Tax Appeals

Comments by the CIOT on the Lord Chancellor's Department Consultation Document, submitted to the Department on 29 June 2000 General comments

Our responses to the questions posed by the consultation document have been based on the premise that the existing appeals system should be replaced by a “Tax Appeals Tribunal”, comprising two tiers, which will hear all taxation appeals, including those relating to Stamp Duty and land valuation disputes.

The General Commissioners’ role should be retained and broadened in order to accommodate other taxes. Their administrative organisation and training needs to be radically overhauled, but the number of locations at which cases are heard needs to be retained if the informality and fairness of the present system are to be retained.

The upper tier will be modelled on the VAT and duties tribunal, but specialist lay individuals may be appointed to sit in individual cases where specific knowledge may be required.

All taxes will be treated alike with similar procedures in the same tier, but there will be differences between the tiers which will reflect the different types of cases likely to be heard.

Of paramount importance is the need for the Tax Appeals Tribunal to be, and to be seen to be, independent of the revenue authorities. All appeals will therefore be submitted to the Regional tribunal centre and individual cases will then be allocated to the enlarged Divisions to be heard.

Responses to the specific questions posed by the consultation document

Q1 What kind of judicial officers are now needed to handle the work currently dealt with by General Commissioners, in terms of their:
· qualifications
· training
· experience and expertise?

Q1.1 The type of person needed is likely to come from the business community and have an appropriate knowledge and understanding of the local community which they would be serving. However, the opportunity should be available to all with open advertisements.

Q1.2 The most important qualification will be that of common sense with an everyday knowledge of how business is run in the community. However, it will be necessary for at least one member of the panel of Commissioners, probably the Chairman, to have either a legal qualification, be a Chartered Tax Adviser, or hold an appropriate accountancy qualification. The Clerk to the Commissioners should become a purely administrative function so that any formal legal qualification will not be necessary.

Q1.3 The training should be structured and relevant to work to be done by the Commissioners, and should not be left merely to “on the job” training.

Q2 What kind of appointment procedures are most likely to bring these judicial officers forward?

Q2.1 The appointment procedure must be, and be seen to be, transparent. Advertisements should be placed in local newspapers encouraging applications from all interested individuals. Greater publicity needs to be given to the role and function of General Commissioners and this information should be made available in local libraries, as well as in all local and central government offices.

Q2.2 We are unsure as to what is meant by “open competition” in para Q2.4 regarding the selection of a large non-lawyer bench. If this terminology is used in the advertising process, we believe it would discourage a large number of potential applicants due to its potential confrontational perception. Greater emphasis needs to be given to the advertising approach and the selection criteria that will then be adopted in order for the selection system to be more open than the current method which is largely based on the Chairman’s recommendation.

Q2.3 The lack of payment, especially for carers, the self-employed, and the unemployed deters applications from a broader cross section of the community. If the best possible candidates, regardless of ethnicity or background, are to be encouraged to apply, consideration should be given to the payment of an allowance to ensure that no Commissioner is left out of pocket by volunteering to undertake the responsibility.

Q3 What kind of training will the judicial officers need, and how should it be supported?

Q3.1 Our first observation is that the current training budget for the General Commissioners totals only £37,500, which works out to be around £12.50 per Commissioner. This is particularly disappointing given the following comments made in paras Q3.4 and Q3.5 respectively:“… the additional cost would need to be met through savings in other areas.”“The additional cost of maintaining a fuller training programme within the current structure may however be excessive.” If, as stated in the Lord Chancellor’s foreword, “ … the current systems for handling tax appeals need considerable improvement in a number of areas …” the need for a significant training budget is of paramount importance.

Q3.2 The training needs of the General Commissioners are likely to be technically orientated with respect to the procedures to be adopted at hearings, in order to ensure that those appearing before them are not intimidated by the experience, and as to how decisions are taken based on the facts of the cases presented before them. The Chairman of the panel would also need to attend leadership training courses in order to ensure the efficient running of the panel which is chaired.

Q4 What kind of arrangements are needed to make sure that judicial officers develop the right experience and expertise in their field of work?

Q4.1 One of the main problems in gaining experience and expertise is the lack of frequency with which the panel is sitting, given that several sittings nationwide are being cancelled. One solution would be the creation of larger Divisions within a Regional framework, with possibly fewer Commissioners.

Q4.2 However, if this were to be adopted we would not wish to see any reduction in the number of venues at which the panel will sit. The current structure of panels sitting locally and conducting their business informally in a cost effective manner must be retained.

