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HMRC internal manual

Appeals reviews and tribunals guidance

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First-tier and Upper Tribunals: The tribunal hearing: Requests for HMRC to waive costs or fund customer’s costs where there is a further appeal - Rees Practice

Under the terms of a Parliamentary statement, HMRC is willing in appropriate circumstances, and in particular where they are appealing against an adverse decision, to consider waiving any claim to costs in cases before the Upper Tribunal or the appeal courts, or to consider making other arrangements (this may also extend to cases before the First-tier Tribunal). This is known as the Rees Practice.

Rees practice

Under the Rees Practice, HMRC may come to an arrangement with the customer about the costs of an appeal. In practice this usually involves HMRC agreeing in advance not to seek their costs if they are successful. Very exceptionally where there is a wider public interest in an appeal going forward HMRC may fund legal representation for the customer. As the usual procedure is that the cost of the successful party are paid by the unsuccessful party, it is rare for HMRC to agree to waive our costs, and extremely rare for HMRC to fund the other party’s costs.

Most applications for the Rees Practice to apply are from unrepresented individuals who may also be of limited means. However HMRC also considers applications from corporations and/or customers who are professionally represented.

Factors to consider

The Rees Practice says that HMRC exercises their discretion and are willing in appropriate circumstances to consider waiving any claim to costs. ‘Appropriate circumstances’ is not defined. But Rees does set out the primary factors to be considered in any claim for HMRC to waive our costs:

  • Risk of financial hardship.
  • Involvement of a point of law, the clarification of which would benefit taxpayers as a whole and efficient collection and management of the revenue.

But these are influential factors and not necessarily exhaustive.

The customer should make their claim for Rees to apply well before any hearing and it would not be appropriate to consider such a claim retrospectively.

If the appeal relates to a suspected avoidance or evasion case, the Rees Practice would not apply. The customer would not necessarily be disadvantaged as, if they are successful in the higher court they may request costs from HMRC, and if they are unsuccessful the avoidance or evasion will be confirmed and it would be inappropriate for HMRC to waive costs in those cases.

It is not appropriate for HMRC to agree to waive its costs where the customer is appealing to a higher court against a decision in HMRC’s favour.

Dealing with an application for Rees Practice

If a customer asks HMRC to apply the Rees Practice in their case, the tribunal’s caseworker or Solicitor’s Office should submit the case to Tax Administration Advice (Appeals) to consider. They should make the submission on the appropriate form.

If the customer has given hardship as the reason for requesting the Rees Practice, the tribunal’s caseworker or solicitor should set out details of the customer’s financial situation on the form.  Incurring the costs would need to create genuine and absolute hardship that removes the ability to fund necessities of existence. The tribunals caseworker/solicitor should obtain evidence of the customer’s financial situation and enclose it with the form, for example bank statements, assets and liabilities, and if a company, relevant accounts and financial statements.

The tribunal’s caseworker/solicitor should also set out their reasoning on whether there is an important point of law involved which affects many taxpayers and whether it needs clarifying.

Paying the customer’s costs

If TAA decides that the Rees Practice should apply they will write to the tribunal’s caseworker/solicitor and tell them what to do next.

It would be extremely rare for HMRC to pay the other party’s legal costs. However, it may occasionally be beneficial for HMRC to pay the other party’s costs in order to make sure that the case is fully argued. If the customer does not contest the appeal any decision in HMRC’s favour will have less value as a precedent as it has not been fully argued.

Alternatively, the Upper Tribunal or Court may suggest the HMRC funds the other party’s costs or the costs of an advocate to present the opposing view to make sure that a fully reasoned judgement is provided, or it may appoint its own counsel to do so.

Refusal of a claim for the Rees Practice to apply

If HMRC refuses a customer’s application for the Rees Practice to apply, the tribunal’s caseworker, or Solicitor’s Office should set out the reason(s) why, and be open to any further information and evidence. HMRC’s refusal may only be challenged by way of judicial review.

If TAA decides that the Rees Practice should not apply, the tribunal’s caseworker or Solicitor’s Office, as appropriate, should encourage the customer to explore alternatives, such as appointing counsel who is prepared to represent the customer on a pro bono basis, or approaching other follower cases to set up a fighting fund, or representation funded by a representative body or other group.