New ADR guidance, decision on 'staleness', approach to 'warehousing' claims. 

Published on 28th Feb 2023

Mediation for UK tax disputes: HMRC publishes new ADR guidance

HMRC has published a new manual providing detailed guidance on its approach to alternative dispute resolution (ADR) for tax disputes. The guidance captures existing practice and builds upon the more limited existing guidance covering ADR. It nevertheless provides a welcome degree of transparency regarding HMRC's approach, the process involved, and which sort of cases are suitable for mediation (and which are not).

For more detail see our Insight.

Upper Tribunal extinguishes lingering arguments around 'staleness' and discovery assessments 

The Upper Tribunal in Harrison v HMRC (2023) has applied the Supreme Court's obiter dicta in HMRC v Tooth (2021) to confirm that there is no concept of staleness in the direct tax discovery assessment regime.

The Supreme Court in Tooth had rejected the idea that HMRC, upon discovering a loss of tax, needed to act reasonably promptly to raise a discovery assessment to prevent the discovery from becoming stale. Provided HMRC acts within the relevant statutory time limits there is no additional requirement to act within a reasonable period after making a discovery.

Despite the Supreme Court's judgment in Tooth, arguments over staleness have persisted because the Supreme Court's discussion of the concept of staleness was technically obiter and so, some had argued, it was not binding. The Upper Tribunal disagreed, and was comfortable that the Supreme Court's approach to staleness should be followed, noting that obiter dicta can have a status more akin to a ratio decidendi (rationale for the decision) especially where the obiter section was part of a considered judgment on a point that had been fully argued as opposed to a passing remark.


How long can you 'warehouse' a claim before the court will strike it out as an abuse of process? 

Most tax disputes are litigated in the First-tier Tax Tribunal, but sometimes due to the limited jurisdiction of the Tax Tribunal, parallel High Court proceedings are necessary, for example if there is a related judicial review, rectification or debt enforcement claim. Often, the taxpayer will need to issue proceedings for time limit or other reasons but will want to leave the High Court claim on hold while the tribunal determines the underlying tax issues, since this might render the High Court claim unnecessary.


However, "warehousing" a claim can be an abuse of process justifying the strike out of the claim, even if the defendant has not been prejudiced. There are two types of "warehousing": 1) starting proceedings with no intention of continuing the case; and 2) starting a case with the intention of continuing it but then putting the case on hold. The first is more serious than the second, although the second can still be an abuse.

The court will take various factors into account when deciding whether there has been an abuse of process. The High Court in Morgan Sindall Construction and Infrastructure Ltd v Capita Property and Infrastructure (2023) recently made it clear, though, that one of the most important factors will be the intention of the claimant. Although intention is subjective, the court is able to deduce intention from the evidence as a whole.

In Morgan Sindall, the case was deliberately put on hold in order to pursue a separate claim against insurers first, and so "line up" both claims, with a view to eventually mediating together (or possibly combining the proceedings). That was said to be a sensible course of action (with which the defendant had indicated it agreed). Accordingly, despite long periods of inaction, it was held that there had been no abuse of process here.

While parallel High Court proceedings in tax cases will often sensibly be kept on hold, there should be no blanket assumption that this is the most appropriate approach and the position will need to be kept under review, especially if the tribunal proceedings themselves are subject to lengthy delays.

Role of treaties in tax disputes

In their recent Tax Break Podcast, Ian Hyde and Matthew Greene discuss the role played by double taxation treaties in tax disputes. Click here to listen.


* This article is current as of the date of its publication and does not necessarily reflect the present state of the law or relevant regulation.

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