LSS50300 | Example 3: Continuing a case where HMRC considered likely to lose

As discussed in the previous example, some issues are so large and have fundamental issues at stake that they should be pursued even if HMRC believes it has the weaker than average chance of success.

For example, within a sector of HMRC’s population it emerges that it has become standard practice to apportion a fee on a 50/50 basis even if the work done by each of the parties receiving the fee does not reward the parties appropriately. The result of this is a lower tax take than HMRC considered is realistically due.

However, it emerges that HMRC has previously not challenged these types of arrangement leading those working in this population sector to believe that HMRC agreed this type of treatment. Advice from HMRC Legal Group appears to suggest that there is a real litigation risk and HMRC is likely to be unsuccessful in their challenge of the 50/50 split.

In respect of this issue, HMRC does not believe that a 50/50 split is correct so should not settle for this outcome in the interests of a quick settlement.

HMRC should potentially take this issue to litigation, even if it is considered HMRC may lose the argument. Instances where HMRC may wish to pursue to litigation include:

• 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

• it will protect the relevant tax regime

• there is a need to positively influence customer behaviour, for example dispute concerning a fixed penalty