Guest blog - tax disputes and your New (tax) Year ADR resolution
In a guest blog for the CIOT website, Peter Nias, a barrister at Pump Court Tax Chambers and a qualified CEDR mediator, explains alternative dispute resolution (ADR), a useful tool for taxpayers looking to resolve a tax dispute without resorting to a long and often expensive process with HMRC.
Alternative dispute resolution (ADR) procedures are not new. They have been used to manage a range of commercial disputes for decades.
And for over one decade they have been used in managing and resolving tax disputes as part of HMRC’s collaborative dispute resolution practice, which was introduced when its litigation and settlement strategy (LSS) was refreshed in 2011, together with a detailed Commentary.1
ADR is now part of “business as usual” for HMRC, with over 7,700 cases processed through their programme since statistics were first recorded – 90% of which were resolved with a positive outcome.
What is it ADR? And how does it work?
At the heart of ADR is the use of a third party trained in mediation techniques who facilitates the engagement between the taxpayer (and their advisors, if necessary) and the relevant HMRC compliance caseworker or team.
The word “alternative“ in the acronym ADR is a misnomer. “Appropriate” would be better. It is not “alternative“ to anything. It is a process which is part of and complements the engagement of the parties who are in “dispute” – widely defined in tax terms as being any situation where the amount of tax owing and the time for its payment are not yet agreed.
Although most cases involve a formal mediation, ADR includes other techniques, such as facilitation, where parties are assisted to engage in a structured discussion, often over a period of time.
The use of ADR in tax disputes is described in a useful HMRC website 2 which also has the online ADR application form to apply for a case to be accepted into the ADR programme.
In February this year, HMRC also published online more detailed Guidance on how the ADR process works.3
The ADR process
A mediation will involve a mediation-trained HMRC officer who has no involvement in the case bringing together in a collaborative and constructive way the taxpayer and the relevant compliance caseworker to assist them discuss their differences of opinion and try to resolve any misunderstandings and clarify issues which might be causing each side to be taking an increasingly entrenched position, preventing them from reaching agreement.
As a result of the COVID-19 pandemic, most mediation sessions are now held online using the Microsoft TEAMs video calling software, but also can be held over the telephone. Some face-to-face mediations also take place.
Although all cases will involve an HMRC-qualified mediator in charge of the process, the taxpayer can also bring their own co-mediator.
The mediator will typically ask each side to prepare a short statement setting out their understanding of the issues in dispute. They will then share each party’s statement with the other party and have a private discussion with each party to talk through in confidence what each party thinks of the issues, their own position and the position of the other party.
On the mediation day itself, the mediator will bring both parties together and structure the discussion between them, in confidence. They can also stop to hold private conversations with each party during the day, if they feel that can assist in making progress to a resolution of the dispute.
The mediator’s role is simply to manage and control the process encouraging constructive engagement between the parties. They do not provide advice or decide the outcome – that is entirely down to the parties.
Rules and restrictions
It is a wholly voluntary process, so if at any time either party feels uncomfortable with it, they can stop and walk away.
The process also assumes each party is acting in good faith.
In fact, from the taxpayer’s point of view, any agreement reached in respect of the taxpayer’s tax position either following the submission of a tax return, a negotiation with the compliance caseworker or as part of the ADR process requires the full disclosure by the taxpayer of all the facts. Failure to do so would mean any agreement reached is not binding on HMRC.
There is therefore a duty and obligation on the part of the taxpayer to disclose all relevant facts; to “put all cards face up on the table”.
For this reason, although the ADR process is conducted on a “without prejudice“ basis to make the discussion more open, it is perhaps understandable that if any new tax fact that has implications for a taxpayer’s liability is disclosed during the mediation it can be used by HMRC in any subsequent litigation if a settlement is not reached and is excluded from the “without prejudice” rule.
In this respect, as the LSS Commentary makes clear, any fact must be distinguished from either a belief, assumption, or interpretation in respect of it, all of which are not therefore facts, and would be covered by the “without prejudice” rule.
At the end of the mediation, depending on the outcome that the parties agree, they will either enter into a settlement or a written Record of Outcome, in which the parties record as much of what they have agreed as possible. This will make any subsequent litigation more efficient, having narrowed down the issues in dispute; whether of fact or law.
Why choose ADR?
The process is quick, efficient, effective, and can bring months of frustration and uncertainty to a speedy conclusion with significant savings in time and cost.
The process and the appointment of the HMRC mediator involves no cost the taxpayer, unless the taxpayer appoints their own co-mediator, whose fees they will pay.
If you are in a dispute with HMRC which has been going on for some time and feel you are getting nowhere with positions becoming entrenched and frustrations building up, give ADR a try. The statistics show a very high satisfaction rating with the process on both sides.
You have little to lose and much to gain; your New Tax Year ADR Resolution!
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