Nothing to lose: HMRC statutory review as an alternative to appeals

With the House of Commons Treasury Sub-Committee looking at the conduct of tax enquiries and resolution of disputes, now is an opportune time to consider how clients can best be protected if they disagree with a decision HMRC has made about their tax.

Most decisions by HMRC carry a right of appeal which the taxpayer can exercise, usually within 30 days. Talk of appeals generally brings to mind courts and tribunals, but for tax appeals there is a quicker and more cost-effective alternative – statutory review. HMRC should offer the taxpayer a statutory review of any appealable decision, but if they do not, an aggrieved taxpayer has the right to request one, again exercisable within 30 days of the decision.

A statutory review is an internal process whereby an officer who was not involved in the original decision looks again at the relevant facts and law and scrutinises the casework. The reviewer can either uphold, vary or cancel the decision. He/she can call for more evidence from the original decision-maker or the taxpayer. Reviews are commonly requested of decisions on liability, closure notices or claims refused, but most are about matters such as automatic penalties for late filing or payment, including whether the taxpayer has a reasonable excuse.

So what, if any, are the advantages of a statutory review as against going straight to appeal? First, it is free. Secondly, it is time-limited – the reviewer must reach a decision within 45 days, or agree more time with the taxpayer. In addition, if the taxpayer disagrees with the decision on review, they can still appeal against it to the First-tier Tribunal (again within 30 days).

But what is the point? Won’t the reviewer simply rubber-stamp the original decision? A fair question, given that the process involves one HMRC officer reviewing the work of another.

Buried away in HMRC’s Annual Report and Accounts for 2017/18 is a report by the Tax Assurance Commissioner, the senior tax professional in the Department, entitled ‘How we resolve tax disputes’. This report contains some surprising, though reassuring, data – the percentage of decisions on automatic penalties upheld on review is staggeringly low, at 44%. This means that 66% of automatic penalties were cancelled or varied, for example to give effect to a reasonable excuse claim. If we isolate decisions in VAT penalty cases, including the default surcharge, the upheld rate falls to an astonishing 30% - a full 70% in the taxpayer’s favour.

Other decisions not involving automation – i.e., ‘considered’ decisions – were upheld to the extent of 74%, which is closer to what one might expect. Of decisions that were appealed to the First-tier Tribunal, whether on appeal from an initial decision by a case officer or the result of a statutory review, 78% were upheld. Nevertheless, some reasonable excuse claims are accepted by the First-tier Tribunal that should never have been pursued that far in the first place (see, for example, Beardwood [2018] UKFTT 0099 (TC)) – but that is another story.

Another interesting statistic is that 79% of reviews in 2017/18 (82% the previous year) were requested by unrepresented taxpayers who had no adviser to assist them in preparing a case. The willingness of HMRC reviewers to support the taxpayer’s point of view is particularly noteworthy in the light of this information and speaks well of the impartiality of the process.

From the taxpayer’s perspective, the advantage of statutory review is that there is nothing to lose. If the taxpayer fails to persuade HMRC of the merits of their case, they have at least not incurred any cost, and can appeal upwards to the First-tier Tribunal. Also, particularly if the issue involves an automated penalty and whether they have a reasonable excuse for their failure to file or pay on time, there is a good chance that they will win. Either way, they get an answer within nine weeks, unless the reviewer asks them for more time.

See here and the following pages for more information on how to appeal against an HMRC decision and what happens on review.


Robin Williamson MBE is an author and commentator on tax, welfare and public policy. He was technical director of the CIOT’s Low Incomes Tax Reform Group from 2003 to 2018.

See also: Guide to Taxpayers’ Rights and HMRC Powers (6th edition) by Robert Maas: https://www.bloomsburyprofessional.com/uk/guide-to-taxpayers-rights-and-hmrc-powers-9781526507556/

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