LSS20400 - Resolving a dispute

Resolving disputes by agreement is likely to be the most cost-effective outcome in the majority of cases.

But where it is cost effective to litigate, that route should be actively pursued with the aim of resolving the dispute as quickly and cost effectively as possible.

Resolving disputes ‘cost effectively’ does not mean HMRC making compromises on what it believes to be the right tax liability consistent with the law. It means establishing the right tax liability, fairly and even-handedly across all taxpayers, in a way which minimises unnecessary costs.

This means that the concept of cost-effective dispute resolution of a tax dispute in this guidance may differ from the generally understood concept of cost-effective resolution that is typically encountered in civil or commercial disputes.

The following factors are likely to be relevant to HMRC’s consideration of what may or may not be cost effective in relation to resolving a particular tax dispute:

• the potential tax at stake in the current year or years, as well as any prior or future years, for that particular customer
• the potential tax at stake in any year or years for other customers (including the wider impact of any HMRC intervention, such as through behavioural responses)
• an early assessment of the potential impact (whether of the individual case or the capacity for the issue to create tax loss more widely) compared to the cost of pursuing or not pursuing the dispute
• an impartial assessment of the strength of HMRC’s case
• any decisions made by governance bodies

Usually, the factors to be considered in deciding how to proceed on a dispute, including the read-across to other cases, precedent value and the impact on taxpayer behaviour (in the immediate case and more widely), will mean that the right decision is that litigation would be cost-effective.

Where a settlement decision is likely to affect a number of customers, HMRC will take into account the wider potential impact of a favourable tribunal decision before settling with any particular customer for a lesser amount. This means that any benefit of establishing a precedent through litigation, or of protecting the relevant tax regime, should be taken into account in assessing the cost effectiveness of litigation.

Even where one party has, or both parties have, decided to litigate a particular matter, HMRC should continue to be open to considering the impact of any new information and/or technical analysis. In certain circumstances, this may provide a basis for resolving a dispute by agreement without the need for litigation.