HMRC Appeals & Disputes: How to Challenge an HMRC Decision

Receiving a tax assessment, penalty notice, or dispute letter from HMRC can be stressful — but HMRC decisions are not final. A robust appeals process exists, culminating in an independent Tax Tribunal if necessary. This guide explains every stage: from requesting an internal review to appealing to the Upper Tribunal and beyond.

1. Types of HMRC Decisions You Can Appeal

Not every HMRC communication is an appealable decision. The decisions that carry a right of appeal include:

• Tax assessments — where HMRC assesses you owe additional tax (income tax, corporation tax, VAT, PAYE, etc.)
• Fixed and daily penalties — for late filing of returns (e.g. Self Assessment, corporation tax, VAT)
• Failure to notify penalties — for not registering for tax when required
• Surcharges — for late payment of VAT
• PAYE coding notices — you can object if you believe your tax code is wrong
• Refusal to allow deductions or reliefs— e.g. refusal of R&D tax credit, capital allowances, or loss relief
• VAT registration and deregistration decisions
• IR35 status determinations — where HMRC concludes a contractor is inside IR35

Some decisions — such as HMRC's decision on how to exercise a discretionary power — are not directly appealable to the tribunal but may be challenged by judicial review in the Administrative Court.

2. The Internal Review

Before going to the First-tier Tribunal, you have the option of requesting an HMRC internal review. This is carried out by an independent HMRC officer who was not involved in the original decision.

Key features:

• Free — no charge to the taxpayer
• Fast — HMRC aims to complete reviews within 45 days (though complex cases may take longer)
• Deadline: you must request a review within 30 days of the original decision letter
• During the review, HMRC will pause collection of the disputed amount (although this does not stop interest accruing)
• If the review upholds the original decision, you then have a further 30 days from the review conclusion to appeal to the First-tier Tribunal

Statistics suggest that internal reviews result in a different outcome to the original decision in around 20–30% of cases. Many disputes are resolved at review stage without the time and cost of a tribunal.

3. Appealing to the Tax Tribunal

The First-tier Tribunal (Tax Chamber)is a fully independent judicial body — it is not part of HMRC. Tribunal judges are legally qualified and specialise in tax law. The tribunal can confirm, vary, or set aside HMRC's decision.

The Tax Chamber handles the vast majority of tax appeals. More complex cases — particularly those involving large sums or novel points of law — may be allocated to the Upper Tribunal directly, but this is unusual at first instance.

The tribunal is divided into four categories:

• Default Paper — straightforward penalty appeals; decided on written submissions without a hearing
• Basic — smaller disputes; simplified procedure, short hearing
• Standard — the most common category; full disclosure, witness statements, and oral hearing
• Complex — major tax disputes; full costs regime applies (unlike other categories)

4. Time Limits

Time limits in tax appeals are strict:

• Appeal to the tribunal: 30 days from the HMRC decision letter (or from the internal review conclusion letter if you requested a review)
• Request for internal review: 30 days from the HMRC decision letter
• You can request a review or appeal to the tribunal, but not both simultaneously. If you request a review, you cannot lodge a tribunal appeal until the review is concluded.

Late appeals can be admitted by the tribunal if there is a good reason for the delay. The tribunal applies a two-stage test: (1) is there a good explanation for the delay? (2) balancing all factors, is it in the interests of justice to allow the late appeal? The merits of the underlying dispute are not relevant to this threshold question.

5. The Notice of Appeal

The notice of appeal is submitted to the First-tier Tribunal using form T240 (paper) or online via the HMCTS portal. It must include:

• Your name and address
• The HMRC decision being appealed and its date
• The grounds of appeal— why you believe HMRC's decision is wrong; this need not be a legal argument at this stage, but a factual explanation
• The ACAS Early Conciliation certificate number (not applicable for tax appeals — this is an employment law requirement)
• A £20 fee for Complex category cases; all other categories are free

Once the appeal is lodged, HMRC has 60 days to serve its statement of case (the grounds on which it defends the decision). You then have 42 days to serve a reply.

