HMRC have launched a new scheme encouraging small businesses and individuals to resolve their tax disputes with HMRC by a process they term ‘Alternative Dispute Resolution’ (ADR). The purported ADR scheme is intended to reduce the number of tax tribunal hearings against HMRC. In this article we both outline and evaluate the scheme.
Resolving HMRC Tax Disputes: ADR for Small Businesses and Individuals
The new scheme uses independent HMRC facilitators to resolve disputes between HMRC and customers, whether or not an appealable tax decision has been made or an assessment has been carried out by HMRC. The facilitators are HMRC members of staff who have been trained in ADR techniques and have not been involved in the dispute. This is highly unusual as usually a facilitator in ADR is independent and certainly not an employee of one of the parties to the ADR.
This scheme covers both Value Added Tax (VAT) and direct taxes disputes. The ADR process is open to all customers nationwide whose tax affairs are handled by HMRC’s Local Compliance Small and Medium Size Enterprises (SME), Local Compliance Individuals and Public Bodies Business Units. HMRC say that entering into the ADR scheme will not affect the taxpayer’s existing review and appeal rights.
Application Process: ADR to resolve HMRC Tax Disputes
If parties want to resolve their disputes with HMRC through the ADR scheme, an application form must be filled out online and submitted to HMRC. The application will be considered and the applicant should hear back from HMRC within 30 days of submitting the application.
Applicants will then receive a copy of the ADR Memorandum of Understanding and a Code of Conduct that they will be expected to comply with. If an applicant does not comply with the memorandum or the Code of Conduct, their dispute may be removed from the ADR scheme.
The following tax disputes are considered to be suitable under the new ADR scheme:
- Facts which are capable of further clarification;
- Disputes that may benefit from obtaining more suitable evidence;
- Fact and/or technical matters in which there is legitimate scope for any party to obtain a better understanding of the other’s arguments; and
- Issues which are capable of further mediation and settlement by agreement within the framework of the Litigation and Settlements Strategy (LSS)
Will the ADR Scheme Reduce HMRC Tax Disputes?
HMRC claim that the facilitators are “independent” but they are in fact from HMRC and there is a possibility that decisions could be biased and very clearly a perception of bias exists.
In addition, by completing an ADR application form businesses and individuals may think they have launched an appeal against HMRC, when in actual fact the appeal process is separate from the ADR scheme. Time limits for launching tribunal appeals are very strict and often as little as 30 days. As a result, there is a risk that in practice taxpayers that engage in the ADR process may unwittingly become time barred in bring a tax tribunal claim against HMRC.
In an event, taxpayers should always seek legal advice before entering into the ADR scheme to ensure that all options are considered in order to protect the taxpayer’s full rights and remedies. One suitable alternative to ADR is launching a complaint to the the Adjudicator’s Office who are a fair and unbiased referee which is not on HMRC’s payroll.