HMRC for VAT? HMRC argued that Mega Marshmallows should be classified as “confectionery” under VAT law, meaning they should be subject to the standard 20% VAT rate. Specifically, HMRC relied on the definition of “sweetened prepared food normally eaten with the fingers.” Innovative Bites Ltd disputed this, maintaining the product was zero-rated food. Does the size or intended use of a product affect its VAT classification? Yes. The Tribunal considered the unusually large size of the marshmallows and their primary use for roasting or as an ingredient in s’mores. This supported the argument that the product functions more as a cooking item than a typical confectionery snack. What does this case mean for VAT on food products in the UK The decision confirms that VAT classification is highly fact-specific and depends on real consumer behaviour. Businesses can rely on evidence such as product use, marketing, packaging, and retail positioning when defending VAT treatment. Can businesses challenge HMRC VAT assessments successfully? Yes. This case shows that HMRC decisions can be overturned where businesses present strong factual and legal evidence. However, strict deadlines apply, and specialist advice is crucial when considering an appeal. --- # Proceeds of Crime Act Freezing Orders and HMRC Investigations Source: https://taxdisputes.co.uk/2026/03/proceeds-of-crime-act-freezing-orders-and-hmrc-investigations/ A freezing order obtained under the [Proceeds of Crime Act 2002](https://lexlaw.co.uk/solicitors-london/the-proceeds-of-crime-act-2002-poca-what-it-means-for-business-owners-and-directors/) is one of the most severe pre-conviction measures that can be deployed against an individual or business in the United Kingdom. When [HMRC](https://taxdisputes.co.uk/) applies such an order, whether as part of a [criminal tax investigation](https://taxdisputes.co.uk/hmrc-tax-investigations/) or in parallel with a civil dispute, the consequences can be devastating: bank accounts locked overnight, business assets immobilised, and entirely ordinary commercial activities halted without warning. What many taxpayers do not appreciate is that POCA powers are not reserved for serious organised crime. HMRC routinely deploys Proceeds of Crime Act tools, including [account freezing orders (AFOs)](https://lexlaw.co.uk/solicitors-london/account-freezing-orders-afos-in-2026-the-definitive-uk-legal-guide-to-frozen-bank-accounts/) and [restraint orders](https://windinguppetitionsolicitors.co.uk/obtaining-injunction-restrain-presentation-winding-up-petition/), in connection with [tax fraud allegations](https://taxdisputes.co.uk/2025/10/fraudulent-misrepresentation-allegations-defeated-1-4bn-tax-refund/), [MTIC fraud investigations](https://taxdisputes.co.uk/missing-trader-fraud-vat-evasion-solicitors-london/), and suspected [tax evasion](https://taxdisputes.co.uk/tax-evasion-hmrc-code-practice-9-investigations/). Understanding the legal basis for these orders, the procedural safeguards that exist, and the realistic avenues for challenge is essential for anyone who finds themselves the subject of a POCA-related investigation. ## Understanding POCA 2002: The Legal Framework The Proceeds of Crime Act 2002 represents the primary legislative framework in England and Wales for identifying, restraining, and recovering the proceeds of criminal conduct. The Act operates across several distinct regimes. For taxpayers facing [HMRC action](https://taxdisputes.co.uk/hmrc-enforcement-action/), the most relevant are the restraint and confiscation provisions in Part 2, applicable in criminal proceedings before the Crown Court, and the civil recovery provisions in Part 5. The [Criminal Finances Act 2017](https://www.legislation.gov.uk/ukpga/2017/22) further extended POCA 2002 by introducing a new account freezing and forfeiture regime, granting HMRC and other enforcement agencies the power to freeze bank accounts by way of a magistrates’ court order, without any criminal charge being brought. “Criminal conduct” is defined broadly by [section 340 of POCA 2002](https://www.legislation.gov.uk/cy/ukpga/2002/29/section/340) to include any conduct constituting an offence in any part of the United Kingdom, including [tax fraud](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/), [VAT evasion](https://taxdisputes.co.uk/vat-evasion/), and the deliberate concealment of income or assets from HMRC. Where property is obtained through such conduct, it is treated as “criminal property” subject to confiscation, civil recovery, or forfeiture. This means that unpaid tax, if the non-payment amounts to a criminal offence, can itself be characterised as proceeds of crime for the purposes of the Act. ## How HMRC Uses POCA Alongside Its Civil Investigation Powers HMRC operates both a civil investigation division and a dedicated criminal investigation function known as the Fraud Investigation Service (FIS). Civil investigations, including those conducted under [Code of Practice 9 (COP9)](https://taxdisputes.co.uk/tax-evasion-hmrc-code-practice-9-investigations/), use statutory information-gathering powers. Criminal investigations, by contrast, engage the full range of criminal procedure, including the potential to apply for POCA freezing and restraint orders. In practice, HMRC may initially commence a civil investigation before, or simultaneously with, seeking POCA orders. This dual-track approach has significant strategic implications. The existence of a restraint order does not prevent HMRC from also raising civil assessments and [penalties](https://taxdisputes.co.uk/hmrc-penalties/). Conversely, a [voluntary disclosure](https://taxdisputes.co.uk/2026/02/voluntary-disclosure-2026-guide/) made under the Contractual Disclosure Facility within COP9 does not automatically insulate a taxpayer against criminal proceedings or asset-freezing action if HMRC’s FIS considers the conduct sufficiently serious. Understanding the boundary between civil and criminal HMRC investigation powers, and the different legal standards that apply to each, is therefore critical for any taxpayer under investigation. ## Account Freezing Orders: Powers Under the Criminal Finances Act 2017 The account freezing order (AFO) regime, inserted into POCA 2002 by sections 303Z1–303Z20 of the Criminal Finances Act 2017, gives HMRC and other enforcement agencies the power to apply to a magistrates’ court to freeze funds held in a bank or building society account. The evidential threshold is low: the applicant need only satisfy the court that there are reasonable grounds to suspect that the money held is recoverable property or is intended for use in unlawful conduct. No criminal conviction, charge, or even formal arrest is required before an AFO can be granted. ### The Application Process AFO applications are typically made without notice to the account holder, meaning that the first knowledge a taxpayer may have of the order is notification from their bank that their account has been frozen. The initial freezing period may last up to two years, extendable by further court application. During this period, the account holder cannot access the frozen funds for any purpose without a court order. The magistrates’ court does, however, retain jurisdiction to exclude specific sums from the scope of the AFO, for example, to allow reasonable living expenses or ordinary business costs. Applications for such exclusions must be made urgently through specialist legal representatives. ### Grounds for Challenge A frozen account holder has the right to apply to the magistrates’ court to vary or discharge the AFO. The principal grounds for challenge include: that the evidential basis for suspicion was insufficient or improperly presented; that the funds in the account are demonstrably derived from legitimate sources; that the order was obtained without full and frank disclosure of material facts; or that the continued freezing is disproportionate in light of the taxpayer’s actual circumstances. Where the AFO was obtained through significant procedural irregularity or bad faith, [judicial review](https://taxdisputes.co.uk/judicial-review-applications-against-hmrc-challenge-decision-advice/) may provide an additional or alternative avenue of challenge. Timely engagement with the court process is crucial: the longer an AFO remains unchallenged, the greater the risk that HMRC will apply for full forfeiture of the frozen account. ## Restraint Orders Under Part 2 POCA 2002 Restraint orders are a more powerful instrument than AFOs, available only in the Crown Court and only where a criminal investigation or prosecution is underway or is reasonably anticipated. Under section 41 of POCA 2002, the Crown Court may make a restraint order prohibiting a specified person from dealing with any “realisable property”. This term is broad enough to encompass all assets held by the defendant, whether or not directly connected to the alleged criminal conduct, including property, investments, vehicles, cash, and interests in business entities. HMRC’s Fraud Investigation Service, working alongside the Crown Prosecution Service or acting as a prosecuting authority in its own right in serious tax fraud cases, can apply for a restraint order at any point once criminal proceedings are anticipated. The application is almost invariably made without notice. In the context of serious HMRC fraud investigations, such as those involving [missing trader intra-community (MTIC) fraud](https://taxdisputes.co.uk/missing-trader-fraud-vat-evasion-solicitors-london/), restraint orders can effectively immobilise all of an individual’s or company’s assets for the duration of proceedings that may take several years to conclude. Restraint orders contain a “legal expenses carve-out”: the Crown Court will generally permit the release of reasonable sums to fund legal representation. However, HMRC will often contest the quantum of permissible legal costs vigorously, requiring separate court applications to establish the appropriate level of funding. ## The Interaction Between POCA Freezing Orders and Active HMRC Tax Investigations One of the most legally complex scenarios arises when POCA freezing action runs in parallel with an active [HMRC tax investigation](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) or ongoing tax dispute. The co-existence of the two regimes creates a number of procedural tensions that require careful navigation. A taxpayer facing both a POCA restraint order and civil HMRC assessments may find that the assets needed to fund a [First-tier Tax Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) appeal have been frozen, or that evidence gathered under civil investigation compulsion powers risks exposure in criminal proceedings. The principle of the evidential firewall, protecting against involuntary self-incrimination, means that material produced under compulsion in a civil tax enquiry cannot generally be used directly as evidence in criminal POCA proceedings. However, this protection is not absolute, and its precise scope depends on the statutory basis under which the material was obtained. For businesses subject to [VAT fraud allegations](https://taxdisputes.co.uk/vat-evasion/) or complex HMRC enforcement action, the simultaneous pursuit of POCA asset freezing alongside civil penalty assessments represents a particular challenge. Separate specialist legal advice should be obtained in respect of each proceeding, with appropriate and proactive steps taken to preserve legal professional privilege over all relevant communications. ## Relevant Case Law: How the Courts Have Approached POCA in HMRC Matters A number of key judicial decisions have shaped the legal landscape governing POCA powers as deployed by HMRC and other enforcement authorities. In [*R v Waya *[2012] UKSC 51](https://www.supremecourt.uk/cases/uksc-2010-0088), the Supreme Court held that confiscation orders under POCA must be proportionate and must not result in a defendant being required to pay more than the net benefit actually obtained from criminal conduct. The Supreme Court’s emphasis on proportionality has since been extended by lower courts to other aspects of the POCA regime, including asset freezing, and has proved a powerful tool in challenging disproportionate or excessive HMRC enforcement action. In [*Re Stanford International Bank Ltd* [2010] EWCA Civ 137](https://supremecourt.uk/cases/uksc-2010-0064), the Court of Appeal confirmed that an applicant for a without-notice POCA order owes the court a duty of full and frank disclosure. Where material facts are withheld in the application, the order may be set aside in its entirety, even where the underlying suspicion is well-founded. This principle has significant practical importance: disclosure failings by HMRC in AFO or restraint order applications can provide decisive grounds for discharge. In [*R v Ahmad and Fields* [2014] UKSC 36](https://supremecourt.uk/cases/uksc-2012-0082), the Supreme Court considered the proper approach to confiscation where multiple defendants benefit from the same criminal conduct, providing guidance on apportioning criminal benefit that remains directly relevant to group tax fraud cases, including MTIC carousel fraud investigations. In [*National Crime Agency v Robb* [2014] EWHC 4384 (Ch)](https://www.bailii.org/cgi-bin/format.cgi?doc=/ew/cases/EWHC/Ch/2014/4384.html&query=(National)+AND+(Crime)+AND+(Agency)+AND+(v)+AND+(Robb)+AND+(.2014.)+AND+(EWHC)+AND+(4384)+AND+((Ch))), the High Court confirmed that civil recovery proceedings under Part 5 of POCA 2002 are civil in nature and that the standard of proof is the balance of probabilities, not the criminal standard. This lower threshold means that HMRC and the National Crime Agency can pursue civil asset recovery without securing a criminal conviction, a fact that significantly widens the risk profile for those under investigation. ## What to Do If You Are Subject to a POCA Freezing Order Receiving notification that your bank account has been frozen, or that a restraint order has been made against your assets, requires immediate specialist legal advice. The following practical steps should be taken without delay. Do not deal with or transfer any assets without legal advice, any such action could constitute contempt of court or an independent criminal offence under section 327 of POCA 2002. Obtain specialist legal representation as a matter of urgency. The timescales for challenging AFOs and restraint orders are strict and unforgiving, and early delay can permanently prejudice your legal position. Begin gathering documentation evidencing the legitimate origin of all funds and assets: bank statements, tax returns, contracts, invoices, loan agreements, and correspondence. This material forms the foundation of any variation or discharge application. Where HMRC is simultaneously conducting a civil [tax investigation](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/), care must be taken to ensure that communications with legal advisers are properly protected by legal professional privilege and are not inadvertently disclosed into criminal proceedings. ## Common Procedural Errors by HMRC in POCA Proceedings POCA proceedings are inherently complex, and enforcement authorities do not always apply them correctly. Documented errors in HMRC and NCA applications include: applying for an AFO without adequate evidence of reasonable suspicion; failing to make full and frank disclosure in without-notice applications; failing to consider whether a less restrictive measure would achieve the same objective; and failing to release funds for reasonable living expenses or legal costs without undue delay or opposition. Where such errors are identified, they can provide strong grounds for variation, discharge, or judicial review of the order. The courts have shown a clear willingness to scrutinise the conduct of enforcement authorities in these proceedings, particularly where proportionality is in question. In the context of HMRC specifically, the High Court’s approach in cases such as [*Hotelbeds UK Ltd v HMRC* [2025]](https://taxdisputes.co.uk/2025/09/judicial-review-victory-for-the-taxpayer-hotelbeds-uk-ltd-v-hmrc/), where the court found HMRC’s conduct irrational and procedurally unfair, reflects a broader judicial willingness to hold HMRC accountable when it overreaches its statutory powers. ## Practical Guidance for Individuals and Businesses Under Investigation Anyone who becomes aware that they are under investigation by HMRC’s Fraud Investigation Service, whether or not POCA action has yet been initiated, should adopt a structured and proactive approach. This includes preserving all financial records and correspondence, reviewing the accuracy and completeness of all outstanding tax filings, and identifying any areas of potential criminal exposure before HMRC has the opportunity to characterise them adversely. It is also important to understand the distinction between voluntary disclosure and compelled disclosure. HMRC’s [voluntary disclosure facilities](https://taxdisputes.co.uk/hmrc-voluntary-disclosure-campaigns-solicitors-london/), including the Contractual Disclosure Facility under Code of Practice 9, can in the right circumstances provide a route to civil resolution and some protection against criminal prosecution. Whether and how to engage with these facilities in a situation involving potential POCA exposure requires careful, privileged legal advice at an early stage. Engaging too early, or in the wrong manner, can inadvertently strengthen HMRC’s position. Where [HMRC winding-up petitions](https://taxdisputes.co.uk/hmrc-winding-up-petitions/) or statutory demands are issued alongside or following POCA action, the interaction between insolvency law and the POCA regime adds further complexity. Early specialist advice is essential to ensure that the response to any one enforcement measure does not inadvertently prejudice the client’s position in another. ## HMRC Tax Disputes Legal Advice & Defence Disputes involving POCA freezing orders, HMRC criminal investigations, and parallel civil tax proceedings are among the most complex and high-stakes matters in UK tax law. Acting quickly, with the benefit of specialist legal advice, can make the difference between a well-managed, contained dispute and a catastrophic loss of assets, livelihood, or liberty. [LEXLAW’s specialist tax disputes team](https://lexlaw.co.uk/our-people/) has extensive experience advising individuals and businesses at every stage of POCA-related HMRC investigations, from urgent AFO discharge applications and restraint order variations, through to contested confiscation proceedings and parallel civil appeal strategies before the [First-tier Tax Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/). The firm’s expert solicitors and barristers work closely with leading [tax litigation counsel](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) to provide comprehensive, joined-up representation that addresses both the civil and criminal dimensions of HMRC enforcement action. We assess the merits of every matter at the outset, in a confidential initial consultation, so that clients receive clear, frank, and actionable advice from the first moment of contact. If you or your business is facing a POCA freezing order, an HMRC criminal investigation, or an investigation that you believe may be escalating towards criminal enforcement, [contact our specialist team](https://lexlaw.co.uk/contact-us/) today. Early intervention is invariably the single most important factor in achieving the best possible outcome. --- # How HMRC Classifies a Shadow Director Under UK Law Source: https://taxdisputes.co.uk/2026/03/how-hmrc-classifies-a-shadow-director-under-uk-law/ Businesses facing [tax investigations](https://taxdisputes.co.uk/hmrc-tax-investigations/), [director liability disputes](https://taxdisputes.co.uk/2026/01/directors-nic-liability-2026-guide/), or [HMRC enforcement action](https://windinguppetitionsolicitors.co.uk/when-hmrc-enforcement-becomes-insolvency-action/) often discover that the legal concept of a “shadow director” becomes highly relevant. In many disputes handled by specialist tax litigation firms, [HMRC ](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/)and insolvency practitioners scrutinise who actually controlled a company’s decisions rather than simply who appeared on the Companies House register. Where individuals exert influence behind the scenes, they may still fall within the statutory definition of a shadow director and be exposed to legal consequences. ## The Legal Definition of a Shadow Director The starting point for understanding shadow directorship is the statutory definition contained in the [Companies Act 2006. Section 251 ](https://www.legislation.gov.uk/ukpga/2006/46/section/251/enacted?view=plain)provides that a shadow director is: “a person in accordance with whose directions or instructions the directors of the company are accustomed to act.” This definition focuses on actual influence over the board, not formal appointment. In other words, a person may never appear in corporate filings, board minutes, or shareholder registers yet still be treated as a [director](https://taxdisputes.co.uk/2025/12/personal-liability-notices-plns-defence-strategies-for-directors/) in law if the company’s [official directors](https://taxdisputes.co.uk/2025/12/personal-liability-notices-plns-defence-strategies-for-directors/) consistently follow their instructions. The law recognises that corporate control can occur informally. A company may be legally managed by its [registered directors](https://taxdisputes.co.uk/2025/12/personal-liability-notices-plns-defence-strategies-for-directors/), but the true decision maker may be a shareholder, financier, consultant, or external adviser. Where the board becomes accustomed to acting on that individual’s instructions, the law may treat them as a shadow director. The statutory framework is deliberately broad because it prevents individuals from avoiding responsibility by operating behind the scenes while leaving nominal [directors](https://taxdisputes.co.uk/2025/12/personal-liability-notices-plns-defence-strategies-for-directors/) to carry the formal legal risk. ## Why the Law Recognises Shadow Directors The concept exists primarily to prevent abuse of corporate structures. Company law imposes duties on [directors](https://taxdisputes.co.uk/2025/12/personal-liability-notices-plns-defence-strategies-for-directors/) because they exercise control over corporate assets, creditors’ interests, and regulatory compliance. If the law only recognised formally appointed[ directors](https://taxdisputes.co.uk/2026/01/directors-nic-liability-2026-guide/), individuals could avoid responsibility simply by controlling companies indirectly while allowing others to appear as directors on paper. Shadow director rules ensure that those exercising real influence cannot evade legal accountability. In practice, shadow director allegations frequently arise in situations involving [tax disputes](https://taxdisputes.co.uk/), insolvency proceedings, or fraud investigations. Where a company collapses or becomes subject to regulatory[ enforcement](https://windinguppetitionsolicitors.co.uk/when-hmrc-enforcement-becomes-insolvency-action/), investigators often look beyond the formal board to identify who actually made key decisions. ## Key Indicators of a Shadow Director Courts do not rely on a single test to determine whether someone is a shadow director. Instead, they assess the factual relationship between the individual and the [company’s directors](https://taxdisputes.co.uk/2026/01/directors-nic-liability-2026-guide/). Judicial decisions have identified several factors that may indicate shadow directorship. These include situations where [directors](https://taxdisputes.co.uk/2026/01/directors-nic-liability-2026-guide/) regularly seek instructions from a particular individual before making decisions, where a person effectively determines company policy, or where the board consistently implements decisions originating from someone outside the formal governance structure. However, influence alone is not sufficient. The crucial issue is whether the [directors](https://windinguppetitionsolicitors.co.uk/guide-for-uk-directors-facing-iwoca-ltd-debt-ccjs-or-winding-up-petitions/) are “accustomed to act” on the person’s instructions. This requires evidence of a pattern of behaviour rather than isolated instances of advice. Courts, therefore, look for repeated decision-making behaviour demonstrating that the board routinely followed directions from the alleged shadow director. ## Shadow Directors and Professional Advisers A common question arises as to whether consultants, [accountants](https://taxdisputes.co.uk/2020/10/high-court-re-confirms-accountant-consultant-reports-are-not-protected-by-litigation-legal-privilege-disclosure-hmrc-advice/), or tax advisers may become shadow directors. The answer depends largely on the degree of control exercised. Providing advice alone does not create shadow directorship. [Directors ](https://taxdisputes.co.uk/2026/01/directors-nic-liability-2026-guide/)frequently rely on specialist advisers, particularly in complex areas such as [tax compliance](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) or restructuring. In those circumstances, advisers simply provide expertise while the [directors](https://taxdisputes.co.uk/2026/01/directors-nic-liability-2026-guide/) retain ultimate decision-making authority. However, if an adviser effectively dictates corporate strategy or instructs [directors](https://taxdisputes.co.uk/2026/01/directors-nic-liability-2026-guide/) on how decisions must be implemented, the situation may change. If the board becomes accustomed to acting on those directions rather than exercising independent judgment, the adviser may fall within the statutory definition. For this reason, professional advisers involved in distressed companies or tax disputes must be careful to maintain a clear advisory role rather than assuming operational control, and should seek[ specialist legal advice from experienced tax solicitors or barristers](https://lexlaw.co.uk/contact-us/) to ensure their actions do not inadvertently create personal liability. ## Shadow Directors in HMRC Investigations Shadow director allegations frequently arise in the context of [HMRC enforcement](https://windinguppetitionsolicitors.co.uk/when-hmrc-enforcement-becomes-insolvency-action/). Tax authorities often examine the real control structure of companies