Coronavirus: UK tax tribunal backlog increases and set to worsen further

In response to the coronavirus outbreak, the First-tier Tax Tribunal put all proceedings in the standard or complex category on hold for a period of 28 days from 24 March 2020. It has recently extended this stay of proceedings until 30 June 2020 for proceedings received by the Tribunal before 24 March. The dates of all hearing windows and for compliance with all time limits in those proceedings have been further extended by 70 days.

The growing backlog and temporary suspension of hearings comes as the First-Tier Tax Tribunal continues to receive near-record high numbers of cases. The number of cases received reached 3,390 in the quarter ended December 2019, which is the highest quarterly total since 2012. 

"The stay on cases following the coronavirus outbreak heaps more pressure on the creaking tax tribunals," said Clara Boyd, a tax disputes expert at Pinsent Masons. "They’ve been doing a great job with the resources they have but they are underfunded."

"Thousands of cases are arriving at tribunals every quarter and currently, the stay means that very few of the older ones are being moved on. Soon something will have to give," she said.

"Creative solutions need to be found to ease the backlog – we do not know how long stringent social distancing measures will last. The sooner a solution is found the better as businesses do not need more uncertainty at this time," Boyd said.

"The response of HM Revenue & Customs (HMRC) to the coronavirus outbreak has shown great flexibility in areas, such as deferring VAT payments and allowing tax owed to be paid back in more affordable instalments. It would be great if they extended this pragmatic approach to tax disputes and negotiated more settlements rather than fighting them all the way through the courts. That would be a tremendous help to UK businesses who otherwise might have to wait years to find out what their tax bill is," she said.

The tribunal’s backlog has largely been driven by the aggressive strategy HMRC has to follow when pursuing cases, Boyd said. "HMRC’s ‘litigation and settlement strategy’ (LSS) means it is not allowed to settle disputes for less than it thinks it is owed, leading to more cases failing to settle and going to court. A more flexible approach to the LSS could accelerate settlement of cases, easing the burden on the tax tribunals."

There could also be more emphasis on alternative dispute resolution (ADR), which enables disputes to be resolved without having to resort to the tax tribunal, said Stuart Walsh, also a tax disputes expert at Pinsent Masons.

He said facilitated mediation could be used, where either a HMRC trained mediator or third party mediator, or sometimes both, assist the parties in trying to resolve a dispute. 

"These can go ahead remotely, even with the most basic of technology," Walsh said. "There just needs to be patience on the part of all parties involved as a mediation conducted remotely may take a little longer than might be the case where all parties are situated within the same building."  

The stay of proceedings in the tax tribunal does not apply to any directions made by the Tribunal on or after 24 March 2020 and does not apply to new matters received after that date.

"The general stay on proceedings only applies to cases that require a more detailed level of case management, those falling within the standard or complex category," said Walsh. "Accordingly, basic cases, for example where there is a dispute concerning the level of penalty that has been issued, or cases that can be determined without oral representations being required, typically those where the tax or penalty in dispute is less than £20,000, will be unaffected."

"Importantly, taxpayers must still comply with the time limits for appealing against a disputed decision, and a failure to do so could see them stuck with the consequences of the adverse decision," Walsh said. 

"Although there is a general stay on proceedings, this does not mean taxpayers and HMRC cannot agree to work to the deadlines in directions given before the pandemic," he said. "Quite the opposite. Businesses should consider this option where it is in their interests to do so, and actively pursue it where their appeal has already been listed for a hearing in July onwards, and they want to try to save the hearing date. There will just be no judicial consequence if a pre-pandemic direction 'deadline' is missed."

"For those standard and complex category appeals with hearings listed before the end of June, there will inevitably be a need to relist them at a future date, as yet undecided," Walsh said.

"For hearings that were listed for more than a week before the end of June, given the appeal backlog and other factors such as judicial availability and barristers' commitments in relation to other cases, there must be a realistic prospect that any new hearing date will not be found until 2021. Similarly, for those that do not already have a hearing date, there will inevitably be a delay in getting their day in court," he said.