HMRC’s figures show that there has been a 25% decrease in the number of cases using the Alternative Dispute Resolution process in the 2018-19 tax year.

What is Alternative Dispute Resolution?

The Alternative Dispute Resolution (ADR) process is a way for taxpayers and HMRC to work with a mediator to resolve their issues. Organisations, individuals and tax agents (on behalf of their clients) can use ADR to settle disputes about their tax position.

If you have received a decision from HMRC that you can appeal against, then you can usually use ADR. There are more detailed rules around when you can and can’t use it.

You can use ADR when:

  • “during a compliance check when you are unable to reach an agreement with HMRC, or where progress in the enquiry has stalled
  • at the end of a compliance check, when a decision has been made that you can appeal against
  • communications have broken down between you and HMRC
  • there are disputes about the facts
  • a dispute appears to be the a result of a misunderstanding
  • you want to know why HMRC has not agreed evidence you have given them, and why they want to use other evidence
  • you’re not clear what information HMRC has used, and you think they may have made wrong assumptions
  • HMRC need to explain why they need more information from you”

There are a number of circumstances when you cannot use ADR, including: debt recovery, PAYE coding notices and automatic late filing or payment penalties. The others are listed by HMRC in their ADR guide here.

How many people use this process?

In the 2017-18 tax year, 553 cases used ADR to attempt to reach a resolution. By the end of 2018-19, this drops to 417 – a fall of 25%.

Why are the numbers falling?

The law firm RPC also want to know why there are fewer people seeking to resolve their issues with HMRC using ADR.

RPC’s Robert Waterson explains their interpretation of the situation: “It is a concern that ADR is still so under-utilised, as it can work very well when HMRC agrees to it. Far too often, however, HMRC refuses to actually sit down at the table with taxpayers and discuss a sensible compromise. HMRC can be very inflexible – in most disputes, you can have full information on its case or you can have mediation, but not both. That leaves some taxpayers having to enter ADR without full knowledge of HMRC’s actual position. If HMRC took a more sensible approach to mediation, it could bring in a lot more tax and avoid formal litigation before the Tax Tribunal.”

Some cases are perfect for ADR and do not require a full Tax Tribunal. For example, if there has been a misunderstanding and incorrect assumptions made by HMRC. Or if communication between HMRC and the taxpayer has deteriorated badly.

It also makes sense for HMRC to use their own ADR system because none of these decisions can become a legal precedent. It benefits everyone to resolve tax disputes without lengthy tribunals and to recover those, otherwise lost, taxes.