Q4.3 The creation of larger Divisions will allow a greater exchange of information between panel members, since under the current system very few Divisions communicate with others.

Q4.4 We would suggest that new panel members attend twelve sittings in their first year in order to reinforce the procedural training which they would have received and to build up a degree of expertise. The minimum number of sittings for second and subsequent years could perhaps be set at six.

Q4.5 In order to develop expertise in particular areas, we would suggest that Commissioners are guided towards one type of case (ie direct tax or specific indirect tax) for a period of, say, three years and are encouraged to sit in more than one location in the expanded Divisions in order to ensure a consistency of treatment.

Q5 In particular, does some of the work now handled by General Commissioners need to be heard by a panel including a lawyer?

Q5.1 We do not consider it necessary for every panel to include a lawyer. We would suggest that a panel would be sufficiently constituted if it contained a Chartered Tax Adviser, a lawyer or a suitably qualified accountant.

Q6 Can better ways than the current arrangements be found for matching the bench which hears a case to the requirements of the work? In particular, are better matches required in terms of:
· qualification or expertise
· number of members (eg can some cases be heard by a single member)
· procedures (eg in some categories are there cases which could normally be dealt with on the papers)?

Q6.1 This issue is at present very often answered in practice by either the Clerk or the Chairman exercising their judgment, but it is very rare to have only one type of case being listed for a hearing. We would anticipate that this will continue to be the case under the new system.

Q6.2 As regards the number of members who need to sit on the bench, we would suggest that in all cases there should be a minimum of two members, but preferably three, in order to ensure a system of checks and balances between those hearing the cases.

Q6.3 We would urge that personal hearings be retained; however, if one party does not attend the hearing, an interim decision may then be taken on the papers. The defaulting party should then have a period of, say, 14 days in which to appeal against the interim decision and ask for the original appeal to be reinstated. As a result, both parties would then be required to put their full case on paper before the hearing. To introduce a compulsory requirement that some hearings must be dealt with solely on the papers when the taxpayer would prefer to have a personal hearing would be unfair to those taxpayers who would wish to represent themselves without the assistance of a professional adviser. The appellant should have the right to decide whether the case should be dealt with by a personal hearing or whether a decision can be taken on the papers.

Q7 What kind of structure (eg President and Regional Chairman) might be needed to organise that match? Or manage training? Or for other purposes?

Q7.1 Separate structures are required for both Scotland and Northern Ireland for legal reasons since the Lord Chancellor has no jurisdiction in Scotland. As a result the proposed structure contained in Annex C would need to be revised accordingly.

Q7.2 We would anticipate a structure similar to that envisaged in the consultation document. A national President for the Combined Tax Tribunals should be appointed, supported by Regional Chairmen who would report directly to the President, and an effective and efficient administration. We would anticipate that around eight Regions would be required for England and Wales.

Q7.3 As well as a national secretariat, we would suggest that regional secretariats be set up in order that the Chairman’s experience is not diverted into an administrative function. The secretariat’s function would be to review and allocate cases to the relevant Commissioners, thus ensuring that the appeals system works efficiently and the Commissioners acquire an appropriate expertise. The Regional panels would have overall administrative responsibility for the Divisions in their area.

Q8 What kind of administrative support does this work require?

Q8.1 The main requirement is that the administrative function be efficient and dedicated. The prime function of the secretariat is to ensure the smooth and efficient running of the tax appeal system. The collection of statistical information is not a prime function of the secretariat. If the government requires statistical information, separate provision should be made for its collection.

Q8.2 We are unsure what is meant by the last sentence in para 8.1: “The current arrangements for paying for General Commissioners’ administrative costs do not meet modern standards of management and accountability for public money”. Presumably this is because each Division has its own method of accounting for its administrative costs with few or no checks being made. If the tax tribunal is centred on Regions with enlarged Divisions, administrative costs can be easily monitored to ensure an efficient use of public money.

Q8.3 Whilst additional costs will be incurred in setting up and operating such a system, the cost savings made in the collection of tax revenue following the introduction of self assessment should be channelled back into the appeals system, thus eliminating the need to find additional funding to support the system.

Q9 In particular, if the TLRC second report’s recommendation of most General Commissioner work being heard by a general tribunal which does not contain legally qualified members is to work, what kind of training and legal advice arrangements would be required to enable the tribunal to function without a permanent legally qualified Clerk, as the committee envisages? Does any legal adviser need to carry administrative responsibility?

