How to take on the taxman – and win

Telegraph Money explains how to boost your chances of a successful penalty appeal

From filling out a yearly tax return to chasing a tax refund, dealing with the taxman rarely feels like a walk in the park.
But if you’ve received a penalty that you feel is unfair, or a tax decision that you disagree with, it can feel like a classic case of David and Goliath – a single taxpayer against the might of HM Revenue and Customs. In some cases, the sum you owe will be growing with interest all the while.
There is good news, however: while it can feel intimidating, there are official routes to appealing against HMRC – and you may have a good chance of winning your case.
Data from the taxman shows that just 36pc of HMRC’s original decisions were upheld in the 2022-23 tax year. The rest had been changed following an internal review (also known as a “statutory” review), which taxpayers have a legal right to request.
When this is narrowed to only automated penalties, such as those handed out for late filing of self-assessment returns, the number of upheld fines was just 31pc.
Here, Telegraph Money outlines the process for appealing a tax penalty, and how to increase your chances of success.
Most formal decisions made by HMRC can be appealed, so if you have received a notice you disagree with, it is very likely that you will be able to argue your case.
“Generally, HMRC only gets to act as judge, jury and executioner when you have been involved in tax avoidance,” said Andrew Parkes, national technical director at the tax advisory firm Anderson.
The most common appeals are those made against automatic penalties, such as those for late submission or late payments. Mr Parkes said it was particularly common to appeal a penalty for filing your tax return late.
You can also appeal against corporation tax and VAT bills, claims for tax relief and requests for information or to check business records.
You can make an appeal yourself, but it can also be made by someone who deals with your taxes, such as an accountant.
The appeals process is different depending on whether the tax is direct, such as income or corporation tax, or indirect, such as VAT.
If it is a direct tax, which is most likely, you’ll receive a letter notifying you of the penalty, and your rights to appeal the decision. If you’re going to make an appeal, it must be within 30 days of the letter’s date.
“It’s especially important to take note of the date on the letter, as this is when the 30-day period starts – not the date you actually receive it,” said Danielle Ford, head of tax disputes at the accountancy firm Haysmacintyre.
The letter you receive should tell you how you can appeal. It might be via a form that you received with the letter, or it might detail how you can write to HMRC.
For this first appeals step, make sure you include your name and business name (if you have one), your tax reference number and an explanation of what you disagree with and why.
If you are appealing against a penalty (rather than a tax decision), you may be able to appeal online.
If HMRC agrees with your appeal, it will remove the penalty or amend the figure being charged. If you’re happy with the outcome, then it’s case closed.
In cases where HMRC disagrees, the next step is to request that it undertakes an internal review. A different officer will look at your case after offering you a chance to provide new information, and will give you a timescale of the next steps.
If HMRC still disagrees with your appeal and you cannot reach an agreement, you’ll need to lodge your case with the Tax Tribunal. This can be costly, and HMRC has a strong success rate: 92pc of cases in the first-tier tribunal went in its favour in 2022-23, and 73pc in the upper tribunal did the same.
“We would expect these to be heavily skewed in HMRC’s favour as they will only litigate cases they are confident of winning. The majority will be settled before,” said Aidan Moran, associate director at the auditing firm Mazars.
“Many taxpayers with a valid and strong case will choose to settle too, as it can be more cost effective to do so.”
However, while the odds aren’t in your favour, it doesn’t mean you can’t win at tribunal, as Kaye Adams’s recent win at the Court of Appeal shows.
When it comes to appealing indirect taxes, there is no right of appeal directly to HMRC. Instead, the taxman will automatically offer you a review of the decision, and you have 30 days to accept the review, or lodge an appeal to the Tribunal.
The time it takes for an appeal to be resolved varies depending on how complex the case is, whether you agree with HMRC’s initial decision and even the time of year you make it.
Mr Parkes said: “For very simple appeals against a late filing penalty it can be done over the phone, there and then.
“If you are into very complex tax avoidance then it can take 10 to 15 years. In general, most administrative appeals should be dealt with within a month.”
Ms Ford said to expect delays if you make appeals in December or January, as this tends to be a busy time for HMRC, thanks to the self-assessment deadline on January 31.
In general, she recommended following up your appeal if you hadn’t heard back within six weeks, and requesting HMRC to provide the likely timescale.
If you are late in making an appeal, then HMRC does not have to accept it. In this case, you would then need to ask the Tribunal to accept your late appeal before it even considers whether or not your appeal has merit.
“If you are appealing against a penalty for filing late, it doesn’t look good if your appeal is then late. If there is a good reason why you didn’t do something in time, spell out how this delay was out of your control,” said Mr Parkes.
When you make an appeal, you can request that the payment of the disputed tax or penalty is postponed until after the appeal. This can help alleviate financial pressure while the appeal is underway – although if you end up losing, you will pay the tax or penalty plus interest.
To avoid any doubt over if or when you’ve sent correspondence as part of your appeal, you’ll need to be particularly thorough about the information you provide and how it is sent.
“Take careful note of the dates included on any correspondence from HMRC, and always include your reference number in all communications you send,” said Ms Ford. “Always send appeals to HMRC by recorded delivery and retain proof of postage.”
She also suggested including the word “appeal” in the title of your letter, and addressing any letters directly to the case worker’s name (if you have been given one).
You may be asked to send supporting documents with your original appeal to support your case – it’s important to do this as a way to strengthen your case, but make copies before you do.
This way, the documents are readily available if another officer or inspector asks to see them before the originals have been sent back to you, preventing delays to your case.
If you didn’t want to go to the hassle and expense of a full-blown tribunal, it’s possible to try and get your issue sorted with HMRC in other ways.
Mr Moran said requesting a review by HMRC was generally advisable, as this could resolve the dispute without a tribunal, which can save time and money.
He added: “It’s worth considering alternative dispute resolution (ADR) with HMRC, which can be a less formal and more flexible approach to resolving disputes.”
If your case is simple and you have the time and knowledge to manage your appeal yourself, then you may not need professional help.
However, tax appeals can be complex and speaking to a tax expert can ensure that your case is presented in the best way to help you win. It will cost you upfront but could save you money in the long run.
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