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Updated HMRC guidance on tax dispute resolution

Updated HMRC guidance on tax dispute resolution

HMRC’s guidance on resolving tax disputes and the Litigation Settlement Strategy have been amended.


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HMRC have updated their code of governance for resolving tax disputes, and the commentary on their Litigation and Settlement Strategy (LSS). The changes to the tax dispute resolution guidance are fairly minor, mainly updates on changes in the HMRC governance boards and some procedures. The LSS commentary updates include several new comments in relation to paragraph 17 of the LSS which sets out how HMRC will seek to resolve disputes where there is a range of potential outcomes. The changes to the documents highlight the importance of understanding HMRC’s governance and LSS when managing and resolving tax enquiries with HMRC.

The new comments in the updated LSS commentary include:

Finely balanced outcomes
A finely balanced outcome is one where alternative outcomes are relatively equally likely. The guidance now covers how HMRC should decide which outcome to pursue, including considerations on how this may impact taxpayer behaviour, set a precedent, or result in a more efficient settlement of tax issues.

Range of non-connected specific outcomes
Where disputes may have discrete outcomes within a range (such as a CT dispute where alternative outcomes of £100,000, £200,000 or
£250,000 may be due on a single issue depending on the view of the facts taken) HMRC may decide to settle for any of these amounts, but not for an amount which is not one of the alternative likely outcomes.

Alternative arguments (lines of attack)
Where HMRC have more than one argument and those arguments produce different results, the LSS states that they should decide on the ‘likely outcome’ that a tribunal would find.

Legitimate expectation
The commentary now covers cases where the taxpayer believes HMRC must give effect to a legitimate expectation argument during a tax dispute, for example by providing treatment in accordance with published guidance. This may involve the resolution of two separate disputes, one on the underlying technical issue and another on whether a taxpayer had a legitimate expectation of being given a particular treatment.

Double Taxation Agreements and Mutual Arbitration Procedure
Disputes involving cross-border transactions may involve an element of double taxation, and remedies to this may be given following compensation adjustments negotiated between HMRC and the other tax authorities under the relevant tax treaties, without the input of the taxpayer. HMRC’s guidance makes it clear that this is separate to the resolution of the tax dispute itself, and any compensating adjustment may impact the final outcome of any previously resolved dispute.

Earlier periods
Exceptionally, taxpayer behaviour may impact HMRC’s decision to pursue risks in earlier periods, with taxpayers who cooperate with HMRC and undertake to change their behaviour less likely to be pursued in respect of these issues. This is likely to occur in multi dispute cases, where the taxpayer genuinely agrees to adapt their practices to conform to HMRC’s understanding of the law and is seen to put those changes in place. The rationale here is that pursuing earlier periods may not be the most cost-effective method of securing current and future adherence to HMRC’s view of the law and consequent tax flow.

The updated guidance on resolving tax disputes can also be found here.

For further information please contact:

Chris Davidson

Kevin Elliott

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