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A new approach to HMRC disputes – ADR guidance updated

A new manual on alternative dispute resolution (ADR) for tax disputes has been published by HM Revenue & Customs, offering comprehensive guidance on its approach.

This manual expands upon the existing, more limited guidance on ADR and provides greater transparency on the process, which cases are appropriate for mediation, and HMRC’s overall approach.

Its publication is seen by many as a positive step toward providing clarity and understanding on the topic to advisers and taxpayers.

Why use ADR?

ADR has become a well-established tool for resolving tax disputes, and HMRC has long recognised its benefits.

However, ADR with HMRC differs from ADR in typical civil disputes. One key difference is that HMRC requires the mediator to be an HMRC officer, although independent from those involved in the case.

Taxpayers may appoint an additional co-mediator with HMRC’s agreement at their own expense. This will typically be an existing adviser or tax disputes expert.

Moreover, while there are differences in the general approach to settling, such as the parameters outlined in HMRC’s Litigation and Settlement Strategy (LSS), these impact HMRC’s and the taxpayers’ ability to negotiate a settlement.

Litigation and Settlement Strategy

HMRC applies a fairly flexible approach to settling matters using ADR, but it does follow a particular procedure, which is outlined in the new manual in detail.

One of the key points to note is that HMRC aims to complete the ADR process within four months of the taxpayer’s request. This is intended to improve the pace of settlement discussions.

HMRC also requires that the taxpayer is available for the mediation within 90 days. Mediations will be expected to take place remotely, but face-to-face meetings can be arranged with HMRC’s agreement.

This approach has been fairly common since the pandemic and in most cases is more convenient for taxpayers and their representatives.

Each mediation should begin with opening statements, followed by sessions where each party can agree on various methods of settlement.

Within the manual, HMRC also makes it clear that external co-mediators appointed by a taxpayer must agree to and abide by the terms and conditions governing the process.

HMRC’s litigation and settlement strategy (LSS) applies to all disputes and constrains HMRC’s settlement flexibility.

This means that it may be unwilling to merely split the difference when agreeing on a settlement figure. This is because any agreed-upon outcome must have a credible legal justification.

Prejudice information

The new ADR manual also explains in more detail HMRC’s approach to information shared during mediation and whether this could prejudice future tribunal cases.

HMRC says that ‘without prejudice’ “means that parties may propose and explore potential solutions to a dispute without worrying that their discussions will be deemed as an admission if an agreement is not reached.”

At first, this seems like positive news, but it goes on to say that “tax facts” disclosed during mediation are not without prejudice.

This would include facts that have legal and technical implications for a taxpayer’s liability. As a result, taxpayers should take caution when communicating information to HMRC as it may lead to further disputes over disclosure if the matter is not resolved during mediation.

When is ADR not suitable? 

HMRC has confirmed in its manual that ADR is not suitable in the following instances:

HMRC has also stressed that the ADR process should not be employed as a delaying tactic during tribunal proceedings.

We have considerable experience of the ADR process having successfully taken a number of clients through the necessary steps. In all instances we have achieved significant tax savings, including in one recent case where a delighted client was happy to say: “You have achieved a result that I did not think was possible”.

To find out more about our services, get in touch.


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