Costs in a tax appeal: the short answer
Cases allocated to the complex category are subject to costs shifting, under which the losing party can be ordered to pay the winner’s costs, unless the taxpayer opts out. Rule 10 of the tribunal rules governs costs orders. The amount of your own costs depends on the complexity of the issues and appeal, the evidence and how far the case goes, together with the seniority and experience of your advisers.
Your own spend
The cost lies in the work: advising on the appeal, grounds of appeal, document review and disclosure, witness statements, whether expert evidence is required, preparation of ebundles, skeleton arguments and the hearing. Budget each stage and add a contingency; litigation rarely follows the plan.
Complex cases and the opt out
The tribunal may allocate a case as complex if it needs voluminous or complex evidence or a lengthy hearing (generally more than five days), involves a complex or important principle, or involves a large sum: generally £750,000 or more of direct tax, or £2,000,000 or more of indirect tax. Opting out removes the risk of paying HMRC’s costs and the chance of recovering yours. Take advice as soon as allocation is proposed. Opt out within the time limit specified in the Tribunal’s directions / correspondence.
Further appeals and judicial review
If the Tribunal decision is against the taxpayer, it is possible to apply for permission to appeal (subject to meeting specific criteria). Each further stage, to the Upper Tribunal, the Court of Appeal and the Supreme Court, needs permission and adds cost (with the risk of liability to pay the other side’s costs if the appeal is unsuccessful).
Keeping costs proportionate
- Alternative dispute resolution (ADR). An appeal might be appropriate for ADR. If so, even without settlement, an ADR can narrow the issues in dispute and possibly save the time and expense of a substantive hearing.
- A discrete point of law. A partial closure notice can bring one issue to a decision without waiting for the rest.
- Lead cases. Under rule 18, where cases share common issues, one appeal can proceed as a lead case and bind the others on those issues (saving time and expense across all the appeals).
- HMRC’s settlement approach. Under its Litigation and Settlement Strategy, HMRC will not settle for less than it would reasonably expect to obtain from litigation, and where it thinks it is unlikely to succeed it will, in most cases, concede.
The disputed tax itself
For income tax, capital gains tax and corporation tax, payment is postponed if you appeal and show reasonable grounds (section 55, Taxes Management Act 1970). SDLT follows a similar rule. For VAT, the tax must be paid before the appeal unless hardship is shown (sections 83(4B) and 84(3), VAT Act 1994). Accelerated payment notices under the Finance Act 2014 operate separately.
Frequently asked questions
Will I have to pay HMRC’s costs if I lose?
The main risk arises where the case is allocated to the complex category, where costs shifting applies unless the taxpayer opts out. Rule 10 of the tribunal rules sets out the tribunal’s power to order costs, so the position for your particular appeal should be checked at the outset and again when the case is allocated.
Should I opt out of costs shifting in a complex case?
That depends on your view of the merits and on how each side’s likely costs compare. Opting out removes the risk of paying HMRC’s costs, but it also gives up any chance of recovering your own. Take advice as soon as complex allocation is in prospect.
Do I have to pay the disputed tax before appealing?
It depends on the tax. For income tax, capital gains tax and corporation tax, payment is postponed if you appeal and demonstrate a reasonable basis for appealing. SDLT follows a similar rule. For VAT, the tax must be paid first unless you show hardship.
How much will my appeal cost?
That depends on the issues, the volume of documents, the number of witnesses and how far the case goes. Hickey & Co Solicitors will give you a written estimate for stage by stage before work starts.