suspected of tax evasion, [VAT fraud](https://taxdisputes.co.uk/hmrc-vat-investigations-evasion-input-ouput-double-taxation-tribunal-legal-advice/), or payroll irregularities. Where companies involved in supply chains or trading arrangements appear to have minimal management activity, [investigators](https://taxdisputes.co.uk/hmrc-tax-investigations/) may examine whether another individual is directing the business from behind the scenes. In [VAT fraud investigations](https://taxdisputes.co.uk/hmrc-vat-investigations-evasion-input-ouput-double-taxation-tribunal-legal-advice/), for example, HMRC may argue that individuals who established trading structures or controlled financial flows were in fact shadow directors of multiple companies. Establishing such a status may strengthen arguments relating to knowledge, control, or participation in fraudulent trading arrangements. Similarly, in PAYE or VAT disputes involving insolvent companies, insolvency practitioners may [investigate](https://taxdisputes.co.uk/hmrc-tax-investigations/) whether individuals who influenced company operations should be treated as shadow directors and therefore subject to legal consequences. ## Practical Risks for Business Owners and Investors [Business owners](https://taxdisputes.co.uk/2013/07/hmrcs-campaign-for-unpaid-tax-from-second-property-owners/), investors, and financiers should be aware that informal involvement in company management can unintentionally create shadow director status. Individuals who regularly instruct directors, approve key decisions, or exercise operational control may fall within the statutory definition even if they never intended to assume [directorial responsibilities](https://taxdisputes.co.uk/2026/01/directors-nic-liability-2026-guide/). This risk often arises where entrepreneurs place trusted associates on the board while retaining real decision making authority themselves. In such circumstances, the [official directors](https://taxdisputes.co.uk/2026/01/directors-nic-liability-2026-guide/) may appear to run the company while the founder continues to determine strategy from outside the formal governance structure. If disputes later arise, courts and regulators will examine the factual reality of how the company operated. ## Key Takeaways on Shadow Directors and HMRC Risk Shadow directorship is an important concept within UK company law because it ensures that individuals who exercise genuine control over companies cannot escape legal responsibility by remaining outside the formal board structure. Under the statutory definition contained in the [Companies Act 2006](https://www.legislation.gov.uk/ukpga/2006/46/contents), anyone whose instructions the directors habitually follow may be treated as a shadow director. In contexts involving [HMRC investigations](https://taxdisputes.co.uk/hmrc-tax-investigations/), insolvency proceedings, or allegations of corporate misconduct, identifying the true decision makers behind a company often becomes central to the dispute. Anyone involved in directing corporate strategy without formal appointment should therefore seek [specialist legal advice](https://lexlaw.co.uk/contact-us/) to understand the potential implications of their role. ### Frequently Asked Questions (FAQ's) What is a shadow director under UK law? A shadow director is someone whose instructions or directions the company’s official directors are accustomed to follow, even though they are not formally appointed to the board. This concept ensures that those who exercise real control over a company cannot evade legal responsibility. Can a professional adviser become a shadow director? Providing advice alone does not make someone a shadow director. However, if an adviser effectively dictates company decisions and the directors habitually act on those instructions, they may fall within the statutory definition and face potential legal or financial liability. How does HMRC identify shadow directors during investigations? HMRC looks beyond the formal board structure to identify who actually makes key business decisions. This often arises in VAT, PAYE, or tax fraud investigations, where individuals who control companies behind the scenes may be treated as shadow directors for enforcement purposes. How can business owners or investors avoid being classified as shadow directors? Individuals should maintain a clear distinction between advisory roles and operational control, avoid instructing directors on decisions they must implement, and seek specialist legal advice if they are involved in company strategy or tax dispute matters. What is the difference between a shadow director and a de facto director? A de facto director acts as if they are a director, attending board meetings or signing company documents, even without formal appointment. A shadow director, by contrast, influences the board from behind the scenes by giving instructions or directions that the directors habitually follow. --- # HMRC Winds Up Scottish Plumbing Firm: Sprint Plumbing Scotland Limited Enters Compulsory Liquidation Source: https://taxdisputes.co.uk/2026/04/hmrc-winds-up-scottish-plumbing-firm-sprint-plumbing-scotland-limited-enters-compulsory-liquidation/ The case of [Sprint Plumbing Scotland Limited](https://find-and-update.company-information.service.gov.uk/company/SC644695) underscores a pattern that [specialist tax lawyers](https://lexlaw.co.uk/andrew-young/) and [insolvency practitioners](https://lexlaw.co.uk/our-people/christopher-snell/) see with increasing regularity: a trading company accumulates tax liabilities, fails to engage meaningfully with HMRC's enforcement processes, and ultimately faces the full force of compulsory liquidation under the [Insolvency Act 1986](https://www.legislation.gov.uk/ukpga/1986/45/contents). For directors of any company currently receiving correspondence from HMRC's enforcement units, or facing demands for unpaid [VAT](https://taxdisputes.co.uk/repayment-fraud/), PAYE, National Insurance, or Corporation Tax, this case is a cautionary illustration of where [inaction](https://lexlaw.co.uk/) leads. The consequences extend well beyond the closure of the business; directors can face [personal liability](https://lexlaw.co.uk/solicitors-london/directors-exposed-to-personal-liability-in-the-twilight-period-insolvency-act-1986/) investigations, disqualification proceedings, and reputational damage that follows them long after the company has ceased trading. [Instructing specialist tax lawyers](https://lexlaw.co.uk/contact-us/) at the pre-petition stage can make the difference between a negotiated resolution and the irreversible outcome of compulsory liquidation. ## Case Background: The Winding Up of Sprint Plumbing Scotland Limited [Sprint Plumbing Scotland Limited](https://find-and-update.company-information.service.gov.uk/company/SC644695) operated from Dumbarton, carrying out plumbing and heating installation work across Scotland. According to its most recent accounts filed at Companies House in 2024, the firm employed three people. Notwithstanding its modest size, the company accumulated tax liabilities that it was ultimately declared unable to meet. [HMRC](https://windinguppetitionsolicitors.co.uk/hmrc-withdraws-winding-up-petition-against-whiskey-wealth-club-limited/) presented a [winding-up petition](https://windinguppetitionsolicitors.co.uk/uk-insolvency-surge-2026-steps-to-protect-your-business/) to Dumbarton Sheriff Court, the appropriate Scottish forum for such proceedings. Sheriff J McElroy KC presided over the matter and, having assessed the evidence before the court, determined that Sprint Plumbing Scotland Limited was unable to pay its debts within the meaning of the relevant [insolvency legislation](https://www.legislation.gov.uk/ukpga/1986/45/contents). The [winding-up order](https://windinguppetitionsolicitors.co.uk/winding-up-order-looms-over-litigation-funder-fenchurch-legal-limited/) followed, and Scott G Bastick of Middlebrooks Business Recovery & Advice was duly appointed as [liquidator](https://lexlaw.co.uk/solicitors-london/sections-235-and-236-insolvency-act-1986-directors-duties-to-co-operate-with-liquidators/) to the company. The progression from unpaid tax liability to court-ordered liquidation reflects a familiar and well-documented [enforcement trajectory](https://windinguppetitionsolicitors.co.uk/hmrc-issues-winding-up-petition-against-hartley-white-limited/). [HMRC](https://windinguppetitionsolicitors.co.uk/hmrc-issues-winding-up-petition-against-hartley-white-limited/) does not act without warning. By the time a petition is presented, the company will typically have received payment demands, enforcement notices, and in many cases a formal letter before winding-up action. HMRC itself has acknowledged that it only files [winding-up petitions](https://lexlaw.co.uk/solicitors-london/2026-guide-uk-winding-up-petition-procedure/) once it has exhausted all other options and is satisfied that the debt is both undisputed and irrecoverable through less drastic means. For Sprint Plumbing Scotland Limited, those other options were either unavailable or [not taken up in time.](https://lexlaw.co.uk/contact-us/) ## What is a Winding-Up Petition? A [winding-up petition](https://lexlaw.co.uk/solicitors-london/2026-guide-uk-winding-up-petition-procedure/) is a formal legal application presented to a court by a creditor seeking to have a company compulsorily wound up and placed into liquidation. In England and Wales, such petitions are governed primarily by [section 122](https://www.legislation.gov.uk/ukpga/1986/45/part/IV/chapter/VI/crossheading/grounds-and-effect-of-windingup-petition) and [section 124 of the Insolvency Act 1986](https://www.legislation.gov.uk/cy/ukpga/1986/45/section/124), with the corresponding Scottish procedure governed by the Insolvency (Scotland) (Company Voluntary Arrangements and Administration) Rules and associated Scottish insolvency legislation. The petitioner must establish that the company is unable to pay its debts as they fall due, a test set out under [section 123 of the Insolvency Act 1986](https://www.legislation.gov.uk/ukpga/1986/45/section/123/enacted?view=plain). Once a [petition](https://windinguppetitionsolicitors.co.uk/winding-up-petition-issued-against-morecambe-fc/) has been presented, it will ordinarily be served on the company and then advertised in the Edinburgh Gazette (for Scottish proceedings) or the [London Gazette](https://www.thegazette.co.uk/) (for English proceedings). Advertisement is one of the most commercially damaging consequences of a petition, because it puts the company's bankers, suppliers, and customers on notice that [insolvency proceedings](https://lexlaw.co.uk/our-people/christopher-snell/) are underway. Banks routinely [freeze company accounts](https://lexlaw.co.uk/solicitors-london/account-freezing-orders-afos-in-2026-the-definitive-uk-legal-guide-to-frozen-bank-accounts/) upon becoming aware of a petition, which can bring trading to an immediate halt. The court hearing follows, at which the company has the opportunity to oppose the petition, seek an [adjournment](https://lexlaw.co.uk/our-people/christopher-snell/), or demonstrate that the debt has been settled or is genuinely disputed. If none of these outcomes is achieved, the court may make a [winding-up order](https://windinguppetitionsolicitors.co.uk/winding-up-consequences/), appointing an official liquidator to take control of the company's assets and affairs. This is why instructing [expert tax lawyers](https://lexlaw.co.uk/andrew-young/) immediately upon receipt of a winding-up petition is [necessary](https://lexlaw.co.uk/contact-us/). The window to [act](https://lexlaw.co.uk/contact-us/) is narrow, and the consequences of missing it are irreversible. ## Why HMRC is One of the Most Frequent Petitioning Creditors [HMRC](https://lexlaw.co.uk/solicitors-london/case-study-hmrc-security-notices-overturned-duma-rockey-v-hmrc-tribunal-tax-appeal/) occupies a unique position in the UK creditor landscape. Its statutory powers are extensive, and its enforcement machinery is highly organised. Unlike commercial creditors, [HMRC](https://lexlaw.co.uk/solicitors-london/case-study-hmrc-security-notices-overturned-duma-rockey-v-hmrc-tribunal-tax-appeal/) does not need to obtain a judgment before [petitioning for winding up](https://windinguppetitionsolicitors.co.uk/hmrc-issues-winding-up-petition-against-gillens-coaches/); it can proceed on the basis of an undisputed tax debt alone. As a preferential creditor for certain categories of [tax liability](https://lexlaw.co.uk/contact-us/) following legislative changes under the Finance Act 2020, and as a significant unsecured creditor for others, [HMRC](https://lexlaw.co.uk/solicitors-london/late-hmrc-tax-tribunal-appeals-medpro-martland-your-options/) has both the standing and the incentive to use insolvency proceedings as a debt recovery tool. Each year, [HMRC](https://lexlaw.co.uk/solicitors-london/hmrc-time-to-pay-arrangement-guide-2026-how-to-negotiate-a-repayment-plan-for-unpaid-tax/) is responsible for a substantial proportion of all winding-up petitions presented in the United Kingdom. This [enforcement](https://windinguppetitionsolicitors.co.uk/hmrc-issues-winding-up-petition-against-gillens-coaches/) posture reflects the Treasury's obligation to protect public funds and to ensure a level playing field for businesses that do meet their tax obligations. [HMRC](https://lexlaw.co.uk/solicitors-london/case-study-hmrc-security-notices-overturned-duma-rockey-v-hmrc-tribunal-tax-appeal/) has made clear in public statements that it takes a supportive approach to customers with tax debts and only presents winding-up petitions after all other options have been exhausted. In practice, this means that by the time a petition is filed, HMRC will have sent multiple demands, issued [enforcement notices](https://windinguppetitionsolicitors.co.uk/step-by-step-guide-for-directors-responding-to-a-hmrc-winding-up-petition/), and in many cases visited the business premises or engaged with the directors directly. For any business that has received an [HMRC](https://lexlaw.co.uk/solicitors-london/hmrc-time-to-pay-arrangement-guide-2026-how-to-negotiate-a-repayment-plan-for-unpaid-tax/) enforcement letter, a statutory demand, or a letter before winding-up action, the message is clear: the time to seek specialist legal advice is now, not after the petition has been presented. Specialist tax lawyers can negotiate [Time to Pay arrangements](https://lexlaw.co.uk/solicitors-london/hmrc-time-to-pay-arrangement-guide-2026-how-to-negotiate-a-repayment-plan-for-unpaid-tax/), challenge the validity of disputed assessments, and engage with [HMRC's debt management teams](https://lexlaw.co.uk/contact-us/) in ways that prevent the matter from escalating to court. ## What Happens After a Winding-Up Order is Made? Once a winding-up order is granted by the court, the company enters [compulsory liquidation](https://windinguppetitionsolicitors.co.uk/winding-up-consequences/). A [liquidator](https://lexlaw.co.uk/solicitors-london/sections-235-and-236-insolvency-act-1986-directors-duties-to-co-operate-with-liquidators/) is appointed, whose primary duty is to the creditors of the company rather than to the directors or shareholders. The liquidator will take control of the company's assets, investigate the conduct of the directors in the period leading up to the insolvency, and realise whatever value can be extracted for distribution to [creditors](https://windinguppetitionsolicitors.co.uk/when-a-creditor-misuses-insolvency-tools-abuse-of-process-and-legal-remedies/). The [liquidator's](https://lexlaw.co.uk/solicitors-london/sections-235-and-236-insolvency-act-1986-directors-duties-to-co-operate-with-liquidators/) investigative powers are broad. They may examine transactions entered into in the period before [insolvency](https://windinguppetitionsolicitors.co.uk/winding-up-consequences/), including payments made to connected parties, asset disposals below market value, and the withdrawal of directors' salaries or loan repayments. If the liquidator identifies conduct that amounts to wrongful trading under [section 214 of the Insolvency Act 1986](https://www.legislation.gov.uk/ukpga/1986/45/section/214), preference payments under [section 239](https://www.legislation.gov.uk/ukpga/1986/45/section/239), or transactions at an undervalue under [section 238](https://www.legislation.gov.uk/ukpga/1986/45/section/238), they may bring claims against the directors personally. Directors who are found to have breached their duties during the period of insolvency risk disqualification under the [Company Directors Disqualification Act 1986](https://www.legislation.gov.uk/ukpga/1986/46/contents) and [personal liability](https://lexlaw.co.uk/solicitors-london/directors-personal-guarantees-what-happens-when-a-corporate-debtor-defaults/) for company debts. These are serious consequences that often come as a shock to directors who believed they were acting in good faith. It is for precisely these reasons that taking [early legal advice](https://lexlaw.co.uk/contact-us/) when [HMRC](https://lexlaw.co.uk/andrew-young/) begins enforcement action is so important. By the time the winding-up order has been made, the options available to a director are significantly more limited than they would have been at an [earlier stage](https://lexlaw.co.uk/contact-us/). ## What Should Directors Do if They Are Facing HMRC Enforcement Action? The single most important step any director can take upon receiving HMRC correspondence relating to unpaid tax is to engage [specialist tax lawyers](https://lexlaw.co.uk/contact-us/) without delay. This is not a situation that benefits from a wait-and-see approach. The first priority is to understand the nature and quantum of the liability. HMRC's assessments are not always correct, and there may be grounds to challenge the underlying tax demand through the appropriate appellate channels. An experienced tax disputes lawyer will review the assessment, identify any errors or [procedural irregularities](https://lexlaw.co.uk/solicitors-london/case-study-hmrc-security-notices-overturned-duma-rockey-v-hmrc-tribunal-tax-appeal/), and advise on the prospects of a formal challenge. Where the liability is accepted, the focus shifts to engaging HMRC on a [Time to Pay arrangement](https://lexlaw.co.uk/solicitors-london/hmrc-time-to-pay-arrangement-guide-2026-how-to-negotiate-a-repayment-plan-for-unpaid-tax/). HMRC can agree structured repayment schedules that allow a company to meet its tax obligations over an [extended period](https://lexlaw.co.uk/solicitors-london/hmrc-time-to-pay-arrangement-guide-2026-how-to-negotiate-a-repayment-plan-for-unpaid-tax/), typically up to twelve months, though longer arrangements are possible in appropriate cases. Securing a Time to Pay arrangement requires a credible and detailed [financial proposal](https://lexlaw.co.uk/solicitors-london/hmrc-time-to-pay-arrangement-guide-2026-how-to-negotiate-a-repayment-plan-for-unpaid-tax/), and [specialist tax lawyers](https://lexlaw.co.uk/andrew-young/) are well placed to prepare and present this effectively. Where a [statutory demand](https://windinguppetitionsolicitors.co.uk/statutory-demand-set-aside-lawyers-london-hmrc/) has already been served, the company has a limited period to respond before HMRC is entitled to proceed to a winding-up petition. [Specialist tax lawyers](https://lexlaw.co.uk/our-people/) can advise on whether the [demand](https://windinguppetitionsolicitors.co.uk/statutory-demand-set-aside-lawyers-london-hmrc/) should be contested and, if so, on what grounds. If a petition has already been presented, urgent steps may need to be taken to seek an adjournment of the hearing, restrain advertisement of the petition, or [negotiate a settlement](https://lexlaw.co.uk/corporate-social-responsibility-charity-work/) that results in the petition being withdrawn. Throughout this process, [directors](https://lexlaw.co.uk/solicitors-london/personal-liability-notices-plns-guide-2026-what-directors-need-to-know/) must also be mindful of their own legal duties. Once a company is at risk of insolvency, the interests of creditors take priority over those of shareholders. [Directors](https://lexlaw.co.uk/solicitors-london/personal-liability-notices-plns-guide-2026-what-directors-need-to-know/) should document their decision-making carefully, avoid entering into transactions that could later be characterised as preferences or undervalues, and take [contemporaneous legal advice](https://lexlaw.co.uk/contact-us/). This documentation can be critical in defending any subsequent claims brought by a liquidator. ## Instruct Expert London Tax Lawyers If your company is facing [HMRC enforcement action](https://lexlaw.co.uk/solicitors-london/case-study-hmrc-security-notices-overturned-duma-rockey-v-hmrc-tribunal-tax-appeal/), a statutory demand, or a [winding-up petition](https://windinguppetitionsolicitors.co.uk/when-hmrc-enforcement-becomes-insolvency-action/), the time to act is now. At [LEXLAW](https://lexlaw.co.uk/), our [specialist tax](https://lexlaw.co.uk/andrew-young/) lawyers and [insolvency barristers](https://lexlaw.co.uk/our-people/christopher-snell/) have extensive experience in advising businesses and their directors at every stage of the HMRC enforcement process, from the first payment demand through to contested petition hearings. We can negotiate [Time to Pay arrangements](https://lexlaw.co.uk/solicitors-london/hmrc-time-to-pay-arrangement-guide-2026-how-to-negotiate-a-repayment-plan-for-unpaid-tax/) directly with HMRC, challenge disputed tax assessments, seek urgent injunctions to restrain petition advertisement, and provide robust representation at winding-up hearings. The case of [Sprint Plumbing Scotland Limited](https://find-and-update.company-information.service.gov.uk/company/SC644695) demonstrates, with painful clarity, the consequences of allowing a tax liability to reach the point of compulsory liquidation. [Our team](https://lexlaw.co.uk/our-people/) is here to ensure that does not happen to your business. [Contact](https://lexlaw.co.uk/?page_id=356) [LEXLAW](https://lexlaw.co.uk/) today for a confidential and urgent case assessment. ## Frequently Asked Questions **What is a winding-up petition and how does it differ from a statutory demand?** A statutory demand is a formal written demand served by a creditor requiring payment of a debt of £750 or more within 21 days. It is a precursor to insolvency action and not itself a court process. A winding-up petition, by contrast, is a formal application to the court seeking an order to compulsorily wind up and liquidate a company. HMRC will often serve a statutory demand before proceeding to petition, though it is not always obliged to do so. The petition represents a significantly more serious escalation, because once it is advertised in the Gazette, the company's banking facilities are likely to be frozen and its trading position becomes extremely precarious. Directors who receive either a statutory demand or an HMRC enforcement letter before winding-up action should instruct specialist tax lawyers immediately. **Why does HMRC present winding-up petitions against small businesses?** HMRC's mandate is to protect public funds, and it applies its enforcement processes consistently regardless of the size of the debtor company. Small businesses are not immune from HMRC winding-up action. HMRC has publicly stated that it only presents winding-up petitions after all other options have been exhausted, which means that by the time a petition is filed against any company, whether a large corporation or a small firm employing three people as in the case of Sprint Plumbing Scotland Limited, HMRC will typically have engaged in a prolonged and unsuccessful effort to secure payment or a repayment agreement. The practical lesson for directors of small businesses is that engaging with HMRC proactively, and with specialist legal support, is far more likely to result in a workable solution than avoiding or delaying engagement. **Can a winding-up petition be stopped once it has been presented?** Yes, a winding-up petition can be halted in a number of circumstances. If the underlying debt is paid in full before the hearing, the petition will ordinarily be withdrawn. If the debt is genuinely disputed on substantial grounds, the court may dismiss or stay the petition. It is also possible to seek an adjournment of the hearing to allow time for a refinancing, a Time to Pay negotiation, or a Company Voluntary Arrangement to be put in place. In some cases, an injunction can be obtained to restrain the advertisement of the petition, which prevents the most immediately damaging commercial consequences from materialising. All of these options require urgent and expert legal intervention. This is why instructing specialist tax lawyers as soon as the petition is served is so necessary. **What is a Time to Pay arrangement and how is it negotiated with HMRC?** A Time to Pay arrangement is an agreement between a company and HMRC allowing the company to pay outstanding tax liabilities in instalments over an agreed period. HMRC's Business Payment Support Service administers these arrangements for businesses in financial difficulty. To secure a Time to Pay arrangement, the company must demonstrate that it is genuinely unable to pay the full amount immediately but has the cash flow to sustain an instalment plan. HMRC will require detailed financial information, including management accounts, cash flow forecasts, and an explanation of the circumstances that led to the arrears. Specialist tax lawyers can prepare this documentation, present a compelling case to HMRC, and negotiate the most favourable terms available. A successful Time to Pay negotiation can prevent a winding-up petition from being presented in the first place. **What personal risks do directors face when HMRC winds up their company?** When a company enters compulsory liquidation, the liquidator is required to investigate the conduct of the directors in the period leading up to insolvency. Directors may face personal liability if they are found to have continued trading whilst knowing, or ought to have known, that there was no reasonable prospect of avoiding insolvent liquidation, a position known as wrongful trading under section 214 of the Insolvency Act 1986. They may also face claims if they made payments to connected parties, repaid their own loans, or transferred assets at less than market value during the vulnerability period before insolvency. Separately, the Insolvency Service may conduct investigations that result in director disqualification proceedings under the Company Directors Disqualification Act 1986. Directors should seek specialist legal advice early to understand and mitigate these risks. **Does the winding-up process in Scotland differ from England and Wales?