Tax disputes – discard the Whitebook?

There are some significant differences in the process of litigation when HMRC is your opponent. Understanding those differences is essential when formulating the strategic approach to the dispute. This is not to say however that commercial litigation practice is of no relevance; increasingly there is a tendency for the tax courts to look to the commercial courts for assistance. In this article, we look to illustrate these issues in the context of the life-cycle of a typical tax dispute.

HMRC have produced two documents that essentially set out the department’s approach to litigation and the procedures and governance structures which are in place: HMRC’s ‘Litigation and Settlement Strategy and Commentary’ (the LSS) and ‘Code of Governance for resolving tax disputes’ (both of which were refreshed in 2017). In the writer’s view, these documents are essential pre-reading for anyone approaching a dispute with HMRC for the first time.

Initial stages – information gathering

Unlike commercial litigation, disputes with HMRC do not usually involve any formal disclosure process. Instead, information (usually emails and documents) are commonly provided voluntarily to HMRC in response to requests. HMRC has formal information powers though and can require the production of ‘documents’ and ‘information’ from both the taxpayer in dispute and from third parties. While these powers cannot (except in limited circumstances) be exercised to require material from outside of the jurisdiction, HMRC can seek such material by accessing a network of double tax treaties (making requests to the relevant tax authority in that jurisdiction). It is also the case that information that HMRC obtains in the UK can be exchanged with other tax authorities in other jurisdictions through a number of gateways.

In addition to HMRC’s formal powers, both businesses and HMRC can (once a dispute is before the statutory tax tribunal – the First Tier Tax Tribunal (FTT)) request disclosure orders from the FTT under its case management powers. This can be useful if it is thought necessary to access information that HMRC may be holding.

The decision to litigate

The LSS sets out the basis on which HMRC will either resolve a case or decide that it may be appropriate to litigate. The central theme of the LSS is that HMRC should evaluate the law and the evidence and only take issues forward if they consider it is likely that they will succeed in litigation; the LSS is all about securing the best practicable return for the Exchequer. In order to reach these decisions, there are a number of governance boards in place to offer independent reviews of decisions that case inspectors may wish to make. The governance framework will depend on the sensitivity of the issue or the amount of tax at stake. In practice, this means that it will be important to ensure that HMRC have a proper understanding of the issue and the facts at the time that they are reaching these decisions. If, over the course of interactions with the taxpayer, HMRC forms a view that its case is evidentially weak, it is more likely to settle. The decision to litigate is of course, not irrevocable and can be revisited as HMRC’s understanding develops.


Before disputes proceed to any formal process, taxpayers can choose to request that an ‘internal review’ of the issues is conducted by an independent inspector or ‘reviewing officer’. In practice, the reviewing officer is unlikely to come to a different conclusion to the HMRC case team but occasionally an internal review can clarify issues and deal with procedural irregularities.

In terms of formal process, tax disputes are resolved in the first instance by the FTT which is a statutory tribunal with a broad jurisdiction. The FTT is not subject to the Civil Procedure Rules (CPR) or to formal rules of evidence. However there has been an increasing tendency for the FTT to look to guidance from the CPR in various areas. There are a number of recent examples in particular areas; below are a number of recent examples.

Time limits

While accepting that the CPR does not apply in the Tax Tribunals, the judge in HMRC v McCarthy & Stone [2014] saw no reason not to apply the same strict approach to time limits that would be taken under CPR rules. The approach was endorsed by the Court of Appeal in BPP Holdings v HMRC [2016].

Procedural case management

The FTT will often look to a CPR equivalent procedure where it is seeking to establish the principles that should be applied when exercising a discretion, as was the case with regards to applications to strike out under FTT rule 8 (3)(c) in HMRC v Fairford Group [2014].


