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IR35 Enquiry- What you need to know about the Independent Review!

IR35 Enquiry- What you need to know about the Independent Review!
The recent move from the Special Commissioners to the Tax Tribunal brought about a number of changes to the processes leading up to, and including, a hearing.
One such change is the right to request, or accept an offer of, an independent review (once Determinations and Decisions have been raised) before the case is to be listed for a hearing.
When carrying out a review HMRC should consider the following:
– whether the facts have been established and any disagreement about them
– the technical and legal merits of the case
– materiality and proportionality
– the likelihood of success
– any wider implications
The reviewing officer can either cancel, vary or uphold the Determinations and Decisions. The taxpayer then has the right to appeal against HMRC’s decision (the time limits for either accepting a review or appealing against one are very strict and must be adhered to, if the deadlines are missed HMRC’s decision will be   final).
Since April, Accountax have had a number of cases independently reviewed and in a significant proportion of these cases, HMRC have agreed to withdraw from the case.
Although the reviewing officer will take into account all the correspondence on file, we have found it beneficial to write a detailed summary to the reviewing officer of the case setting out the relevant facts and supporting arguments. When drafting the letter it is particularly   important to bear in mind the above points as they will have a direct impact on the outcome of the review.
Facts of the case
HMRC will carry out the review based on the facts they have available and unless there have been fundamental errors in the fact finding, it is unlikely they will cancel the Determinations and Decisions.
It is still important however to highlight any omissions in the facts. The reviewing officer will usually acknowledge where they have insufficient evidence to comment on an area. Although it may not be enough for them to cancel the Determinations and Decisions, the Regional Appeals Unit will not want to take a case to the Tribunal if they do not have the necessary facts to support their position.
Technical and legal merits of the case
HMRC are unlikely to change their views and interpretation of case law and will usually adopt the same approach as they would argue should the case continue to a hearing. This may be useful as it provides an insight into the likely arguments HMRC will advance and therefore affords the taxpayer time to consider these specific points in greater detail.
Materiality and proportionality
The preparation involved in a hearing should not be underestimated and HMRC should not waste resources on arguing cases where the liabilities are outweighed by the time and expense of a hearing.
In most cases the liabilities at stake justify the continuation of a hearing. However this should not be assumed nor forgotten about. If the reviewing officer amends the Determinations or Decisions or reduces some to nil it may become a waste of resources to continue arguing the case.
After amending the Determinations and Decisions in one of our cases and cancelling some of the penalties HMRC were trying to impose, the liability to our client was reduced to £2,500. This led to the eventual closure of the case.
The likelihood of success
If the case has continued to the review stage, one would hope that HMRC are reasonably satisfied of their chances of success. This is however not always the case.
The reviewing officer in one of our cases (which was dropped at the review stage) commented that many case workers and status officers:
“become so embroiled in arguing the case, they can’t see the wood through the trees and lose sight of the realistic chances of success.”
The reviewing officer will have a fresh look at the case and should, in theory, assess the genuine strengths and weakness of the case rather than having his own personal vendetta.
The wider implications
If the case is part of a specific HMRC project or is unusual in some way, there may be wider implications to consider.
If HMRC were to lose at the Tribunal, it could damage their chances of successfully arguing other cases in that sector. If on the other hand, HMRC see the case as a test case in that sector, they will be reluctant to drop the case without a fight.
Accept/request review or list case?
In our opinion the advantages of an independent review outweigh the disadvantages.
The main problem with accepting a review is that it   allows HMRC more time to look at the file and formulate their arguments (as opposed to putting them under    immediate pressure if the case were listed for hearing).
Although we were (and still are) somewhat sceptical as to how “independent” the review procedure would be; we have already seen a number of cases dropped and the liabilities in others significantly reduced. The contents of the officer’s report has also enabled us to persuade HMRC to withdraw in other cases.
Whether an independent review is opted for will ultimately be a decision for the taxpayer although, from our experience so far, it is certainly worthwhile.
It should also be remembered that if you do submit a detailed summary of the case to the reviewing officer, your letter will form part of the documents bundle. This could be a useful document to have on file when the Tribunal reads through the bundle.

