Economic Affairs Committee Contents

Chapter 5: Taxpayer safeguards and access to justice

85.This chapter discusses how safeguards for taxpayers have changed in recent years, as HMRC has gained additional powers, and proposes areas in which they need to be strengthened.

86.Witnesses felt that HMRC powers needed to be balanced by adequate safeguards for taxpayers. Victoria Todd, LITRG, said, “HMRC obviously needs powers to administer and enforce the tax system effectively, but the powers have to be proportionate and there need to be not just safeguards but accessible safeguards, particularly for unrepresented taxpayers”.101 ICAS agreed: “Taxpayers need to have confidence that HMRC is exercising its powers proportionately and that appropriate safeguards are in place. A degree of external scrutiny is required, so the right of appeal to an independent Tribunal against HMRC decisions is important.”102

87.There was a perception among witnesses that as HMRC powers have grown, taxpayer safeguards have not kept pace, or have been eroded.103 Some suggested that the balance between HMRC and taxpayers has shifted in HMRC’s favour.104

88.Box 4 details the routes of recourse which still exist for taxpayers.

Box 4: Taxpayers’ route of recourse

There are a number of routes available to taxpayers when appealing decisions made by HMRC:

Statutory Review: Taxpayers have a right to ask HMRC to review tax decisions they disagree with. The review is carried out by a HMRC official but from a different team to the one which took the original decision. This is a very informal and accessible process. It does not prevent taxpayers going on to appeal to the tax tribunal if thy remain dissatisfied.

The Adjudicator: Taxpayers may complain to the Adjudicator about HMRC’s handling of their tax affairs. The Adjudicator is a fair and unbiased referee who looks into complaints about HMRC. She deals with issues such as mistakes, unreasonable delay, poor or misleading advice , the behaviour of HMRC staff and the use of discretion. She cannot consider issues of policy or tax law or get involved in current investigations of a taxpayer’s affairs.

The Tax Tribunal: Taxpayers may appeal against tax decisions to the independent tax tribunal, which has a first tier and an upper tier (which hears appeals against decisions of the first tier and some more complex cases). In the First-tier tribunal the simplest cases are dealt with on paper. Where there is an oral hearing there is no requirement for legal representation and a taxpayer can conduct their own case. If they lose they do not have to meet HMRC’s costs.

Judicial review: Where there is no right of appeal to the tax tribunal taxpayers may apply to the higher courts asking for a judicial review of the way HMRC is administering tax law, for example if it appears to be acting outside its powers or unreasonably. This is expensive and effectively inaccessible to ordinary taxpayers.

Rights of appeal

89.Perhaps the strongest feelings expressed in evidence were about Accelerated Payment Notices and Follower Notices. Taxpayers have no right of appeal against a notice, only against the underlying tax liability. The only protection afforded to the taxpayer, other than judicial review, is the opportunity to make representations to HMRC. The protection of oversight by the tax tribunal is missing. An HMRC determination with no right of appeal is unusual. LITRG told us the “traditional routes of appeal, which provide for independent oversight should always be in place so that ordinary taxpayers can have recourse to justice”.105

90.HMRC emphasised internal governance as an alternative safeguard for Accelerated Payment Notices. It noted that taxpayers may make representations to HMRC “if they believe that HMRC has not met the statutory conditions for issuing [an Accelerated Payment Notice], or if the amount shown on the notice is not correct.”106

91.Ruth Stanier OBE, Director General for Customer Strategy and Tax Design at HMRC, described the safeguards in place for Follower Notices:

“When we issue a Follower Notice, at that point the taxpayer can choose whether or not to settle. That is a safeguard that we put in following consultation. Indeed, at the time, a number of commentators felt that the Government had gone too far in offering that position.”107

92.Neither of these safeguards offers an independent recourse for a taxpayer who believes that such a notice has been incorrectly issued. HMRC’s internal governance procedures, however robust, cannot be infallible.

93.All HMRC determinations and notices should be appealable to the tax tribunal. This is central to the protection of the taxpayer and the balance between taxpayer and tax authority.

