Settling tax disputes with HMRC efficiently and cost effectively: Alternative Dispute Resolution (ADR)
Elizabeth Wilson 6 September 2018 No comments
Disputes between HMRC and business taxpayers can occur as a result of a misunderstanding or misinterpretation of the facts, incomplete information or a technical disagreement. The majority of cases are settled through mutual agreement.
However, there are many long running tax disputes where attempts to work collaboratively have failed and a stalemate has been reached. Historically, the next step in reaching a resolution would have been to seek redress from the courts, a process that can be both lengthy and costly.
HMRC’s Alternative Dispute Resolution (ADR) is a mediation process aimed at businesses, that can facilitate the settlement of VAT and direct tax disputes and accelerate a resolution, without recourse to litigation.
Following two successful pilots (one for small and medium sized enterprises (SMEs) and another for Large or Complex cases), ADR was launched in Autumn 2013 as part of HMRC’s ‘business as usual’.
Since then, the use of ADR as a tool for resolving tax disputes between taxpayers and HMRC has gradually become more prevalent. It is largely viewed as successful, with 83% of the cases that employed ADR in 2016/17 having been resolved. The feedback from both HMRC and taxpayers using ADR has also been overwhelmingly positive.
What is ADR?
ADR is a means of efficiently and cost effectively reaching a mutually acceptable resolution to an ongoing tax dispute.
It is a collaborative process whereby an HMRC officer trained in mediation skills and techniques (or in some cases a professional independent mediator) acts as a neutral third-party facilitator to actively assist in resolving tax disputes with HMRC where an impasse has been reached.
The mediator will help both parties to re-establish communications and explore ways of resolving the dispute through facilitated meetings or teleconferences, often within the course of a day.
Discussions between the parties are conducted on a ‘without prejudice’ basis, and both parties retain ultimate control of the decision to settle.
Who can use ADR?
Although aimed at businesses, ADR is available to all taxpayers (businesses, companies and individuals) that are no longer making progress in their dealings with HMRC.
It can be a useful tool for both taxpayers and HMRC where:
- views on the facts differ;
- communication with HMRC has broken down;
- HMRC needs to explain why evidence provided hasn’t been agreed and alternative evidence, or additional information, has been requested; or,
- it is unclear what information HMRC has used and possible that wrong assumptions have been made.
Disputes not suitable for ADR
ADR is however not suitable for all disputes, including the following:
- Requests for time to pay;
- Fixed penalties on the grounds of reasonable excuse;
- HMRC delays in using information; and,
- Cases that are being dealt with by HMRC’s criminal investigators;
- Default surcharges;
- Tax credits; and,
- PAYE coding.
How to apply for ADR
Large businesses with an HMRC Customer Relationship Manager or a dedicated caseworker should contact them in the first instance to discuss applying for ADR.
Small and medium sized businesses (or their agent or tax adviser) should complete HMRC’s online application form, available here.
HMRC endeavours to confirm within 30 days whether an application has been accepted and if so, the taxpayer is required to sign a ‘Memorandum of Understanding’ setting out the process and confirming agreement to take part. If the terms of the agreement are broken, HMRC can remove the dispute from the process.
Further information on Alternative Dispute Resolution and the application process is available here.
If you have any ongoing VAT disputes with HMRC which you would like assistance in resolving or wish to explore the possibility of using the ADR process, then please get in touch with us.