ARC Costs were recently instructed by a successful Appellant to assist in the legal costs recovery for a tax dispute case.

What is a Tax Dispute?

Those who disagree with HM Revenue and Customs (HMRC) in relation to a tax affair, such as a tax return or tax decision, have the right to to raise a dispute.

A decision letter will be sent by HMRC which outlines the reasons for the decision and the time limits for raising a tax dispute should you disagree with HMRC’s decision.

An internal review, as well as other alternative dispute resolution (ADR) methods should be attempted to resolve the issue without going to Court. ADR is designed to help resolve disputes more amicably and can involve negotiations or mediations led by the dispute resolution team.

If the dispute cannot be resolved using ADR or an internal review, the decision can be appealed to the First-tier Tribunal (Tax). This is a legal body independent of HMRC that hears tax disputes. When appealing against a tax decision to the First-tier Tribunal, appellants should seek professional advice or legal representation to ensure the best outcome is achieved.

In dealing with HMRC and the various stages of tax dispute resolution, it is important to adhere to the time limits for appeals and to follow the proper procedures. A tax advisor or legal expert specialising in tax can provide guidance on the best course of action, the likelihood of success in an appeal, and the preparation needed for your case.

Tax Dispute Costs Case Study – Facts of the Case

The Appellant was a company that engaged in the trade of electronic communications services (“ECS”). The Appellant made a request for the registration for VAT of the company as a single entity (it having previously been registered as part of a VAT group) in 2011. In 2012, the Appellant company had been registered for VAT with its principal place of business being London, though the Applicant’s residential address was abroad. The VAT registration was however, abruptly cancelled by HMRC.

The Appellant sought to challenge Value Added Tax (“VAT”) Assessments (“claims”) made by HM Revenue and Customs (“HMRC”). The claims related to supplies of services to the Appellant company by two UK companies which the HMRC alleged had a connection to a VAT fraud (resulting in VAT not being paid to HMRC).

HMRC further alleged that the Appellant knew, or should have known, of the fraud at the time of the transactions. If that was found to be correct, this would render attempts by the Appellant to reclaim VAT paid on certain purchases from the two companies unlawful and lead to an outstanding balance payable by the Appellant. HMRC essentially sought the lost VAT amounts from the two purportedly fraudulent companies, from the Appellant.  The amounts sought were tens of million of pounds in value by HMRC.  The claims were appealed to the First-Tier Tax Tribunal.

The Appellant appealed against the Respondent’s decisions, and settled Grounds of Appeal for relief of an Order denying the Appellant’s right to deduct input tax in a sum amounting to circa. £19 million, on the original decision grounds that the input tax was incurred by the Appellant in transactions connected with the fraudulent evasion of VAT and the Appellant knew or should have known of this fact.

It was also submitted that HMRC had failed to evidence/substantiate any allegation of a connection to fraud, and HMRC were put to strict proof on the issue

The appeal ran from 2017, and settled in January 2022, and required the input from various expert witnesses. The appeal was allowed in January 2022, concluding matters save as to costs.

How ARC Costs Assisted in Legal Costs Recovery

As the Appellant was the successful party, they were therefore entitled to recover the costs of the case. As the case lasted a number of years, and the assistance from experts and King’s Counsel were required on multiple occasions, substantial costs were incurred.

Costs of the case included costs for solicitor’s advice and assistance, as well as Counsel costs, and the evidence from a tax expert witness.

ARC Costs were instructed to draft the Bill of Costs and negotiate costs with the paying party. The total Bill of Costs amounted to approximately £200,000.

Points of dispute were submitted by the paying party. The paying party raised points in relation to interest, estimated time, counsel fees, and expert witness fees, as well as a complex issue on interim invoicing and the indemnity principle.

ARC Costs further negotiated costs via settling of Replies to Points of Dispute and the matter settled via a Part 36 at £150,000. Detailed Assessment costs were dealt with separately.

How can ARC Costs assist with Tax Dispute Costs?

ARC Costs can assist in any legal costs dispute arising from appealing to HMRC. We can also assist tax authorities in recovering or defending legal costs following a tax dispute.

As a team of specialised Costs Draftsmen and Costs Lawyers, we are independent experts in assisting in both costs recovery and disputing claims for costs, dependant upon whether we are instructed by the Receiving or Paying Party.

We can assist with all stages of your claim from costs budgeting and costs management to the detailed assessment of your costs.

Should you require assistance on any part of your costs recovery, or should you simply have a query, please call us on 01204 397302, email us at info@arccosts.co.uk, or contact us via the live chat facility.

At ARC Costs, we also maintain an extensive legal network of expert Solicitors in the legal field of tax disputes. If you intend to pursue or defend a tax dispute case, we would be happy to pass on your query to one of the Solicitors on our panel.

We may receive payments from third party solicitors on our panel (for non-FCA regulated work) to whom we may refer your claim. We will never charge you for any referrals made to our panel of third parties.

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