94.We recommend the Accelerated Payment Notice/Follower Notice legislation be amended to include a right of appeal to the tax tribunal.

95.Whenever a new power is introduced or an existing power significantly extended it should be accompanied by a right of appeal against the exercise of the power, not just against the underlying tax liability.

Penalties for appeal

96.Witnesses were concerned that penalties for continuing appeals against underlying tax liabilities could undermine access to justice for taxpayers. Taxpayers continuing appeals after receiving a follower notice can face penalties of up to 50 per cent of the tax if they are unsuccessful. Lydia Challen from the Law Society’s Tax Law Committee said:

“It is effectively a penalty for accessing the courts. It applies only if the taxpayer is unsuccessful, but the risk of that is inhibiting access to the courts. That is a situation in which there is no risk to the Exchequer, because it has already had the tax on account in those circumstances. It is purely saying to the taxpayer that they have to settle or else they will be liable for a penalty.”108

97.Malcolm Gammie QC told us that a similar situation exists with the General Anti-Abuse Rule:

“…if you wish to appeal beyond a certain point in the General Anti-Abuse Rule process, you are at risk of a 60 per cent penalty … I am not quite sure that I know any taxpayer who would take that risk with that type of arrangement.”109

98.In its original consultation document on Follower Notices, HMRC stated: “Penalties are designed to act as incentives to taxpayers to comply with their tax obligations and to reassure those who do comply that they will not be disadvantaged by those who do not”. It noted that penalties for Follower Notices would be “geared to the amount of tax advantage” and “mitigated for [taxpayers’] co-operation”.110 When introducing penalties for the GAAR provisions, HMRC said:

“This measure will strengthen the deterrent effect of the GAAR by ensuring that there is an effective disincentive from entering into abusive tax avoidance in the first place, and that those who do engage in abusive tax avoidance are subject to an appropriate downside.”111

99.HMRC again appealed to internal governance as a remedy for Follower Notice penalties. Ruth Stanier said:

“A Follower Notice—this goes through senior level governance within HMRC—is issued only in cases where we are clearly of the view that a similar scheme has already been struck down.”112

100.In advising us on our report, Lord Judge, former Lord Chief Justice of England and Wales, said:

“If the taxpayer questions an asserted tax liability HMRC cannot be judge in its own cause. The imposition of penalties on those who wish to use the court system to establish that, contrary to the views of HMRC, there is no liability, fetters access to justice.”113

101.Lord Judge also noted that the House of Lords Constitution Committee, of which he is a member, might share the same concerns.

102.It is important to recover tax yield quickly and effectively, but this cannot be done at the expense of access to justice. No amount of internal governance can compensate.

103.Penalties associated with General Anti-Abuse Rule and Follower Notices are draconian and restrict access to justice. We recognise that they were introduced to inhibit taxpayers from delaying settlement by appealing, but at their present level they are disproportionate and cannot be justified.

104.Taxpayers who challenge HMRC’s view of the law and pursue litigation after a Follower Notice or General Anti-Abuse Rule ruling should not be penalised if they are ultimately unsuccessful. We recommend that these penalties are abolished.

Judicial review

105.Where taxpayers wish to challenge the lawfulness of HMRC’s decisions and there is no right of appeal to the tribunal, they may do so only by judicial review. This applies only to specific areas, such as HMRC acting beyond its powers or reaching a decision that could not be regarded as reasonable. Our evidence was clear that this remedy is out of reach for most taxpayers. The CIOT said, “If HMRC exceed or abuse their powers, the time/cost of pursuing a complaint or judicial review is often uneconomical, and so the business or taxpayer simply complies/concedes. The judicial review process is expensive and inherently inappropriate for an unrepresented litigant.”114 Victoria Todd agreed: “judicial review is out of scope for most unrepresented taxpayers”.115

106.Keith Gordon, a barrister at Temple Tax Chambers, suggested the Government could make judicial review more accessible:

“One major improvement that could be made is the extension of judicial review powers to the First-tier Tribunal so as to allow all HMRC’s actions to be considered by the specialist Tribunal without fear of costs where the taxpayer has a meritorious case.”116

107.Lord Judge commented on this proposal in his advice: “The sense of bringing all issues arising in relation to tax litigation within the jurisdiction of specialist tax tribunals … should be obvious.”117

108.The Tribunals, Courts and Enforcement Act 2007 gave the Upper Tribunal jurisdiction over some judicial review cases.118 This is a departure from the principle of the High Court having jurisdiction in all judicial review cases. In general, the losing party in a case before the First-tier tribunal does not have to pay the winning party’s costs, unlike in other courts.

