LSS20500 - When to concede a dispute

In general, we should concede a risk where the potential revenue flow does not justify continuing. Paragraph 8 of the LSS sets out that in general HMRC should not take forward a tax dispute unless the overall revenue flows potentially involved justify doing so.

However, at the outset of an enquiry or dispute, it may not be possible to assess the overall amount of potential tax at stake. Consequently, at that time, and in the absence of further facts or information, HMRC may be unable to make a meaningful assessment of the relative merits of taking forward the dispute.

Equally, HMRC’s initial view as to the overall amount of potential tax at stake in a dispute may change during the course of the dispute, for example as further facts are established, more information is provided, or as more detailed analysis is undertaken. This, in turn, could have an impact on HMRC’s assessment of the relative merits of persisting with the dispute.

For these reasons, throughout any dispute, HMRC should regularly assess the relative merits, or otherwise, of persisting with the dispute in light of all the known facts. The principal factors HMRC will consider as part of this ongoing assessment process are likely to be the same as those at the start of the dispute (see guidance on LSS paragraph 8 above).

In general, HMRC should only continue with a dispute where it considers that both:

• the overall likely revenue flows justify doing so and
• it has or potentially has a case which it believes would be successful in litigation. In particular, HMRC should not pursue minor or questionable points to avoid a nil settlement. For the majority of cases, HMRC will only continue a dispute where the overall revenue flows justify doing so. However, there will be certain exceptions (which is why paragraph 14 specifically includes the words ‘not usually’) and this might include cases where, for example:
  • the amounts involved may individually, or collectively, be relatively small, there is a need to positively influence customer behaviour, for example disputes concerning a fixed penalty
  • a particularly important point of principle is involved where it is necessary to defend the integrity of the legislation, or where not defending the point could potentially lead to a distortion of competition between businesses.

HMRC will also take into account the effect that continuing to apply resource to one dispute might have on its ability to pursue other disputes. As set out in the guidance on LSS paragraph 8, HMRC should not generally take forward a tax dispute unless the overall revenue flows potentially involved justify doing so.