The First-tier Tribunal (FTT) is the first stage of the court process for appealing, for instance, a corporation tax assessment. The previous post in our series on tax disputes in the UK considered the first steps in challenging an HMRC assessment. Here, we will give you an indicative timeline of the process up to the hearing before the FTT and some practical tips on the process to get there. Our next post will then consider appeals beyond the FTT - three further appeals may be possible on points of law, with the Supreme Court as the final instance.

How long might it be before the FTT hears your case?

Given the number of cases currently working through the FTT, and the availability of counsel (barristers) particularly in larger cases, it can take two to three years from filing notice of appeal with the FTT before reaching a hearing. 

For further details, please refer to this indicative timeline of events from assessment to the hearing or this online version.

What are some of the practical points to watch out for?

Notice of Appeal 

This is mostly quite straightforward (containing details of the taxpayer, its advisers, and the HMRC decision being challenged), but the notice also includes the grounds of appeal. These are typically quite short, and it is critical to get them right to avoid prematurely limiting what you can later argue during the hearing before the FTT (or having to apply to amend the grounds at a later point). Counsel is typically consulted at this stage as well, to ensure the grounds are appropriately drafted.

Procedure before the FTT 

Appeals in the FTT are generally more informal in terms of procedure than hearings in the High Court, as the FTT rules are very brief, and the FTT has broad discretion to regulate its procedure as it sees fit. This does not mean, however, that preparation for a hearing in the FTT is significantly less intensive – and there are several procedural hurdles to overcome in the run-up. The FTT stage of any tax litigation is often critical, as it is at this stage that any findings of fact are made – this includes matters such as the taxpayer’s purpose, or whether an expense was “wholly and exclusively” for the purposes of trade, as well as matters of foreign law, accounting, or what counts as “arm’s length” terms for a given transaction. Once made, findings of fact are exceedingly difficult to overturn (based on the test in Edwards v Bairstow), and so it is vital to make sure that the right evidence is presented to the FTT and a strong case is made at this stage.

HMRC’s Statement of Case 

Receiving this marks an important stage, as it is typically the first point at which HMRC will engage counsel. As a result, you can expect to receive some (although not much) additional detail on HMRC’s arguments. HMRC also, at this stage, refine the arguments they are putting forward, which can result in them not taking forward particular positions that had been adopted in the enquiry phase. 

Statement of Agreed Facts and Issues (for determination by the FTT)

It is typically the taxpayer who will produce a first draft and will then work with HMRC to agree the contents of this document. This can be a time-consuming process, often taking six months (or more in significant cases), as HMRC typically expect facts to be proved to their satisfaction before they will treat them as agreed. This is the case even where facts have been clearly established as part of the enquiry process. It is also possible (although unusual) that the taxpayer and HMRC may not be able to agree on the contents of the Statement of Agreed Facts. 

Witness Statements

While contemporaneous documentary is typically preferred over witness evidence (especially when the events in question took place a number of years ago), witnesses can be useful to explain or contextualise the relevant documents or transactions. The choice of witnesses is important, particularly in purpose test cases, and a failure to provide evidence from certain witnesses could undermine a taxpayer’s case. In Lloyds Asset Leasing, for example, the FTT was critical of the taxpayer’s failure to provide witness evidence from any members of the taxpayer’s tax team, despite the fact that many of them were present to watch the FTT hearing.

When will you get a judgment?

Once the hearing is complete, the timeframe for receiving a judgment can vary widely. It can be as soon as a month after the hearing, but can also take six months or more (and this latter timeframe is likely to apply in complex cases) 

What happens once you receive the judgment?

If you have been successful, and have not opted out of the costs regime, you would make an application for a costs order. If the disputed tax has been paid (rather than postponed), HMRC will typically refund the tax at this point with interest (regardless of whether they plan to appeal). 

If you have been unsuccessful:

• You have the option of seeking permission to appeal (PTA) to the Upper Tribunal. PTA is, in the first instance, sought from the FTT, and is almost always granted. An application for PTA must be filed with the FTT within 56 days of the judgment. 
• You would also typically have to pay any disputed tax (with interest) to HMRC (even if you intend to appeal further) and respond to any costs application from HMRC.

Further details on appeals beyond the FTT will be considered in the next post in our series on tax disputes in the UK.

In the meantime, please get in touch with any of us or another member of Slaughter and May’s market-leading tax disputes team if you have any questions on the topics discussed in this blog or another tax disputes query. 

We have extensive experience in advising at every stage of a wide range of from questions of UK corporation tax, partnership taxation and VAT grouping to treaty interpretation and transfer pricing. Whether you are looking for strategic advice in respect of an ongoing issue or proactive risk management through the creation of defence files or an audit of existing processes, we can help.