Q9.1 If the overall structure for the tax appeal system is set up correctly, particularly the allocation of cases to Commissioners with relevant expertise, we do not believe that the absence of a permanent legally qualified Clerk will have a detrimental effect on its effective functioning. As a result, alternative methods of providing legal advice as suggested in para Q9.3 will not be required.

Q9.2 The effective functioning of the system will hinge on the selection of Commissioners with relevant experience, an effective administration, and a comprehensive training programme for all involved in the system.

Q10 Do the long standing arrangements of spreading work over many Divisions (currently 458) match current needs, and provide an efficient administrative structure? If not, how should matters be improved?

Q10.1 As we have already stated in our response to Question 4, we believe that Divisions should be enlarged, and formed into Regions, but that the number of venues for hearings should not be reduced.

Q10.2 In determining the Regional structures, the government should have sufficient historical information to divide the country into regions which would deal with similar numbers of appeals on an annual basis.

Q10.3 All appeals should be made to the Regional Centre which would then allocate them to the relevant Division and Commissioners when hearings are required to be held.

Q11 In particular, what arrangements will give an adequately local pattern of hearings, and at the same time allow the provision of efficient accommodation which matches current good practice in other courts and tribunals?

Q11.1 Local access to the tax appeals tribunal is of paramount importance for the unrepresented taxpayer, in the interest of retaining ready access to an informal system and reducing the costs to be borne by the appellant.

Q11.2 The Regional secretariat needs to be very effective in producing the lists for hearings to ensure that cases which are likely to take a longer period of time are considered with other similar cases, whereas cases which are likely to be dealt with quickly should also be heard together. This will ensure that Commissioners with the relevant expertise hear the right cases and that appellants are not kept waiting for excessive periods of time before their cases are heard on the day of the hearing.

Q11.3 We do not consider the use of TV links, at least in the short term, as being beneficial to the system, since many appellants would find it daunting to give evidence to, and be questioned by, someone located in a different town or city. Until such links become more commonplace we believe their introduction would adversely affect the informality and fairness of the current system.

Q12 What steps are necessary to underline the judicial independence of the tribunal from all parts of government?

Q12.1 The tax tribunal must be independent of the revenue authorities, but of much greater importance is the requirement for it to be seen to be independent. We would suggest that the title “Tax Appeals Tribunal” be adopted, which would be part of the Court Service. In order to highlight this independence, all appeals and applications should be sent to the relevant Regional centre. Copies of the appeals and applications would then be sent out by the Tax Appeals Tribunal to the relevant parties.

Q12.3 Given that the number of appeals has fallen significantly since the introduction of self assessment and its enquiry procedure, we do not feel it is necessary to have a “cooling off” period in order for the Inland Revenue to conduct a review of the particular case. Since this review will be conducted on the Revenue’s papers, and will not necessarily have all the evidence from the appellant, it is unlikely to come to a different decision.

Q12.4 We are unable to see why the issues of costs is not relevant for cases heard by the General Commissioners. Our detailed comments are contained in our answers to Question 15.

Q13 What kind of publicity does the public need about:
· the tax appeal system itself;
· how to conduct an appeal, in person or with a representative;
· becoming a member of a tribunal?

Q13.1 Leaflets should be produced in plain English, and other languages, and should be widely available, especially the one detailing how one may become a member of the tribunal.

Q13.2 Leaflets detailing the appeals procedure should be prepared and sent to each taxpayer who receives a decision form one of the revenue authorities. When an appeal is lodged with the Regional centre, an additional leaflet should be sent, with the confirmation of the receipt of the appeal, setting out the procedure to be followed before, during and after the hearing.

Q13.3 We believe that hearings before the General Commissioners should remain private since the issues at stake are of no particular importance to anyone other than the appellant. Holding such meetings in public and publishing the decisions is likely to discourage many potential appellants if their private affairs had any chance of being reported in local newspapers if journalists were allowed to be present. Reasonable excuse appeals which we suggest be heard by the General Commissioners could be reported on a no-names basis. Any decisions reached in private hearings, but not published, should be prohibited from being cited as a precedent.

Q13.4 Any appeal of wider significance is likely to be heard by the Special Commissioners, where there is already a reporting mechanism in place.

Q14 Should the current system of 3 tribunals (the General Commissioners, the Special Commissioners and the VAT and duties tribunals) remain, or should there be a unified tax tribunal? What would be gained, and what lost?

