This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

Compliance Handbook

Litigation and settlement strategy: resolving a dispute: disputes must be resolved in accordance with law

The law allows HMRC to reach agreement with the person we are in dispute with about how the dispute should be resolved. This avoids the need to go to tribunal.

These provisions allow HMRC to reach an out of court settlement on a basis that we believe to be a likely outcome of any eventual litigation, without going through the expense and uncertainty of taking the case to court.

The following should help you interpret this.

  • Broadly, where HMRC has reached a considered and definitive view of what is the right treatment of a particular transaction, on a full understanding of the facts and after having considered the full range of possible arguments, we will not settle out of court for any other tax treatment.
  • Where, having considered the facts and the range of arguments, HMRC is satisfied that there are alternative approaches that are reasonably likely outcomes to court proceedings, we may choose to settle out of court for one of the alternatives.
  • HMRC cannot, however, settle out of court for a result that it does not believe to be one of a range of likely outcomes.
  • HMRC will not agree less tax, interest or penalties than it believes is within the range of outcomes in the interest of achieving a quick settlement, even if doing so would provide a good return on time spent on the case.

Exceptionally, the Commissioners for HMRC, or HMRC officers on their behalf, may exercise their legal discretion under the collection and management powers in the Commissioners for Revenue and Customs Act 2005. This legal discretion allows HMRC to concede an amount of disputed tax in the interests of securing the best net return for the Exchequer, where HMRC expects to win in litigation. However, when considering the factors of:

  • taxpayer behaviour (including taxpayers more widely),
  • the read across of the decision not to litigate to other cases, and
  • the precedent value of any litigation win,

the decision to litigate will almost always be the correct one. Where this legally sanctioned discretion is properly exercised, the outcome is equally ‘in accordance with the law’. For further guidance, see the Admin Law Manual at ADML3000.