** There are procedural differences between Scottish and English insolvency proceedings. In Scotland, winding-up petitions are presented to the Sheriff Court or the Court of Session, depending on the level of the company's paid-up share capital. In England and Wales, petitions are presented to the Business and Property Courts, with the Insolvency and Companies Court List sitting in the High Court in London handling the majority of cases. The substantive insolvency law applicable across both jurisdictions draws largely from the same legislation, including the Insolvency Act 1986, though there are important procedural distinctions under the Insolvency (Scotland) Rules. Lexlaw's specialist tax lawyers advise on cross-border insolvency matters and can assist companies registered or operating in Scotland, England, and Wales. **Is it possible to rescue a company that has received a winding-up petition through a Company Voluntary Arrangement?** A Company Voluntary Arrangement, commonly referred to as a CVA, is a formal insolvency procedure that allows a company to compromise its debts and pay them over a period of up to five years, typically with a degree of write-off agreed with creditors. A CVA requires the approval of creditors holding 75 percent or more of the voting debt. HMRC, as a significant creditor in many CVA proposals, will scrutinise any proposal carefully and must be satisfied that the terms offered are better than what it would receive in a liquidation. Where a winding-up petition is already underway, it may be possible to seek an adjournment of the hearing to allow a CVA to be proposed and voted upon. This is a complex process that requires specialist legal and insolvency advice, and the outcome will depend heavily on the quality of the financial proposal put before creditors. --- # Schedule 13 Finance Act 2020: Comprehensive Guide to HMRC Joint Liability Notices Source: https://taxdisputes.co.uk/2026/03/schedule-13-finance-act-2020-comprehensive-guide-to-hmrc-joint-liability-notices/ [Schedule 13 of the Finance Act 2020](https://www.legislation.gov.uk/ukpga/2020/14/schedule/13) introduced one of the most significant expansions of HMRC's enforcement powers in recent times, enabling it to pierce the corporate veil and pursue company directors, and others connected to a company, for the company's own unpaid tax debts. The mechanism through which [HMRC](https://taxdisputes.co.uk/hmrc-enforcement-action/) exercises this power is the Joint and Several [Liability Notice](https://taxdisputes.co.uk/2025/10/upper-tribunal-refuses-late-vat-appeal-personal-liability-notice-directors-delay-of-3-years/) (JSLN). For any director or connected individual who receives one, the consequences are immediate and personal: your own assets, your home, and your financial future are placed directly in [HMRC's](https://lexlaw.co.uk/solicitors-london/case-study-hmrc-security-notices-overturned-duma-rockey-v-hmrc-tribunal-tax-appeal/) sights. Understanding what these notices are, when [HMRC](https://taxdisputes.co.uk/hmrc-enforcement-action/) can issue them, and how they can be challenged is essential. If you have received a JSLN, or have reason to believe one may be issued against you, [specialist legal advice](https://taxdisputes.co.uk/second-opinion/) from [experienced tax dispute solicitors](https://taxdisputes.co.uk/legal-representation/) is not a luxury, it is a necessity. ## What Is a Joint and Several Liability Notice? A Joint and Several [Liability Notice](https://taxdisputes.co.uk/2025/10/upper-tribunal-refuses-late-vat-appeal-personal-liability-notice-directors-delay-of-3-years/) is a formal legal instrument issued by HMRC under [Schedule 13](https://www.legislation.gov.uk/ukpga/2020/14/schedule/13) of the Finance Act 2020. It makes a named individual personally responsible, alongside the company itself, and alongside any other individuals who receive the same notice, for the company's outstanding tax debt. The phrase "joint and several" is the critical legal concept here: it means that every person named on the notice is [independently liable](https://taxdisputes.co.uk/2025/12/personal-liability-notices-plns-defence-strategies-for-directors/) for the full amount. HMRC is not required to divide the debt or pursue each individual proportionately. It can demand the entirety from whichever individual it chooses, and it will choose the person whose assets are most readily available to satisfy the demand. Once a [valid notice](https://taxdisputes.co.uk/legal-representation/hmrc-notice-requirement-tribunal-appeals-solicitor-legal-advice/) has been issued and the window for challenge has closed, it is enforceable in the same way as any personal debt, through the courts, against your home, your savings, and your assets. ## The Power HMRC Did Not Previously Have For most of the history of UK company law, the principle of separate legal personality meant that a company's debts belonged to the company alone. Directors were generally insulated from personal liability for what the company owed. [Schedule 13](https://www.legislation.gov.uk/ukpga/2020/14/schedule/13) of the Finance Act 2020 changes that position fundamentally in circumstances involving tax avoidance, tax evasion, or a pattern of repeated insolvency. Where [HMRC](https://taxdisputes.co.uk/hmrc-enforcement-action/) issues a Joint [Liability Notice](https://taxdisputes.co.uk/2025/10/upper-tribunal-refuses-late-vat-appeal-personal-liability-notice-directors-delay-of-3-years/), the named individual becomes jointly and severally liable with the company for its tax debt. [HMRC](https://taxdisputes.co.uk/legal-representation/hmrc-notice-requirement-tribunal-appeals-solicitor-legal-advice/) does not need to pursue the company first, wait for insolvency proceedings to conclude, or divide the debt proportionately between multiple directors. It can demand the full amount from whichever individual it chooses, typically the one with the most reachable assets. A director who played a secondary role but has a property portfolio and accessible savings may be pursued for a liability running into millions of pounds while a co-director with no assets faces no immediate action at all. This is why understanding your [precise legal position](https://taxdisputes.co.uk/second-opinion/), and challenging any notice on every available ground, is critical from the moment one lands on your desk. ## When Can HMRC Issue a Joint Liability Notice? [HMRC](https://taxdisputes.co.uk/hmrc-enforcement-action/) can only issue a JSLN through one of three specific legal gateways set out in [Schedule 13](https://www.legislation.gov.uk/ukpga/2020/14/schedule/13). Each has its own conditions, all of which must be satisfied before a valid notice can be issued. A notice that does not meet these conditions is challengeable, and this is where specialist legal analysis pays dividends. ### Tax Avoidance and Tax Evasion This is the most frequently used gateway. Under paragraph 2 of [Schedule 13](https://www.legislation.gov.uk/ukpga/2020/14/schedule/13), [HMRC](https://taxdisputes.co.uk/hmrc-enforcement-action/) may issue a notice where the company has entered into tax avoidance arrangements or engaged in tax evasive conduct, the company is [insolvent](https://windinguppetitionsolicitors.co.uk/) or faces a serious risk of [insolvency](https://windinguppetitionsolicitors.co.uk/), and the individual had a sufficient connection to those arrangements. That connection is defined broadly and deliberately. It covers individuals who were responsible for the company entering into the arrangements, but it also catches those who simply received a financial benefit arising from them, even if they were not the architect of the scheme. The legislation deems an individual to know anything they could reasonably be expected to know, which removes the protection of wilful ignorance. A director who received remuneration or distributions structured through an arrangement later characterised by [HMRC](https://taxdisputes.co.uk/legal-representation/hmrc-notice-requirement-tribunal-appeals-solicitor-legal-advice/) as avoidance may find themselves within scope, regardless of how limited their actual involvement was. [HMRC](https://taxdisputes.co.uk/hmrc-enforcement-action/) must also establish that there is, or is likely to be, a tax liability arising from the arrangements, and that there is a serious possibility some or all of that liability will not be paid. Both conditions must be evidenced, not merely asserted, and this is frequently where challenges succeed. ### Repeated Insolvency: the "Phoenix" Problem Paragraph 3 of [Schedule 13](https://www.legislation.gov.uk/ukpga/2020/14/schedule/13) targets what is known colloquially as [phoenixism](https://taxdisputes.co.uk/phoenix-fraud/): the practice of closing companies with significant unpaid tax debts and restarting under a new corporate vehicle, leaving HMRC as an unsatisfied creditor each time. For this gateway to apply, HMRC must show that the individual had a relevant connection, as a director, shadow director, or participator, to at least two companies that each became insolvent within the past five years, each carrying unpaid tax debts exceeding £10,000 at the point of insolvency. [HMRC](https://taxdisputes.co.uk/legal-representation/hmrc-notice-requirement-tribunal-appeals-solicitor-legal-advice/) must further show that the individual has a relevant connection to a new company with its own outstanding tax position. Critically, [HMRC](https://lexlaw.co.uk/solicitors-london/case-study-hmrc-security-notices-overturned-duma-rockey-v-hmrc-tribunal-tax-appeal/) has a two-year limitation period within which to act, running from when it first became aware of sufficient facts to issue the notice. This is not a detail to overlook, if HMRC has sat on its hands beyond that window, the notice may be legally invalid regardless of whether the underlying conduct is proven. Identifying and arguing this point requires [specialists](https://lexlaw.co.uk/andrew-young/) who know where to look. ### Facilitating Others' Avoidance or Evasion The third gateway, under paragraph 5, applies where a company has incurred penalties for facilitating tax avoidance or evasion by third parties. Individuals connected to such a company, including directors, shadow directors, and participators, may receive personal notices where the company is insolvent or at risk of insolvency and the relevant penalty liability is at risk of going unpaid. ## The Financial Reality of a Joint Liability Notice The scale of [personal exposure](https://taxdisputes.co.uk/2025/10/upper-tribunal-refuses-late-vat-appeal-personal-liability-notice-directors-delay-of-3-years/) under a JSLN is frequently underestimated until it is too late. The notice makes the individual personally liable for the company's full tax debt, including all accrued interest and related penalties. There is no cap. There is no apportionment. If the company owes [HMRC](https://lexlaw.co.uk/solicitors-london/case-study-hmrc-security-notices-overturned-duma-rockey-v-hmrc-tribunal-tax-appeal/) £5 million and you are named on a notice, you are personally liable for £5 million, as is any other individual named alongside you, independently and in full. [HMRC](https://taxdisputes.co.uk/legal-representation/hmrc-notice-requirement-tribunal-appeals-solicitor-legal-advice/) will direct its enforcement efforts at whichever individual presents the clearest recovery prospect. Personal bank accounts, investment portfolios, business interests, and family homes are all in scope. In high-value cases, [HMRC](https://taxdisputes.co.uk/hmrc-enforcement-action/) frequently supplements a JSLN with a Notice of Requirement, a separate but related enforcement instrument demanding a security bond, often backed by a charge over personal assets, before any appeal is even concluded. The combined pressure of a JSLN and a Notice of Requirement is considerable, and navigating both simultaneously without expert legal support is a position no director should be in. ## Your Rights to Challenge Every Joint [Liability Notice](https://taxdisputes.co.uk/2025/10/upper-tribunal-refuses-late-vat-appeal-personal-liability-notice-directors-delay-of-3-years/) must by law include an offer of an [HMRC internal review](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/) and an explanation of the right to appeal to the [First-tier Tribunal (Tax Chamber)](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/). You have 30 days from receipt of the notice to act on either. This deadline is strict and is not readily extended by the Tribunal. ### The Internal Review An [internal HMRC review](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/) sees a different officer reconsider the decision. It is a statutory right and costs nothing to invoke, but it would be unrealistic to expect HMRC to cancel a notice it has invested significant resource in issuing. The review is best approached as a procedural step, useful for preserving options and gathering [HMRC's reasoning](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/) in writing, rather than a primary route to resolution. ### The First-tier Tribunal Appeal The appeal to the [First-tier Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) is where a JSLN is properly contested. The Tribunal has full jurisdiction to cancel the notice, reduce the liability specified, or vary its terms. Importantly, the burden of proof falls on HMRC, it must satisfy the [Tribunal](https://taxdisputes.co.uk/late-hmrc-tax-appeals/) that each of the required conditions was met. A [well-constructed appeal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/), grounded in the specific facts and supported by expert legal and forensic accounting analysis, gives the individual their strongest possible platform. This is why [early instruction](https://lexlaw.co.uk/andrew-young/) of [specialist solicitors](https://lexlaw.co.uk/andrew-young/) and [barristers](https://lexlaw.co.uk/andrew-young/) is so important, building that appeal takes time, and the window is short. ## The Strongest Grounds for Challenge Many Joint [Liability Notices](https://taxdisputes.co.uk/2025/12/personal-liability-notices-plns-defence-strategies-for-directors/) are successfully challenged, reduced, or negotiated down. The most productive lines of attack include the following. Challenging [HMRC's](https://lexlaw.co.uk/solicitors-london/case-study-hmrc-security-notices-overturned-duma-rockey-v-hmrc-tribunal-tax-appeal/) evidence that the [statutory conditions](https://taxdisputes.co.uk/late-hmrc-tax-appeals/) are satisfied, particularly whether the individual had the requisite knowledge, involvement, or connection to the relevant arrangements. Contesting the characterisation of the arrangements as avoidance or evasion in the first instance. Arguing that there was no genuine serious possibility of insolvency or non-payment at the time of issue. Identifying procedural failings in the notice itself, such as inadequate reasons or the omission of required information, deficiencies that can render a notice legally defective. Invoking the two-year limitation period under the [repeated insolvency gateway](https://taxdisputes.co.uk/hmrc-winding-up-petitions/) where [HMRC](https://taxdisputes.co.uk/hmrc-enforcement-action/) has delayed. Challenging the quantum of the [underlying tax liability](https://taxdisputes.co.uk/2025/12/personal-liability-notices-plns-defence-strategies-for-directors/) through forensic accountancy, which in turn reduces or eliminates the personal exposure under the notice. Each of these arguments requires detailed analysis of the notice, the underlying tax position, and the individual's specific circumstances. This is not a process that lends itself to general advice. [Specialist](https://lexlaw.co.uk/andrew-young/), case-specific guidance from the outset is what makes the difference between a [successful challenge](https://lexlaw.co.uk/solicitors-london/case-study-hmrc-security-notices-overturned-duma-rockey-v-hmrc-tribunal-tax-appeal/) and an unchallenged personal liability. ## What Happens Without a Successful Challenge If a JSLN is not challenged within the 30-day window, it becomes enforceable in the same manner as any personal debt. [HMRC](https://taxdisputes.co.uk/hmrc-winding-up-petitions/) can then obtain county court judgments, apply for charging orders against property, and, in serious cases, petition for the [individual's bankruptcy](https://windinguppetitionsolicitors.co.uk/bankruptcy-advice/). A [bankruptcy order](https://windinguppetitionsolicitors.co.uk/bankruptcy-advice/) carries consequences that extend far beyond the tax liability itself, including loss of directorships, restrictions on professional activities, and lasting damage to personal and business reputation. Running alongside all of this, [HMRC](https://taxdisputes.co.uk/hmrc-winding-up-petitions/) frequently refers cases to the Insolvency Service for director disqualification proceedings under the [Company Directors Disqualification Act 1986](https://www.legislation.gov.uk/ukpga/1986/46/contents). A disqualification order can prevent an individual from acting as a director for up to 15 years. These are not remote risks, they are well-established features of [HMRC's enforcement strategy](https://taxdisputes.co.uk/hmrc-enforcement-action/) in Schedule 13 cases. ## Instruct Expert London Lawyers [LEXLAW's](https://lexlaw.co.uk/andrew-young/) [tax disputes team](https://lexlaw.co.uk/andrew-young/) brings together [solicitors and barristers](https://lexlaw.co.uk/solicitors-london/case-study-hmrc-security-notices-overturned-duma-rockey-v-hmrc-tribunal-tax-appeal/) in a single, integrated practice. We advise directors, shadow directors, and connected individuals who have received Joint Liability Notices or Notices of Requirement, and we represent clients before the First-tier Tribunal and, where necessary, the [Upper Tribunal](https://www.judiciary.uk/courts-and-tribunals/tribunals/upper-tribunal/) and in judicial review proceedings. Our approach combines technical [expertise in tax law](https://lexlaw.co.uk/solicitors-london/case-study-hmrc-security-notices-overturned-duma-rockey-v-hmrc-tribunal-tax-appeal/) with the kind of clear, strategic thinking that high-stakes enforcement disputes demand. We do not overstate prospects, and we do not encourage litigation that is unlikely to succeed. Where a notice has genuine grounds for challenge, we pursue them vigorously and thoroughly. Where the better outcome lies in negotiation, we bring the same rigour to that process. If you have received a Joint Liability Notice, or believe you may be in [HMRC's](https://lexlaw.co.uk/solicitors-london/case-study-hmrc-security-notices-overturned-duma-rockey-v-hmrc-tribunal-tax-appeal/) sights, [contact](https://lexlaw.co.uk/?page_id=356) [LEXLAW](https://lexlaw.co.uk/andrew-young/) without delay. The 30-day deadline is not theoretical, and the earlier we can assess your position, the more tools we have available. Instructing the [right lawyers](https://lexlaw.co.uk/andrew-young/) at the outset is the most important decision you will make in this process. ### Frequently Asked Questions: Schedule 13 Finance Act 2020 and Joint Liability Notices **What is a Joint Liability Notice and how is it different from a personal liability notice?** A Joint Liability Notice (JSLN) is a statutory instrument under Schedule 13 of the Finance Act 2020. It renders the named individual jointly and severally liable with the company (and any other individuals on notices) for a specified tax debt. Unlike some other personal liability regimes in tax or insolvency law, a JSLN does not merely create a secondary obligation contingent on the company's failure to pay — it immediately establishes a co-primary liability for the full amount. The individual becomes a co-debtor with the company from the moment the notice is validly issued and the appeal window closes without a successful challenge. **Can I be liable under Schedule 13 even if I was not the main director responsible for the tax avoidance?** Yes. The legislation is drafted broadly enough to catch individuals who received a financial benefit arising (wholly or partly) from avoidance arrangements, provided they knew or ought reasonably to have known of the connection. It also captures those who "assisted with or facilitated" the arrangements, even without primary responsibility. A director who approved accounts reflecting benefits from an avoidance scheme, or who received remuneration structured through such a scheme, may be within scope even if another director was the main architect. This is why early legal analysis is essential — the extent of your involvement must be assessed against the statute's precise language. **I was only a director for a short period. Can HMRC still issue a notice against me?** The legislation requires that the individual had the relevant connection (directorship, shadow directorship, or participator status) "at the time" the conduct occurred — not at the time the notice is issued. A director who held office during the period in which avoidance arrangements were entered into, or during which the pattern of insolvency arose, may be within scope even if they resigned years before the notice is issued. The length of tenure is a relevant factual consideration but is not in itself a complete defence. **What does "repeated insolvency" mean, and how many companies are required?** For the repeated insolvency gateway under paragraph 3 of Schedule 13, HMRC requires that the individual had a "relevant connection" to at least two companies that each became subject to an insolvency procedure during the five-year period ending on the date of the notice, with each having had outstanding tax of more than £10,000. Additionally, HMRC must show the individual has a relevant connection to a further "new company" with its own tax liability. This three-company structure (two old, one new) must be satisfied before the gateway can be engaged. **What is the time limit for HMRC to issue a notice under the repeated insolvency gateway?** Under paragraph 3(2) of Schedule 13, a notice may not be issued after the end of the period of two years beginning with the day on which HMRC first became aware of facts sufficient for them reasonably to conclude that the relevant conditions are met. If HMRC became aware of the relevant facts more than two years before issuing the notice, the notice may be invalid regardless of whether the substantive conditions are otherwise satisfied. Verifying this limitation period should be among the first steps taken upon receiving a notice. **How do I appeal a Joint Liability Notice, and what are my chances?** You must request a review or lodge an appeal with the First-tier Tribunal (Tax Chamber) within 30 days of receiving the notice. The Tribunal has power to cancel or vary the notice on the merits. Prospects depend entirely on the specific facts: the strength of HMRC's evidence, the clarity of the conditions, and the availability of procedural or substantive grounds of challenge. In cases involving complex or novel avoidance schemes, disputed shadow directorship, or questionable quantification, there are often significant prospects. Instructing specialist tax dispute solicitors such as LEXLAW at the outset is critical — strategic decisions made in the first 30 days can make the difference between a successful challenge and an unchallenged personal liability. --- # Late Self Assessment Returns (HMRC Penalties and Enforcement) Source: https://taxdisputes.co.uk/2026/05/late-self-assessment-tax-returns-hmrc-penalties-and-enforcement-process/ *Late filing of [Self Assessment](https://taxdisputes.co.uk/2021/03/self-assessment-tax-returns-take-action-to-avoid-late-filing-penalties/) tax returns is a common compliance issue in the United Kingdom and can quickly result in financial penalties and [HMRC](https://taxdisputes.co.uk/hmrc-penalties/) contact. Even a short delay may trigger automatic fines, and the amount due can increase over time if the return remains outstanding. In more serious cases, continued non-compliance may lead to debt recovery action or increased [HMRC](https://taxdisputes.co.uk/hmrc-penalties/) scrutiny of a taxpayer’s wider affairs. Early action is important because prompt filing and payment can help limit the overall cost and reduce the risk of escalation.