Taxpayers are demonstrating greater will to contest HMRC's decisions over their tax affairs, as latest figures for those using the Judicial Review to challenge HMRC show a hike from 39 in 2011 to 51 applications in 2012, an increase of 31% a year.
But this option to challenge an increasingly tough HMRC is under threat since a recent government consultation on reform of the Judicial Review system, which closed in November, could potentially reduce scope for taxpayers to apply for Judicial Review to overturn perceived unfair treatment going forward, as it seeks to reduce the amount of time consuming and expensive cases being heard.
Pinsent Masons' head of tax Jason Collins, said that the review is considered a remedy of last resort, often typically used to control 'unreasonable' behaviour such as a failure by HMRC to follow its own guidelines or going back on a ruling it has previously made.
But proposals to reform the system, he points out, could limit the ability for representative bodies to bring judicial review proceedings.
'This would affect individual taxpayers who do not have the means to bring their own proceedings. They may also hamper the ability of "protest groups" to intervene where they think a large corporate is getting a "sweetheart" deal, such as the action brought by UK Uncut last year. Any proposals which limit scrutiny over how HMRC goes about its business could ultimately have a negative effect on the quality of the tax authority's work,' said Collins.
Collins said the latest figures showing an increase in Judicial Review applications show just how contentious some of HMRC's decisions have become.
'Although not all of these disputes will progress all the way to a full Judicial Review hearing, this surge in challenges reflects taxpayers' reaction to the increasingly aggressive stance taken by HMRC to increase its tax take and clamp down on tax avoidance and evasion,' said Collins.
HMRC's increasingly tough approach is also underlined by how it views tax arrangements which taxpayers may consider reasonable.
'The problem is that what HMRC sees as tax avoidance many businesses legitimately see as sensible business planning. With so much money now at stake as the Revenue tries to plug the tax gap and help reduce the deficit in the public finances, there's far more incentive for taxpayers who feel they have not been treated fairly not to give up without a fight,' said Collins.
The firms says that while HMRC may issue guidance on how it will interpret and apply the tax law in given circumstances in order to provide greater certainty for taxpayers, there have been instances where the tax authority subsequently appears to have changed its view of the law and its approach. In such cases taxpayers may need to consider using the option to bring a Judicial Review to require HMRC to keep to its word, the firm says.
Other examples include complaints about HMRC's internal processes, such as a recent case involving the successful challenge of HMRC's withdrawal of a professional firm's tax 'agent' status without notice, meaning that the agent was immediately no longer able to file its clients' tax returns. The court overturned the withdrawal on the basis that HMRC should have allowed the agent to make representations before taking any action.
Responses to the Judicial Review consultation have received opposition from several groups, including the Equality and Human Rights Commission and the Bar Council.
