The Alternative Dispute Resolution (ADR) is a pilot for small and medium enterprises. It uses “independent” HMRC facilitators to resolve disputes between HMRC and taxpayers during a compliance check but before a decision or assessment has been made. HMRC states that ADR aims to find a “fair and quick” outcome for both parties, helping to reduce their costs and avoid a tribunal.
The launch of this pilot in North Wales and the North West follows a successful trial in 2011. During this trial, cases were selected from those which had gone for internal HMRC Review and looked to be headed for Tax Tribunal. HMRC believed the results were encouraging and the data suggested that ADR might work at an earlier stage in the Compliance Check Process.
In the initial trial HMRC claim that 60 per cent of the disputes which entered the pilot were either fully or partially resolved and the overwhelming majority were fully resolved to the satisfaction of both the taxpayer and HMRC. HMRC have been encouraged by the fact that the pilot would appear to have been well received by both taxpayers and their advisors, who welcomed the opportunity to use ADR as a means to resolve disputes with HMRC.
In a recent press release HMRC’s, Jim Stevenson, Assistant Director, Local Compliance, said:
“ADR will help SMEs resolve disputes without having to go to a tribunal – saving them both time and money. It is a good opportunity for HMRC to work together with our customers to potentially resolve disputes much earlier than at present.
“The facilitators are HMRC members of staff who have been trained in ADR techniques and have not been involved in the dispute. “We have found that often there are communication problems. So the HMRC facilitator will help all parties reach a shared and full understanding of the disputed facts and arguments. They will also ensure there is good communication, and help explain what each side is trying to say to the other. The aim is to resolve the dispute or, if not, as many issues as possible.”
So how do you ask for a case to be included in the ADR and what happens once it has?
For the purposes of the pilot and because HMRC want to test the success of ADR at an earlier stage in the compliance check process, they are restricting the availability of ADR to cases where an appealable tax decision or assessment has not been made. Where a taxpayer and/or his representative believes that ADR may speed up resolution of their dispute with HMRC, they can make a telephone application to be included in the pilot
HMRC will advise taxpayers and/or their representative, whether a case has been accepted for ADR within 30 days of receipt of the request.
HMRC have indicated that for this pilot suitable cases for ADR may involve disputes were facts are capable of further clarification, or disputes that may benefit from obtaining more suitable evidence and fact and/or technical matters in which there is legitimate scope for any party to obtain a better understanding of the other’s arguments.
Areas not suitable for ADR are identified as those which may involve issues which require clarification in the wider public interest - these might include matters of industry wide application, issues linked to or involving co-ordinated appeals issues (‘stood behind’ cases) for example ‘Compound Interest’ type disputes and cases that could only be resolved by an HMRC departure from its established technical or policy view
Where the case falls within the appropriate criteria, the facilitator will contact the taxpayer or their representative to explain the process, and ask for the completion of a simple Memorandum of Understanding to confirm the customer’s participation in and commitment to ADR. Similar agreements are a feature common to Dispute Resolution in all areas of dispute, not just tax.
The facilitator will then work closely with the taxpayer and/or their representative and the HMRC officer who has been dealing with the case, in an open, flexible and objective way to see whether progress can be made towards resolving the tax dispute.
For those involved in the pilot at the end of the ADR process HMRC will ask participating taxpayers and their representatives for feedback on how well the process has, or hasn’t, worked.
Taking part in the pilot in no way prejudices a taxpayer’s case and it does not affect their right to have an internal review or to take their appeal to Tribunal. The facilitator will not be called as a witness by HMRC or be involved in the appeal.
Initial reception for the pilot and the idea of ADR in general from professional advisors has seemed to be positive. ADR will formalise a process of case review that HMRC has used internally for many years but which failed to allow the taxpayer or their representatives any input.
In the past many accountants have requested that cases be reviewed if they have felt a particular HMRC officer has not understood the client, his trade or a technical issue but without being able to be directly involved in the review and stating their case. This has resulted at times with the professional advisor feeling issues have still not been fully discussed or reviewed and has ultimately led to cases being sent to the Tax Tribunal. Under ADR, if it is fully implemented, this will change.
HMRC hope ADR will dramatically reduce the current number of taxpayers asking for a Tribunal hearing and the additional work load this creates especially for those cases that do not in the end reach a hearing thus saving them time and money.
As the pilot continues and first hand experience is gained by both the profession and HMRC changes to the process will no doubt be incorporated. For the time being and most importantly for those in the pilot area ADR will hopefully give SME’s the opportunity to resolve tax disputes without the heavy cost of litigation via the Tax Tribunals which has to be an advancement.
For any further information on any of the issues outlined in this piece, please call the Advice Service on 01455 852555.