* ## Understanding Late Self-Assessment Filing A [Self Assessment tax return](https://taxdisputes.co.uk/2021/01/hmrc-relaxes-late-filing-penalty-for-self-assessment-tax-returns/) must usually be filed by 31 January following the end of the relevant tax year for an online return. Missing that deadline can trigger penalties regardless of whether tax is due. [HMRC’s](https://taxdisputes.co.uk/hmrc-statutory-demand/) penalty regime escalates if the return remains unfiled, so even a brief delay may have financial consequences. Taxpayers sometimes underestimate this risk, especially where they believe no tax is payable, but the late filing penalty applies independently of the amount of tax due. ## HMRC Penalties for Late Filing [HMRC](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) normally charges an initial fixed penalty of £100 immediately after the deadline is missed. If the return remains unfiled for 3 months, additional daily penalties of £10 per day may apply, up to a maximum of £900. Further[ penalties ](https://taxdisputes.co.uk/2026/01/hmrc-behaviour-assessments-careless-deliberate-or-concealed/)may then apply at 6 months and 12 months, calculated by reference to the tax due or a minimum amount, whichever is greater. These penalties are separate from any interest charged on unpaid tax. ## Appealing HMRC Penalties A taxpayer may appeal a late filing [penalty](https://taxdisputes.co.uk/2026/01/hmrc-behaviour-assessments-careless-deliberate-or-concealed/) if they had a reasonable excuse for missing the deadline. [HMRC](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) will consider the facts of each case, including illness, serious personal circumstances, or events outside the taxpayer’s control. Simple oversight or poor administration is less likely to succeed on its own. The appeal should explain the delay clearly and show that the return was filed as soon as reasonably possible once the problem was resolved. ## Interest and Costs [HMRC](https://taxdisputes.co.uk/hmrc-vat-investigations-evasion-input-ouput-double-taxation-tribunal-legal-advice/) also [charges interest ](https://taxdisputes.co.uk/2011/06/hmrc-interest-in-ebay-sellers-of-bullion-and-jewellery/)on unpaid tax from the relevant due date until payment is made in full. Interest is separate from penalties, so the total liability can increase even after the return has been filed if the tax remains unpaid. That means a late filing problem may create both a penalty exposure and a payment exposure. Prompt submission and payment remain the most effective ways to reduce the total cost. ## Enforcement Action If a return or related tax debt remains outstanding, [HMRC](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) may progress the matter into debt recovery action. In practice, this can include pursuit of the debt through [HMRC’s](https://taxdisputes.co.uk/hmrc-interviews/) collection systems and, where appropriate, estimated [assessments ](https://taxdisputes.co.uk/2026/01/hmrc-behaviour-assessments-careless-deliberate-or-concealed/)or determinations of liability. Continued non-compliance may also increase the likelihood of further compliance review. The longer the position remains unresolved, the greater the risk of escalation. ## Practical Consequences Late filing can have wider consequences than the immediate penalty itself. It may create administrative difficulties, increase[ HMRC](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) contact, and make future compliance more sensitive to scrutiny. Where the late return also affects a tax payment, the amounts can accumulate quickly because [penalties](https://taxdisputes.co.uk/hmrc-penalties/) and interest operate separately. Acting quickly is usually the best way to reduce both cost and uncertainty. ## Defending Penalties A [penalty](https://taxdisputes.co.uk/2026/01/hmrc-behaviour-assessments-careless-deliberate-or-concealed/) may be reduced or cancelled where [HMRC](https://taxdisputes.co.uk/hmrc-interviews/) accepts a reasonable excuse or where the facts show the penalty should not stand. A strong challenge will usually turn on dates, evidence, and a clear explanation of what prevented timely filing. It is also important to confirm that the return was filed and the tax paid as soon as possible, because HMRC expects prompt remediation once the issue ends. Careful presentation of the facts can make a significant difference to the outcome. Seeking [specialist legal advice](https://lexlaw.co.uk/contact-us/) at an early stage is crucial when defending against [HMRC](https://taxdisputes.co.uk/hmrc-interviews/) late filing penalties or related tax disputes. A [qualified tax or litigation solicitor](https://lexlaw.co.uk/contact-us/) can assess whether there is a reasonable excuse on the facts, identify any procedural errors in [HMRC’s](https://taxdisputes.co.uk/hmrc-penalties/) calculation or enforcement, and structure an appeal or challenge in a way that aligns with [HMRC’s](https://taxdisputes.co.uk/) guidance and tribunal practice. ## How to Avoid and Minimise Late Self Assessment Penalties Avoiding late [Self Assessment penalties](https://taxdisputes.co.uk/2021/03/self-assessment-tax-returns-take-action-to-avoid-late-filing-penalties/) starts with understanding the filing deadlines and planning ahead. Taxpayers should note that the usual online deadline is 31 January following the end of the tax year, and that missing this date can trigger automatic penalties even if no tax is owed. Setting reminders, gathering records early, and allowing time for final checks can help ensure the return is filed on time. Where a taxpayer knows they will be away, unwell, or otherwise unable to meet the deadline, acting early to [seek help](https://lexlaw.co.uk/contact-us/) or file an extension‑type solution (where available) is far safer than waiting until after the due date. If a return is already late, the most important steps are to file as soon as possible and to pay any tax due without delay. [HMRC’s](https://taxdisputes.co.uk/hmrc-enforcement-action/) penalty regime escalates the longer the return remains outstanding, so early action can significantly reduce the financial exposure. In some cases, taxpayers may have a reasonable excuse for the delay, such as serious illness or unexpected personal circumstances, and can appeal the penalty if they provide clear evidence and show prompt remedial steps. Seeking [specialist tax or legal advice](https://lexlaw.co.uk/contact-us/) can help assess whether an appeal is likely to succeed and how to frame it effectively, while also helping to avoid further penalties or interest in the future. ### Frequently Asked Questions (FAQ's) What happens if I miss the Self Assessment deadline? HMRC automatically issues a fixed penalty even if no tax is due, followed by additional penalties if the return remains outstanding. Can HMRC waive late filing penalties? Yes, but only where a reasonable excuse is accepted and evidence supports the reason for delay. How much are HMRC late filing penalties? Penalties increase over time, starting with a fixed charge and escalating the longer the return remains unfiled. Do I still get penalties if I owe no tax? Yes, penalties apply for late filing regardless of whether tax is due. Can I appeal a late filing penalty? Yes, appeals can be made where there is a reasonable excuse or procedural error. --- # Ultimate Guide to Avoiding PAYE/NIC Penalties in 2026 Source: https://taxdisputes.co.uk/2026/03/ultimate-guide-to-avoiding-paye-nic-penalties-in-2026/ For employers, payroll agents, and company directors, the PAYE and National Insurance Contributions system is not merely an administrative obligation, it is a compliance minefield with escalating financial consequences for those who fall short. In the 2025-2026 tax year, HMRC has intensified its focus on PAYE compliance, deploying real-time information (RTI) data, employer compliance reviews, and automated penalty systems to identify and penalise errors, late payments, and failures to file. The result is that businesses which once navigated PAYE obligations without incident are now receiving [HMRC penalty notices](https://taxdisputes.co.uk/hmrc-penalties/) for matters they did not previously consider high-risk. This guide sets out the legal framework governing PAYE and NIC penalties in 2026, identifies the most common triggers for enforcement action, and explains the substantive and procedural defences available to employers and individuals. Whether you are facing an existing penalty assessment, a compliance review, or wish to strengthen your payroll processes to avoid future exposure, understanding the law is the essential first step. ## The PAYE and NIC Penalty Regime: A Legal Overview The penalty regime for PAYE and National Insurance Contributions is principally governed by Schedule 55 and Schedule 56 to the Finance Act 2009, together with the Income Tax (Pay As You Earn) Regulations 2003 (SI 2003/2682). Schedule 55 addresses penalties for failures to file returns on time, while Schedule 56 addresses penalties for late payment of PAYE liabilities. These two schedules operate independently, meaning that a single payroll failure can simultaneously attract both a late-filing penalty and a late-payment penalty, materially increasing the financial exposure. HMRC also has power to impose penalties for inaccurate PAYE returns under Schedule 24 to the Finance Act 2007, where an employer submits returns containing errors. The quantum of such penalties depends on whether the inaccuracy is characterised as careless, deliberate, or deliberate and concealed. Where HMRC concludes that an employer or director has deliberately suppressed PAYE liabilities, for example by operating [off-payroll arrangements](https://taxdisputes.co.uk/hmrc-ir35/) or disguised remuneration schemes, penalty loadings of up to 100% of the tax at stake can be imposed, with personal liability potentially extending to directors and company officers. ## Late Filing of PAYE Returns: Schedule 55 Penalties Explained Under the RTI system, employers are required to submit a Full Payment Submission (FPS) to HMRC on or before the date on which employees are paid. A failure to do so, even by one day, can trigger a penalty under Schedule 55. The penalty amounts are set by reference to the number of employees on the payroll and are charged on a monthly basis, meaning that a persistent failure to file accumulates significant penalties over time. ### How Monthly Penalty Amounts Are Calculated For the 2025-2026 tax year, the monthly penalty amounts for late FPS filings are scaled as follows, depending on the number of employees in the PAYE scheme: - **1 to 9 employees: **£100 per month - **10 to 49 employees: **£200 per month - **50 to 249 employees: **£300 per month - **250 or more employees: **£400 per month An additional penalty of £100 per month applies where returns remain outstanding for more than three months. Where filing failures continue for twelve months or more and HMRC concludes that the employer has withheld information that would have enabled HMRC to assess a tax liability, further penalties of up to 100% of the tax at stake may be imposed. It is important to note that HMRC’s automated penalty system does not always accurately reflect the employer’s actual filing record. RTI submissions can be rejected by HMRC’s systems for technical reasons, including duplicate submissions, schema validation errors, or Basic PAYE Tools failures, without the employer being notified in real time. Employers who believe they filed on time but have nonetheless received a penalty notice should immediately check their RTI submission history and, if appropriate, seek specialist advice on whether the penalty can be challenged on factual grounds. ## Late Payment of PAYE: Schedule 56 Penalties and How They Accumulate Schedule 56 to the Finance Act 2009 imposes penalties where PAYE and NIC liabilities are paid late. The penalty is calculated as a percentage of the amount paid late, with the percentage increasing according to the number of defaults in a tax year. The first default in a tax year attracts no penalty, but subsequent defaults attract charges of 1%, 2%, 3%, or 4% depending on how many defaults have occurred in that year. Where payment is more than six months late, a further 5% penalty applies; and where payment is more than twelve months late, a further 5% penalty is added, bringing the maximum potential accumulation for a single persistent default to 15% of the unpaid amount. This escalating structure means that employers who fall into a pattern of late payments can accumulate substantial penalties rapidly, even where the individual monthly amounts are modest. A business making monthly PAYE payments of £20,000 that consistently pays two to three weeks late can accumulate thousands of pounds in Schedule 56 penalties within a single tax year, entirely as a result of cash-flow management decisions that the business may not have appreciated carried legal consequences. HMRC’s RTI data gives it the ability to identify late payment patterns systematically and to issue penalty determinations automatically. Employers who have received Schedule 56 penalty notices, particularly those covering multiple periods, should seek advice on the full extent of their exposure and the availability of a [reasonable excuse defence](https://taxdisputes.co.uk/2025/10/late-payment-of-paye-nic-penalties-reasonable-excuse-and-appeals/) before responding to HMRC. ## Inaccurate PAYE Returns: Schedule 24 Penalties and the Behaviour Spectrum Schedule 24 to the Finance Act 2007 governs penalties for inaccurate returns, documents, and statements submitted to HMRC. In the PAYE context, Schedule 24 penalties can arise where an employer’s FPS or Employer Payment Summary (EPS) contains errors that understate the employer’s PAYE or NIC liability. The penalty loading depends on HMRC’s characterisation of the employer’s conduct: - **Careless inaccuracy: **penalty of 0-30% of the potential lost revenue, with reductions available for disclosure - **Deliberate but not concealed: **penalty of 20-70% of the potential lost revenue - **Deliberate and concealed: **penalty of 30-100% of the potential lost revenue HMRC’s characterisation of conduct as “deliberate” is contested frequently before the [First-tier Tax Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/). In practice, HMRC investigators may seek to characterise payroll irregularities, including misclassification of workers, incorrect application of the off-payroll rules under [IR35](https://taxdisputes.co.uk/hmrc-ir35/), or failure to operate PAYE on benefits in kind, as deliberate conduct even where the employer’s behaviour was, at worst, negligent or the product of mistaken professional advice. Rebutting a deliberate characterisation is therefore one of the most important, and one of the most technically demanding, tasks in any PAYE penalty appeal. ## Reasonable Excuse: The Primary Defence Against PAYE and NIC Penalties Both Schedule 55 and Schedule 56 provide a complete defence to a penalty where the employer had a “reasonable excuse” for the failure. The reasonable excuse defence is not defined in statute, and its application is therefore fact-specific, developed through a substantial body of Tribunal case law. The general principle, confirmed by the Upper Tribunal in [**Perrin v HMRC** [2018] UKUT 156 (TCC)](https://assets.publishing.service.gov.uk/media/5af9caf440f0b622d18b2e86/Christine_Perrin_v_HMRC.pdf), is that the test is objective: whether a reasonable person who has the same information as the taxpayer would have considered the same course of action appropriate in the circumstances. ### What Can and Cannot Amount to Reasonable Excuse The following circumstances have, in appropriate cases, been accepted by the Tribunal as capable of amounting to reasonable excuse: - Sudden serious illness of the director or sole trader responsible for PAYE compliance, where no reasonable delegation was possible - The unexpected insolvency or sudden departure of the payroll agent responsible for filing submissions - Genuine reliance on materially incorrect professional advice from a qualified adviser, where that reliance was itself reasonable - Technical failures within HMRC’s own Basic PAYE Tools or RTI systems that prevented submission - Bereavement of a key individual with no reasonable opportunity to delegate or recover in time By contrast, HMRC and the Tribunal have consistently declined to accept the following as reasonable excuse: general cash-flow difficulties (unless amounting to genuine financial hardship of the most severe kind); reliance on an unqualified or unlicensed payroll provider; lack of awareness of the filing or payment deadline; and the COVID-19 pandemic, in periods where Government guidance and support measures were available and the employer failed to engage with them. In **Christine Perrin v HMRC** [2018] UKUT 156 (TCC), the Upper Tribunal importantly confirmed that where a taxpayer makes an honest and genuine mistake of fact about whether a return has been filed, that may, depending on the circumstances, constitute a reasonable excuse. The Tribunal should examine the subjective state of the taxpayer’s mind, while also applying an objective reasonableness test to the conduct as a whole. This nuanced, two-stage analysis is often overlooked in HMRC’s initial penalty decision-making, and provides important grounds for challenge before the Tribunal. ## Special Reduction: When HMRC Must Exercise Its Discretion Even where a reasonable excuse cannot be established, both Schedule 55 and Schedule 56 confer upon HMRC a power to apply a “special reduction” where HMRC considers it right to do so because of special circumstances. This is a separate and distinct head of potential relief from the reasonable excuse defence. HMRC’s guidance specifies that special circumstances must be exceptional, something that sets the taxpayer’s situation apart from the general run of cases in which the penalty is appropriate. In practice, HMRC applies the special reduction power very narrowly. However, the Tribunal has shown a greater willingness than HMRC to consider whether circumstances are sufficiently special to warrant reduction. In [**Hesketh v HMRC** [2018] UKFTT 0512 (TC)](https://www.bailii.org/uk/cases/UKFTT/TC/2017/TC06266.html), the Tribunal confirmed that it can substitute its own view for HMRC’s on the question of special reduction where HMRC has failed to exercise the discretion lawfully, for example, where HMRC has applied a blanket policy rather than considering the individual taxpayer’s specific circumstances. Arguments grounded in special reduction should be fully developed in any comprehensive [HMRC penalty appeal](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/), and should not be reserved as a fallback, the strength of the argument may, in some cases, exceed that of the reasonable excuse defence. ## Director Personal Liability for PAYE/NIC Failures One of the most concerning developments in HMRC’s PAYE enforcement strategy is the increasing use of personal liability notices against company directors, particularly in cases involving dissolved or insolvent companies. Under regulation 97 of the Income Tax (PAYE) Regulations 2003, HMRC can issue a personal liability notice to a director, company secretary, or other senior officer where it is satisfied that the company’s failure to account for PAYE was attributable to fraud or neglect by that individual. Personal liability notices are distinct from the formal process of [HMRC winding-up petitions](https://taxdisputes.co.uk/hmrc-winding-up-petitions/), though the two may arise in related circumstances. Where HMRC issues a personal liability notice, the director is treated as personally responsible for the company’s unpaid PAYE, potentially a liability running to hundreds of thousands of pounds. The notice is appealable, and the burden falls on HMRC to demonstrate that the failure was attributable to fraud or neglect at the personal level rather than merely to corporate-level error or mismanagement. A director facing a personal liability notice should not respond to HMRC without first obtaining specialist legal advice. The factual and legal issues involved are complex, the financial stakes are high, and the time limits for appeal are strict. Early engagement with experienced [HMRC tax investigation solicitors](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) is essential. ## The Appeal Process: From HMRC Internal Review to the First-tier Tribunal Penalties under Schedule 55 and Schedule 56 are subject to appeal under section 31 of the Taxes Management Act 1970. The appeal must be made in writing within 30 days of the penalty notice. Taxpayers can request an [HMRC internal review](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/) before proceeding to the Tribunal, and in some cases this is a tactically sensible step. However, HMRC’s internal review process is carried out by HMRC officers rather than by an independent body, and there is no obligation on taxpayers to pursue an internal review before lodging a Tribunal appeal. Where the penalty is substantial, where HMRC’s position is clearly flawed, or where speed is important, proceeding directly to the [First-tier Tax Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) may be the more effective course. At the Tribunal, the burden of proof is on HMRC to establish that the penalty has been correctly imposed. The taxpayer then bears the burden of establishing any defence, including reasonable excuse or special reduction. The Tribunal will consider both factual and legal arguments de novo, it is not bound by HMRC’s characterisation of the conduct or by HMRC’s refusal of a reasonable excuse defence. The strength of the employer’s documentation, the credibility of witness evidence, and the quality of legal submissions all materially influence the outcome. ## Practical Steps to Avoid PAYE and NIC Penalties in 2026 For most employers, prevention is significantly cheaper than cure. HMRC’s penalty regime is largely automated and does not give employers the benefit of the doubt. Proactive compliance management is therefore the most effective way to avoid penalty exposure. The following practical steps are advisable for all employers and payroll managers operating in the 2025-2026 and 2026-2027 tax years. - **Ensure RTI submissions are made before payment, not after: **The FPS must reach HMRC on or before the employee’s pay date. Submissions made even one day late can trigger Schedule 55 penalties. - **Reconcile PAYE payments to submissions monthly: **Discrepancies between what HMRC’s system records as owed and what has been paid are a leading cause of unnecessary penalty notices. - **Act promptly if a payroll agent fails or changes: **Payroll provider insolvency or sudden departure is a recognised but time-limited reasonable excuse. The employer must demonstrate they acted promptly once the problem came to light. - **Review your IR35 status determinations: **Off-payroll errors are among the most scrutinised areas of PAYE compliance. Incorrect status determinations that result in under-deduction of PAYE can attract both Schedule 24 inaccuracy penalties and Schedule 56 late-payment penalties. - **Keep contemporaneous records: **A reasonable excuse defence will often succeed or fail on the quality of documentary evidence. All relevant correspondence, system logs, and professional advice should be retained and organised from the outset. - **Seek early specialist advice where a penalty notice is received: **The 30-day appeal window is short. Late appeals require a separate application to the Tribunal and are not guaranteed to be accepted. ## HMRC’s 2026 Enforcement Focus: What Employers Need to Know HMRC’s annual report and publicly available compliance strategy materials confirm that PAYE and NIC compliance by medium-sized and owner-managed businesses remains one of HMRC’s primary enforcement priorities for 2026. The deployment of Connect, HMRC’s data-matching and risk-profiling system, has substantially increased HMRC’s ability to identify discrepancies between RTI payroll data, self-assessment returns, and third-party information sources such as Companies House filings, banking data, and land registry records. In particular, HMRC’s 2025-2026 compliance activity has targeted: owner-managed businesses where director remuneration patterns suggest that salary has been artificially suppressed to avoid PAYE; businesses in labour-intensive sectors, including construction, hospitality, and logistics, where worker misclassification is prevalent; umbrella company arrangements involving potential [disguised remuneration](https://taxdisputes.co.uk/disguised-remuneration-loan-charge-hmrc-tax-appeals-lawyers/) structures; and businesses that participated in Government support schemes during 2020-2022 and have not fully regularised their PAYE positions following CJRS audits. Employers who fall within any of these risk categories and have not already reviewed their PAYE compliance position should do so urgently. A voluntary disclosure, made at the right time and in the right manner, can substantially reduce the penalty that applies to any historic under-accounting for PAYE, in some cases by as much as 50% compared with the penalty that would apply if HMRC discovers the same information independently. ## HMRC Tax Disputes Legal Advice & Defence PAYE and NIC penalties can accumulate rapidly, carry significant financial consequences, and in serious cases expose directors to personal liability or criminal investigation. Whether you are facing an existing penalty notice, an employer compliance review, or an HMRC investigation into payroll practices, specialist legal representation is essential to protect your position and achieve the best possible outcome. LEXLAW’s specialist tax disputes team has extensive experience representing employers, company directors, and payroll agents in PAYE and NIC penalty disputes at every level, from HMRC correspondence and [internal review](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/) through to fully contested [First-tier Tax Tribunal](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/) hearings and Upper Tribunal appeals. Where personal liability notices have been issued, or where HMRC’s investigation is escalating towards formal enforcement action, LEXLAW’s team is equipped to challenge HMRC’s position at every procedural stage. If you have received a PAYE or NIC penalty notice, an employer compliance review letter, or any form of [HMRC enforcement action](https://taxdisputes.co.uk/hmrc-enforcement-action/), do not delay. [Contact our specialist team today](https://lexlaw.co.uk/contact-us/) for a confidential, expert assessment of your position. --- # Received an HMRC Letter? What to Do Next Source: https://taxdisputes.co.uk/2026/03/received-an-hmrc-letter-what-to-do-next/ Receiving a letter from HM Revenue & Customs (HMRC) is, for most individuals and businesses, an unsettling experience. Whether the envelope contains a routine compliance check, a formal notice of investigation, a tax assessment, or something more serious, the instinct to delay responding or to pass the matter to an accountant is both understandable and legally speaking potentially costly. This article explains the principal categories of HMRC correspondence, what each one actually means under UK tax law, the legal rights available to you, and why instructing qualified [tax dispute solicitors](https://taxdisputes.co.uk/) at the earliest opportunity can be the single most important decision you make. ## Why an HMRC Letter Is Never Simply Routine HMRC correspondence is not generated at random. Every letter carries legal significance, statutory time limits, and depending on its nature real enforcement consequences if ignored or mishandled. [The Taxes Management Act 1970 (TMA 1970)](https://www.legislation.gov.uk/ukpga/1970/9/enacted), the Finance Acts, and the [Value Added Tax Act 1994](https://www.legislation.gov.uk/ukpga/1994/23/contents) all impose specific obligations on both HMRC and the taxpayer, including deadlines by which responses must be made and rights of appeal which expire if not exercised in time. Crucially, taxpayers regularly make the error of treating HMRC