109.Judicial review proceedings in respect of HMRC decisions may only be brought in the High Court, which makes them prohibitively expensive for most taxpayers. We recommend that the Government legislates to give the First-tier Tribunal (Tax) the power to conduct judicial reviews.

Statutory review

110.A more informal way for taxpayers to have HMRC decisions reviewed is by statutory review. Although this review is carried out by HMRC internally, it often results in a change of decision. LITRG drew to our attention the fact that “fewer than half of the decisions considered on statutory review in
2017–18 were upheld in HMRC’s favour, the remainder being varied or cancelled.” In the same year, LITRG said, “there were only 34,000 applications for statutory review, a small proportion of all appealable decisions by HMRC.”119

111.Statutory review appears an effective mechanism for appealing HMRC decisions. We regret that it is not more widely used. Whilst it is understandable that some taxpayers may be cynical about a system by which HMRC reviews its own decisions, the evidence shows statutory review can play a useful part in overturning poor decisions.

112.We recommend that HMRC ensures that all taxpayers are made aware of the option of statutory review, including a clear explanation of the process and the independence of the reviewer.

Naming and shaming

113.The first “naming and shaming” provision was introduced in the Finance Act 2009. It provided for HMRC to publish the names of deliberate defaulters who, on investigation, had been found to have potentially evaded more than £25,000 of tax and whose appeal rights had been exhausted. Taxpayers could avoid being named by co-operating with HMRC in its investigations. Those being named had to be warned in advance and after a year their names would be removed from the published list. This means that naming and shaming was originally conceived as a sanction, and so a deterrent, for deliberately non-compliant taxpayers. Naming and shaming provisions have subsequently been introduced to allow HMRC to publish the names of large corporations whose behaviour is consistently uncooperative and of promoters and participants in failed avoidance schemes.

114.The extension of the naming sanction to taxpayers and promoters whose behaviour is legal, but of which HMRC disapproves, blurs an important boundary between those who break the law and those who do not.

115.We recommend that naming and shaming provisions should be restricted to those who have broken the law.


101 Q 37 (Victoria Todd)

102 Written evidence from ICAS (DFC0068)

103 Written evidence from Herbert Smith Freehills LLP (DFC0090), CIOT (DFC0071)

104 Written evidence from LITRG (DFC0067); Q 37 (Victoria Todd, Keith Gordon, Graham Webber)

105 Written evidence from LITRG (DFC0067)

106 Written evidence from HMRC (DFC0085)

107 Q 53 (Ruth Stanier)

108 Q 26 (Lydia Challen)

109 Q 27 (Malcolm Gammie QC)

110 HMRC, Strengthening Sanctions for Tax Avoidance (30 January 2015): https://webarchive.nationalarchives.gov.uk/20171110142701/https://www.gov.uk/government/consultations/strengthening-sanctions-for-tax-avoidance [accessed November 2018]

111 HMRC, Penalties for the General Anti-Abuse Rule: https://www.gov.uk/government/publications/penalties-for-the-general-anti-abuse-rule/penalties-for-the-general-anti-abuse-rule [accessed 28 November 2018]

112 Q 53 (Ruth Stanier)

113 Extract from private written correspondence on the Report, used with the consent of Lord Judge.

114 Written evidence from CIOT (DFC0071)

115 Q 41 (Victoria Todd)

116 Written evidence from Keith Gordon (DFC0052)

117 Extract from private written correspondence on the Report, used with the consent of Lord Judge.

118 Tribunals, Courts and Enforcement Act 2007, sections 15–21

119 Written evidence from LITRG (DFC0067)




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