Now’s a good time to resolve an outstanding dispute – HMRC’s alternative dispute resolution pilot becomes business as usual

HM Revenue & Customs (HMRC) has announced that its alternative dispute resolution (ADR) pilot for small to medium-sized enterprises (SMEs) and individuals is to be rolled out as part of a business-as-usual approach across HMRC. A permanent team, offering ADR as a route to resolve disputes, has been set up to focus on this area. This announcement signals a long-term commitment to a larger ADR team in HMRC to resolve aged disputes and avoid unnecessary litigation. This could be good news for clients who have ongoing, entrenched disputes with HMRC because it offers an effective mechanism to move those disputes on and, potentially, to reach settlement. 

How ADR works

ADR is a flexible toolkit of approaches to dispute resolution, where both sides commit to working towards settlement within a short timescale – usually four to eight weeks. During the two-year pilot period, over 66% of cases accepted into ADR were either fully or partially resolved within an average of 61 days.

HMRC's team of trained facilitators use similar techniques to mediators. They work with both HMRC case teams and taxpayers to find the hurdles to settlement, explore the possible compromises and provoke proper evaluation of evidence and litigation risks. Often the most useful part of ADR is that it prompts HMRC to reconsider their position and involve the appropriate technical specialists. Our experience of dealing with ADR for SMEs and individuals is that most of the discussion can be done over the phone to keep costs down. But sometimes a facilitator will suggest a meeting if they feel it would be helpful.

Knowing what kinds of case are suitable

ADR for SMEs and individuals is specifically aimed at smaller cases that may not be financially viable to take to litigation – typically anything from £2,000 to £80,000 of tax at stake. Larger value or more technically complex cases may sit better with HMRC's Large & Complex ADR team but this can be discussed with the HMRC's ADR team before an application is made.  

ADR works particularly well in disputes where there’s:

  • a lack of evidence, or where HMRC isn’t considering the full range of evidence available
  • an area of judgment; i.e. valuation
  • a breakdown in communication with the HMRC inspector
  • agreement on the technical position but disagreement on methodology, or
  • a range of answers rather than a binary position

When making an application, it’s really important to explain why ADR would be of value when drafting an application in order to have the best chance of being accepted. An HMRC inspector can’t turn down an ADR application; only the ADR panel can do this.

The impact and benefits of ADR 

  • ADR can be a useful way to explore and reach settlements with HMRC when a dispute has become entrenched. 
  • HMRC doesn’t accept all ADR applications – it’s important to emphasise why a case has reached deadlock
  • The possibility of ADR can be discussed with the case team. But under HMRC's governance, only the ADR team can consider and accept or reject an application.

If you’d like to find out more about alternative dispute resolution, or want to talk your clients through what options they have available, you can contact Jessica McLellan on 0161 245 2301 or your usual contact in our Tax Dispute Resolution team.