correspondence as an accounting matter rather than a legal one. Accountants can assist with tax compliance preparing returns, calculating liabilities, reconciling records but they are not lawyers. Unlike solicitors, accountants have no legal duty of confidentiality to their clients. Any information you share with your accountant can, in defined circumstances, be obtained by HMRC. Communications with a qualified solicitor, by contrast, attract Legal Professional Privilege (LPP), making them wholly confidential and protected from HMRC's information-gathering powers. Where a serious dispute is in prospect, that distinction is not a technicality it can determine the outcome of your case ## The Main Types of HMRC Letter and What Each One Means ### 1. Routine Compliance Check or Information Request HMRC has broad statutory powers to request information and documents under [Schedule 36 of the Finance Act 2008](https://www.legislation.gov.uk/ukpga/2008/9/schedule/36). A Schedule 36 notice can require a taxpayer to produce records, provide information, or attend an interview. These powers apply to both individual returns and corporate tax affairs. Not all information requests are issued under formal notices. HMRC may write informally at first, requesting records or clarification. The temptation to respond quickly without first taking legal advice is understandable but frequently harmful. The manner in which you respond, the documents you disclose, and what you say (or fail to say) can all have significant downstream consequences if the enquiry escalates. Even informal correspondence from HMRC should be treated seriously. If the letter relates to your self-assessment return, corporation tax, VAT, PAYE, or any other tax head, a solicitor familiar with [HMRC tax investigations](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) should review it before you respond. ### 2. Notice of Enquiry Into a Tax Return Under [section 9A of the TMA 1970](https://www.legislation.gov.uk/ukpga/1970/9/section/9A), HMRC can open a formal enquiry into a self-assessment tax return within the relevant statutory window ordinarily 12 months from the filing date for returns filed on time, and longer where a return is filed late or where HMRC alleges fraud or negligent conduct. For corporation tax, enquiries are governed by [Schedule 18 of the Finance Act 1998](https://www.legislation.gov.uk/ukpga/1998/36/schedule/18). A section 9A notice is a formal statutory document. It does not mean HMRC believes you have done anything wrong; enquiries can be selected randomly or on a risk-assessed basis. However, once an enquiry is open, HMRC's information-gathering powers are wide, and the process can extend for months or years unless actively managed. Solicitors can engage with HMRC on your behalf throughout the enquiry process, limit the scope of information requests where they exceed what is legally permitted, and ensure your position is robustly protected. If the enquiry leads to additional assessments or penalties, formal appeal rights arise and must be exercised within strict time limits. ### 3. Penalty Notices and Assessments Where HMRC considers that a taxpayer has failed to file a return on time, paid tax late, or made an inaccurate return, it may issue a penalty notice. The penalty regime under Schedule 24 of the Finance Act 2007 and Schedule 55 and 56 of the Finance Act 2009 creates different penalty categories depending on whether the behaviour was reasonable, careless, or deliberate. The distinction between "careless" and "deliberate" conduct is pivotal. A deliberate inaccuracy can attract a penalty of up to 100% of the unpaid tax, whereas a prompted disclosure of a careless error can attract a substantially lower penalty sometimes as little as 15%. HMRC's characterisation of behaviour is not final; it is subject to challenge both in HMRC's internal review process and at the First-tier Tax Tribunal. In Auxilium Project Management Ltd v HMRC [2016] UKFTT 249 (TC), the Tribunal confirmed that HMRC must establish the nature of the inaccuracy before a penalty can be upheld. Simply asserting that a return was wrong does not automatically justify a deliberate penalty. Effective representation at the penalty stage before the matter reaches Tribunal frequently achieves significant reductions or, in appropriate cases, full mitigation. ### 4. Code of Practice 8 and Code of Practice 9 Investigation Letters Two of the most serious categories of HMRC investigation are governed by[ Code of Practice 8 (COP8)](https://www.gov.uk/government/publications/specialist-investigations-for-fraud-and-bespoke-avoidance-cop-8) and [Code of Practice 9 (COP9)](https://www.gov.uk/government/publications/code-of-practice-9-where-hmrc-suspects-fraud-cop9/code-of-practice-9). COP8 applies where HMRC suspects significant tax avoidance but has not yet formed a view that fraud has occurred. These investigations can involve complex offshore arrangements, disguised remuneration schemes, EBTs, or SDLT avoidance. They are handled by HMRC's Fraud Investigation Service (FIS) and demand experienced legal representation from the outset. For specialist advice on [tax avoidance and COP8 investigations](https://taxdisputes.co.uk/tax-avoidance-cop-8-investigations-solicitors-london/), early legal instruction is essential. COP9 is reserved for cases where HMRC suspects deliberate tax fraud. The taxpayer is offered the opportunity to make a full and complete disclosure through the Contractual Disclosure Facility (CDF). Acceptance of the CDF typically provides immunity from prosecution in exchange for a full, honest account of all irregularities. Rejection leads HMRC to conduct a full investigation without the benefit of the disclosure process, and criminal prosecution remains a live possibility. For further detail on [tax evasion and COP9 investigations](https://taxdisputes.co.uk/tax-evasion-hmrc-code-practice-9-investigations/), legal representation is critical from the moment a COP9 letter arrives. If you have received a COP8 or COP9 letter, do not speak to HMRC or your accountant until you have instructed a solicitor. The legal privilege that attaches to communications with a solicitor from the outset can be decisive. ### 5. HMRC Statutory Demands and Winding-Up Threats Where HMRC believes that a tax liability is undisputed and overdue, it may serve a [statutory demand](https://taxdisputes.co.uk/hmrc-statutory-demand/) as a precursor to insolvency proceedings. For companies, a statutory demand requires payment or satisfaction within 21 days. Failure to comply provides grounds for HMRC to present a [winding-up petition](https://windinguppetitionsolicitors.co.uk/) under section 122(1)(f) of the Insolvency Act 1986 on the basis that the company is unable to pay its debts. Once a winding-up petition is advertised in the London Gazette, banks typically freeze company accounts to prevent unlawful dispositions of assets. The consequences for trading continuity and director reputation are severe and can be very difficult to reverse. Where there is a genuine dispute about the underlying liability, urgent legal steps can be taken to apply to the court to restrain advertisement and to apply for the petition to be dismissed. Time is of the essence these applications must be made before advertisement where possible. For detailed guidance on responding to a [winding-up petition from HMRC](https://windinguppetitionsolicitors.co.uk/), specialist legal advice should be sought immediately. ## Your Legal Rights When HMRC Contacts You One of the most important messages for any taxpayer to understand is this: receiving a letter from HMRC does not mean the matter is resolved in HMRC's favour. You have extensive legal rights. **Right of Appeal: **Most HMRC decisions including assessments, penalty notices, and rejections of claims carry a statutory right of appeal. Under section 31 of the TMA 1970, an appeal must ordinarily be lodged within 30 days of the decision. Time limits are strictly enforced, though late appeals may be permitted in certain circumstances. For guidance on [late appeals to the Tax Tribunal](https://taxdisputes.co.uk/late-hmrc-tax-appeals/), specialist advice is available. **Right to Request an Internal Review: **Before appealing to the First-tier Tax Tribunal, taxpayers have the option to request an HMRC internal review under section 49A–49I of the TMA 1970. The review is conducted by an HMRC officer not previously involved in the decision. For advice on [HMRC internal review appeals](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/), early legal guidance is valuable. **Right to Legal Professional Privilege:** As noted above, communications between a taxpayer and a qualified solicitor are legally privileged and cannot be compelled by HMRC as part of an information request or investigation. This protection is fundamental and should inform every decision about who handles your tax dispute. **Right to Challenge Disproportionate Enforcement: **Where HMRC has acted unlawfully, exceeded its powers, or failed to follow its own published guidance, a judicial review may be available. The courts have intervened to quash HMRC decisions on procedural fairness grounds in cases such as [*R (oao Prudential plc) v Special Commissioner of Income Tax* [2013] UKSC 1](https://www.supremecourt.uk/cases/uksc-2010-0215) and *R v IRC ex parte Preston* [1985] AC 835. For guidance on [judicial review applications against HMRC](https://taxdisputes.co.uk/judicial-review-applications-against-hmrc-challenge-decision-advice/), specialist representation is essential ## The Danger of Relying on Accountants Alone Many taxpayers particularly small business owners and company [directors](https://lexlaw.co.uk/solicitors-london/category/directors-duties/) instinctively turn to their accountant when an HMRC letter arrives. Accountants are skilled at what they do, but their role is fundamentally different from that of a solicitor in a tax dispute context. Accountants are not bound by Legal Professional Privilege. Their files are accessible to HMRC under Schedule 36 notices. An accountant who prepared the return that is now under investigation may have a conflict of interest in advising on the dispute and may not recognise it. They cannot provide legal advice on appeal rights, litigation strategy, or court applications. In complex investigations, where the boundary between civil and criminal exposure is not always clear, the involvement of a solicitor from the outset is not merely advisable it is, in many cases, essential. This is not to minimise the value of good accountancy support. In tax disputes, solicitors and forensic accountants often work together with the solicitor directing strategy, managing HMRC's information requests, and maintaining privilege over the entire process, while the accountant provides the financial analysis that supports the legal position. ## What to Do If You Have Received a Letter from HMRC The steps you take in the days and weeks following receipt of an HMRC letter can define the trajectory of your case. **Do not ignore the letter. **Every category of HMRC correspondence imposes either an express or implied deadline. Missing a deadline can surrender appeal rights, attract further penalties, or be taken as evidence of a lack of cooperation which HMRC factors into penalty calculations. **Do not respond before taking legal advice. **Even a well-intentioned informal response can narrow your options, disclose information you are not obliged to provide, or undermine a defence that could otherwise be maintained. **Instruct a specialist tax solicitor immediately. **The earlier legal advice is obtained, the more options remain available. Privilege is established from the moment a solicitor is instructed. The firm can take over all communication with HMRC, assess the strength of HMRC's position, advise on appeal rights and time limits, and develop a strategic response that protects your interests. **Preserve all relevant records. **Tax disputes often turn on documentary evidence returns, correspondence, contracts, invoices, bank records, and supporting workings. Ensure nothing is destroyed or altered. Speak to your solicitor before deciding what to retain or disclose ## How Our Tax Dispute Solicitors Can Help At [LexLaw](https://lexlaw.co.uk/), our team of specialist tax solicitors and barristers including lawyers with direct experience as HMRC in-house counsel and as senior advisers at the Big 4 regularly represent individuals, company directors, and businesses across the full spectrum of HMRC correspondence and dispute types. Whether you have received a routine compliance check, a formal enquiry notice, a penalty assessment, a COP8 or COP9 letter, or an HMRC statutory demand, we can provide legally privileged, commercially practical advice from the outset. We have a track record of resolving serious [HMRC tax disputes](https://taxdisputes.co.uk/) efficiently at the enquiry stage, through internal review, at the First-tier and Upper-tier Tax Tribunals, and through judicial review where appropriate. Our involvement frequently prevents disputes from escalating to the formal proceedings stage and, where proceedings are unavoidable, our clients benefit from representation by experienced tax litigators with direct knowledge of how HMRC operates from the inside. If you have a potential professional negligence claim arising from poor tax advice for example, where an accountant or tax adviser failed to advise you correctly and HMRC enforcement has followed our team can also advise on [professional negligence claims against tax advisers](https://professionalnegligenceclaimsolicitors.co.uk/) alongside the primary tax dispute ### Frequently Asked Questions (FAQ's) **How long do I have to respond to an HMRC letter?** It depends on the type of letter. A formal Schedule 36 information notice will specify a deadline, typically 30 days. Appeal rights against HMRC decisions must generally be exercised within 30 days under section 31 TMA 1970. COP9 letters have their own response deadlines. Do not let any deadline pass without taking legal advice first **Can HMRC access my accountant's files?** Yes. Unlike communications with a solicitor, correspondence with an accountant does not attract Legal Professional Privilege. HMRC can require an accountant to produce client files under Schedule 36 Finance Act 2008, subject to certain safeguards **What is Legal Professional Privilege and why does it matter?** LPP is a fundamental legal right protecting confidential communications between a client and their solicitor made for the purpose of giving or receiving legal advice, or for the purposes of litigation. HMRC cannot compel disclosure of privileged communications. This makes early instruction of a solicitor not an accountant critically important in any serious tax dispute **Can I appeal an HMRC penalty?** Yes. HMRC penalties carry formal appeal rights under the TMA 1970 and associated legislation. You can first request an HMRC internal review and, if that is unsuccessful, appeal to the First-tier Tax Tribunal. Penalties can be reduced or set aside entirely where behaviour was not as characterised by HMRC or where there is a reasonable excuse. --- # HMRC Compliance Checks: Powers, Rights and How to Respond Source: https://taxdisputes.co.uk/2026/03/hmrc-compliance-checks-powers-rights-and-how-to-respond/ An [HMRC ](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/)compliance check is a review by [HM Revenue & Customs](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) (HMRC) of your tax returns, records and affairs to make sure you have paid the right tax at the right time and claimed only the reliefs you are entitled to. HMRC explains in its "[About compliance checks](https://www.gov.uk/government/publications/general-information-about-compliance-checks-ccfs1a/about-compliance-checks-ccfs1a)" factsheet (CC/FS1a) that checks are part of its routine work to ensure the tax system is operating correctly, and that they can result in you paying more tax, less tax or no change at all. A compliance check can focus on an individual, partnership, company or other business structure and may cover taxes such as income tax, corporation tax, [PAYE](https://taxdisputes.co.uk/2026/03/ultimate-guide-to-avoiding-paye-nic-penalties-in-2026/) and [VAT](https://taxdisputes.co.uk/2026/02/how-to-apply-for-a-hardship-direction-in-vat-cases/). Checks range from straightforward questions about a single item on a return to wider reviews of several years' filings and related records. At the outset, [HMRC](https://taxdisputes.co.uk/hmrc-penalties/) will normally write to you to say it is opening a check, identify the tax and period under review and set out the information it wants. At this early stage, it is often sensible to take specialist advice from experienced[ HMRC ](https://taxdisputes.co.uk/hmrc-penalties/)[tax dispute solicitors](https://lexlaw.co.uk/contact-us/). ## Why HMRC Opens Compliance Checks [HMRC](https://taxdisputes.co.uk/hmrc-penalties/) can open a compliance check for several reasons, including risk‑based selection, random sampling, and information received from third parties. Risk indicators include inconsistencies between different returns, unusual trading patterns, or mismatches between your figures and data from employers, banks or overseas tax authorities. [HMRC’s](https://taxdisputes.co.uk/hmrc-penalties/) systems also use data‑matching and analytics to flag cases where the reported position appears unusual compared with similar taxpayers. In some situations, checks are triggered by specific intelligence suggesting that tax may have been understated or that reliefs may have been claimed incorrectly. A check does not automatically mean you have done anything wrong; [HMRC’s](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) own guidance recognises that many checks end with no adjustments or with errors corrected by agreement. However, the way you respond can influence [HMRC’s](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) view of your behaviour and any penalties, so careful handling is important. For complex tax disputes, the specialist team at [LEXLAW](https://lexlaw.co.uk/) has extensive experience advising on HMRC matters. ## HMRC’s Legal Powers: Schedule 36 Finance Act 2008 [HMRC’s](https://taxdisputes.co.uk/hmrc-tax-investigations/) main powers to obtain information and inspect records during a compliance check are set out in[ Schedule 36 to the Finance Act 2008](https://www.legislation.gov.uk/ukpga/2008/9/schedule/36). Under [Schedule 36](https://www.legislation.gov.uk/ukpga/2008/9/schedule/36), an HMRC officer may by written notice require a person to provide information or produce documents that are reasonably required to check a tax position or to collect a tax debt. There are different types of “information notice”, including a taxpayer notice (addressed to the person whose tax is being checked) and third‑party notices (addressed to, for example, banks or business counterparties). [HMRC](https://taxdisputes.co.uk/hmrc-penalties/) can also use a “financial institution notice” to obtain specified information directly from financial institutions subject to statutory conditions. ## Taxpayer Rights During a Compliance Check You have the right to be represented, meaning you can appoint a professional adviser or another person to act on your behalf in dealing with [HMRC](https://taxdisputes.co.uk/hmrc-penalties/). You are entitled to understand what [HMRC](https://taxdisputes.co.uk/hmrc-penalties/) is checking, which taxes and periods are under review, and why particular information has been requested. You should receive clear explanations of HMRC’s concerns and, if [HMRC ](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/)believes something is wrong, an explanation of why it thinks that and what needs to be put right. If [HMRC ](https://taxdisputes.co.uk/hmrc-tax-appeals/)proposes to charge penalties or issue assessments, you generally have the right to ask for an internal review and, if necessary, to appeal to the independent First‑tier Tribunal (Tax Chamber) under the Tribunals, [Courts and Enforcement Act 2007](https://www.legislation.gov.uk/id/ukpga/2007/15) and the relevant tax and penalty provisions. [LEXLAW](https://lexlaw.co.uk/contact-us/) frequently represent clients in [HMRC ](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/)reviews and tribunal appeals, drawing on experience of HMRC procedures and advocacy before the tax tribunals. ## How Compliance Checks Can Escalate Many compliance checks are resolved by agreement with minor adjustments or no change, especially where the taxpayer has taken reasonable care and co‑operates. However, some enquiries expand significantly if[ HMRC](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) finds evidence of serious inaccuracies, concealment or suspected evasion. Escalation of an [H](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/)[M](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/)[RC](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) compliance check can involve extending the review to earlier tax years, issuing additional or broader [Schedule 36](https://www.legislation.gov.uk/ukpga/2008/9/schedule/36) notices, and conducting more detailed scrutiny of bank accounts, ledgers, and financial transactions. Such measures increase the scope and intensity of the investigation, requiring careful management and professional advice. In more serious cases,[ HMRC](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) may move into civil fraud procedures, such as a Contractual Disclosure Facility process under its Code of Practice for suspected fraud, or consider a criminal investigation where it suspects deliberate tax evasion. Where escalation is likely, early s[pecialist advice](https://lexlaw.co.uk/contact-us/) can be crucial in managing risk, controlling disclosure and protecting against unintended admissions. ## Managing Risk During a Compliance Check Managing a compliance check effectively requires both technical tax knowledge and a strategic approach to [HMRC’s](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) information requests. Good record‑keeping and clear explanations often help resolve matters more quickly and reduce the risk of penalties. Where requests seem excessive or unclear, [professional advisers](https://lexlaw.co.uk/contact-us/) can help you discuss them with HMRC and, where appropriate, negotiate adjustments to the scope or timing. The Tax Team at [LEXLAW](https://lexlaw.co.uk/contact-us/) are used to liaising with[ HMRC](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/) officers, narrowing information requests and helping clients strike the right balance between co‑operation and protection of their legal position. ## Key Takeaways on HMRC Compliance Checks [HMRC ](https://taxdisputes.co.uk/hmrc-tax-appeals/)compliance checks are a routine but significant part of the UK tax system, used to confirm that taxpayers have paid the right amount of tax and complied with their obligations. Under [Schedule 36 to the Finance Act 2008](https://www.legislation.gov.uk/ukpga/2008/9/schedule/36), [HMRC](https://taxdisputes.co.uk/hmrc-tax-appeals/) can require information, documents and, in some cases, access to business premises, but only where this is reasonably required and subject to legal safeguards and protections such as legal professional privilege. Understanding both [HMRC’s](https://taxdisputes.co.uk/hmrc-tax-appeals/) powers and your rights helps you respond proportionately and reduces the risk of unnecessary escalation or penalties. Where the issues are complex, the amounts at stake are significant, or there is concern about potential fraud allegations, obtaining early advice from [specialist HMRC tax disputes lawyers](https://lexlaw.co.uk/contact-us/) is often the most effective way to protect your position and work towards a fair, efficient resolution. ### Frequently Asked Questions (FAQ's) What is an HMRC compliance check? An HMRC compliance check is an enquiry conducted by HMRC to verify that a taxpayer’s declared tax position is accurate. It may involve reviewing tax returns, accounting records, bank transactions, and supporting documents. What rights do I have during an HMRC compliance check? Taxpayers have the right to understand the scope of the enquiry, know which tax years are under review, receive clear explanations of requested information, and seek professional representation to protect their legal position. What is a Schedule 36 notice? A Schedule 36 notice is a formal HMRC request for documents or information that is reasonably required to check a taxpayer’s position. Failure to comply can result in penalties, but the notice must comply with statutory requirements. When should I seek specialist advice? You should consider professional advice if HMRC is examining multi-year positions, large or cross-border transactions, if the notice seems broad or intrusive, if significant penalties are possible, or if civil fraud or criminal investigation is suggested. Can HMRC extend a compliance check to earlier tax years? Yes, HMRC can escalate a compliance check to include earlier tax years, issue wider Schedule 36 notices, and conduct detailed analysis of bank accounts, ledgers, and transactions if they identify issues requiring further investigation. --- # No Penalties Without Notice (Gerrit Wals v HMRC [2026]) Source: https://taxdisputes.co.uk/2026/05/no-penalties-without-notice-gerrit-wals-v-hmrc-2026/ *The obligation to file a self-assessment tax return arises under section 8 of the [Taxes Management Act 1970 ("TMA 1970")](https://www.legislation.gov.uk/ukpga/1970/9/contents), and is triggered by [HMRC](https://taxdisputes.co.uk/hmrc-penalties/) issuing a formal notice to file. Where [HMRC](https://taxdisputes.co.uk/hmrc-tax-appeals/) has not served a valid notice, any return submitted by the taxpayer is characterised in law as a voluntary return. [Section 12D TMA 1970](https://www.legislation.gov.uk/ukpga/1970/9/section/12D), introduced by [section 87 of the Finance Act 2019 ](https://www.legislation.gov.uk/ukpga/2019/1/section/87)with both prospective and retrospective effect, provides that such voluntary returns are deemed to have been made in response to a notice given on the very day the return is delivered. This has a critical consequence for the penalty regime under [Schedule 55 of the Finance Act 2009 ("Schedule 55")](https://www.legislation.gov.uk/ukpga/2009/10/schedule/55): if the deemed notice arises only on the date of filing, it is impossible for the return to be late. The practical effect is that [HMRC's](https://taxdisputes.co.uk/hmrc-tax-appeals/) entitlement to impose late filing penalties collapses entirely where no valid notice to file was ever issued. Taxpayers who have faced penalty assessments in these circumstances have strong grounds to challenge those penalties at the tribunal. This article examines the legal framework and considers how taxpayers and their advisers can respond effectively to [HMRC](https://taxdisputes.co.uk/hmrc-tax-appeals/) penalty notices in light of this important statutory provision.