Request a
call back
Getting involve in a tax dispute with HMRC can be costly and time-consuming. Thankfully HMRC has been improve its procedures over time in an effort to offer a strong substitute for going to court. Nowadays, alternative dispute resolution (ADR) is extensively accessible and can assist people and companies in resolving conflicts with HMRC before the issue moves 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.
How Does ADR Differ in 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. According to HMRC the only ADR method used for tax disputes is mediation because arbitration would be unsuccessful in these cases.
Types of Alternative Dispute Resolution in Tax Disputes
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.
Is ADR with HMRC Really Neutral?
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).
When Is Alternative Dispute Resolution Appropriate?
ADR is applicable to a broad range of scenarios.
- Transfer Pricing Disputes
- Valuation Discrepancies
- Breakdowns in Communication
If communication between HMRC and the taxpayer has become strained or if evidence is disputed, ADR can help re-establish dialogue and pave the way for settlement.
When Is Alternative Dispute Resolution Not Suitable?
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.
How IBISS & CO Can Help with Alternative Dispute Resolution
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.
Frequently Asked Questions(FAQs)
No Alternative Dispute Resolution is not legally binde. It is a voluntary process that help resolve disputes between taxpayers and HMRC without going to court. If both parties reach an agreement. It can be formalized, but neither party is legally obligated to follow the outcome unless they agree to it.
The strongest method of ADR is arbitration. Unlike mediation or negotiation arbitration leads to a legally binding decision made by an independent arbitrator. This decision is enforceable in court give it more weight than other forms of ADR. However it is important to note that it involves less flexibility compared to mediation, where parties have more control over the outcome.
ADR has its pros and cons. It is cost effective time saving and confidential allowing both parties more control over the process. However some methods like mediation are non binding and arbitration decisions can be hard to appeal. The effectiveness of ADR depends on the specific situation and the needs of the parties involved.
