Imagine you have just wrapped up another hectic year of running your business. Then, out of the blue, a letter from HMRC arrives. It claims you have underpaid your corporation tax and includes a hefty corporation tax assessment demanding immediate payment. But as you check your books, you realise something does not add up. HMRC has disallowed legitimate expenses or misclassified some of your income. What can you do?
Mistakes like these happen more often than you might think. By understanding the steps involved and when to seek professional advice, you can protect your business and ensure you’re only paying what you are genuinely required to.
The First Step: Asking HMRC for a Review
The first step in disputing a tax assessment is to ask HMRC to review their decision. This must be done within 30 days of receiving the assessment notice. In your request, explain why you think the decision is wrong and include any supporting documents, such as receipts, invoices, or business records.
For example, if HMRC claims your travel expenses are not deductible, you could provide evidence showing those trips were directly related to client meetings or conferences. Once they’ve received your request, HMRC will assign the case to a review officer who was not involved in the original decision.
This initial review process is your first opportunity to resolve the matter without the need for a formal tribunal hearing, making it an important step to approach thoroughly and strategically. Failing to provide everything that is asked for, or to give consistent and accurate explanations for any gaps, could result in HMRC maintaining their decision against you.
The First-tier Tribunal: Where Facts Are Decided
If you’re not happy with the outcome of HMRC’s review, the next step is to take your case to the First-tier Tribunal (Tax Chamber). This is where your case will be examined in detail by an adjudicator, making it the most important stage of the entire appeals process.
The tribunal operates much like a court but is less formal and designed to be accessible. Nevertheless, the procedural steps are strict and closely resemble those of a court hearing. You or your representative will have the opportunity to present your case, submit evidence, and, if necessary, call witnesses. For example, if HMRC argues that certain expenses were personal rather than business-related, you could bring in your accountant, employee, or travel agent as a witness, and submit additional records demonstrating how those trips and expenses were essential to your business.
The tribunal’s primary role is to establish the facts and apply the law to them. It is not only the evidence presented that matters but also how the testimony is given. The credibility and clarity of witnesses can significantly influence the outcome. This makes it crucial to consider having professional legal representation to manage your case.
Once the tribunal issues its decision, this will typically be the final word on factual matters. Later stages of the appeal process, such as the Upper Tribunal, generally will not revisit the facts or hear from witnesses unless there are exceptional circumstances.
What Happens If You Disagree with the First-tier Tribunal’s Decision?
If the First-tier Tribunal rules against you, you can apply for permission to appeal. Your application should clearly identify the grounds for appeal, which must involve a point of law rather than a dispute over the facts.
Grounds for appeal include situations where the tribunal has: i) Misapplied or misinterpreted the law, ii) Failed to give adequate reasons for its decision, iii) Considered irrelevant factors or failed to consider relevant ones or iv) Acted procedurally unfairly.
If the First-tier Tribunal refuses your application for leave to appeal, you can also apply directly to the Upper Tribunal for leave to appeal. The Upper Tribunal will review your application and decide whether to grant permission based on the legal grounds you have raised.
Upper Tribunal Appeals: Focusing on Legal Issues
If permission to appeal is granted, your case will proceed to the Upper Tribunal. Unlike the First-tier Tribunal, the Upper Tribunal does not re-examine the facts or hear new evidence. Instead, it focuses solely on whether the First-tier Tribunal made an error of law. For example, if the First-tier Tribunal misunderstood how allowable expenses should be calculated under tax law, the Upper Tribunal would consider whether this legal mistake affected the outcome. The Upper Tribunal may call a hearing to allow the parties to present their viewpoints.
If the Upper Tribunal finds that an error of law was made, it may set aside the First-tier Tribunal’s decision and either substitute its own decision or send the case back to the First-tier Tribunal for reconsideration.
While it’s rare, some appeal cases may eventually reach the Court of Appeal or Supreme Court if they involve significant legal issues that have wider implications. However, for most small businesses, the First-tier Tribunal represents the most critical stage of the process.
Why Businesses Owners Should Take Action
Dealing with a tax assessment can be stressful, but the appeals process is designed to ensure fairness. A skilled lawyer can assist with every stage of the process, from managing your case and preparing evidence to developing a strategy and advocating on your behalf. They will analyse your case thoroughly, identify any gaps in your evidence, and highlight weaknesses in HMRC’s position. An experienced lawyer’s ability to present these points effectively during the hearing can have a significant impact on the outcome.
If you’re considering appealing a tax assessment, don’t hesitate to reach out to Lisa’s Law. Our team is here to guide you every step of the way and ensure your case is presented as effectively as possible.
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