UK Tax legislation has a long history and Income Tax itself dates back to the time of the Napoleonic Wars. Changes in the law are usually made through annual Finance Bills, headlines of which we are used to seeing and hearing each year when the Chancellor of the Exchequer delivers his Budget.
Once the Finance Bill has passed through Parliament and received Royal Assent as a Finance Act we have our tax laws. It is then the duty of HM Revenue & Customs (HMRC) to interpret and apply those laws.
Although legislation is drafted as tightly as possible so as to avoid doubt or uncertainty as to intention there are always some grey areas which are open to a different interpretation. When the facts of a taxpayer's circumstances are compared, for example, with the strict wording of the law on eligibility for a particular tax allowance HMRC may argue that the allowance is not due.
However that's not the end of the matter and a taxpayer or his Agents may be able to refer to similar arguments which have passed through the Courts and in which the Courts have found in the taxpayer's favour.
These kinds of arguments can be protracted and it may seem difficult to get HMRC to accept an alternative viewpoint. It is possible however to ask for an internal review by another Officer of HMRC in the hope that a different perspective can help to break the deadlock.
If despite discussions and negotiations HMRC still consider the taxpayer's case unpersuasive they may issue a formal determination rejecting the claim and raising a tax assessment.
The taxpayer has a right of appeal against this type of determination or assessment by HMRC. If further discussions and negotiation prove unfruitful the case may proceed for hearing before what is known as the First Tier Tribunal (Tax).
Administered by HM Courts & Tribunals Service, the First Tier Tribunal (FTT) comprises judges and legally qualified members. It is wholly independent and will listen to the arguments from both the appellant (the taxpayer) and HMRC and adjudicate accordingly.
With the permission of the FTT either party may appeal against their decision to the Upper Tier Tribunal who will effectively re-hear and review the arguments and may either confirm the decision of the FTT or reach a different one.
There are further appeals available in certain circumstances by either the taxpayer or HMRC to the Court of Appeal and higher but these are usually confined to issues where there are important points of law which need to be considered and the outcome may affect a large body of taxpayers and where a large amount of tax is involved.
Relatively few cases are heard beyond the FTT. A taxpayer can represent himself or herself at these Tribunals but if the amounts of tax involved are relatively modest the ordinary taxpayer may think twice about all the work which needs to be done to present his or her case effectively. Legal and accounting representation comes at a price and the taxpayer needs to consider carefully what his or her chances of success are likely to be.