6. Paper vs Oral Hearing

Cases in the Default Paper category are determined on written submissions alone — you submit a statement setting out your grounds and supporting documents, and the tribunal judge decides on the papers.

For all other categories, you can choose between a paper determination or an oral hearing:

• Paper hearings: cheaper and quicker; the judge reads submissions and decides without either party being present
• Oral hearings: you or your representative attend and present your case; HMRC is also represented; witnesses can be called and cross-examined

Oral hearings are generally preferable where the case turns on disputed facts — for example, whether a business expense was genuinely incurred for business purposes, or whether a reasonable excuse existed for a late filing. Paper hearings work well for purely legal arguments where the facts are agreed.

7. Penalty Appeals

Many tax appeals relate to penalties for late filing of returns or late payment of tax. The most common defence is reasonable excuse.

A reasonable excuse is a genuine, unexpected event outside your control that prevented you from complying. Recognised examples include:

• Serious unexpected illness (your own or of someone you were caring for)
• Death of a close family member shortly before the deadline
• A serious technical failure affecting online filing services
• Reliance on incorrect advice given by HMRC itself
• Fire, flood, or other natural disaster affecting business records

The excuse must be reasonable in the specific circumstances and must have caused the non-compliance. Once the reasonable excuse ceased, compliance must have occurred as soon as reasonably practicable.

HMRC also has a special reduction power for circumstances that do not strictly qualify as reasonable excuse. This is discretionary and HMRC must not act irrationally in exercising it — an irrational refusal can itself be appealed.

8. Discovery Assessments

A discovery assessment arises when HMRC discovers that insufficient tax has been charged — usually following an investigation or the emergence of new information. HMRC can raise a discovery assessment outside the normal 12-month enquiry window, subject to time limits:

• 4 years from the end of the relevant tax year — for innocent errors where the taxpayer took reasonable care
• 6 years — for careless errors (failure to take reasonable care)
• 20 years — for deliberate understatement or fraud

A discovery assessment is only valid if HMRC has genuinely 'discovered' something — it cannot re-open a closed enquiry simply by relabelling it as a discovery. If HMRC had all the relevant information during the enquiry window and did not assess, the taxpayer can argue that no valid discovery has been made. This technical defence is known as 'staleness' and has been successfully used in tribunal cases.

9. Alternative Dispute Resolution (ADR)

HMRC's Alternative Dispute Resolution service offers a free mediation process facilitated by an independent HMRC mediator. It is available for:

• Open HMRC enquiries where discussions have broken down
• Cases that have already been appealed to the tribunal (with the tribunal's agreement)

ADR works best for disputes about facts or valuation — for example, whether a sum paid to a contractor was an employment expense or a genuine business payment, or the open market value of a property for CGT purposes.

If ADR produces an agreed settlement, it is binding on both parties. The process is conducted without prejudice — nothing said in ADR can be used against either party if the case proceeds to tribunal. ADR typically takes 3–6 months, significantly faster than a tribunal hearing.

10. Upper Tribunal and Beyond

If you lose at the First-tier Tribunal, you can appeal to the Upper Tribunal (Tax and Chancery Chamber), but only on a point of law — not on findings of fact. The Upper Tribunal will not simply re-hear the evidence. You must obtain permission to appeal from either the First-tier Tribunal or the Upper Tribunal itself.

Key differences in the Upper Tribunal:

• Costs are more likely to be awarded against the losing party (unlike the First-tier Tribunal where costs are rare except in Complex cases)
• The hearing is more formal and typically involves counsel
• Upper Tribunal decisions are binding on the First-tier Tribunal (they create precedent)

Further appeal from the Upper Tribunal goes to the Court of Appeal (England and Wales) on a point of law, and ultimately to the Supreme Court. These routes are reserved for cases of significant public importance. At every stage above the First-tier Tribunal, professional legal representation is strongly advised.

Key appeal timelines at a glance