Mandatory reconsideration of HMRC decisions
Mark Willis takes a look at the rules introducing mandatory reconsideration into appeal rights for tax credits, child benefit and guardian’s allowance.
Another hurdle has been placed in the path of claimants seeking to challenge decisions, as Her Majesty’s Revenue and Customs (HMRC) joins the mandatory reconsideration procedure. Decisions on tax credits, child benefit and guardian’s allowance made on or after 6 April 2014 must first be reviewed by a HMRC decision maker before the claimant can appeal to the independent First-tier Tribunal.1This brings HMRC into line with the DWP, but there are subtle differences in the way the process will work, especially with regard to tax credits, for which it has long been notoriously difficult to get to a tribunal in any case.
The Tax Credits Act 2002 has been amended so that a new section 21A is inserted, which introduces a requirement for HMRC to ‘review’ a decision if the claimant requests it. The text of the legislation uses the term ‘review’ but a footnote helpfully states that in practice this review will be known as a ‘mandatory reconsideration’. This should help to avoid mix-ups with the ‘annual review’, and should not be confused with ‘revisions’ under sections 15 to 21, or indeed the ‘dispute’ process for challenging recovery of an overpayment.
HMRC must review a decision if it receives a written application from the claimant within 30 days (a new version of form WTC/AP has been adapted for this purpose), although HMRC says it will also do so if requested by telephone. A late application may be accepted within the absolute time limit of 13 months if an explanation is provided, and HMRC is satisfied there are special circumstances and it is reasonable to do so. The longer the delay, the more compelling the reasons should be. As with benefits, the right of appeal is lost if the mandatory reconsideration request is rejected as out of time, and there is no right of appeal against this decision, so the only remedy is judicial review. HMRC may request further information or evidence it may need for the review, but should specify a date and proceed with the review if it is not provided. The review must be carried out ‘as soon as reasonably practicable’ and HMRC has a target of 42 days.2 The outcome of the review must be notified in writing and must be that the original decision is upheld, varied or cancelled, with sufficient information for the claimant to understand the reasons for the conclusion.
It is only at this point, if the claimant is still unhappy, that s/he can appeal to the First-tier Tribunal. The right of appeal against tax credits decisions specified in section 38(1) of the Tax Credits Act is amended so that it is only effective after a review has been carried out and the outcome has been notified to the claimant. The claimant must lodge the appeal directly with HM Courts & Tribunals Service (HMCTS – in writing or on new SSCS5 form3), enclosing a copy of the mandatory reconsideration notice. From this stage onwards, the legal procedure is the same as for DWP benefits. This means that the time limit for an appeal is one month under the Tribunal Rules, rather than 30 days as previously was the case for tax credits. Late appeals may be accepted within 13 months, if reasons are given and the tribunal extends the time limit, or if the decision maker does not object, unless the tribunal directs otherwise.
Settlement of appeals
The mandatory reconsideration stage should mean that the ‘settlement’ procedure is less likely to arise. Settlement is a process originating in tax law which allows HMRC to settle an appeal by agreement with the claimant before the tribunal, thereby treating the appeal as withdrawn. In practice, it often led to lengthy delays while HMRC attempted to negotiate, and if a compromise is reached, send notice in writing to the claimant, who is then allowed 30 days to reject the terms of the settlement in writing. Although this power had been inadvertently removed by previous changes, it has just been reinstated.4 This raises the prospect of further delays if HMRC seeks to reach a settlement after it has already had the opportunity to reconsider a decision.