* ## Case Background In Gerrit Wals v The Commissioners for HMRC [2026] UKFTT 00621 (TC), the First-tier Tribunal (Tax Chamber) allowed an appeal against late filing penalties totalling £4,500, which [HMRC](https://taxdisputes.co.uk/hmrc-tax-appeals/) had assessed under [Schedule 55](https://www.legislation.gov.uk/ukpga/2009/10/schedule/55) in respect of the tax years 2010/2011, 2011/2012, 2012/2013, and 2014/2015. The appellant, a Dutch national residing in the United Kingdom, had instructed a chartered accountant to manage and file his self-assessment returns. His accountant prepared and submitted those returns, though on dates [HMRC](https://taxdisputes.co.uk/hmrc-penalties/) regarded as significantly late. [HMRC](https://taxdisputes.co.uk/hmrc-penalties/) duly issued a series of penalties comprising initial late filing charges, daily penalties of £10 per day, six-month penalties, and, in respect of one year, a twelve-month penalty. The appellant, who had every reason to believe his affairs were being properly managed, first became aware of the outstanding liabilities in 2022 when debt collectors contacted him, some years after his accountant had died. A late appeal was ultimately permitted by Judge Rankin, and the substantive hearing proceeded before Tribunal Judge Nigel Popplewell and Miss Patricia Gordon. The central issue before the Tribunal was whether valid notices to file had been served on the appellant under [section 8 TMA 1970](https://www.legislation.gov.uk/ukpga/1970/9/section/8). [HMRC](https://taxdisputes.co.uk/hmrc-penalties/) was unable to demonstrate to the civil standard that such notices had in fact been served, and the Tribunal found as a fact that none had been. The Tribunal's initial decision in November 2025 had allowed the appeal only in respect of 2010/2011 and dismissed the remaining grounds, but the appellant's representative applied for permission to appeal to the Upper Tribunal on the basis that the Tribunal had erred in law. On reviewing its decision under Rule 41 of the Tribunal Procedure Rules, the Tribunal accepted that error and revisited its conclusions. Applying [section 12D TMA 1970](https://www.legislation.gov.uk/ukpga/1970/9/section/12D), the Tribunal held that because all four returns were voluntary, the deemed notice to file arose on the date each return was submitted. Since the statutory filing deadline runs three months from the date of the notice, and the notice and the filing occurred simultaneously, it was not legally possible for any of the returns to have been filed late. The appeal was allowed in full. ## Deemed Notices Under s.12D TMA 1970 [Section 12D TMA 1970](https://www.legislation.gov.uk/ukpga/1970/9/section/12D), inserted by [section 87 of the Finance Act 2019](https://www.legislation.gov.uk/ukpga/2019/1/section/87), addresses the situation in which a taxpayer submits a self-assessment return without having first received a formal notice to file from [HMRC](https://taxdisputes.co.uk/hmrc-penalties/). Such a return is treated by statute as having been made in response to a notice given on the very date it was received by [HMRC](https://taxdisputes.co.uk/hmrc-penalties/). This deeming provision applies with both prospective and retrospective effect, subject to a limited set of exclusions that are unlikely to affect most taxpayers. The practical significance of this provision is far-reaching. Under [section 8(1G) TMA 1970](https://www.legislation.gov.uk/ukpga/1970/9/section/8), where a notice to file is given after 31 October in the year following the relevant year of assessment, the return must be delivered within three months of that notice. If the deemed notice arises on the date of filing, the three-month period begins on that very date, and the return is by definition delivered within it. There is therefore no lateness, and [Schedule 55](https://www.legislation.gov.uk/ukpga/2009/10/schedule/55) cannot be engaged. This is not a technicality but a clear statutory consequence of Parliament's decision to regularise voluntary returns through the deeming mechanism ## Voluntary Tax Returns Explained A voluntary tax return is one submitted by a taxpayer other than in response to a notice to file issued under [section 8 TMA 1970](https://www.legislation.gov.uk/ukpga/1970/9/section/8). There are various reasons why this may occur. A taxpayer who has received no notice but who has a tax liability, or who has been advised to remain within the self-assessment regime, may elect to file regardless. Similarly, where a notice has been issued but cannot be proved to have been properly served, the return will in practice be treated as voluntary. The distinction between a return made in response to a valid notice and a voluntary return has important consequences for the calculation of any filing deadline, and therefore for whether any penalty can lawfully be imposed. [HMRC](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) bears the burden of demonstrating, on the balance of probabilities, that a valid notice was served. Mere evidence that a return was ultimately received is not sufficient to discharge that burden. As the [Tribunal](https://taxdisputes.co.uk/late-hmrc-tax-appeals/) made clear in Wals, the receipt of a return is equally consistent with it being a voluntary submission. ## Voluntary Return vs Return Filed Under Notice: Key Differences | **Feature** | **Return Filed Under s.8 Notice** | **Voluntary Return (No Notice)** | | ----------- | --------------------------------- | -------------------------------- | | Filing obligation triggered by | Valid HMRC notice to file (s.8 TMA 1970) | No notice required; taxpayer files proactively | | Applicable filing deadline | 31 January (electronic) or 31 October (paper) in year 2 | 3 months from date of deemed notice (i.e. date of filing) | | Deemed notice mechanism | Not applicable | s.12D TMA 1970 deems notice given on date of receipt | | Can return be filed late? | Yes, if not filed by the applicable deadline | No — filing deadline runs from the same date as submission | | Late filing penalties applicable? | Yes, under Schedule 55 FA 2009 | No — return cannot be late; Schedule 55 does not engage | | Legal basis | s.8 TMA 1970; Schedule 55 FA 2009 | s.12D TMA 1970 (inserted by s.87 Finance Act 2019) | | Burden of proof on HMRC | Must prove valid notice served | Not applicable (return treated as voluntary if no notice) | ### Frequently Asked Questions (FAQ's) **1. What is a deemed notice to file under s.12D TMA 1970?** Section 12D TMA 1970 provides that where a taxpayer files a self-assessment return without having received a formal notice from HMRC under section 8, that return is treated as if it had been filed in response to a notice given on the same date it was received. This is a statutory fiction designed to bring voluntary returns within the ordinary framework of the self-assessment regime. Its practical consequence is that the filing deadline under section 8(1G) TMA runs from the date of filing itself, making it legally impossible for the return to be late. **2. Can HMRC issue a late filing penalty if no notice to file was ever sent?** No. HMRC's entitlement to impose a late filing penalty under Schedule 55 FA 2009 depends on there having been a failure to file a return by the applicable deadline. Where no valid notice to file was served, any return filed is voluntary and, by virtue of s.12D TMA 1970, cannot be late. There is therefore no failure to file on time, and the penalty regime does not apply. If HMRC nevertheless issues a penalty in such circumstances, it is open to challenge on appeal. **3. Who bears the burden of proving that a notice to file was served?** HMRC bears the burden of establishing that a valid notice to file was served on the taxpayer. The standard of proof is the civil standard, namely the balance of probabilities. HMRC must adduce positive evidence of service; it is not sufficient to assert that a notice was generated or dispatched, nor to rely on the fact that a return was eventually submitted. Where HMRC cannot demonstrate that a valid notice was actually received, or at least sent in accordance with proper statutory procedures, the penalty assessment will not be upheld. 4. What is the filing deadline when a notice to file is issued late? Under section 8(1G) TMA 1970, where HMRC issues a notice to file after 31 October in the year following the relevant year of assessment, the return must be delivered within three months of the date of that notice. This is a departure from the standard deadlines of 31 January (electronic) or 31 October (paper). The same three-month window applies under the deeming provision in section 12D, where the notice is deemed to have been given on the date the voluntary return is received. **5. Does s.12D TMA 1970 apply retrospectively?** Yes. Section 87 of the Finance Act 2019, which inserted section 12D into TMA 1970, was expressed to have both prospective and retrospective effect. This --- # Personal Liability Notices: Appeals and Enforcement Source: https://taxdisputes.co.uk/2026/05/personal-liability-notices-appeals-and-enforcement/ Receiving a [Personal Liability Notice (PLN)](https://taxdisputes.co.uk/2025/12/personal-liability-notices-plns-defence-strategies-for-directors/) from [HMRC](https://taxdisputes.co.uk/contact-us/) is one of the most serious steps an enforcement officer can take against a company director. It pierces the corporate veil, strips away limited liability protection, and makes you personally responsible for unpaid National Insurance Contributions (NICs) together with interest and penalties. For many directors, the sums involved can run into tens or even hundreds of thousands of pounds. In recent years, HMRC has intensified its use of PLN powers, and the First-Tier Tribunal (FTT) has issued a series of significant decisions that clarify when personal liability will be upheld and when it may be challenged. Understanding the current legal landscape and acting quickly is essential for any director facing a PLN or who suspects one may be forthcoming. This article sets out what a PLN is, what the latest tribunal cases mean in practice, how the appeal process works, and why specialist legal representation is critical. For expert advice, contact the [HMRC tax disputes team at LEXLAW](https://taxdisputes.co.uk/) for a confidential case assessment. ## What Is a Personal Liability Notice? A PLN is a statutory notice issued by HMRC under **[Section 121C of the Social Security Administration Act 1992](https://www.legislation.gov.uk/ukpga/1992/5/section/121C)** (**SSAA 1992**). It allows HMRC to recover unpaid NICs directly from company officers including directors, managers, secretaries, and other similar officers where the failure to pay was attributable to either fraud or neglect on their part.The PLN transfers the company's NIC liability to the individual personally. It may also include any interest and penalties that have accrued. Crucially, it can be served even after the company has gone into liquidation and any payments made by culpable officers reduce the company's outstanding liability, while any subsequent payments by the company will reduce what the individual owes, with interest. Unlike general company debts, which are ordinarily insulated by limited liability, a PLN enables HMRC to reach a director's personal assets: savings, property, and income. The risk of [HMRC winding-up petitions](https://windinguppetitionsolicitors.co.uk/) or bankruptcy proceedings against directors in receipt of a PLN is real and should not be underestimated. ## The Legal Test: Fraud or Neglect To issue a valid PLN, HMRC must demonstrate, on the balance of probabilities, that the company's failure to pay NICs was attributable to the fraud or neglect** **of one or more officers. This test is objective, not subjective. In [R & C Commrs v O'Rorke [2013] BTC 2096](https://www.gov.uk/tax-and-chancery-tribunal-decisions/the-commissioners-for-hm-revenue-and-customs-v-mr-charles-michael-o-rorke-2013-ukut-0499-tcc), the Upper Tribunal confirmed that the test for neglect asks whether the officer failed to act as *"a reasonable man"* would have done. A director cannot escape liability by pointing to personal circumstances, addiction, or financial pressure that affected their decision-making. The question is whether a reasonable person in the same role would have acted differently. This objective standard has been consistently applied in subsequent decisions and means that ignorance, delegation without oversight, or prioritising other creditors over HMRC are unlikely to provide a successful defence on their own. ### Jeyalingam Balasingam v The Commissioners for His Majesty's Revenue and Customs The case of [Jeyalingam Balasingam v HMRC](https://www.bailii.org/cgi-bin/format.cgi?doc=/uk/cases/UKFTT/TC/2025/TC09721.html&query=(Jeyalingam)+AND+(Balasingam)+AND+(v)+AND+(HMRC)) provides further guidance on HMRC's use of PLN powers and the importance of mounting a well-evidenced appeal. As with other recent cases before the FTT, this decision underlines that HMRC carries the burden of proof to establish that any failure to pay NICs was attributable to the individual officer's fraud or neglect. However, it also reinforces that where the evidence supports liability such as where a director had control over company finances, was aware of the obligations, and failed to take reasonable steps to ensure compliance the tribunal will uphold a PLN. Directors in situations analogous to this case should note that personal circumstances, business complexity, and reliance on third parties are not automatic defences. A focused, legally-crafted response prepared by specialist [HMRC tax dispute solicitors](https://taxdisputes.co.uk/) is essential to properly challenge HMRC's findings. ## Appealing a Personal Liability Notice: Deadlines and Process If you receive a PLN, you have the right to appeal under Section** **[121D of the SSAA 1992](https://www.legislation.gov.uk/ukpga/1992/5/section/121D). The appeal is made to the First-Tier Tribunal (Tax Chamber). The burden of proof rests on HMRC to show that the PLN was properly issued. The appeal process follows these key steps: - **Step 1: Internal Review. **Before appealing to the tribunal, you may first request an internal HMRC review. This involves an independent HMRC officer reviewing the decision. It is not mandatory but can sometimes result in a reduced liability or the withdrawal of the notice. - **Step 2: Appeal to the First-Tier Tribunal. **If the internal review does not resolve the matter, you can appeal to the FTT. The appeal must normally be lodged within 30 days of receiving the PLN (or the conclusion of an internal review). Missing this deadline is extremely serious. - **Step 3: Preparing the Appeal. **A successful appeal requires detailed evidence, including board minutes, financial records, payroll data, correspondence with HMRC, and critically a carefully drafted witness statement setting out the director's role and the reasons for non-payment. If you believe you may have missed the appeal deadline, contact our [specialist tax dispute solicitors](https://taxdisputes.co.uk/contact-us/) immediately. A late appeal application may still be possible in exceptional circumstances, but early action is always preferable. ## HMRC Enforcement: What Can Happen If You Do Not Act A PLN that is not successfully appealed or resolved will become enforceable against the director personally. HMRC's enforcement toolkit is extensive and includes [statutory demands](https://windinguppetitionsolicitors.co.uk/statutory-demand-set-aside-lawyers-london-hmrc/), [winding-up petitions](https://windinguppetitionsolicitors.co.uk/), bankruptcy proceedings, charging orders over property, and in serious cases director disqualification proceedings. Where a director responds to a PLN without legal advice, they risk inadvertently providing admissions or explanations that strengthen HMRC's position. This is why early engagement with [specialist solicitors](https://lexlaw.co.uk/contact-us/) is critical. ## Key Defences and Mitigating Factors While the objective test for neglect sets a demanding standard, there are legitimate defences and mitigating arguments available to directors: - **No fraud or neglect: **If the director took all reasonable steps to ensure NIC compliance and the arrears arose from circumstances genuinely outside their control such as sudden business failure or third-party fraud this may negate the PLN. - **Incorrect apportionment: **Where multiple officers were involved, HMRC must apportion liability appropriately. If the PLN overstates one director's share of culpability relative to others, this is challengeable. - **Limitation periods: **HMRC must issue a PLN within the applicable statutory time limits. If the notice is out of time, it may be invalid. - **Errors in the underlying NIC assessment: **A PLN cannot exceed the company's underlying NIC liability. If that liability is disputed or has already been reduced, the PLN amount may be reduced accordingly. ## Get Expert Legal Advice on a Personal Liability Notice If you have received a personal liability notice or if HMRC has indicated that one may be forthcoming you need [specialist legal advice ](https://taxdisputes.co.uk/contact-us/)as a matter of urgency. The 30-day appeal deadline is strict, and the consequences of inaction can include personal bankruptcy and the loss of your home and savings. At LEXLAW, our [HMRC tax dispute solicitors and barristers](https://taxdisputes.co.uk/) have extensive experience advising directors on PLN appeals, NIC enforcement defence, and related insolvency matters. We combine the advocacy skills of a barrister with the client care and confidentiality of a solicitor, providing a single point of expert contact throughout your case. We also advise on connected issues, including [HMRC winding-up petitions](https://windinguppetitionsolicitors.co.uk/), [professional negligence claims against tax advisers](https://professionalnegligenceclaimsolicitors.co.uk/), and the full range of [HMRC tax investigations and enforcement action](https://lexlaw.co.uk/). ### Frequently Asked Questions (FAQ's) What is a Personal Liability Notice and can HMRC really make me personally liable for my company's debts? Yes. A Personal Liability Notice (PLN) is issued by HMRC under section 121C of the Social Security Administration Act 1992 and allows HMRC to bypass your company's limited liability protection entirely. If HMRC determines that your company's failure to pay National Insurance Contributions was attributable to your fraud or neglect as an officer, it can transfer that liability directly to you including interest and penalties. This means your personal assets, including savings and property, can be at risk. PLNs can be issued even after a company has gone into liquidation. What is the difference between fraud and neglect in the context of a PLN and does HMRC have to prove it? Yes HMRC bears the burden of proof and must demonstrate on the balance of probabilities that the unpaid NICs were attributable to your fraud or neglect. Fraud involves deliberate wrongdoing. Neglect is assessed objectively against the standard of what a reasonable, prudent person in your position would have done. This means personal circumstances, financial pressure, addiction, or reliance on others will not automatically provide a defence. The question the tribunal asks is always whether a reasonable director in the same situation would have acted differently not whether you personally intended any harm. How long do I have to appeal a Personal Liability Notice, and what happens if I miss the deadline? You normally have 30 days from receipt of the PLN to appeal either by requesting an internal HMRC review or by appealing directly to the First-Tier Tribunal under section 121D of the Social Security Administration Act 1992. Missing this deadline is extremely serious. The tribunal applies a strict three-stage test when considering late appeal applications, assessing the length of the delay, the reasons for it, and the overall balance of prejudice to both parties. Even the prospect of personal bankruptcy has been held insufficient to justify a lengthy, unexplained delay. If you are close to or have already missed the 30-day window, you should instruct specialist solicitors immediately early action is always far preferable to applying late. If my company has already gone into liquidation, can HMRC still come after me personally for unpaid NICs? Yes . Liquidation does not protect you. HMRC can issue a PLN after insolvency has concluded, bypassing the insolvency process entirely to pursue you personally for the unpaid amount. If your company has recently gone into liquidation with outstanding PAYE or NIC arrears, seek specialist legal advice immediately even if you have not yet received a notice. --- # Voluntary Disclosure: 2026 Guide Source: https://taxdisputes.co.uk/2026/02/voluntary-disclosure-2026-guide/ [Voluntary disclosure](https://taxdisputes.co.uk/hmrc-voluntary-disclosure-campaigns-solicitors-london/) is one of the most powerful, and most misunderstood, tools available to taxpayers facing [historic tax irregularities](https://taxdisputes.co.uk/2024/08/historic-vat-fraud-mtic-director-owes-4-8m-hmrc-liquidator-tax-tribunal-phoenixtech/). When handled correctly, it can prevent criminal prosecution, significantly reduce penalties, and bring long-running exposure to a controlled and final resolution. When handled poorly, it can have the opposite effect, crystallising criminal risk and providing [HMRC](https://taxdisputes.co.uk/) with evidence it would otherwise struggle to obtain. In recent years, HMRC has placed renewed emphasis on criminal enforcement as a deterrent, particularly in cases involving [offshore assets](https://taxdisputes.co.uk/offshore-tax-evasion-tax-avoidance-solicitors-london/), complex structures, false documentation, or deliberate understatement of tax. Against that backdrop, voluntary disclosure has become a critical legal mechanism for individuals and businesses seeking to regularise their position before [HMRC escalates matters to investigation](https://taxdisputes.co.uk/hmrc-tax-investigations/) or prosecution. ## What Is a Voluntary Disclosure? A voluntary disclosure is the process by which a taxpayer proactively informs HMRC of previously undisclosed tax liabilities, errors, omissions, or inaccuracies before HMRC has formally discovered them or commenced an investigation. The legal significance of a disclosure lies not in the act of paying tax alone, but in the timing, scope, and framing of the disclosure. HMRC distinguishes sharply between disclosures made before detection and those made after an [enquiry or investigation](https://taxdisputes.co.uk/2024/05/managing-hmrc-tax-enquiry-investigations/) has begun. That distinction directly affects whether HMRC treats the case as civil or criminal, [the level of penalties applied](https://taxdisputes.co.uk/hmrc-penalties/), and whether prosecution is considered at all. In appropriate cases, a voluntary disclosure can secure HMRC’s agreement to deal with the matter under the civil regime, even where the underlying conduct could technically meet the threshold for criminal offences such as cheating the public revenue or fraudulent evasion. ## Why Voluntary Disclosure Matters for Criminal Risk HMRC operates a dual-track system: civil investigations and criminal investigations. While the majority of tax disputes remain civil, HMRC retains wide discretion to pursue criminal prosecution where it considers this necessary to punish wrongdoing or deter others. Criminal prosecution is most commonly considered where HMRC believes the conduct involved [dishonesty, concealment, falsification](https://taxdisputes.co.uk/2026/01/hmrc-behaviour-assessments-careless-deliberate-or-concealed/) of records, offshore structures designed to obscure ownership, or repeated non-compliance over time. Once HMRC opens a criminal investigation, the opportunity for voluntary disclosure has effectively passed. A properly structured voluntary disclosure, made before HMRC initiates criminal proceedings, can remove the public interest basis for prosecution. HMRC’s own guidance acknowledges that genuine, complete, and unprompted disclosures are a strong factor weighing against criminal action. However, this protection is not automatic. HMRC will assess whether the disclosure was full, whether it occurred before detection, and whether the taxpayer genuinely intended to regularise their position rather than merely mitigate consequences. ## HMRC’s Legal Framework for Voluntary Disclosure Voluntary disclosures are not governed by a single statutory regime. Instead, they sit at the intersection of multiple legal frameworks, including: - [the Taxes Management Act 1970](https://www.legislation.gov.uk/id/ukpga/1970/9); - [the Finance Acts governing penalties, particularly Schedule 24 Finance Act 2007](https://www.legislation.gov.uk/ukpga/2007/11/schedule/24/enacted); - [HMRC’s Code of Practice 9 (COP9)](https://taxdisputes.co.uk/tax-evasion-hmrc-code-practice-9-investigations/) and the Contractual Disclosure Facility; and - the common law principles governing criminal prosecution and abuse of process. In civil cases, penalties are driven by [behavioural categorisation: careless, deliberate, or deliberate and concealed](https://taxdisputes.co.uk/2026/01/hmrc-behaviour-assessments-careless-deliberate-or-concealed/). Voluntary disclosure directly affects that analysis, particularly whether behaviour is treated as deliberate and the extent of penalty mitigation available. In criminal cases, the relevance of voluntary disclosure lies in prosecutorial discretion. HMRC must consider whether prosecution is proportionate, necessary, and in the public interest. A timely and complete disclosure can fundamentally alter that assessment. ## When