Alternative Dispute Resolution: An effective way to settle your tax dispute

Resolving a tax dispute with HM Revenue & Customs (HMRC) can be a time-consuming process for your business. For some time HMRC has been working harder on providing better platforms for tax dispute resolution. Under the banner of Collaborative Dispute Resolution (CDR), HMRC processes such as the High Risk Corporates Programme (HRCP) have been successful in resolving significant portfolios of tax issues for large businesses. Alternative Dispute Resolution (ADR), in the form of mediation, has now been embedded within many parts of HMRC as a way of approaching disputes before the need for litigation. So, does ADR offer a new option for you as an individual or your business when in dispute with HMRC?

What is ADR?

Historically, tax disputes are settled either by litigation or, in the majority of cases, outside of court by agreement between the taxpayer and HMRC. But there are many disputes that hover for long periods between these two extremes and without any clear roadmap to resolution.

Under traditional ADR, the parties agree to bring in a third party to either determine the dispute (arbitration) or to facilitate an agreement (mediation). HMRC sees little benefit in arbitration as it feels that role belongs to the independent tribunals and courts. Mediation, though, has already been used by HMRC since 2011 with increasing success.

Different types of mediation may be used depending on the type and status of the dispute:

  • Facilitation (or informal mediation) - where a HMRC facilitator/mediator tries to progress a dispute through more productive discussions, exchange of information and structure in order to reach a settlement  - without offering an opinion on the merits of each side’s arguments.
  • Formal mediation - where a mediator (HMRC or external) brings the two sides together for a day of structured mediation to explore settlement but without offering an opinion on the merits of each side’s arguments.
  • Expert opinion within mediation - using a panel of  third party experts, such as a valuer or in other areas of law, to provide a view which may impact either side’s view of how a case might fare at Tribunal.

There’s no hard and fast rule as to what stage in a tax dispute ADR should be attempted, although it’s unlikely to be before all facts have been explored and technical positions exchanged.However with some cases, fully establishing the facts or technical positions are part of the reason why the dispute is not progressing and ADR can be of great value in these circumstances. It may also be suitable for cases which have entered a formal appeal process.  HMRC offer the services of their own mediators, who are unconnected with the case team, for free, although it is also possible to use a similarly independent non-HMRC mediator to mediate the case alongside them.  In our experience, sometimes submitting an ADR request is enough to prompt HMRC into looking at the case in a different way, resulting in resolution with the original case team.

What cases are suitable for ADR?

ADR may be suitable for a wide range of disputes across different taxes, particularly those which relate to transfer pricing, capital vs revenue or valuation issues. It may be particularly useful for use in long-running disputes where positions on both sides have become entrenched, with litigation or one party conceding appearing to be the only options.

The right option for your dispute?

HMRC are increasingly encouraging the use of ADR, or facilitation techniques across both corporate and individual taxes.  Undoubtedly ADR will be a welcome option if you’ve reached an impasse in your dispute with HMRC and believe there’s a resolution which doesn’t necessarily involve litigation. You’ll need to think very carefully about whether ADR is right for you, but the non-binding nature of mediation means that there’s very little obvious downside.

If you’d like to find out more about ADR contact us.

Contact us

Don Morley

Director

Tel: +44(0)20 7212 4628

Andy Olymbios

Head of Tax Disputes Network

Tel: +44 (0)7866 744143

Mark Whitehouse

Partner

Tel: +44 (0)20 7804 1455

Follow us