As ever with tax credits, it is advisable to be clear about what you are asking for, use the correct form and be prepared to be persistent in chasing it up. Recovery of any overpayment arising due to the decision should be suspended during the mandatory reconsideration and appeal stages, as confirmed on page one of the latest version of the official guidance, What to do if we’ve paid you too much tax credit? (COP26). If the appeal goes against the claimant, there is then an opportunity to dispute recovery of the overpayment according to the COP26 responsibilities test, using form TC846 within three months (or later in exceptional circumstances).5 However, recovery is not suspended during the dispute stage, but HMRC has confirmed that any amount already recovered will be refunded if the dispute is found in the claimant’s favour.6
Child benefit & guardian’s allowance
Amendments have also been made to introduce mandatory reconsideration for child benefit and guardian’s allowance, bringing them broadly into line with DWP benefits. There is a specific mandatory reconsideration form (CH24A7) for both benefits, and the new SSCS5 form should be used to lodge the appeal directly with HMCTS. There is a potential cause for concern in the wording of the amended Social Security Act which says ‘the making of any appeal against the decision as originally made must follow HMRC deciding, on an application for revision, not to revise that decision.’8 This raises the question as to what happens if HMRC revises a decision in part, but the claimant is still unhappy – is there a right of appeal or is it necessary to go through mandatory reconsideration again? As has already been seen with the introduction of mandatory reconsideration for DWP benefits, the scope for confusion and obfuscation is rife, with claimants ultimately losing out with delays or denied appeal rights.
When mandatory reconsideration does not apply
Mandatory reconsideration of HMRC decisions only applies to decisions made on or after 6 April 2014.9 If a claimant is unhappy with a decision made before this date, there is a right of appeal straight away, but it must be made to the HMRC decision maker. The archive version of form WTC/AP is still available for this purpose.10 Evidently, such an appeal will now be late so it is necessary to provide reasons. Advisers will recall the case law which found there was no power to accept late tax credit appeals (Bulletin 234: Better late than never?). This has largely been rectified by another order issued at the same time, and in force from 2 April 2014.11 This states that late appeals may be accepted by HMRC up to one year after the original 30-day time limit where it is in the interests of justice to do so (specified as appellant or partner’s death or serious illness, not resident in the UK, postal disruption or some other special circumstances which are wholly exceptional and relevant). So it is still possible to make a late appeal against a HMRC decision made within the last year and 30 days. However, if it is a tax credits decision where there is an ongoing award, then there will be a final decision for 2013/14 made after 6 April 2014, which will be subject to mandatory reconsideration, and the appeal against an in-year decision will become redundant.
The order also has a retrospective effect, so that a late tax credits appeal made between 1 April 2013 and 2 April 2014 may be accepted if HMRC has notified the claimant that it considers the appeal should proceed. This raises two further questions: what to do if HMRC does not considers the appeal should proceed (ie, does not accept reasons for lateness), and what to do if there is an outstanding late appeal made before 1 April 2013 – within the ultimate time limit but during the period when late appeals were being rejected due to the aforementioned caselaw. In either case, under First-tier Tribunal Rule 23(7), the decision maker must refer the case to the Tribunal immediately, but advisers may still need to rely on the human rights arguments put forward in the Bulletin 234 article to get it heard.
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- 1. The Tax Credits, Child Benefit and Guardian’s Allowance Reviews and Appeals Order 2014, SI No.886
- 2. E-mail from Benefits & Credits Consultation Group, to CPAG, 15 July 2014
- 3. Available from http://hmctsformfinder.justice.gov.uk/ courtfinder/forms/sscs005-eng.pdf
- 4. The Tax Credits (Settlement of Appeals) Regulations 2014, SI No.1933; JI v Commissioners for Her Majesty’s Revenue and Customs (TC)  UKUT 0199 (AAC)
- 5. Available from www.hmrc.gov.uk/forms/tc846.pdf
- 6. October 2013 version of COP26, omitted in error from April 2014 version, as confirmed in Benefits & Credits Consultation Group meeting, 29 May 2014
- 7. Available from www.hmrc.gov.uk/forms/ch24a.pdf
- 8. s12(3D) SSA 1998, as amended by SI 2014 No.888
- 9. Reg 1(5), SI 2014 No.886
- 10. www.hmrc.gov.uk/gds/taxcredits/forms-and-leaflets/leaflets.htm
- 11. The Tax Credits (Late Appeals) Order 2014, SI No.885