Legal costs recovery in the Tax Tribunal
In this post we turn from the excitement surrounding novel coronavirus to a dry but practical consideration involving the Tax Tribunal, an independent review board that listens to both sides of an argument before making a decision. You can appeal to the First-tier Tribunal (Tax) if you want to challenge decisions by:
- HM Revenue and Customs (HMRC)
- Border Force
- the National Crime Agency (NCA)
- the Welsh Revenue Authority (WRA)
However, it should be borne in mind there is no point in incurring considerable legal fees before the Tax Tribunal and winning your case, only to discover your ‘winnings’ are seriously impacted by non-recoverable legal costs.
The First-tier Tribunal (FTT) does not have a general power to make the losing party pay the other side’s costs. There are two sets of very specific circumstances under which a costs order might be considered. These are in respect of a “complex case” and unreasonable behaviour. The rules relating to costs can be found in Rule 10 of the Tribunal Procedure (First-Tier Tribunal) (Tax Chamber) Rules.
If you are involved in a dispute in the UK tax tribunals with HM Revenue & Customs (HMRC), you will probably incur costs such as legal fees and disbursements/expenses. The rules as to when you can recover your costs and when you may have to pay the costs of HMRC differ in the tax tribunals (the First-tier Tribunal and the Upper Tribunal) from the rules which apply generally to other types of court or arbitration proceedings. This guide was updated in February 2020
In the First-tier Tribunal, each party will generally bear their own costs so that you will not be liable to pay the costs of HMRC if you are unsuccessful and HMRC will not be liable to pay your costs if you succeed.
Tax disputes are allocated to a ‘track’ in the First-tier Tribunal. More complicated cases, which will require lengthy or complex evidence or a lengthy hearing, involve a complex or important principle or issue, or involve a large financial sum, may be allocated to the Complex track.
If your case is allocated to the Complex track, either you or HMRC may seek an award of costs, which will typically follow the general rules set out below, unless you opt for the proceedings to be excluded from potential liability for HMRC’s costs. The opt out must be made within 28 days of receiving notice that the case has been allocated to the Complex category.
If you opt out of costs recovery, you cannot recover costs from HMRC if you are successful.
Even if your case is not allocated to the Complex track, the First-tier Tribunal has discretion to make a ‘wasted costs’ order against a party, or their representatives, if they have acted unreasonably in bringing, defending or conducting the proceedings.
Upper Tribunal – Recovery of costs if you win
In the Upper Tribunal, a party that loses an application, whose appeal is dismissed or discontinued, or where HMRC’s appeal is allowed, will normally be ordered to pay costs.
However, as mentioned above, there is no recovery of costs for earlier First-tier Tribunal proceedings if the case was not allocated to the Complex track or if it was a Complex case and you opted out of costs.
The Upper Tribunal has full discretion as to what costs order to make in respect of both entitlement and amount. Factors which may be taken into account in determining a party’s entitlement to and/or the amount of costs to be awarded include:
- whether the proceedings have been conducted at proportionate cost;
- all the circumstances of the case including matters such as:
- the conduct of the parties prior to and during the course of the proceedings, including whether it was reasonable for a party to raise, pursue or contest a particular issue, the manner in which a party has pursued or defended a claim, and whether or not a party exaggerated its claim;
- whether a party has succeeded on part or all of its case;
- a party’s refusal to mediate or to attempt to settle the case; and
- whether the amount of costs claimed is proportionate and considered by the tribunal to have been reasonably incurred and reasonable in amount, having regard to all the circumstances of the matter, including the issues involved, and the value of the claim, the complexity of the case, the time spent and other factors relevant to the work undertaken.
Whilst a successful party will normally be entitled to an award of costs, in the light of the tribunal’s full discretion to award and assess costs, and the matters which will be taken into account, there is no guarantee that you can expect an award of any specified or minimum proportion of your costs relating to a particular application or issue, or the proceedings as a whole. In most instances there will be an element of irrecoverable costs from an opponent.
The Upper Tribunal has power to order that a losing party pays interest on costs payable to a successful party, and possibly a payment on account of costs subject to the final amount of costs payable being assessed.
Upper Tribunal – Payment of costs where you are unsuccessful (in whole or part)
If you are unsuccessful on the hearing of any application, your appeal is dismissed, HMRC’s appeal is allowed, you have part or all of your case struck out, or if you discontinue part or all of your case, then you are likely to be ordered to pay a proportion of HMRC’s costs. Such costs will be assessed by the tribunal (or court) in the absence of agreement, and may include (but not exclusively) solicitors’ fees and disbursements (including counsel and expert fees), expenses and VAT.
Any liability for costs to HMRC will be in addition to your own legal costs and any tax liability arising from the decision.
Time of assessment
The costs awarded will usually be assessed either at the conclusion of a particular application or at the conclusion of the proceedings.
Any tribunal order for the payment of assessed costs between parties will generally be payable within 14 days from the making of the order, or the issue of an appropriate costs certificate, provided in either case that the amount payable has been assessed and is specified.
Griffin Law has taken all reasonable precautions to ensure that information contained in our White Papers is accurate. We stress that the content is not intended to be legally comprehensive and that no action be taken on matters covered in this document without taking full, legal advice. While the facts and basis of claims are always unique and varied, this note attempts to give a starting point and overview of how to assess costs when challenging a tax charge.
Griffin Law is a niche firm of innovative, proactive, tenacious and commercially-minded lawyers who guarantee to share the risk of litigation with every client. This includes (but is not limited to) discussing litigation funding options that may be available to clients.
If you have any specific questions regarding tax appeals and the Tax Tribunal regime, please contact our head of litigation, Neil Kelley at firstname.lastname@example.org or call 01732 52 59 23.