Tim Palmer looks at how a taxpayer applies for alternative dispute resolution, how it works in practice and the possible outcomes of using it.
Alternative dispute resolution (ADR) is a very useful way of resolving tax disputes between HM Revenue and Customs (HMRC) and taxpayers. ADR has proved to be a very cost-effective and efficient route to tax dispute resolution.
What is ADR?
ADR is an alternative way of approaching tax disputes before the need for litigation. ADR is potentially available to any UK taxpayer regarding any tax dispute with HMRC.
Under ADR, an independent mediator, who has had considerable training in mediation skills and techniques, and who has not been involved in the tax dispute before, is appointed and will work with the taxpayer, the taxpayer’s accountant and HMRC to endeavour to resolve the tax dispute. Taxpayers can apply for ADR if they have stopped making progress in their dealings regarding a particular tax dispute with HMRC. The mediator will bring the two sides in the tax dispute together for a structured mediation to explore the possible ways of reaching a settlement which will be acceptable to both parties.
ADR may be helpful where one or both parties have come to an entrenched position and communications have broken down.
The taxpayer must complete an online form to apply for ADR. The taxpayer’s agent or tax adviser can apply on behalf of the taxpayer. The taxpayer will have to apply online and sign in with their government gateway user ID or with their email address. To assist HMRC in processing their application for ADR, the taxpayer will have to outline the issues in dispute and provide any details they consider to be relevant.
HMRC will advise the taxpayer within 30 days of receiving their application as to whether the application has been successful. HMRC’s aim is for the whole ADR process to take no longer than four months.
ADR in practice
ADR could be used to resolve various tax disputes across different taxes, including employed or self-employed, capital v revenue, inheritance tax issues, transfer pricing, VAT disputes or valuation issues.
ADR cannot be used for:
- complaints or disputes regarding HMRC delays in using information;
- cases that HMRC’s criminal investigators are dealing with;
- debt recovery or payment issues;
- cases that the First Tier Tribunal has categorised as ‘paper’ or ‘basic’;
- disputes over default surcharges;
- PAYE coding notices;
- high-income child benefit charges; and
-
disputes regarding the national minimum wage.
If an ADR application has been successful, in many cases the mediator will arrange for a day of meetings with structured mediation to try to reach a settlement. The accountant representing the client can request that the meetings be held at his office, if required. The accountant can ask for appropriate members of his tax advisory team to also be allowed to attend the mediation meetings.
At the meeting, the explanations, paperwork and information provided by the accountant on behalf of the client may enable HMRC to accept the taxpayer’s claims, assertion and position. Alternatively, the information provided by HMRC may result in the taxpayer now accepting that HMRC is correct.
ADR has been proven to be a quick, effective and cost-efficient way of resolving tax disputes between taxpayers and HMRC. Figures have shown that in 2020/21, some 80% of cases were resolved using ADR. The huge benefit of ADR is its very informal process and its accessibility.
Practical tip
ADR can considerably accelerate the resolution of long-running tax disputes. It is very cost-effective and there is everything to gain, with indeed very little to lose, by using ADR to resolve a tax dispute with HMRC.
