ADR can be used when a taxpayer cannot reach an agreement with HMRC. This can be during a compliance check, where progress in the enquiry has stalled or at the end of a compliance check when a decision has been made which can be appealed against.
The alternative dispute resolution process does not affect a taxpayer's right to appeal or to request a statutory review and both processes maybe carried out simultaneously. Taxpayers need to be aware of the strict deadlines for lodging an appeal and not fall foul of these.
Alternative dispute resolution is not a statutory process and HMRC can reject applications that are not considered appropriate for ADR. Therefore it is vital to submit an application that meets the ADR criteria.
HMRC has confirmed that ADR can be used in the following circumstances, when:
- communications have broken down between HMRC and the taxpayer;
- there are disputes about the facts;
- a dispute appears to be the result of a misunderstanding;
- the taxpayer wishes to clarify why HMRC has not agreed to evidence provided to HMRC and why HMRC wishes to use other evidence;
- the taxpayer is not clear what information HMRC has used, and believes that HMRC may have made wrong assumptions; and
- the taxpayer wants HMRC to explain more information is needed.
ADR cannot be used for:
- complaints and disputes about HMRC delays in using information or giving misleading advice;
- cases that HMRC’s criminal investigators are dealing with;
- cases the First Tier Tax Tribunal has categorised as ‘paper’ or ‘basic’;
- debt recovery or payment issues;
- disputes about tax credits;
- disputes over default surcharges;
- automatic late payment or late filing penalties;
- PAYE coding notices;
- disputes regarding Extra-Statutory Concessions;
- pension liberation schemes;
- disputes regarding High Income Child Benefit Charges;
- disputes about the National Minimum Wage;
- accelerated payments and follower notices;
- civil evasion penalties; and
- forfeiture.
When to apply
An application for ADR can be made when there is a dispute with HMRC.
If HMRC has opened an enquiry then a taxpayer can apply at any stage of the enquiry or tribunal proceedings. If HMRC has made a decision, then:
for direct tax disputes application for ADR can be made where:
- HMRC has accepted the appeal but have not offered a statutory review; or
- offered a statutory review that has been accepted. In this case, the taxpayer must wait for the review to end, appeal to the tribunal and have received an acknowledgement letter before application; or
- offered a statutory review that the taxpayer has not accepted. The taxpayer must appeal to the tribunal first and have received an acknowledgement letter before applying.
for indirect tax disputes applications can be made where the taxpayer has either:
- accepted an offer of a review. In this case the taxpayer must wait for the review to end, appeal to the tribunal and have received an acknowledgement letter before applying; or
- not accepted the offer of a review. In this case, the taxpayer must appeal to the tribunal first and have received an acknowledgement letter before applying.
How ADR works
There is an application process in which the taxpayer will be required to provide information about the dispute and reasons in support of ADR. Following receipt of the application, the ADR team will make contact to discuss the application in more detail. The ADR team will consider the case and decide whether ADR is an effective way of resolving the dispute.
Normally, HMRC will confirm within 30 days of receiving the application if the case has been accepted. A mediator will be appointed after acceptance.
The mediator is usually a trained independent HMRC officer who is not the assessing officer or one that is in the team responsible for dealing with the taxpayer's case. It is possible to request a third party mediator.
Usually, the mediation meeting will take place within 90 days of the date of acceptance. The meeting itself can last up to a full day and is now usually done via a video conference or telephone call, although a face to face meeting can be requested.
All information disclosed by either side in the dispute during the arbitration can be referred to in later formal proceedings if no resolution is achieved and all documents exchanged during the ADR process are now treated in the same way as information exchanged with HMRC at any other time.
Benefits of ADR
In our experience, ADR is a way of working with HMRC to resolve various types of disputes. The benefits of ADR are that it can improve the experience of dealing with HMRC and allow the taxpayer face to face time with HMRC to discuss information provided, calculations, points of law in dispute to clarify any misunderstanding between both parties.
ADR can also reduce the time it takes to complete a compliance check and costs of both parties. It can also reduce the need to proceed to the tribunal, or narrow the issues in dispute significantly.
Our experience
We have been involved in a large number of successful ADR meetings with HMRC both in person and online and found the ADR process a useful way to engage with HMRC.
The outcome of ADR is obviously dependent upon communication and willingness of both sides to listen and make compromises to find common ground. We have had considerable success is concluding complex disputes and negotiating settlements on behalf of our clients.
Success at ADR is also dependent upon preparing the matter and having the information that is required in support of your case to hand and ready to be provided to HMRC.
We are not only able to meticulously prepare cases for ADR, we are also able to provide training ahead of an ADR for anyone who wishes to undertake ADR meeting without third party representation. This can be useful to ensure attendees understand the process fully, provide possible ideas as how to structure the meeting, the rights of all parties and how to best reach a settlement agreement.
If you would like further advice or assistance, please contact Tajinder Barring or Nina Basra.
