ARTG3420 - Reviews and appeals for indirect taxes: Settlement of appeals: Settlement by agreement
Appeals may be settled by agreement with the customer at any time before the tribunal has completed its hearing of the appeal, whether or not there has been a review.
HMRC and the customer may agree that the decision or assessment should either be upheld, varied in a particular manner, or cancelled (s85(1) VATA 1994).
Agreement can be reached through an exchange of correspondence between the parties, or verbally.
The decision maker must always confirm the terms of any verbal agreement with the customer in writing (s85(3) VATA). This will usually be done by writing to the customer, or the customer may write to HMRC to confirm the verbal agreement.
Settlement agreements cannot be imposed unilaterally by HMRC and the following is required for an agreement to be binding:
- A process in which both parties participate
- A mutual consensus reached through offer and acceptance
- HMRC and the taxpayer to not only be of the same mind, but for those minds to have met
A notice of appeal, on its own, would not typically be regarded as an offer to settle. Where HMRC accepts the taxpayer’s grounds of appeal, the process of offer and acceptance leading to mutual agreement still needs to be followed.
If the customer changes their mind, they have 30 days from the date of the agreement (or written confirmation of the verbal agreement) to notify HMRC in writing that they no longer agree (s85(2) VATA 1970). Otherwise, the settlement agreement will be binding.
Settlement of appeals by agreement under s85 VATA 1994 is a legal process and the same consequences follow as would have followed had the tribunal decided the matter.
Written agreements require careful wording and any limitations to the agreement need to be made clear. The decision maker should consider taking legal or specialist advice to ensure the agreement does not affect tax treatment in later years. This is particularly true in VAT partial exemption cases.
An agreement to settle an appeal is subject to any applicable authorisation or governance procedures within the relevant business area, and agreements must comply with HMRC’s Litigation and Settlement Strategy, see ARTG1020.
If an agreement is made under s85 the litigator or decision maker, as appropriate, should tell the tribunal about the agreement: this finalises the appeal and the tribunal needs to know that such an agreement has been made so they can update their records, see ARTG8420.