Tax Tribunals & Costs of Tax Disputes

First Tier Tax Tribunal Costs usually arise when there is a dispute between an individual and the HM Revenue & Customs (HMRC).  This may be in relation to a contested tax return (such as an assessment of capital gains tax), or an individual may be appealing an HMRC decision.  The rules governing the recoverability of the costs incurred vary from the First Tier Tribunal and the Upper Tribunal. These rules are also different from other Court proceedings. The same rules govern whether the individual will be liable to pay the costs incurred by the HMRC.

First Tier Tax Tribunal Costs and tribunal procedure are governed under the First Tier Tribunal (Tax Chambers) Rules.

Section 10 refers to Orders for Costs. To summarise, an order for costs is usually made in these proceedings if:

• The Order is for wasted costs;
• If the Tribunal rules that a party or their representatives have acted unreasonably in bringing or defending the proceedings;
• If the proceedings are allocated as a Complex case.

First-Tier Tax Tribunal Costs

The rule of thumb when considering the recoverability of any first-tier tax tribunal costs is that each party will bear their own costs. This means that the individual is not likely to bear the costs incurred by the HMRC if they are unsuccessful in defending the case. Likewise, HMRC will not be ordered to pay the individual’s costs should they be unsuccessful in prosectuing the case.

Similar to County Courts in civil actions, the First-Tier tribunal will allocate the matter to a track based on its complexity. A complex case which is likely to include lengthy and complex evidence or hearing, or may involve a large sum to be recovered, are usually allocated to the Complex Track.

You can opt for the proceedings to be excluded from liability within 28 days of allocation to the Complex Track and this must be done in writing. If you decide to opt out, you cannot then recover your costs from the HMRC if you are successful.

If the case is allocated to the Complex Track, either party can seek costs orders. These orders will usually follow the rules which apply to Upper Tribunal cases, set out below. If the case is not allocated to the Complex category, the First-Tier Tribunal can make a wasted costs order against either party if the Tribunal believes the party has acted unreasonably in bringing, defending or conducting the proceedings.

Upper Tribunal Costs

At the Upper Tribunal, when the individual loses the case, by having their appeal dismissed or where the HMRC’s appeal is allowed, that losing party is usually ordered to pay the successful party’s costs.

However, First-Tier Tax Tribunal costs are not recoverable unless the case has been allocated to the Complex track.

The discretion as to the costs orders to be made lies with the Upper Tribunal. The Upper Tribunal will take into consideration a number of factors when deciding if costs are to be awarded. These factors include:

• The circumstances of the case, such as the conduct of the parties including whether it was reasonable for the parties to pursue the case;
• If proceedings have been dealt with at a proportionate cost;
• Who the successful party is;
• Whether the parties have been open to mediation during the course of the case;
• Whether the total costs claimed is proportionate and reasonably incurred.

It is usually the case that the successful party will be granted an award of costs. Full discretion does still remain with the Tribunal in the type of award to be rewarded to assess the costs. Due to this discretion, there is no guarantee that an award will be granted or as to the sum which will be awarded. The Upper Tribunal also holds the discretion to order the losing party to pay interest on costs and a potential payment on account may be ordered.

If you are unsuccessful at Court or an HMRC appeal is allowed, then it is likely that the Tribunal will order the losing individual to pay a sum of HMRC’s costs. These costs will be assessed by the Tribunal where an agreement is not present and can include the legal fees and disbursements, including VAT. These costs will then be in addition to the costs incurred by yourself such as legal costs for any instructing Solicitor you may use.

The award for costs will usually be assessed at the conclusion of the case, in line with the Civil Procedure Rules (CPR 44 – 47), with any detailed assessment to take place at the Senior Courts Costs Office (SCCO). 

How can ARC Costs Assist?

ARC Costs are a team of expert Costs Draftsman and Costs Lawyers with experience in dealing with costs in many types of proceedings, including Tribunal Tax Costs. We can assist in advising around any costs risks which may exist should you wish to pursue the case at the First Tier Tribunal or the Upper Tribunal, or in respect of making submissions to recover your costs and assessment of the same. If you have a costs order in your favour, we can prepared your Bill of Costs and our Legal Costs Negotiators can assist in helping you recover the same.

Should you require any assistance or advice, please contact us on 01204 397302, or via email at info@arccosts.co.uk.

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