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webberg
26th May 2015, 17:00
It's clear that many people here are in the dark in terms of the process of how a tax enquiry works.

The following is a simplified summary which may help. It will not cover all situations and you are advised, as always, to seek suitable professional advice if you have questions.

The process nearly always begins with the submission of a tax return. You are obliged to ensure that the return is correct and declares all income and benefits. It is not enough to rely upon others to submit supporting forms. It is not enough to rely upon an agent to get it right. It is YOUR responsibility to ensure a full declaration.

HMRC will examine the return. This is (for most of you) a two stage process. First a computerised check that the ratio of income to tax is in the right ballpark. Failure here will lead to the return being put in a big pile of others (metaphorically) until an officer can review it.

The second stage is that your file may be flagged. This is because you have a DOTAS number on the form or you are known to be a user of a scheme that is on HMRC's list which may or may not be DOTAS'd. Your file may also be flagged for things like your name appearing in a list of foreign bank accounts, receipt of rent, receipt of interest, non dom status, the list goes on.

If your return is selected for enquiry, you will normally get a letter saying so. It will mention either a "compliance check" (usually related to the first stage above) or a "section 9A enquiry" (usually second stage above).

HMRC will then either engage in correspondence with you to extract information or they will conduct this via another person in the same scheme. In the latter case, they may not tell you unless you ask. HMRC may also seek information from third parties to verify or add to their data. This stage can take YEARS.

At this point, you may get an APN. This is NOT connected to the enquiry process. An APN says that tax is in dispute and HMRC will hold it until resolved.

Eventually HMRC will issue a closure notice. This will state their view of the accuracy of your return. If they believe that you have understated income, they will say so and raise an assessment. At this stage you can appeal the notice and/or the assessment. This appeal has NO EFFECT on your APN.

You can ask for the closure notice to be reviewed. HMRC has a limited period to do this and advise you of the result. In your case, almost certainly original decision upheld.

There will follow a usually short period of further debate with HMRC around a possible settlement.

Assuming an offer is forthcoming (it may not be) but you decide NOT to take it, an application is made to the First Tier Tax Tribunal to hear your case.

QC's are very definitely in the picture at this point.

For contractors, HMRC and the Tribunal will almost certainly look for one or more test cases. These will be people who are "typical" users of a scheme and who display all the characteristics, good and bad, of the scheme. As you can imagine there is often a tussle between HMRC and advisers as to who is typical with both parties seeking good and bad examples.

Once selected, and subject to case management hearings, a date is set for hearing. The current backlog of disputes is not being matched by new judges coming on stream and an application today might get a date towards the end of 2016 or later.

The FTT process is relatively informal but an advocate is usually a good idea. You may not be called as a witness even if you are one of the examples. It's rare for a represented taxpayer to be called.

The FTT is there to assess and determine the FACTS and to apply the relevant law. This is a critical stage as once the FACTS are established, a higher Court will be very reluctant to disturb them.

The hearing may last a day or several weeks depending on complexity. Eventually however it's over and a judgement awaited.

The period for a judgement varies a lot. Some are out within days. Others take a year.

Once released, the losing party can apply for permission to appeal to the Upper Tier. The judges there can decide to hear the appeal or not. If they do, they will list the case (about a year out) and then they will consider the application of the LAW to the FACTS. Only if they consider that the facts do not permit the law applied by the FTT or that the FTT has been unreasonable, will they change the decision of the lower court.

A losing party can appeal to the Court or Appeal and then the Supreme Court.

From initial return submission to Supreme Court judgement, perhaps 8 to 15 years. Cost at least £1m.

philinlondon
26th May 2015, 18:12
Sorry this might be a very dumb question, can we request legal aid for some of the cost?

webberg
26th May 2015, 19:21
Sorry this might be a very dumb question, can we request legal aid for some of the cost?

No.

Legal aid is for some reason not available. I'll ask around as to why not but it may be because this is a civil law issue and not a criminal law one.

I know some tax fraud cases have legal aid.

malvolio
26th May 2015, 21:22
No.

Legal aid is for some reason not available. I'll ask around as to why not but it may be because this is a civil law issue and not a criminal law one.

I know some tax fraud cases have legal aid.
Perhaps because fraud is criminal?

webberg
26th May 2015, 22:16
Perhaps because fraud is criminal?

Perhaps. To be honest I've never really questioned this, just taken it as read

jamesbrown
26th May 2015, 23:59
No.

Legal aid is for some reason not available. I'll ask around as to why not but it may be because this is a civil law issue and not a criminal law one.

I know some tax fraud cases have legal aid.

It isn't a civil/criminal distinction, but legal aid is only available for certain civil matters (with strict criteria on financial circumstances). For example:

https://www.citizensadvice.org.uk/law-and-rights/legal-system/taking-legal-action/help-with-legal-costs-legal-aid/

https://www.gov.uk/check-legal-aid

fklittle
28th May 2015, 15:21
Thank you for the summary. What happens if you pay the APN but do not join a group / go to court? Will the moneys just stay with HMRC and that will be the end of it?
The scheme I was with our defending the scheme but I am not sure if I have the appetite to see it through or the funds to settle. What happens if I am not part of that group and they win/loose?

Thanks

webberg
29th May 2015, 09:53
Thank you for the summary. What happens if you pay the APN but do not join a group / go to court? Will the moneys just stay with HMRC and that will be the end of it?
The scheme I was with our defending the scheme but I am not sure if I have the appetite to see it through or the funds to settle. What happens if I am not part of that group and they win/loose?

Thanks

You have no choice here.

If you participated in the scheme and that scheme goes to Tribunal and a decision is handed down, your tax position is determined by that decision.

If that decision is you owe tax of £100, have paid an APN of £80, then you have another £20 to pay (plus interest).

Paying the APN does NOT mean that you are immune from the final decision.

You can choose to settle individually or as part of a group. If so, that settlement position means that the final litigation decision is NOT visited upon you. However when you settle you don't know if your terms are better or worse. That's a subjective decision to be made.

The advantages of joining a group have been well discussed in these pages. Perhaps the key ones are cost sharing and common strategy.

fklittle
29th May 2015, 10:34
Thanks Webberg, I appriecate your response.