Guidance

Code of Governance for Resolving Tax Disputes

Updated 14 September 2023

1. Scope and purpose of Code of Governance for Resolving Tax Disputes

HMRC’s Code of Governance sets out the internal governance arrangements for decisions on how tax disputes should be resolved. Our governance processes are in place to provide assurance that HMRC deals with all cases fairly and in an even-handed manner, in accordance with our Litigation and Settlement Strategy (LSS) and the HMRC Charter.

The key principles of dispute resolution are:

• separation – for tax settlements involving large amounts of tax at risk, a clear dividing line between those who were involved in discussing the possible terms of settlement and those who signed-off settlements

• even-handedness – improving confidence that tax settlements are in line with our published LSS, establishing the right tax liability fairly and consistently

• clarity and transparency – publishing information about our governance processes and providing aggregate information about settlement decisions, without breaching customer confidentiality

• appropriate levels of tax expertise and scrutiny in tax disputes

2. How we aim to resolve tax disputes

Most tax disputes are resolved collaboratively and by agreement once the facts have been established and the point at issue discussed. Where agreement is not possible, there are several options to help resolve disputes. Whatever method is used, we will try to resolve the dispute as quickly and cost-effectively as possible, but always in accordance with the law and the LSS.

3. Litigation and Settlement Strategy

HMRC’s LSS is the framework within which HMRC resolves tax disputes through civil law processes in accordance with the law, emphasising the benefits of working collaboratively with the customer to achieve this. It was first published in 2007 and has been periodically updated since then. The governance arrangements outlined in this document provide assurance that the principles of the LSS are applied consistently when resolving a tax dispute.

The LSS frames how HMRC applies its litigation effort to those risks where the overall revenue flows potentially involved would make it worthwhile. We do not generally concede disputes we are likely to win in litigation where the amounts involved in the case or more broadly would make litigation worthwhile. As stated in the LSS, we will only resolve a tax dispute in accordance with the law, whether by agreement with the customer or through litigation.

The LSS supports HMRC to obtain the best practicable return for the Exchequer and to bear down on avoidance and evasion. We will only settle with a customer on a particular basis if, in our judgement, it is an outcome that could reasonably be expected in litigation. The LSS applies irrespective of whether the dispute is resolved by agreement with the customer or through litigation.

HMRC does not ‘do deals’ with anyone and resolves disputes in line with current law. We resolve each dispute separately and do not enter into “package deals” across a number of separate disputes with the same customer, although we may settle different matters concurrently.

Find The Litigation and Settlement Strategy and supporting commentary on GOV.UK.

4. The role of the Tax Assurance Commissioner

The role of the Tax Assurance Commissioner (TAC) has been in place since 2012 and is designed to provide greater internal assurance and maintain public confidence in HMRC’s settlement of disputes. They provide transparency and assurance that HMRC handles disputes in a fair and even-handed manner, avoiding unnecessary disputes and conducting any disputes in a non-confrontational manner.

The Tax Assurance Commissioner:

• has no role in the management of the tax affairs of specific customers and no line management responsibility for caseworkers, maintaining clear separation of responsibilities

• reports to Parliament every year on all areas of their responsibility. This is published as part of HMRC’s Annual Report and Accounts

Three Commissioners, usually including the Tax Assurance Commissioner, decide whether to accept or reject resolution proposals in HMRC’s most significant tax disputes. They also oversee our wider dispute resolution processes, including reviewing a sample of smaller cases.

5. Our governance framework for resolving tax disputes

Our governance framework operates on the following principles:

• our tax professionals have the technical and collaborative working skills to make decisions in routine cases, supported by their line managers

• relevant HMRC business groups have processes for referring larger, more complex cases and sensitive cases to decision-making bodies, made up of senior tax and other professionals from across HMRC

• our approach to resolving a major disputed point arising in several cases is decided by cross HMRC panels, to ensure consistency

• governance processes should have no adverse impact on customer experience

Our review programme of settled cases checks that governance processes are being adhered to in practice.

The key findings are reported in the Tax Assurance Commissioner’s Report on how we resolve tax disputes.

6. How we govern the resolution of tax disputes

Most case resolution decisions are taken by caseworkers with the oversight and agreement of their managers and, where relevant, advice from specialists including legal specialists. If consensus cannot be reached, the case is referred up the line-management chain, first to deputy directors and then, if need be, to directors.

When the total tax at stake for all ongoing disputes with a customer exceeds £100 million, or for other disputes that meet the referral criteria, most individual disputes come within the remit of the Tax Disputes Resolution Board (TDRB). The TDRB is made up of directors and deputy directors from business areas across HMRC, including the legal profession, and makes recommendations to three Commissioners, usually including the Tax Assurance Commissioner, as to the appropriate basis for resolving one or more disputed points in a case.

For cases outside the remit of the TDRB, if the tax at stake in a dispute is greater than £5 million (non-Large Business customers) or £15 million (Large Business customers), it falls within the remit of the Customer Compliance Group Disputes Resolution Board (CCG DRB). The CCG DRB makes decisions on how HMRC should resolve disputed risks that meet the referral criteria. The CCG DRB can commission further work from case teams or, if it cannot reach a decision or otherwise considers it appropriate, refer a case to the TDRB and Commissioners. The CCG DRB is made up of deputy directors from business areas across HMRC, including the legal profession. A sample of cases within the remit of CCG DRB are referred to 3 Commissioners, usually including the Tax Assurance Commissioner, for a decision.

