Becoming embroiled in a tax dispute with HMRC can be both time-consuming and expensive. Fortunately, HMRC have been refining their processes over the years with the aim of providing a viable alternative to litigation. Alternative dispute resolution (ADR) is now widely available, and can help individuals and businesses resolve disputes with HMRC before the matter escalates to a more formal court setting. Could ADR offer an effective method of resolution for you and your business?
Alternative Dispute Resolution: What Is It?
Before 2011, there were two main options for resolving tax disputes: either within court or through a settlement out of court (governed by an agreement between HMRC and the relevant taxpayer). However, this procedure was far from ideal; tax disputes could drag on for years, resulting in mounting costs and frustration for both parties. With this in mind, HMRC sought to speed up the process and widen the options for settling tax disputes.
ADR – as it exists in the tax arena – varies slightly from the process as it is known in the legal world. Traditionally, alternative dispute resolution can encompass both arbitration and mediation processes. HMRC take the view that arbitration would be ineffective for tax disputes, however, and as such mediation is the only form of ADR that is used.
The nature of the disagreement has some bearing on the nature of mediation that is attempted. There are a few different types, as follows:
- Informal mediation. Also known as facilitation, informal mediation requires the involvement of a neutral HMRC mediator, who tries to ‘facilitate’ more effective discussions between both parties in order to progress the dispute to settlement. The mediator does not offer any opinions as to the merits of either side’s argument.
- Formal mediation. In this scenario, an HMRC mediator is present during a set appointment – usually over the course of a day – and presides over a process of structured mediation, during which the two parties meet and discuss the matters at hand in a systematic way. Again, the aim is to reach a settlement without the facilitator offering any kind of judgement.
- Expert involvement. Within the mediation process, a panel of impartial experts (legal professionals, perhaps, or valuers) are involved to give their view on the case. This expert insight may help parties to reach a settlement, as it will shed light on their chances of success at tribunal.
For some, the fact that mediators are often HMRC officials can be a cause for concern, but it needn’t be; HMRC have demonstrated a commitment to superior training for all in-house mediators. All mediators are CEDR trained and act as neutral third parties. Moreover, there is a clear advantage in that the taxpayer can engage an HMRC mediator without additional charge.
In some instances, the taxpayer might agree with HMRC to engage an independent mediator (and split the costs).
Alternative Dispute Resolution: When Is It Appropriate?
ADR is applicable to a broad range of scenarios – from issues concerning transfer pricing to valuation matters. If both sides can become entrenched – for example, if HMRC refuses to accept some of the evidence that a taxpayer has put forward, or if HMRC are requesting more and more information and the taxpayer cannot understand why – ADR can be especially useful. During lengthy disputes where communication may have broken down, ADR may help to re-establish a productive dialogue and open up the possibility of settlement without the need for litigation.
Alternative Dispute Resolution: When Is It Not Appropriate?
Though there has been a clear drive for more tax advisers to encourage clients to use ADR where suitable, HMRC have also indicated there are instances in which ADR would not be appropriate. For example, ADR is not seen to be effective for disputes involving:
- PAYE coding.
- Requests for time to pay.
- Tax credits.
- Appeals on the grounds of a reasonable excuse (e.g. against fixed penalties).
- Default surcharges.
- Criminal investigations.
- HMRC delays with regard to the use of information.
- In addition, matters to do with interpretation – if two parties disagree about a certain component of legislation, for instance – may not be suitable for ADR.
Whatever your circumstances, IBISS & Co will review the particulars of your case in detail and draw on our considerable experience with HMRC to advise on the best strategy. Our specialist tax advisers are qualified to guide you through all manner of tax disputes, ensuring that you achieve the best possible solution with minimal stress or expense. Please contact us today to learn more about ADR and whether it presents a viable option for you.