Is Voluntary Disclosure Appropriate? Voluntary disclosure is most effective where HMRC has not yet raised formal enquiries or where any contact from HMRC is general rather than targeted. Typical scenarios include: - historic under-declaration of income or gains; - errors arising from offshore accounts or investments; - misclassified income or incorrect relief claims; - failures linked to reliance on advisers later found to be incorrect; - legacy issues following changes in management or directorship. Crucially, voluntary disclosure is not limited to minor errors. It can, and often does, apply to serious matters involving large sums, complex structures, or extended periods of non-compliance. The key question is not the gravity of the conduct, but whether the disclosure is made before HMRC has assembled sufficient evidence to assert detection. ## The Risks of an Unstructured Disclosure One of the most common and costly mistakes taxpayers make is attempting to disclose directly to HMRC without [legal oversight](https://taxdisputes.co.uk). Informal letters, partial explanations, or poorly framed admissions can inadvertently escalate matters rather than resolve them. HMRC correspondence is not neutral. Information provided voluntarily can later be used to support penalty assessments, civil fraud allegations, or even criminal proceedings if the disclosure is deemed incomplete or misleading. Statements that appear cooperative may, in practice, amount to admissions of deliberate conduct. Inconsistencies between explanations and documentary evidence can undermine credibility and trigger deeper investigation. For this reason, voluntary disclosure should be approached as a legal exercise, not an administrative one. Control of scope, language, and evidential presentation is essential. ## The Contractual Disclosure Facility and COP9 Where HMRC suspects serious fraud, it may offer the taxpayer the Contractual Disclosure Facility under Code of Practice 9. This is a formal mechanism that allows a taxpayer to admit deliberate behaviour in exchange for HMRC’s commitment not to pursue criminal prosecution. COP9 is not a general disclosure route and carries significant implications. Acceptance requires an admission of fraud, and failure to make a complete disclosure under the facility can result in immediate criminal referral. In some cases, voluntary disclosure made before COP9 is offered can avoid the need for this route altogether, keeping the matter firmly within the civil regime and avoiding admissions that could have lasting legal consequences. ## Penalties, Interest, and Mitigation Even where voluntary disclosure prevents prosecution, financial exposure can remain significant. Tax, statutory interest, and penalties may still be payable. However, voluntary disclosure can materially reduce penalties, often to a fraction of the maximum available. The timing of the disclosure, whether it was prompted or unprompted, and the quality of cooperation all influence the outcome. In many cases, penalties can be reduced to single-digit percentages or suspended entirely where reasonable care and good faith are demonstrated. Effective representation focuses not only on the tax calculation but on behavioural classification, ensuring that HMRC does not default to careless or deliberate findings unsupported by the evidence. ## Strategic Considerations Before Disclosing Before any disclosure is made, a detailed risk assessment should be undertaken. This includes reviewing the factual position, identifying potential criminal exposure, assessing whether HMRC may already have information, and determining the optimal disclosure route. It is often necessary to reconstruct records, obtain expert reports, and prepare detailed narratives explaining how errors arose and why they do not amount to dishonest conduct. Timing is critical. A rushed disclosure can be as damaging as no disclosure at all. Legal privilege also plays a vital role. Early involvement of specialist solicitors ensures that sensitive analysis remains protected and that only carefully curated information is shared with HMRC. ## HMRC Voluntary Disclosure: Legal Advice & Representation Voluntary disclosure is not simply about coming forward. It is about doing so in a way that protects against prosecution, limits penalties, and achieves finality. [LEXLAW’s specialist tax disputes team](https://taxdisputes.co.uk/tax-solicitors/) advises individuals, directors, and businesses on complex voluntary disclosures involving serious tax irregularities, offshore matters, and potential criminal exposure. We regularly engage with HMRC’s Fraud Investigation Service and civil compliance teams to secure outcomes that avoid escalation and preserve our clients’ position. Our approach combines forensic analysis, strategic disclosure planning, and robust legal representation to ensure that disclosures are complete, controlled, and effective. Where matters carry genuine criminal risk, early legal intervention is essential. If you are concerned about historic tax exposure or believe HMRC may soon take action, [seeking advice](https://taxdisputes.co.uk/expert-advice/) before making any disclosure can be decisive. Timely, specialist guidance can be the difference between civil resolution and criminal proceedings. --- # HMRC Crypto Tax Investigations: What Bitcoin, Binance & Offshore Exchange Users Must Know Source: https://taxdisputes.co.uk/2026/05/hmrc-crypto-tax-investigations-what-bitcoin-binance-offshore-exchange-users-must-know/ HMRC has made cryptoasset taxation one of its highest enforcement priorities. If you hold, trade, or have received income from Bitcoin, Ethereum, or any other [digital asset](https://lexlaw.co.uk/solicitors-london/tag/digital-asset-disputes/) or if you have used overseas exchanges such as Binance, Kraken, or Coinbase International you may already be in HMRC's sights. Failure to disclose cryptoasset gains and income can result in substantial tax assessments, penalties of up to 200% of the unpaid tax, and in serious cases, referral for civil investigation under [Code of Practice 9 (COP 9)](https://taxdisputes.co.uk/tax-evasion-hmrc-code-practice-9-investigations/). Early, specialist legal advice is essential. At [LEXLAW Solicitors & Barristers](https://lexlaw.co.uk/), our [team](https://taxdisputes.co.uk/) have extensive experience advising individuals and businesses facing HMRC cryptoasset enquiries, voluntary disclosures, and formal investigations. This article explains how HMRC investigates crypto tax, what your obligations are, and what you should do if you receive a compliance letter or investigation notice. ## Does HMRC Tax Cryptocurrency? The Legal Position Yes, and HMRC is unequivocal on the point. In its [Cryptoassets Manual (CRYPTO)](https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual), published and regularly updated, HMRC treats the vast majority of cryptoasset activity as giving rise to either Capital Gains Tax (CGT) or Income Tax, depending on the nature of the activity. The key principles applying to UK resident individuals are: - Buying and selling cryptoassets: disposals give rise to CGT in the same way as shares. Each disposal including crypto-to-crypto trades is a taxable event. - Mining and staking: receipts are generally taxable as income at the point of receipt, using the sterling value on that date. - Airdrops: treated as miscellaneous income if received in return for a service, or potentially capital if unsolicited. - DeFi lending and yield farming: HMRC applies existing principles by analogy; returns are treated as interest or income. - NFTs: treated as cryptoassets for CGT purposes; each sale is a disposal. Critically, holding crypto on an overseas exchange does not exempt you from UK tax. UK tax is based on residence, not on where an asset is held or which exchange platform is used. ## How HMRC Identifies Crypto Taxpayers: Data Powers and Exchange Disclosure HMRC has significantly expanded its data-gathering capabilities in respect of [cryptoassets](https://lexlaw.co.uk/solicitors-london/tag/cryptoassets/). Taxpayers who assume that overseas or pseudonymous transactions are invisible to HMRC should be aware of the following mechanisms: ### Domestic Exchange Data Under [Schedule 36 of the Finance Act 2008](https://www.legislation.gov.uk/ukpga/2008/9/schedule/36), HMRC can issue information notices to UK-based cryptoasset exchanges requiring them to disclose customer data. Exchanges such as Coinbase UK, eToro, and Crypto.com have received and complied with such notices. HMRC receives names, addresses, transaction histories, and wallet addresses. ### International Exchange Disclosure: Binance and Offshore Platforms The reach of HMRC extends beyond the UK's borders. The [OECD Crypto-Asset Reporting Framework (CARF)](https://www.oecd.org/content/dam/oecd/en/networks/global-forum-tax-transparency/crypto-asset-reporting-framework-monitoring-implementation-update-2025.pdf), which the UK has committed to implementing, requires automatic exchange of cryptoasset information between participating tax authorities. From 2027 onwards, overseas exchanges operating in or accessible to UK users, including platforms such as Binance, OKX, and KuCoin will be required to report user data to their local tax authorities, who in turn share that data with HMRC. In addition, HMRC uses blockchain analytics tools including commercially licensed software from providers such as Chainalysis to trace wallet addresses on public blockchains. Even where a taxpayer has used a non-custodial wallet or attempted to obscure transactions, on-chain analysis can often link activity to identified individuals. ### The Common Reporting Standard (CRS) and FATCA Many offshore exchanges hold fiat currency balances that fall within the scope of the Common Reporting Standard (CRS) and the US Foreign Account Tax Compliance Act (FATCA). Where an exchange holds a fiat balance reportable under CRS, that data is already flowing to HMRC through automatic exchange of information agreements. ## HMRC Nudge Letters and Crypto Disclosure Campaigns Since 2019, HMRC has issued large-scale "[nudge letters](https://taxdisputes.co.uk/2025/07/hmrc-nudge-letters-explained-expert-legal-guidance-for-taxpayers/)" to taxpayers identified through exchange data as having cryptoasset activity that does not appear to have been declared. If you have received such a letter, it is important to understand that it is not merely a reminder, it creates a disclosure obligation. Failure to respond or to make a voluntary disclosure within the specified timeframe will be treated as evidence of deliberate non-compliance, attracting significantly higher penalties. The [HMRC Cryptoassets Voluntary Disclosure Service](https://www.gov.uk/guidance/tell-hmrc-about-unpaid-tax-on-cryptoassets) allows taxpayers to come forward and regularise their position before a formal investigation is opened. Acting proactively ideally with the benefit of legally privileged advice can make a material difference to the penalty outcome and to the terms of any settlement agreed with HMRC. Our team regularly assists clients in preparing and submitting [HMRC voluntary disclosures](https://taxdisputes.co.uk/) in a way that mitigates penalty exposure while ensuring full legal privilege is maintained throughout. ## HMRC Crypto Investigations: Penalties and Time Limits The penalty regime for unpaid cryptoasset tax is serious. Under [Schedule 24 of the Finance Act 2007](https://www.legislation.gov.uk/ukpga/2007/11/schedule/24/enacted) and [Schedule 41 of the Finance Act 2008](https://www.legislation.gov.uk/ukpga/2008/9/schedule/41), penalties are calculated as a percentage of the Potential Lost Revenue (PLR) and range from: - **0%** - unprompted disclosure of careless error - **15–30%** - prompted disclosure of careless behaviour - **30–70%** - deliberate understatement (unprompted/prompted) - **100–200%** - deliberate and concealed, particularly where offshore assets are involved HMRC's standard assessment time limit under [section 34 of the Taxes Management Act 1970 (TMA 1970)](https://www.legislation.gov.uk/ukpga/1970/9/section/34) is four years from the end of the relevant tax year. However, where HMRC establishes careless behaviour, that limit extends to six years, and where deliberate behaviour is found which HMRC is increasingly asserting in crypto cases the time limit extends to twenty years. ## Why Legal Advice, Not Accountancy Advice is essential Many crypto investors instinctively turn to their accountant when they receive a letter from HMRC. This is a significant risk. Accountants are not legally privileged advisers. Any information you share with your accountant can be compelled by HMRC under Schedule 36 information powers. By contrast, communications with a [qualified solicitor or barrister](https://lexlaw.co.uk/) are protected by Legal Professional Privilege (LPP) and cannot be obtained by HMRC. This distinction is not merely technical, it is strategically critical. In complex HMRC investigations, the ability to take free and frank legal advice without fear of disclosure can be the difference between a favourable settlement and a finding of deliberate non-compliance. Our [tax dispute solicitors and barristers](https://taxdisputes.co.uk/) operate under full LPP from the outset of every instruction. ## HMRC COP 9 and Code of Practice 8 in Crypto Cases In cases where HMRC suspects deliberate tax fraud, it may open an investigation under [Code of Practice 9 (COP 9)](https://taxdisputes.co.uk/tax-evasion-hmrc-code-practice-9-investigations/). COP 9 is HMRC's civil fraud investigation procedure and involves an offer to the taxpayer to make a complete and accurate disclosure under the Contractual Disclosure Facility (CDF). Failure to engage or to make a materially incomplete disclosure places the taxpayer at grave risk of further enforcement action. Where HMRC suspects tax avoidance (as distinct from evasion) involving cryptoassets, a [Code of Practice 8 (COP 8)](https://taxdisputes.co.uk/) investigation may instead be opened. This is HMRC's procedure for complex investigations into suspected tax avoidance arrangements. Both COP 8 and COP 9 demand immediate specialist legal input. Our firm handles [COP 8 and COP 9 matters](https://taxdisputes.co.uk/) with the benefit of former HMRC senior counsel on the team. ## Related Legal Issues: Winding-Up Petitions and Professional Negligence Crypto tax liabilities that escalate into formal debt can lead to HMRC issuing a statutory demand or [winding-up petition](https://windinguppetitionsolicitors.co.uk/) against a business. Where tax has been assessed and remains unpaid, HMRC is one of the most active petitioning creditors in the UK. Our associated practice advises urgently on [HMRC winding-up petitions](https://windinguppetitionsolicitors.co.uk/), including applications to set aside statutory demands and to restore unfairly wound-up companies. Separately, where a client has suffered loss as a result of incorrect advice from an accountant, tax adviser, or crypto platform regarding their UK tax obligations, a claim in [professional negligence](https://professionalnegligenceclaimsolicitors.co.uk/) may be available. Our team can advise on whether the original adviser's conduct fell below the standard of a reasonably competent professional and whether loss is recoverable. ## What to Do If You Have Undeclared Crypto Gains If you have not declared cryptoasset gains or income in previous tax years, the most effective course of action is almost always voluntary disclosure made with specialist legal advice. The steps we recommend are: - Do not contact HMRC directly or unilaterally before taking legal advice anything disclosed without legal privilege cannot be retracted. - Instruct a solicitor immediately so that all subsequent communications are protected by LPP. - Collate your exchange records transaction histories from Binance, Coinbase, Kraken, and any other platforms, including wallet addresses and transfer logs. - Quantify the position with your legal team, calculate the CGT and income tax exposure across all relevant years. Consider making an unprompted voluntary disclosure which attracts the lowest penalty band and demonstrates good faith to HMRC ## How LEXLAW Can Help? At LEXLAW, [our specialist tax dispute lawyers and ex-HMRC counsel](https://lexlaw.co.uk/our-people/) advise individuals, investors, directors, and businesses facing HMRC cryptoasset enquiries, COP8 and COP9 investigations, Schedule 36 notices, and voluntary disclosures. We provide legally privileged strategic advice from the outset, helping clients regularise undeclared crypto gains, respond to HMRC compliance checks, negotiate reduced penalties, and defend complex tax fraud allegations. Whether your matter involves Bitcoin trading, offshore exchange accounts, DeFi activity, NFTs, or large-scale crypto investments, our team delivers discreet, commercially focused representation tailored to high-value and sensitive tax disputes. --- # KFC Dip Pots Cost HMRC £106,000 in Major VAT Appeal Defeat Source: https://taxdisputes.co.uk/2026/05/kfc-dip-pots-cost-hmrc-106000-in-major-vat-appeal-defeat/ In a landmark ruling handed down by the Upper Tribunal (Tax and Chancery Chamber) on 19 May 2026, the KFC franchise operator Queenscourt Limited has won its appeal against HMRC, securing a finding that dip pots supplied as part of a takeaway meal deal are *separate zero-rated supplies* for VAT purposes, not part of a single composite standard-rated supply alongside hot food. The decision in [*Queenscourt Limited v The Commissioners for His Majesty's Revenue and Customs* [2026] UKUT 00195 (TCC)](https://taxdisputes.co.uk/wp-content/uploads/2026/05/Queenscourt-Limited-v-The-Commissioners-for-HMRC-2026-UKUT-195-TCC.pdf) has significant implications for food businesses, hospitality operators, and any taxpayer grappling with the notoriously complex rules on [VAT liability classification](https://taxdisputes.co.uk/hmrc-vat-investigations-evasion-input-ouput-double-taxation-tribunal-legal-advice/). The appeal was allowed on the primary VAT liability ground, with the Upper Tribunal also delivering important, if technically obiter, observations on [legitimate expectation and the First-tier Tribunal's public law jurisdiction](https://taxdisputes.co.uk/judicial-review-applications-against-hmrc-challenge-decision-advice/). ## The KFC Meal Deal and the VAT Dispute Queenscourt Limited operates a number of KFC outlets across the United Kingdom. Like many fast food chains, it offers customers discounted *meal deals*, bundles of popular items sold together at a price below their combined individual retail cost. One such deal, the "boneless banquet", includes three boneless mini fillets, a small portion of popcorn chicken, fries, a side, a drink, and a dip pot. In December 2022, that bundle cost £7.99; the same items purchased separately would have cost £12.43. The VAT treatment of meal deals has long been contested terrain. The sale of hot food, such as fried chicken, is [standard-rated for VAT purposes](https://www.legislation.gov.uk/ukpga/1994/23/schedule/8) under [the Value Added Tax Act 1994 ("VATA")](https://www.legislation.gov.uk/ukpga/1994/23/contents). Cold food items, including dip pots, cookies, yoghurts, and coleslaw, are ordinarily *zero-rated*. The question this case brought before the Upper Tribunal was deceptively simple: does the zero-rating of a dip pot survive when that item is bundled within a meal deal dominated by standard-rated hot food? Until early 2019, Queenscourt had been accounting for VAT on meal deals on the basis that each deal was a single standard-rated supply. It subsequently took the view that this was wrong, and on 29 March 2019 submitted an Error Correction Notice ("ECN1") to reclaim £75,502 of VAT it considered it had over-declared on dip pots within takeaway meal deals for the periods October 2015 to September 2018. Following internal debate, HMRC agreed to repay. A second Error Correction Notice ("ECN2") for the periods December 2018 to September 2019 followed on 22 April 2020, claiming a further £30,936.64 in respect of dip pots. However, a different HMRC officer reviewing ECN2 took a contrary view: the dip pots were, in his opinion, ancillary to the standard-rated hot food and therefore formed part of a single standard-rated supply. He also concluded that HMRC's prior repayment under ECN1 had been an error and issued a recovery assessment under [section 80(4A) VATA](https://www.legislation.gov.uk/ukpga/1994/23/section/80) to claw back the money already repaid. Queenscourt [appealed](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/) to the First-tier Tribunal ("FTT"), which dismissed both the VAT liability ground and the [legitimate expectation argument](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/). The Upper Tribunal has now reversed that decision. ## The Core VAT Question: Single Composite Supply or Multiple Supply? At the heart of the case lay one of the most fact-sensitive questions in UK VAT law: when a business provides several items together, are those items a single composite supply taxed at one rate, or a multiple supply where each component is taxed at its own rate? The answer can turn an entirely standard-rated transaction into a mixed-rated one, with material financial consequences. The applicable principles derive from a line of European Court of Justice ("ECJ") and Court of Justice of the European Union ("CJEU") authorities, principally: [*Card Protection Plan Ltd v Customs and Excise Commissioners* (Case C-349/96)](https://publications.parliament.uk/pa/ld200001/ldjudgmt/jd010131/card.htm) ("CPP"), which established that a transaction comprising multiple elements may be treated as a single supply where one element is the *principal* service and others are *ancillary* to it, meaning they are a means of better enjoying the principal supply rather than an end in themselves. [*Levob Verzekeringen BV v Staatssecretaris van Financiën* (Case C-41/04)](https://www.gov.uk/hmrc-internal-manuals/vat-supply-and-consideration/vatsc11142) ("Levob"), which provides that two or more elements so closely linked that they form a single, indivisible economic supply which it would be artificial to split also constitute a single supply. These principles have been applied extensively in domestic proceedings, most authoritatively in[ *HMRC v The Honourable Society of Middle Temple* [2013] UKUT 0250 (TCC)](https://assets.publishing.service.gov.uk/media/5765014440f0b66bda000067/hmrc_v_the_honourable_society_of_middle_temple.pdf), where the Upper Tribunal set out 12 key principles to guide the analysis. Crucially, it was common ground in the present case that if any single supply existed at all, it would be on the basis of the *CPP* principal/ancillary doctrine, not the *Levob* indivisibility test. ## The FTT's Error: A "Hybrid" Supply Theory The First-tier Tribunal accepted that the overall KFC meal deal was a *multiple supply*, HMRC itself accepted this in respect of items like cookies, yoghurts, and coleslaw, treating those as separate zero-rated components. The FTT nonetheless concluded that it was possible, within that multiple supply, to identify a further *sub-composite* supply: the dip pot (it held) was ancillary to the hot chicken, so those two elements could be treated as a single standard-rated supply within the larger multiple transaction. This reasoning allowed HMRC to argue that only the dip pots, not the cookies or yoghurts, should be standard-rated, without having to contend that the entire meal deal was a single standard-rated supply. Queenscourt challenged this as a fundamental error of law. The Upper Tribunal agreed. ## The Upper Tribunal's Analysis: No "Sub-Composite" Supply Is Permissible Before Mrs Justice Joanna Smith DBE and Judge Mark Baldwin, the Upper Tribunal undertook a meticulous review of the ECJ/CJEU authorities, including *CPP*, *Levob*, [*Purple Parking Ltd v HMRC* (Case C-117/11)](https://taxdisputes.co.uk/wp-content/uploads/2026/05/download.pdf), [*Field Fisher Waterhouse LLP v HMRC* (Case C-392/11)](https://taxdisputes.co.uk/wp-content/uploads/2026/05/CELEX_62011CJ0392_EN_TXT.pdf), and the Advocate General's Opinion in [*Frenetikexito–Unipessoal Lda v Autoridade Tributária e Aduaneira* (Case C-581/19)](https://taxdisputes.co.uk/wp-content/uploads/2026/05/CELEX_62019CJ0581_EN_TXT.pdf). Its conclusion, on Ground 1(a), was clear and firm. The Tribunal held that the starting principle, that every supply must normally be regarded as distinct and independent, means that in a multi-element transaction which is conceded to be a *multiple supply*, every element that would be a supply if provided on its own must be analysed separately. The CPP/Levob exceptions to this rule apply *at the level of the whole transaction*: they either render the entire transaction a single supply, or they do not apply. There is no intermediate position. You cannot take a multiple supply, identify two elements within it, and declare that those two elements form a sub-composite supply within the larger multiple transaction, while leaving the remaining elements as separate supplies. As the Upper Tribunal put it: *"[E]very supply (including every element in a multi-element transaction which would be a supply if provided on its own) must be regarded as distinct and independent unless it falls within one of the few exceptional cases where a derogation from that fundamental principle is permitted… these exceptions require all the elements in a single transaction to constitute a single economic supply following the principles in CPP or Levob."