The referral criteria and exceptions are set out in the Dispute resolution governance board remits.

7. How we decide our position on disputed points affecting more than one taxpayer

Deciding our approach on a disputed point that arises in multiple cases, and applying it consistently, is an important part of ensuring administration of the tax system is fair and even-handed.

HMRC’s issues boards ensure cases are handled in a co-ordinated and consistent manner across HMRC. Individual cases are worked and decided in line with an agreed approach set by the issues board. Certain cases may also be subject to HMRC’s case resolution governance.

Contentious Issues Panel

The Contentious Issues Panel (CIP) decides HMRC’s strategy for handling major contentious issues. This ensures that cases with the same major contentious issue are handled in a co-ordinated and consistent manner across HMRC. Where the Contentious Issues Panel cannot reach a decision, it may commission further work by the issue owners, or refer the issue to the Commissioners.

A major contentious issue is one that involves a point of law or practice that might have a significant and far-reaching impact on HMRC policy, strategy or operations, affect multiple cases, or result in major litigation.

Anti-Avoidance Board

The Anti-Avoidance Board (AAB) is made up of representatives from all directorates involved in tackling tax avoidance. It provides governance for decisions on how HMRC will manage tax avoidance issues and ensures that HMRC responds effectively and consistently.

Both the Contentious Issues Panel and the Anti-Avoidance Board can escalate issues referred to the boards to the Tax Assurance Commissioner should it be considered necessary.

General Anti-Abuse Rule (GAAR) Advisory Panel

The purpose of the GAAR is to discourage taxpayers from entering into abusive arrangements, and to deter the promotion and enabling of such arrangements. The GAAR Advisory Panel is an independent body made up of experts with legal, accountancy and commercial backgrounds. It provides an early opinion on whether tax arrangements are unreasonable.

We are legally required to consider the opinions issued by the panel in reaching a final decision on whether to use the GAAR to address the tax advantage arising from the arrangements, or whether to apply penalties to enablers who facilitated the use of those arrangements. Courts must also take into account the panel’s opinion if the tax arrangements are considered by them. The panel’s opinions are published on GOV.UK to help taxpayers, and their advisors, recognise abusive tax avoidance schemes.

Published settlement terms

Where multiple taxpayers are affected by a similar disputed issue, such as a tax avoidance scheme, we may publish our position on the disputed issue and invite affected taxpayers to resolve their case on the published basis. This enables us to handle such issues efficiently, with transparency and consistency.

8. Governance of penalty decisions

We charge our customers inaccuracy penalties when we find that they have filed an inaccurate tax return, claim or document, and the inaccuracy occurred because of careless or deliberate behaviour on their part. We charge our customers failure to notify penalties when we find that they have not told HMRC about changes which affect their liability to tax, VAT or other duties.

We work hard to ensure consistency in our decisions to charge these penalties. We do this by maintaining effective controls to make sure decisions are considered and authorised at the appropriate level, taking into account both the size and complexity of the tax risk and the corresponding penalty.

We control penalty decision-making through line manager authorisation checks, and specific governance boards for the most complex cases. We use networks of senior tax professionals to support our caseworkers with advice and assurance.

9. Tax Settlement Assurance Programme

HMRC reviews a sample of settled civil compliance cases each year to test whether we have carried out dispute resolution governance correctly and met our own case quality standards, including testing adherence to internal processes and customer service requirements. We do this as part of our overall assurance programme to help drive continuous improvement in our management of tax disputes. This allows us to learn lessons where things go wrong.

Aggregate findings from the Tax Settlement Assurance Programme are published as part of the Tax Assurance Commissioner’s Report.

10. Alternative Dispute Resolution

In appropriate cases, Alternative Dispute Resolution (ADR) is a flexible dispute resolution tool, which can help HMRC and the customer resolve disputes (or reach key decision points) in a cost effective and efficient manner. Although available at any point of a compliance check or enquiry most ADR applications are made once we have made a decision and the customer has appealed to the tribunal.

Customers may apply for ADR online or via a telephone service. Where our mediators have concerns about whether ADR will be effective, the case is referred to the appropriate governance panel for consideration. Where we agree to enter into ADR, an impartial HMRC mediator will work with the HMRC caseworker and the customer to try to resolve the dispute.

Find further information on ADR, including how to apply, on GOV.UK.

11. Reviews and appeals

If a customer disputes an appealable tax decision, they can request a statutory review of the decision or appeal to the independent tax tribunal.

How we review decisions

The statutory review process provides an additional opportunity to resolve disputes without the need for tribunal proceedings. Review officers are not involved in making the original decisions and so provide an objective and impartial review service. Review officers check whether the decision is in line with legislation and technical guidance, policy and practice. The review is also an opportunity for the reviewer to provide feedback internally to HMRC caseworkers and, thereby, improve decision making.

We carry out the review ensuring:

• a transparent review of decisions
• quality and consistency in our review conclusions
• even-handed dealing with taxpayers at review
• as many disputes as possible are resolved without tribunal proceedings

Appeals

Where a dispute cannot be settled by agreement, the taxpayer can appeal to the independent Tax Tribunal. All appeals are heard by the First Tier Tribunal (FTT). If either the taxpayer or HMRC are dissatisfied with the decision of the First Tier Tribunal then they can appeal to the Upper Tribunal (UT). Decisions made by the Upper Tribunal are appealable through the court system. The Tribunals and Courts are independent of HMRC and listen to both sides of the dispute before making a decision.