Q14.1 We are of the opinion that there should be a Unified Tax Tribunal which is organised in tiers, which should hear all tax appeals. We have already considered the questions relating to the General Commissioners, who would form the lower tier. The upper tier would comprise the Special Commissioners and the VAT and duties tribunal.

Q14.2 In order to highlight the independence of the new Special Commissioners, we believe that all tribunal chairmen and members should be appointed by either the Lord Chancellor or the equivalent Government officer for Scotland and Northern Ireland.

Q15 If there is a unified tribunal, do procedures need to be consistent throughout? For example, different regimes on costs now operate for direct and indirect tax cases - should these be the same, and if so on what terms?

Q15.1 Procedure should be applied consistently throughout the tribunals with no distinction being made between the various taxes. However, procedures should vary depending upon whether an appeal was heard by the proposed higher tier or the proposed lower ties in order to reflect the different nature of the issues for consideration, and the relative informality of the General Commissioners.

Q15.2 We believe the relevant legal experience should be set at 7 years.

Q15.3 Uniformity of procedural rules would be required in bringing cases before the upper tier irrespective of the tax under consideration.

Q15.4 We have already briefly referred to the issue of costs in our answer to Question 12. It is our opinion that the granting of costs should be discretionary to both tiers of the tribunal, and that there should be no bar to their being granted. We would also anticipate that the revenue authorities would only seek an order for costs against the appellant where the case brought has been vexatious. In order not to discourage appeals we would suggest that the revenue authorities clarify their position once the new appeals system has become operational.

Q15.5 We are unable to see why a costs power cannot be made in favour of a non-lawyer, since in many cases it would be more appropriate for the appellant to call on the services of a Chartered Tax Adviser to represent them. Costs powers should be made available to all professional representatives. In addition, we do not see why the appellant who may be self-representing should be precluded from a costs power for the time spent in preparing the case prior to its hearing.

Q16 How could cases be allocated between the different parts of a unified tribunal? In particular, should a new equivalent of the General Commissioners hear some indirect taxation appeals?

Q16.1 The panel composition should be up to three members, with up to two being legally qualified, with one or more relevant lay specialists sitting to assist in specific cases.

Q16.2 If the tribunal is regionally based, it will be necessary to appoint a sufficient number of Special Commissioners with relevant expertise to ensure the panel composition is appropriate to hear any given case. The allocation of the Commissioners to individual cases would be the responsibility of the Regional Chairman and the secretariat. We see no reason why Special Commissioners should not be available to more than one Region as is the current practice.

Q16.3 The appellant should be given a choice as to which tier would hear the appeal, but we would anticipate that the vast majority of appeals would be made to the General Commissioners.

Q16.4 We agree that reasonable excuse appeals should normally be heard by the General Commissioners, as noted in our response to Question 13.

Q17 If there is a unified tribunal, how should onward appeals be handled?

Q17.1 Onward appeals should be directly to the High Court on a matter of law. We believe that the current procedure for the General Commissioners to state a case should be abolished.

Q18 Should there be ‘leap-frogging’? Generally, or only form specialist part of a unified tribunal?

Q18.1 “Leap-frogging” should be allowed where both parties are in agreement that the point of law in issue is a fundamental one where it is necessary to have a binding precedent from the highest judicial authority.

Q19 Should tax appeals be exempt from the general requirement to obtain permission for an appeal to the Supreme Court?

Q19.1 At the moment there is a statutory right to appeal to the High Court from the Special Commissioners and the VAT and duties tribunal without permission, which does not appear to have been affected by the Woolf reforms. This should be retained. Tax law in many cases is very susceptible to a wide range of legal interpretations of the statutory language, and to prejudge a case in deciding whether an appeal can lie is a retrograde step for the justice system.

Q20 If separate tribunals remain, what changes need to be made to improve appeals?

Q20.1 If separate tribunals remain, appeals relating to Stamp Duty and Stamp Duty Reserve Tax should be heard before the General or Special Commissioners. There is no justification for such appeals being treated differently to other tax appeals.

Q20.2 The issue of valuation in relation to taxation matters can usually be resolved by the District Valuer. Once that decision has been taken, it will then be possible for the tax principle to be determined. Appeals from the District Valuer should be to the Tax Appeals Tribunal, and not to the Lands Tribunal. A valuation expert could be called as a lay member of the Commissioners to hear the appeal and come to a decision.

Q21 In either case, should there be tax specialist panels of judiciary in the High Court and the Court of Appeal?

Q21.1 We have previously advocated the setting up of tax specialist panels and believe they would greatly enhance the development of tax law through the courts.

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