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Managing tax compliance during the COVID-19 crisis

23 March 2020: to help businesses weather the impact of coronavirus, ICAEW Tax Faculty has put together a Q&A on the basic rules of managing disputes with HMRC when navigating the ramifications of COVID-19.

Update 11 May: HMRC will accept delayed appeals against decisions or penalties dated as far back as February 2020 where the delay is due to the taxpayer or their business being affected by coronavirus. Read more

With the economy facing one of its biggest challenges in recent times business resources will be stretched, and many will face difficulties with paying HMRC liabilities as they are due.

ICAEW Tax Faculty anticipates and hopes that HMRC will apply a more relaxed approach in the way it interacts with ordinarily compliant businesses facing difficulties as a result of COVID-19. For example, providing time to pay agreements on extended terms without the level of evidence usually requested.

However, such practices will rely heavily on HMRC's discretion and it is unclear how this will play out. See our related article, COVID-19 Support on negotiating time to pay, for information and further advice on agreeing time to pay a tax bill.

An understanding of the basic rules around managing disputes with HMRC will be helpful when navigating the ramifications of COVID-19. To help with this, ICAEW Tax Faculty has put together a Q&A on what might be useful to consider:

Should businesses tell HMRC about problems?

It is helpful to communicate with HMRC in advance when a business is anticipating a problem meeting a deadline. This could be a payment which can't be met, a return that is going to be late or if further time is required in order to deal with an existing enquiry.

Tax Faculty is expecting HMRC's resources to be stretched, so in the event it is not possible to speak to HMRC, document the instances you have tried to contact it and consider writing a letter to discuss the issue. Approaching the matter this way will assist in mitigating penalties down the line and hopefully minimise the likelihood of further HMRC intervention. See guidance on How to contact HMRC.

I have received a penalty, assessment or notice from HMRC - what should I do?

The first thing you should do is ensure that this is appealed within the time limit. The deadline is often 30 days but the guidance accompanying the letter will make this clear. Try not to panic – penalties are often automated but Tax Faculty anticipates HMRC will be more sympathetic to taxpayer defaults in this climate.

How do I appeal?

An appeal should be made in writing stating what you are appealing and why. It does not need to be detailed and can be a very short letter. Do include relevant reference numbers (eg, the unique tax reference number), the date of the appeal and full details of the original HMRC decision/letter. Sometimes an appeal form will be included, and you simply need to complete this.

On what basis can I appeal?

There can be a variety of reasons why a taxpayer might disagree with an HMRC decision – for example, they don’t agree with the underlying technical treatment. However, in the context of COVID-19, Tax Faculty anticipates the most typical reason for appeal will be ‘reasonable excuse’.

What does ‘reasonable excuse’ mean?

Reasonable excuse is a term provided in most penalty provisions and broadly means that, considering the circumstances, a taxpayer is not at fault for the failure resulting in a penalty.

Tax Faculty strongly expects a global pandemic with the associated government measures to fall squarely within this category. Ordinarily being unable to meet your HMRC debt is not a reasonable excuse but given the circumstances leading to the current economic situation, this may not prove the case. While Tax Faculty does not think it is necessary to provide a detailed letter at this stage, given management resources are likely to be stretched, it would be helpful to provide some narrative around reasonable excuse. For example, have your revenues declined because of government social distancing measures? Provide some brief details, if so, to justify the lack of funds.

I’ve missed the deadline to appeal – what should I do?

HMRC is able to accept late appeals. Simply follow the above steps and indicate you wish to make a late appeal. If possible, provide some detail as to why you missed the original deadline. Late appeals are largely at the discretion of HMRC, although there is some scope to appeal to the first tier tribunal against an HMRC decision not to allow a late appeal, see also s49G(3), TMA 1970.

Beyond that, the only route to challenge HMRC’s opinion is judicial review, but given the extenuating circumstances faced by businesses this may not be necessary and HMRC will be receptive to such requests.

More details are available on the gov.uk website around how to respond to penalties.

What if I still don’t agree with HMRC’s decision?

If you have appealed and HMRC doesn’t agree, in many instances you can request an internal review. This will mean that a separate part of HMRC (outside the existing team) will review the case file and decide whether it agrees with the current outcome.

This enables taxpayers to have their case heard by another party without the costs of going to Tribunal. There are mixed feelings about the success of internal review. However, it offers a low-cost option to challenge HMRC decisions so can be worth a try. More details are available on the gov.uk website in HMRC's manual at Appeals reviews and tribunals guidance.

One further route is to use Alternative Dispute Resolution (ADR). For more on how to use ADR to settle a tax dispute, see How to apply for Alternative Dispute Resolution (ADR) and when you can use it to resolve a tax disagreement with HMRC.

To summarise, wherever possible try and stay on top of tax compliance and keep HMRC informed of any expected delays or defaults. This will make conversations about any assistance you may require much easier to manage later. Hopefully, this will also reduce the need for HMRC intervention which invariably is more time consuming to manage than if a taxpayer takes control of the situation themselves.