In terms of disclosure, the appeals in Citibank NA v HMRC [2018] have emphasised that the FTT has its own discrete procedures which should be applied in preference to the CPR disclosure rules (see the FTT decision where it was held that the FTT rule 27 was the basis for disclosure; the Upper Tribunal reversed this decision preferring to apply a CPR style wider disclosure; this decision was overturned by the Court of Appeal returning to FTT rule 27 as the basis for disclosure). It cannot be assumed though that the CPR principles are of no relevance; the Upper Tribunal in McCabe v HMRC [2020] notes that given that the FTT must exercise its discretion in matters of disclosure having regard to the ‘overriding objective’ (in rule 2(3)) it makes sense to consider the CPR provisions (in particular in CPR 31.6.3). This approach has been followed in other cases, and in a recent decision which usefully summarises the relevant principles, the FTT goes as far as to suggest (no doubt to HMRC’s consternation) that it may be appropriate to apply the commercial litigation concept of the ‘self-certification certificate’ (Syngenta Holdings Ltd v HMRC [2021] at para 36).


Readers will be aware of the considerable changes brought in to regulate the preparation of witness evidence in the Business and Property Courts (Practice Direction 57AC). Practice Direction 57AC was introduced to address a number of concerns identified by High Court Judges (set out in the December 2019 Report of the Witness Evidence Working Group). The Report found that ‘the common experience of witnesses “not coming up to proof” in oral examination-in-chief… is in part because the process of preparation of witness statements in larger cases, involving the polishing of numerous drafts and iterations, results in the final version being far from the witness’s own words even if it started life as such’.

Detailed consideration of the new Practice Direction is beyond the scope of this article. But it is fair to say that in the writer’s experience, Practice Direction 57AC makes profound changes to the whole approach to preparing witness evidence. Of course the rules do not apply to the FTT. The question is, are the judges in the FTT likely to take the view that it would be helpful to apply those rules to tax proceedings, if not formally, as a matter of best practice?

There are certainly a number of cases where the Tax Tribunals have expressed concerns in a similar vein to those set out in the December 2019 Report; the tendency of witnesses to ‘persuade themselves with increasing certainty as to things which happened or did not happen’ – Ulster Metal Refiners Ltd v HMRC [2021]; ‘poor recollection and inconsistencies’ – McWhinnie v HMRC [2021]; ‘chronological inaccuracies’ – Harper v HMRC [2009].

There is little doubt that applying Practice Direction 57AC will improve the quality of witness statements and is likely to address the concerns that have been expressed in the FTT from time to time.

More to the point, it is likely to provide the FTT with some assurance that the witness evidence should be considered to be reliable and as a result to improve the taxpayer’s case. In the writers’ view, Practice Direction 57AC should be applied in the FTT voluntarily as a matter of best practice in a case where the witness evidence is likely to be important.

Resolution outside of the FTT?

Alternative dispute resolution (ADR)

A species of ADR or mediation is available in tax disputes. To date it has been used more extensively in indirect tax issues. But there is clearly room for increased use of ADR. HMRC has written its guidance to emphasise that ADR should be considered at all stages of a dispute (pre and post commencing formal action before the FTT) and a Practice Statement from the FTT emphasises the importance of ADR (which is enshrined in the FTT rules) (Practice Statement 15 June 2020).

Other procedures?

The FTT is a statutory tribunal and as such, it only has jurisdiction under the legislation. Where the challenge that is being considered is not an appeal under the tax legislation, the FTT will not have jurisdiction. This is of particular significance in the case of challenges to HMRC’s discretion or other situations where the rules do not provide for an appeal at all. In such cases Judicial Review may be the only route available. Given the time limits for this, which by the standards of most tax disputes, are extremely tight, this possibility should be considered at an early stage.

Compromises and settlement

It is important to bear in mind that HMRC do not ‘do deals’ to settle disputes. This is a sharp contrast to the position that private parties would take in commercial litigation. Any resolution with HMRC will be rigorously reviewed by various HMRC governance panels (depending on the size and sensitivity of the case). The resolution must be compliant with HMRC’s LSS and so must, as far as the department is concerned, represent a conclusion that could have been reached in the litigation itself.