The Covid-19 pandemic has created much uncertainty for taxpayers; for those in disputes with the U.K. tax authority, the pandemic has compounded many of the difficulties associated with bringing appeals to the First-tier Tribunal (Tax Chamber) (the Tribunal). Prior to the pandemic, the backlog of cases waiting to be heard at the Tribunal was considerable.
It is of concern to many that, in the short to medium term, this already extensive backlog will be worsened as a result of the pandemic, increasing delays and creating further uncertainty for taxpayers. On the other hand, as tribunals are forced to enhance their use of technology in response to the pandemic, we may see much greater efficiencies in the handling of tax disputes in the longer term.
Where U.K. taxpayers are subject to an inquiry or investigation by the U.K. tax authority, HM Revenue & Customs (HMRC), the outcome of the inquiry may be that HMRC issues an assessment of tax. If a taxpayer wants to challenge such an assessment, it can bring an appeal to the independent Tribunal, which is the statutory body that deals with challenges against HMRC’s decisions.
Over the last few years, the length of time between a taxpayer notifying its appeal to the Tribunal and the hearing of the appeal has appeared to increase, such that a taxpayer may often wait over two years from when it files its appeal against an assessment before the date of a hearing date. This has undoubtedly led some taxpayers to seek to negotiate and settle with HMRC, without resorting to litigation, where appropriate. The existing delays between notifying an appeal to the Tribunal and the listing of the appeal have also been compounded by the impact of the Covid-19 pandemic.
Response of the Tribunal
The Tribunal has had to react to the additional pressures imposed on it by the pandemic and implement new ways of working to address the unprecedented challenges that it faces. For example, in relation to active litigation where the parties to the dispute have been complying with procedural deadlines:
- the Tribunal imposed a general stay until June 30, 2020 for all proceedings which were received by the Tribunal before March 24, 2020 and assigned to the standard or complex category prior to April 21, 2020;
- the direction issued by the Tribunal also implemented an extension of 70 days for all time limits in those proceedings; and
- all face-to-face hearings listed in the Tribunal up to August 31, 2020 were canceled.
In June 2020, Bryan Cave Leighton Paisner LLP obtained further information from the Ministry of Justice (MoJ) under the Freedom of Information Act 2000 regarding the Tribunal’s response to the pandemic. The MoJ confirmed the following information which provides a further interesting insight into the extent of the disruption caused by the pandemic:
- 443 cases listed for a hearing in the Tribunal up to August 31, 2020 have been canceled as a result of the Covid-19 pandemic announcement;
- of the 443 cases which have been canceled due to the pandemic, as at June 16, 2020:
- 62 cases have been relisted;
- 223 are in the process of reviewing re-listing arrangements;
- 51 cases have had judicial directions for face-to-face hearings with dates to avoid having been requested from parties; and
- the other cases have fallen out of listing processes due to other matters leading to the withdrawal of the case and/or applications from parties for stays etc.
- 119 cases were heard remotely in the period from and including March 23, 2020 to and including June 16, 2020. The type of remote hearing varied: there were 14 video hearings, 35 telephone hearings and 70 paper determinations;
- as at June 16, 2020, 103 cases are listed to be heard remotely in the period from June 16, 2020 to December 31, 2020. This is comprised of 34 video hearings, 30 telephone hearings, and 39 paper determinations.
These figures reveal the extent of the backlog the Tribunal is dealing with as a result of the pandemic and the adaptations the Tribunal has had to make. While only 62 of the 443 hearings canceled have been relisted, around 59% of the remaining cases are in the process of being re-listed and around 13% have had judicial directions for face-to-face hearings. In the short term at least, it is likely that face-to-face hearings will be reserved for only the most complex cases.
What is perhaps more interesting is the fact that, of the 119 cases that have been heard remotely from the start of the lockdown until mid-June 2020, the vast majority were dealt with on the papers, and not with any oral argument, with only 14 video hearings taking place. This is unsurprising given that, since the lockdown commenced, the Tribunal has sought to decide more cases on the papers; it is also perhaps indicative of the extra effort required to make video hearings viable at the Tribunal.
However, some positives may emerge from this; to the extent that cases are appropriate to be determined on the papers, the Tribunal should continue to embrace this practice once the pandemic is over in order to reduce the number of cases required to be heard in person. This would assist in reducing delays before more complex cases were heard, thereby assisting taxpayers to have certainty without unnecessary and prolonged delay.
Since the beginning of May 2020, HM Courts and Tribunal Service (HMCTS) has published the Tribunal’s weekly hearing list. This shows that the number of cases listed to be heard by the Tribunal in the week commencing June 29, 2020 was 15 and the number of cases listed to be heard in the week commencing July 6, 2020 is also 15. Based on the statistics published by HMCTS since the beginning of May 2020, the average number of cases listed per week since the week commencing May 4, 2020 is around nine. The latest figures published for the weeks commencing June 29, 2020 and July 6, 2020 are, therefore, quite significantly above the average since the beginning of May 2020. This is an encouraging development.
We hope that as the Tribunal continues to improve its use of technology, it will significantly increase the number of cases it hears on a weekly basis. It is further hoped that the backlog of cases will reduce as the Tribunal utilizes the efficiency gains to be had by the use of technology, and that the Tribunal uses this unique opportunity to re-think its approach and permanently improve the way it deals with cases.
For now, taxpayers with long-running inquiries should expect further delays (this applies also to taxpayers who have not agreed to the temporary hold offered by HMRC in relation to ongoing inquiries). Where appropriate, taxpayers may want to consider whether it is appropriate to negotiate and settle with HMRC, without resorting to litigation.
For taxpayers who have embarked on litigation proceedings, given that new appeals are realistically unlikely to be listed until 2021–2022, taxpayers should take advantage of the extra time to prepare their case carefully and thoroughly and to ensure that their evidence is watertight to maximize their chances of success at the Tribunal. At the same time, listing applications should be filed at the earliest opportunity given the inevitable delays before a hearing date will be set.
Kate Ison is a Partner and Jessica Hocking is an Associate with Bryan Cave Leighton Paisner LLP.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.