Covid-19: impact on tax enquiries and litigation

Recent weeks have seen significant changes to the conduct of HMRC investigations and tax appeals as a result of the Covid-19 pandemic.

HMRC enquiries and investigations

In many cases, HMRC have put existing tax enquiries and investigations on hold. Taxpayers are being informed that HMRC will not generally progress the matter unless they actively want them to. However, this is simply a pause in proceedings. Enquiries and investigations will not disappear and can be expected to recommence in time.

This does not mean all activity will cease however. It is important to note there is no general waiver or deferral of statutory time limits. So HMRC may well take action if they are coming up against a time limit, e.g. for opening an enquiry or issuing an assessment. Similarly, taxpayers will still be required to take action, such as appealing an assessment or responding to a formal information request, within the statutory timeframes. Failure to do so could have very serious consequences.

In many ways, a pause in enquiry activity is welcome news for taxpayers, as it may free up time to deal with more immediately pressing concerns. There are other points to bear in mind, however, and it may be in a taxpayer's interest to take up HMRC's invitation to progress matters.  

For example, unpaid tax will still continue to accrue interest for the relevant period (albeit this has recently been reduced to 2.6% p.a.). Care will also need to be taken over the knock-on effect for other time limits - whether for making consequential claims (such as claims to double tax reliefs) or limitation periods for any associated contractual or negligence claim. And where a dispute relies heavily on evidence, the quality of this will inevitably deteriorate over time - so taxpayers may wish to take proactive steps now to capture and preserve it as best they can.  

Tax appeals

The First-tier Tribunal initially reacted to the pandemic on 24 March 2020 by generally staying all tax appeals for 28 days and extending the time limits in those appeals by 28 days.  It has this week announced a further stay until 30 June 2020, with a further 70-day extension to time limits.

Changes have also been made to the Tribunal's procedural rules allowing it to decide many more cases on the papers, without a hearing. Any hearings that do take place will be conducted by phone or video conference using electronic bundles. Inevitably this will add to the already significant backlog of tax appeals.   

Summary

Overall, these are sensible and welcome measures in the current climate. However, affected taxpayers should beware the potential pitfalls, and in certain cases should give consideration to whether it might be in their interest to progress matters.