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Rapid Response Team: 0800 559 3500
Switchboard: +44 (0)203 947 1539
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Rapid Response Team: 0800 559 3500
Switchboard: +44 (0)203 947 1539
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Alternative Dispute Resolution in HMRC Tax Disputes

Author: Nicola Sharp  3 May 2024
5 min read

If you find yourself locked in a disagreement about taxes with the HMRC, what’s the best course of action? 

A good first step is to try HMRC’s Alternative Dispute Resolution (ADR) procedure.

What is ADR in an HMRC tax dispute?

Usually when we talk about ADR we mean: arbitration, mediation, early neutral evaluation, expert determination or adjudication. See our guide which compares commercial litigation to ADR for more information on ADR generally.

However, in the context of an HMRC tax dispute, ADR means mediation. 

A HMRC mediator will work with you and the HMRC officer dealing with your case to explore ways to resolve your dispute. 

Which disputes can be referred to HMRC ADR?

The term ‘dispute’ has a wide meaning here. It covers situations that are not necessarily adversarial in the ordinary sense, such as:

  • HMRC needs more information to enable it to form a considered opinion on the correct tax treatment of a transaction. 
  • HMRC and the taxpayer have differing views on the amount of tax due at a given time. 
  • You’re not clear what information HMRC has used, and you think they might have made wrong assumptions.

The ADR procedure can be used for personal tax issues, or for business tax issues, and covers direct and indirect tax disputes. Direct taxes include;

  • Income tax.
  • Corporation tax.
  • Inheritance tax.

Whereas indirect taxes include;

  • VAT.
  • Excise duty.
  • Customs duty. 

However, HMRC have the right to reject applications for mediation if they do not consider the case appropriate for ADR. Unlike a ‘normal’ litigation procedure, HMRC is under no obligation to mediate.

The sorts of cases that would be routinely rejected for mediation are cases involving tax evasion, or tax avoidance. 

You can learn more about tax evasion and avoidance in our informative article Tax Evasion vs Tax Avoidance - What Is The Difference?

ADR is also unavailable for the following issues (among others):

  • Complaints about HMRC delays, for which you need to follow the complaints procedure.
  • Disputes about tax credits.
  • PAYE coding notices.
  • Automatic late payment or late filing notices.
  • Disputes about the National Minimum Wage.

What is the HMRC ADR process?

Either you, or the HMRC officer can suggest using ADR at any point in your communications. 

If you’d like to begin the process yourself, you can fill in the online form. The HMRC will get back to you within 30 days to let you know if they agree that ADR is an appropriate forum for your dispute.

After that, you might be asked to provide more information, and you’ll need to respond to those requests promptly (within 15 working days). If you don’t reply within the timeframe, then your dispute might be removed from the ADR process.

Before the mediation, you submit a statement of matters in dispute. This sets out your view of the facts, and how the law applies to those facts. You send the statement to the mediator ahead of the mediation meeting. 

Within 90 days of submitting your application, you’ll have a mediation meeting. The meeting may be in person, or it could be a telephone conference call or a video call. Usually mediations last a full day. 

What happens at a HRMC mediation?

On the day of the mediation, you usually start with a discussion about the statements. You get a chance to voice your point of view and concerns, and so does the HMRC officer.

The mediator will help you consider the options and explore a resolution. The usual format of a mediation is that there is a joint session to begin with, and then you have a chance for individual discussion with the mediator in a separate room.

The idea is that an impartial party (the mediator) will be able to facilitate agreement, and help one or both parties become less entrenched in their position.

At the end of the mediation, the mediator will draft a summary of what has been agreed, and/or what remains in dispute. You will have a chance to contribute to this document, which is called the ‘Record of the outcome of the ADR meeting.’

If you’re able to come to an agreement, then it will be recorded in a settlement agreement which you and the HMRC officer will sign. In some circumstances, you will be able to sign an agreement on the day. If the arrangement is complicated, then it might take a few days to draft the agreement.

Is mediation effective in HMRC tax disputes?

In a high proportion of cases, mediation is successful. It’s always worth a try. At the very least, the mediation is a chance to discuss matters thoroughly, and cut through the red tape of correspondence and phone calls. It’s a useful forum in which to get your point across clearly, and iron out any long standing misunderstandings. 

Often a simple suggestion from the mediator can help the HMRC officer to look at the issue from a new angle, and find a resolution that they hadn’t previously considered. 

There is an obvious objection to the process; the mediator is an HMRC officer. You might raise an eyebrow at this, and doubt their impartiality. While this is a valid observation, the HMRC mediator is always independent of the HMRC case team, and they are trained in mediation skills. Their remit is to be neutral and impartial in the mediation setting.

It is possible to instruct an external mediator for the mediation, but you will have to bear the cost of the mediator’s fees. The HMRC mediator will be present at the mediation in any event, and it is the HMRC mediator who has final control over the mediation process. So in practice, there may be little benefit to engaging an external mediator.

ADR or litigation?

ADR is a good starting point. But some disputes will not settle at ADR. In those cases, litigation is usually the next step.

HMRC follows a Litigation Settlement Strategy which is the framework within which HMRC resolves its tax disputes through the civil law procedures. The main objective is to balance the cost of litigation, with achieving the best return for the Exchequer, in recovering tax liabilities. 

An important factor to note is that the HMRC will not settle an issue just to avoid costs (which is a common strategy for other parties to litigation). If HMRC believes that tax is properly due and payable, those disputes must be resolved in accordance with the law. 

Need help with an HMRC tax dispute?

At Rahman Ravelli, we have experience in helping clients to resolve their disputes with HMRC.

We can help you get your opening statement right for the mediation, as it is often a make or break document in the mediation process. It needs to be concise and compelling, and help the mediator properly understand your point of view. 

We help you prepare for the mediation, and challenge points made by HMRC. We can make the points for you, or support you to put your best case forward, and act as a sounding board on the day. Some clients choose not to attend the mediation themselves, and in those circumstances we attend the meeting on your behalf, with you at the end of the phone. 

Please get in touch if you would like to discuss an issue you are having with the HMRC.

Nicola Sharp C 09983

Nicola Sharp

Partner

nicola.sharp@rahmanravelli.co.uk
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Nicola is known for her fraud, civil recovery, arbitration and business crime expertise, her experience of leading the largest financial disputes and multinational investigations and her skills in devising preventative measures and conducting internal investigations for corporates.

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