On 1 April 2009 HM Revenue & Customs (HMRC) introduced a new optional internal review process. Although the new system is still in its infancy, this seems a good time to take stock and to update people on progress. HMRC worked closely with external stakeholders in the development of internal review and this publication reflects our continuing commitment to openness.
Internal reviews offer customers the opportunity to have disputed tax decisions considered by a person who is independent of the original decision maker, with a view to resolving the case without the need to go to a tribunal.
HMRC monitors the outcome of reviews: feedback is given to decision makers where that is appropriate, and we look for evidence of trends and wider learning points. The scope for trend analysis is limited at present as we are still in the early stages of the new process. There has been a steady build up of review requests over this period and it will take a little time before we have sufficient information about all areas of the business to support more detailed analysis.
Between 1 April and 31 December 2009, 20,778 customers asked for a review by HMRC. The majority were unrepresented taxpayers, often disputing a penalty for filing their tax return late.
In just over half of penalty cases to date HMRC either withdrew the penalty or reduced it because taxpayers provided evidence that they had a reasonable excuse for late filing.
If a customer files their tax return late or doesn't pay tax on time a penalty will be applicable, but the law allows HMRC to review the penalty and withdraw it if the customer demonstrates that they had a reasonable excuse for their lateness.
You can find more information about penalties and reasonable excuse by clicking on the links below.
Non-penalty decisions such as assessments or liability rulings account for around 20 per cent of reviews completed to date. HMRC decisions were cancelled or varied in a quarter of these cases. The lower rate of overturn/change in these cases when compared with late filing penalties reflects the fact that decisions such as assessments are the result of enquiries and research in advance of the decision, are normally double-checked before issue, and in a good number of cases will have been made as a result of legal, technical or policy advice.
You can see some examples of real review cases below, in addition to a more detailed breakdown of the figures.
In future years HMRC will show the outcome of appeals against review decisions but at this time only a small number of tribunal decisions relate to review cases.
New review requests received - total 20,778
Total number of reviews completed within this period - 18,526
Unrepresented by an agent - 14,921 (81 per cent)
Agreed time limit extensions - 647
Upheld: review complete - 2,603 (76 per cent)
Deemed Upheld: time limit expired - 20 (1 per cent)
Varied - 349 (10 per cent)
HMRC decision cancelled - 471 (14 per cent)
Upheld: review complete - 6,281 (42 per cent)
Deemed upheld: time limit expired - 48 (0 per cent)
Varied - 793 (5 per cent)
HMRC notice cancelled - 7,961 (53 per cent)
A return that was due in April was received in September. The agent told HMRC that the return was posted on time but received late. The original decision-maker rejected the appeal due to lack of proof of postage, and the agent asked for a review.
The reviewer noted that records showed a history of late filing - four previous returns were late and a number of earlier penalties had been withdrawn because HMRC accepted the taxpayer's claim that the return was posted on time but received late by HMRC.
The agent provided further information that, although they had not retained proof of postage, payment for the period was posted on the same day as the return and received by HMRC on time.
As returns and payments are sent to different processing centres and each would be sent in a separate envelope, there was nothing to confirm that both were posted at the same time. Monthly penalty notices had been issued while the return was outstanding and it was eventually received by HMRC almost five months late.
The reviewer concluded that there was no information in the review request or existing case files that would justify reversing the decision-maker's original conclusion. The penalty was upheld.
A company claimed Industrial Building Allowances on a leased building used for the storage of goods whose ultimate destination was high street retail outlets. Three years of correspondence had resulted in an impasse with the appellant claiming the trade was a qualifying trade of storage with the stored goods subjected to a uniform process. HMRC argued that no allowances were due as the building was in use for a purpose which was ancillary to the purposes of a retail shop, and that following the case of Bestway (Holdings) Ltd v. Luff the activity carried out in the building was not significant enough to amount to a 'process'.
The review officer carried out a comprehensive analysis of the facts, considered HMRC's current policies and all relevant tax cases and concluded in a detailed final letter that HMRC's decision should be upheld.
The agent subsequently told the caseworker that the review conclusion letter had fully explained the reasoning for the first time. This meant that they now properly understood HMRC's position and as a result they accepted the decision and would not be taking the matter forward to the tribunal.
A VAT Return and accompanying payment were due on 30 September and received in late October and November respectively, triggering a default surcharge.
The customer asked HMRC to review the surcharge.
The business was a family concern - a husband and wife directorship with their elder child as the only employee. In their letter the couple informed HMRC of the death in early September of their younger child and requested some leeway with the submission of the return.
The couple had already been in contact with debt management teams who had arranged a time to pay agreement. In light of the unexpected nature of the event and the tragic circumstances involved the surcharge was withdrawn on the grounds of reasonable excuse.
An assessment was issued for misuse of rebated oil. The taxpayer stated that the assessed vehicles were carrying out work included in the excepted vehicle definition in the Hydrocarbon Oils Duties Act 1979. The taxpayer produced a list of the types of work carried out by his vehicles and HMRC allowed a 50 per cent reduction on the assessed amount on one of the vehicles as he conceded that a specific type of work qualified for the exception.
The taxpayer asked for a review and provided a list of the range of activities that the vehicles had performed since 2006. The reviewer noted that the majority of these duties were not included within the description of exceptions.
The review concluded that the vehicles did not qualify as excepted vehicles as they were not used solely for agricultural work. The review officer also considered that the original decision made had been more than reasonable in allowing a reduction of 50 per cent for one of the vehicles for agricultural work.
The decision would have been upheld on this basis. However the reviewer found that the assessment was flawed because the period it covered was outside the three-year assessment time limit. The assessment was cancelled without prejudice.
Subsequently a new assessment was issued by HMRC for later periods. The new assessment covered periods which were within the time limits. The taxpayer requested a review of that assessment and the decision was upheld at review.
A full enquiry case involving a company and its director reached an impasse and HMRC issued their latest view of the matter by letter and offered a review.
The review concluded that the decisions reached by HMRC were correct in principle, but identified a minor error in tax rates charged and a computational error which reduced the total amount of tax charged.
The agents responded that the client accepted the case had been fairly reviewed by HMRC and did not intend to pursue the appeals further.