* Because HMRC had already accepted that the meal deal was a multiple supply, each component, including the dip pot, had to be taxed independently at its own VAT rate. The dip pot, being cold food, is zero-rated. The FTT's error was therefore decisive: had it applied the correct legal framework, it would inevitably have found in Queenscourt's favour. The Upper Tribunal accordingly re-made the FTT's decision and allowed Queenscourt's appeal in full. ## Ground 1(b): Customer Choice and Third-Party Availability Queenscourt also challenged the weight the FTT had attached, or failed to attach, to the element of *customer choice*. Under principle (10) in *Middle Temple*, the ability of a customer to choose whether or not to receive a particular element is a significant (though not decisive) factor. The FTT had discounted choice on the basis that dip pots could not be obtained elsewhere from a third party: since they were only available from KFC outlets, the customer had no meaningful freedom to look elsewhere. The Upper Tribunal declined to find that this constituted an error of law. The practical reality, it found, supported the FTT's conclusion: customers declining a dip pot might receive one anyway at no reduction in price; and if they wanted a dip pot and chose not to take the one in the meal deal, they would simply have to pay extra at the same outlet. The element of choice was therefore not sufficiently meaningful to operate as a strong indicator of independence. This ground was not made out, but it was ultimately immaterial given the outcome on Ground 1(a). ## The Public Law Issue: Legitimate Expectation and the FTT's Jurisdiction The second major strand of the appeal concerned whether the FTT has [jurisdiction to entertain public law arguments](https://taxdisputes.co.uk/judicial-review-applications-against-hmrc-challenge-decision-advice/), specifically, legitimate expectation, in the context of an appeal under [section 83(1)(t) VATA](https://www.legislation.gov.uk/ukpga/1994/23/section/83) against a recovery assessment made under section 80(4A). Queenscourt argued that, having initially accepted ECN1 and repaid the VAT, HMRC was precluded from recovering that money through a recovery assessment: Queenscourt had a legitimate expectation that the repayment would stand. This question has generated considerable inconsistency in the authorities. The FTT had followed the Upper Tribunal decision in [*KSM Henryk Zeman Sp Z.o.o. v HMRC* [2021] UKUT 182 (TCC)](https://assets.publishing.service.gov.uk/media/611257b1e90e0706d8a277a3/KSM_HENRYK_ZEMAN_SP_Zoo_v_HMRC_Decision_to_Parties.pdf), which held (following the Court of Appeal's decision in [*David Beadle v HMRC* [2020] EWCA Civ 562](https://www.judiciary.uk/wp-content/uploads/2020/04/beadle-v-hmrc-290420.pdf)) that the FTT *does* have such jurisdiction unless the statutory scheme expressly or impliedly excludes it. The FTT concluded that the scheme of section 80(4A) and section 83(1)(t) did not exclude the jurisdiction, but reached that conclusion with "some hesitation". The Upper Tribunal took a more critical view of *Zeman*. It held that *Beadle*'s "exclusion" starting point was only appropriate in the context of genuine enforcement proceedings, and that equating a taxpayer's appeal against a tax assessment with a defendant resisting enforcement proceedings was incorrect. The correct approach, endorsed in the very recent Upper Tribunal decision in [*MWL International Ltd & Anor v HMRC* [2026] UKUT 00062 (TCC)](https://assets.publishing.service.gov.uk/media/698b25326c8ef8db1fcfd84c/MWL_International_Ltd___Maywal_Ltd_v_HMRC_-_Final_Decision.pdf), is to undertake a conventional purposive construction of the relevant statutory provisions, taking into account context and purpose. Applying that approach, the Upper Tribunal expressed serious doubt that Parliament intended the FTT to have a public law jurisdiction under section 83(1)(t): the first limb of that provision (repayment claims) had already been held not to confer public law jurisdiction in [*CCE v National Westminster Bank plc* [2003] STC 1072](https://www.bailii.org/ew/cases/EWHC/Ch/2003/1822.html), and it would be anomalous for the second limb (recovery assessments) to do so when the first did not. The run of authorities before *Beadle*, including a House of Lords decision in [*CCE v JH Corbitt (Numismatists) Ltd* [1980] STC 231](https://taxdisputes.co.uk/wp-content/uploads/2026/05/1981-A.C.-22.pdf), leaned heavily against the FTT having a supervisory jurisdiction in this context. Critically, however, because Queenscourt succeeded on the VAT liability ground, nothing turned on the public law issue in this appeal. The Upper Tribunal therefore declined to resolve the jurisdictional question definitively, leaving it for a future case where the issue would be outcome-determinative and where full submissions had been heard. Any business considering whether to [challenge an HMRC recovery assessment](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/) on legitimate expectation grounds should note that this area remains unsettled and specialist advice is essential. ## Ground 2: Legitimate Expectation - The "Good Administration" Question Even operating on the assumption that the FTT had jurisdiction, Queenscourt argued that it erred in law in its analysis of whether HMRC's departure from its earlier acceptance of ECN1 was sufficiently unfair to warrant relief. The FTT had, Queenscourt submitted, focused only on financial detriment and failed to consider whether HMRC's conduct was consistent with *good administration*. The Upper Tribunal rejected this ground. It found that the FTT had correctly identified the relevant factors in the tax context, including HMRC's duty to collect the right amount of tax, the expectation that taxpayers will pay neither more nor less than statute requires, and the public interest in ensuring that no individual taxpayer enjoys an unfair advantage over others paying the correct amount. These factors, the Tribunal held, *are* the good administration point in the tax context; the FTT was not required to treat "good administration" as a separate, free-standing requirement. Ground 2 was not made out. ## What This Decision Means for Food Businesses and Hospitality Operators The Queenscourt decision has immediate and practical significance for any food business that bundles cold and hot items in a discounted meal deal or similar promotional offer. The Upper Tribunal's ruling establishes, with clarity, that once it is accepted a transaction is a multiple supply, HMRC cannot selectively re-aggregate two of those elements into a sub-composite supply to achieve a less favourable VAT outcome for the taxpayer. Each element must be assessed independently. Food businesses that have been accounting for VAT on the basis that their meal deals are wholly standard-rated may wish to review their historic treatment, particularly where cold food items with an obvious independent purpose, coleslaw, yoghurts, cookies, dip pots, are bundled alongside hot food. Overpaid VAT can be recovered by way of an [Error Correction Notice](https://taxdisputes.co.uk/hmrc-vat-investigations-evasion-input-ouput-double-taxation-tribunal-legal-advice/) submitted to HMRC, subject to the statutory time limits. Equally important is the warning the case carries for businesses that have already filed ECNs and received repayments. As Queenscourt discovered, HMRC retains the power under [section 80(4A) VATA](https://www.legislation.gov.uk/ukpga/1994/23/section/80) to issue a recovery assessment if it later takes the view that its original repayment was excessive. That assessment can be [appealed under section 83(1)(t) VATA](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/). The strength of any such appeal will depend critically on the legal analysis of whether the original repayment was correct, as Queenscourt's victory demonstrates, that analysis may well favour the taxpayer. Businesses facing similar disputes, whether in food retail, hospitality, catering, or any other sector where zero-rated and standard-rated items are combined, should [seek specialist VAT legal representation](https://taxdisputes.co.uk/legal-representation/) without delay. The complexity of the composite/multiple supply doctrine, as this case amply demonstrates, demands careful analysis of the applicable ECJ and CJEU case law, the specific facts of the transaction, and HMRC's own concessions. ## HMRC Recovery Assessments Under Section 80(4A) VATA: Your Rights When HMRC repays VAT following an Error Correction Notice and subsequently decides the repayment was excessive, it may issue a recovery assessment under section 80(4A) VATA. This can come as a significant financial shock, particularly where the repayment has already been absorbed into the business's cash flow. The assessment carries the same legal weight as any other HMRC assessment and, as Queenscourt's case demonstrates, is open to challenge on the full merits of the underlying VAT liability. A taxpayer has the right to [request an HMRC internal review](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/) of a recovery assessment or to appeal directly to the [First-tier Tribunal (Tax Chamber)](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/). Time limits apply: typically 30 days from the date of the assessment. Where a business has suffered loss arising from HMRC's inconsistent treatment of its VAT position, it may in appropriate circumstances also wish to explore whether a claim lies against advisers whose guidance underpinned the original accounting treatment, a matter on which [professional negligence solicitors](https://professionalnegligenceclaimsolicitors.co.uk/) can advise. Where a recovery assessment is combined with an aggressive enforcement posture, including the threat of a statutory demand or [HMRC winding-up petition](https://windinguppetitionsolicitors.co.uk/), early legal intervention becomes urgent. HMRC's enforcement powers are considerable, but they are not unlimited, and courts and tribunals regularly intervene where HMRC's conduct is procedurally or substantively flawed. ## Related Case Law: Innovative Bites and the Food VAT Classification Landscape The Queenscourt decision follows a broader pattern of food businesses successfully challenging HMRC's VAT classification decisions before the tribunals. In [*Innovative Bites Ltd v HMRC* [2026] TC09831](https://caselaw.nationalarchives.gov.uk/ukftt/tc/2026/500?court=ukut%2Ftcc&court=ukftt%2Ftc), the First-tier Tribunal held that oversized marshmallows were zero-rated food rather than standard-rated confectionery, ending a dispute involving a £472,928 assessment. The common thread running through these cases is that HMRC frequently seeks to characterise a complex commercial supply in the way that generates the highest VAT yield, and that this characterisation does not always survive legal scrutiny. The ECJ's caution in *CPP* that it was "not possible to give exhaustive guidance on how to approach the problem correctly in all cases" should not be read as a licence for HMRC to apply the law however it wishes: it is, as the Upper Tribunal here explained, a recognition of factual complexity, not of legal flexibility in HMRC's favour. ## Key Takeaways from Queenscourt Limited v HMRC [2026] UKUT 00195 (TCC) - Dip pots in KFC meal deals are zero-rated as separate supplies. HMRC's contrary position has been decisively rejected by the Upper Tribunal. - The "hybrid" supply theory is wrong in law. Once a transaction is treated as a multiple supply, each element must be assessed independently. You cannot create a sub-composite supply within a multiple supply. - The CPP/Levob exceptions operate at the level of the whole transaction. They either convert the entire transaction into a single supply or they do not apply. - HMRC's internal inconsistency carries real legal risk. Having accepted a taxpayer's ECN, HMRC's subsequent recovery assessment is open to challenge, and may fail entirely if the original repayment was legally correct. - The FTT's public law jurisdiction under section 83(1)(t) VATA remains unsettled. Businesses seeking to raise legitimate expectation defences against HMRC recovery assessments should not assume that avenue is available without taking specialist advice. - Food businesses should review their meal deal VAT treatment in light of this ruling, particularly where cold items are bundled with hot food. ## Specialist VAT Dispute Advice: Legal Representation Against HMRC The Queenscourt case underscores how consequential, and how complex, VAT classification disputes can be. A difference in the VAT treatment of a 40p dip pot, multiplied across hundreds of thousands of transactions, produced a dispute worth over £106,000. For larger operators, the sums involved can be orders of magnitude greater. If your business has received an [HMRC VAT assessment](https://taxdisputes.co.uk/hmrc-vat-investigations-evasion-input-ouput-double-taxation-tribunal-legal-advice/), been refused a VAT repayment, had a previous repayment clawed back by a section 80(4A) recovery assessment, or is uncertain about the correct VAT treatment of its food or hospitality supplies, early specialist advice is essential. The rules on composite and multiple supplies are technical, fact-sensitive, and heavily dependent on a thorough understanding of the CJEU case law. Our [dual-qualified Solicitors and Barristers](https://lexlaw.co.uk/) at LEXLAW operate from Middle Temple in the City of London and provide expert representation in [HMRC tax appeals](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/), [First-tier Tribunal proceedings](https://taxdisputes.co.uk/first-tier-tax-tribunal-solicitors-london/), [HMRC enforcement defence](https://taxdisputes.co.uk/hmrc-enforcement-action/), and [judicial review of HMRC decisions](https://taxdisputes.co.uk/judicial-review-applications-against-hmrc-challenge-decision-advice/). We regularly advise on [HMRC internal reviews](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/), [penalty mitigation](https://taxdisputes.co.uk/hmrc-penalties/), and [VAT assessment challenges](https://taxdisputes.co.uk/2026/01/how-to-challenge-a-vat-assessment-2026-guide/) across all business sectors. Where HMRC's enforcement posture extends to winding-up threats, our colleagues at [Winding Up Petition Solicitors](https://windinguppetitionsolicitors.co.uk/) provide dedicated insolvency defence expertise. Do not wait for HMRC to escalate. [Contact us today](https://lexlaw.co.uk/contact-us/) for a fixed-fee consultation with a specialist tax solicitor and barrister, and let us assess the strength of your position before matters become more complex or costly. --- # What Is a Time to Pay Arrangement? Source: https://taxdisputes.co.uk/2026/05/what-is-a-time-to-pay-arrangement/ A Time to Pay arrangement is an agreement between a taxpayer and [HM Revenue & Customs](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/) that the outstanding tax debt, whether corporation tax, VAT, PAYE, or self-assessment income tax, will be paid in agreed instalments rather than in a single lump sum. HMRC operates TTP arrangements under its general care and management powers and has no statutory obligation to grant them. Whether HMRC agrees to a TTP, and on what terms, is a discretionary decision influenced by the taxpayer's financial position, payment history, credibility, and the speed and transparency with which they have engaged. TTP arrangements are not a new concept, but their profile rose significantly during and after the COVID-19 pandemic, when HMRC operated the Coronavirus Business Support TTP Scheme for VAT deferrals. Demand has remained elevated as businesses face rising costs and tightening margins. HMRC's own data confirms that billions of pounds of tax debt are currently being managed under active TTP agreements. ## What Tax Debts Can Be Included? Most UK tax liabilities can in principle be included in a TTP arrangement, including [VAT](https://taxdisputes.co.uk/hmrc-vat-investigations-evasion-input-ouput-double-taxation-tribunal-legal-advice/), PAYE and National Insurance contributions, corporation tax, self-assessment income tax, and [tax penalties](https://taxdisputes.co.uk/hmrc-penalties/). HMRC will typically expect current tax obligations to be met in full as they fall due, the TTP is for arrears, not a mechanism for deferring ongoing liabilities. Falling behind on current obligations while a TTP is in place is one of the most common causes of arrangement breakdown. ## How to Apply for a Time to Pay Arrangement Most TTP requests are made by telephone to HMRC's Business Payment Support Service or, for self-assessment debts, through the Government Gateway. HMRC may also be approached in writing, though telephone contact generally produces a faster response. For larger or more complex liabilities, particularly those involving [disputed VAT](https://taxdisputes.co.uk/hmrc-vat-investigations-evasion-input-ouput-double-taxation-tribunal-legal-advice/) or liabilities arising from an [HMRC investigation](https://taxdisputes.co.uk/hmrc-tax-investigations-solicitors-london/), a written proposal supported by detailed financial information is strongly advisable. HMRC will typically require a clear picture of the taxpayer's income, expenditure, assets, and liabilities. It will want to understand why the debt has arisen, what steps have been taken to address it, and why an instalment arrangement is preferable to immediate payment. Presenting this information credibly and completely is essential: HMRC officers are experienced at identifying incomplete disclosures, and an application that appears to minimise the taxpayer's means is likely to be refused or result in a shorter, more demanding repayment schedule. ## What HMRC Will and Will Not Accept HMRC generally expects TTP arrangements to be completed within twelve months, though it will consider longer periods where the taxpayer's circumstances genuinely justify it. Arrangements extending beyond two years are uncommon and will require robust financial evidence. Interest continues to accrue on the outstanding balance throughout the TTP period, currently at HMRC's published late payment interest rate, so a longer arrangement may reduce monthly payments but increase the total sum paid. HMRC will not grant a TTP where it considers the taxpayer is simply seeking to delay the inevitable, where there is a history of failed arrangements without adequate explanation, or where the debt arises from conduct it regards as [deliberate non-compliance](https://taxdisputes.co.uk/tax-evasion-hmrc-code-practice-9-investigations/). Businesses that are already the subject of an [HMRC investigation](https://taxdisputes.co.uk/hmrc-tax-investigations/) or against whom a [statutory demand](https://taxdisputes.co.uk/hmrc-statutory-demand/) has been issued face additional scrutiny. ## What Happens If You Default? Defaulting on a TTP arrangement, whether by missing an instalment, failing to file returns on time, or accruing new tax debt, typically results in HMRC terminating the arrangement immediately and treating the full outstanding balance as due. This can trigger rapid [enforcement action](https://taxdisputes.co.uk/hmrc-enforcement-action/), including [statutory demands](https://taxdisputes.co.uk/hmrc-statutory-demand/), asset seizure via HMRC's direct recovery powers, or, in the most serious cases, a [winding-up petition](https://windinguppetitionsolicitors.co.uk/) to the Companies Court. The consequences of default can therefore be far more severe than if no TTP had been sought at all. Where a TTP is at risk of breaking down, early legal advice is critical. In some cases it is possible to renegotiate terms before a formal default is declared, particularly where the taxpayer can demonstrate a genuine and temporary change in circumstances. [Specialist legal representation](https://taxdisputes.co.uk/legal-representation/) significantly improves the prospects of a successful renegotiation. ## When HMRC Refuses: Your Options HMRC's refusal to grant or continue a TTP arrangement is not always the end of the road. Where refusal appears unreasonable or procedurally flawed, it may be possible to challenge that decision, including by way of [judicial review](https://taxdisputes.co.uk/judicial-review-applications-against-hmrc-challenge-decision-advice/). In parallel, the underlying tax liability itself may be open to challenge through [HMRC's internal review process](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/) or by [appealing to the First-tier Tribunal](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/). A successful appeal on the liability can dramatically reduce, or eliminate, the debt HMRC is seeking to enforce. Where the debt is genuine but the business is genuinely insolvent, a formal insolvency process — including a Company Voluntary Arrangement, may offer a more structured solution than a TTP. Our colleagues at [Winding Up Petition Solicitors](https://windinguppetitionsolicitors.co.uk/) regularly advise on the interaction between HMRC enforcement and insolvency law. ## Expert Legal Advice on HMRC Time to Pay Disputes Negotiating a TTP arrangement may appear straightforward, but for businesses carrying significant tax debt, the stakes are high and the margin for error is small. A poorly presented application, an unrealistic repayment schedule, or a missed instalment can convert a manageable liability into an existential threat. Our [specialist tax solicitors and barristers](https://lexlaw.co.uk/) at LEXLAW advise on TTP negotiations, [HMRC tax appeals](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/), [penalty mitigation](https://taxdisputes.co.uk/hmrc-penalties/), and enforcement defence from our offices in Middle Temple, London. If HMRC is pressing for payment and your business needs time, [contact us today](https://lexlaw.co.uk/contact-us/) for a fixed-fee consultation. ### Frequently Asked Questions (FAQ's) 1. Can HMRC refuse a Time to Pay arrangement, and what can I do if they do? Yes. HMRC has full discretion over whether to grant a [Time to Pay arrangement](https://taxdisputes.co.uk/hmrc-enforcement-action/) and is under no statutory obligation to agree to one. Refusals most commonly occur where HMRC considers the taxpayer's proposal unrealistic, where there is a history of missed payments or broken arrangements, or where the debt arises from conduct HMRC regards as deliberate non-compliance. If HMRC refuses, you are not without options. The underlying tax liability may itself be open to challenge through an [HMRC internal review](https://taxdisputes.co.uk/hmrc-internal-review-appeals-solicitors-london/) or a formal [appeal to the First-tier Tribunal](https://taxdisputes.co.uk/hmrc-appeal-lawyers-london/). Where refusal appears procedurally improper or disproportionate, [judicial review of HMRC's decision](https://taxdisputes.co.uk/judicial-review-applications-against-hmrc-challenge-decision-advice/) may be available. Taking specialist legal advice promptly after a refusal is critical, as HMRC may move quickly to [enforcement action](https://taxdisputes.co.uk/hmrc-enforcement-action/) once negotiations break down. 2. Will HMRC charge interest on a Time to Pay arrangement? Yes. Interest continues to accrue on the outstanding balance throughout the duration of a Time to Pay arrangement at HMRC's published [late payment interest rate](https://www.gov.uk/government/publications/rates-and-allowances-hmrc-interest-rates-for-late-and-early-payments/rates-and-allowances-hmrc-interest-rates), which is set by reference to the Bank of England base rate. This means that a longer repayment period reduces monthly instalments but increases the total amount repaid. In addition, if [penalties](https://taxdisputes.co.uk/hmrc-penalties/) have been assessed alongside the underlying liability, those too may continue to attract interest if not separately addressed. When negotiating a TTP, it is important to factor in the full cost of the arrangement — not just the instalment amounts — and to consider whether any aspect of the liability or penalty position can be reduced or appealed in parallel. 3. What happens to an HMRC Time to Pay arrangement if my financial position worsens? If your financial circumstances deteriorate after a Time to Pay arrangement has been agreed, you should contact HMRC proactively before missing an instalment. Failing to communicate and simply defaulting is the worst outcome: HMRC will typically terminate the arrangement immediately, treat the full outstanding balance as due, and may escalate to [enforcement action](https://taxdisputes.co.uk/hmrc-enforcement-action/) — including issuing a [statutory demand](https://taxdisputes.co.uk/hmrc-statutory-demand/) or presenting a [winding-up petition](https://windinguppetitionsolicitors.co.uk/). By contrast, approaching HMRC early with updated financial evidence may allow the arrangement to be renegotiated on revised terms. [Specialist legal representation](https://taxdisputes.co.uk/legal-representation/) at this stage significantly improves the likelihood of a successful outcome, as solicitors experienced in HMRC negotiations understand how to present revised proposals in a way that HMRC will consider credible. 4. Can I include a disputed tax liability in a Time to Pay arrangement? This is a question that requires careful handling. HMRC may agree to a TTP covering a liability that is under [appeal](https://taxdisputes.co.uk/hmrc-tax-appeals-solicitors-london/), but accepting instalments under a TTP whilst simultaneously appealing can in some circumstances be construed as an acceptance of the liability — potentially weakening your legal position. Where a [VAT assessment](https://taxdisputes.co.uk/hmrc-vat-investigations-evasion-input-ouput-double-taxation-tribunal-legal-advice/) or other tax demand is genuinely disputed, the better course is usually to challenge it through the formal appeal route while separately managing cash flow and enforcement risk. In VAT cases, a valid appeal automatically suspends the obligation to pay in most circumstances, which may make a TTP unnecessary. Taking advice from [specialist tax solicitors](https://lexlaw.co.uk/) before entering a TTP on a disputed debt is strongly recommended. 5. Does an HMRC Time to Pay arrangement affect my credit rating or company's ability to trade? A TTP arrangement is a private agreement between the taxpayer and HMRC and is not registered at Companies House or reported to credit reference agencies in the same way as a county court judgment or formal insolvency process. It does not, of itself, appear on your company's credit file. However, the underlying tax debt may already be affecting your creditworthiness, and if HMRC escalates to a [statutory demand](https://taxdisputes.co.uk/hmrc-statutory-demand/) or [winding-up petition](https://windinguppetitionsolicitors.co.uk/) because a TTP breaks down, the reputational and commercial consequences can be severe and immediate. Directors should also be aware that where a company is insolvent or approaching insolvency, continuing to trade and incur tax liabilities without addressing the position may give rise to personal liability concerns. If you are uncertain about your company's position, [contact our specialist tax and litigation team](https://lexlaw.co.uk/contact-us/) for confidential advice. --- Generated from RankReady