The recent move from the Special Commissioners to the Tax Tribunal brought about a number of changes to the processes leading up to, and including, a hearing.

One such change is the right to request, or accept an offer of, an independent review (once Determinations and Decisions have been raised) before the case is to be listed for a hearing.

The Review

When carrying out a review HMRC should consider the following:

– whether the facts have been established and any disagreement about them

– the technical and legal merits of the case

– materiality and proportionality

– the likelihood of success

– any wider implications

The reviewing officer can either cancel, vary or uphold the Determinations and Decisions. The taxpayer then has the right to appeal against HMRC’s decision (the time limits for either accepting a review or appealing against one are very strict and must be adhered to, if the deadlines are missed HMRC’s decision will be   final).

Since April, Accountax have had a number of cases independently reviewed and in a significant proportion of these cases, HMRC have agreed to withdraw from the case.

Although the reviewing officer will take into account all the correspondence on file, we have found it beneficial to write a detailed summary to the reviewing officer of the case setting out the relevant facts and supporting arguments. When drafting the letter it is particularly   important to bear in mind the above points as they will have a direct impact on the outcome of the review.

Facts of the case

HMRC will carry out the review based on the facts they have available and unless there have been fundamental errors in the fact finding, it is unlikely they will cancel the Determinations and Decisions.

It is still important however to highlight any omissions in the facts. The reviewing officer will usually acknowledge where they have insufficient evidence to comment on an area. Although it may not be enough for them to cancel the Determinations and Decisions, the Regional Appeals Unit will not want to take a case to the Tribunal if they do not have the necessary facts to support their position.

Technical and legal merits of the case

HMRC are unlikely to change their views and interpretation of case law and will usually adopt the same approach as they would argue should the case continue to a hearing. This may be useful as it provides an insight into the likely arguments HMRC will advance and therefore affords the taxpayer time to consider these specific points in greater detail.

Materiality and proportionality

The preparation involved in a hearing should not be underestimated and HMRC should not waste resources on arguing cases where the liabilities are outweighed by the time and expense of a hearing.

In most cases the liabilities at stake justify the continuation of a hearing. However this should not be assumed nor forgotten about. If the reviewing officer amends the Determinations or Decisions or reduces some to nil it may become a waste of resources to continue arguing the case.

After amending the Determinations and Decisions in one of our cases and cancelling some of the penalties HMRC were trying to impose, the liability to our client was reduced to £2,500. This led to the eventual closure of the case.

The likelihood of success

If the case has continued to the review stage, one would hope that HMRC are reasonably satisfied of their chances of success. This is however not always the case.

The reviewing officer in one of our cases (which was dropped at the review stage) commented that many case workers and status officers:

“become so embroiled in arguing the case, they can’t see the wood through the trees and lose sight of the realistic chances of success.”

The reviewing officer will have a fresh look at the case and should, in theory, assess the genuine strengths and weakness of the case rather than having his own personal vendetta.

The wider implications

If the case is part of a specific HMRC project or is unusual in some way, there may be wider implications to consider.

If HMRC were to lose at the Tribunal, it could damage their chances of successfully arguing other cases in that sector. If on the other hand, HMRC see the case as a test case in that sector, they will be reluctant to drop the case without a fight.

Accept/request review or list case?

In our opinion the advantages of an independent review outweigh the disadvantages.

The main problem with accepting a review is that it   allows HMRC more time to look at the file and formulate their arguments (as opposed to putting them under    immediate pressure if the case were listed for hearing).

Although we were (and still are) somewhat sceptical as to how “independent” the review procedure would be; we have already seen a number of cases dropped and the liabilities in others significantly reduced. The contents of the officer’s report has also enabled us to persuade HMRC to withdraw in other cases.

Whether an independent review is opted for will ultimately be a decision for the taxpayer although, from our experience so far, it is certainly worthwhile.

It should also be remembered that if you do submit a detailed summary of the case to the reviewing officer, your letter will form part of the documents bundle. This could be a useful document to have on file when the Tribunal reads through the bundle.

David Harmer is the Operations Director of Accountax Consulting
© 2009 All rights reserved. Reproduction in whole or in part without permission is prohibited

Image: paperwork 2 by Isaac Bowen

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