Her Majesty’s Revenue and Customs (HMRC)’s new code of governance published on 1 November 2012 aims to resolve tax disputes collaboratively and by agreement, with “only a very small minority” requiring resolution by legal action. The code of governance endorses HMRC’s earlier Litigation and Settlement Strategy (updated in 2011), whose stated aim is to handle disputes “non-confrontationally and by working collaboratively with the customer wherever possible”.

The commercial basis for HMRC’s approach is that in the majority of cases, resolution by agreement is likely to offer the most effective and efficient outcome. Where litigation offers the most effective and efficient means of resolving disputes, HMRC will seek to reach resolution by litigation as quickly as possible.

The governance framework is based on:

  • adequate training in collaborative working skills for tax professionals
  • the involvement of cross-HMRC boards where necessary to achieve consistency
  • a review programme to ensure that processes are adhered to in practice

(section 2).

At its core is a defined structure for the resolution of a broad range of tax disputes based on the complexity and sensitivity of the case. This seeks to ensure the correct degree of specialism and oversight is committed to each dispute. Where disputed points may set a precedent for other customers, different specialist boards will convene to decide them, usually under the ultimate oversight of appointed tax commissioners (section 3).

Under the code of governance, HMRC are also introducing an internal programme to review settled cases. Their objective here is to learn lessons and distill best practice for application in future cases. An Internal Audit Function will be appointed to perform this role (section 4).

A Tax Disputes Resolution Board (TDRB) will make decisions and recommendation about proposals for resolving significant tax disputes (which are determined according to their value, sensitivity or novel nature), as well as perform an important internal advisory function (Annex C).

We await with interest to see how these procedures bed down and, in particular, how settlement rates alter. HMRC has been at the vanguard in promoting earlier resolution of disputes and is well placed to build upon the solid foundations it has established over recent years.