HMRC has found the pilot Alternative Dispute Resolution service broadly successful.

Monday 29 April 2013

A new procedure for dealing with tax disputes has been deemed largely successful by HMRC.

The taxman’s assessment of the Alternative Dispute Resolution service is largely positive from the point of view of both parties, according to its official evaluation update.

Two-thirds of applicants to the new scheme left with either a partial or full resolution to their claim, with the majority seeing their cases completely resolved.

But the outcomes were not entirely in favour of the taxman, it has emerged. A third of cases were fully resolved when the mediator “educated” a claimant on the “correct tax position”, but in 23 per cent of cases the taxman was at fault. A tenth of all partially resolved cases involved HMRC being “educated” as well. Perhaps this explains why applicant feedback “unanimously” found HMRC mediators even-handed and unbiased.

ADR is aimed at individuals and small businesses who take issue with a decision made by the taxman. The case is presided over by an HMRC official who has not been involved in the case already in any way and who has been specially trained to act as a mediator. Expected to remain neutral, the mediator then sits down with a tax official familiar with the case and the taxpayer themselves, holding discussions to move towards a final agreement. In some circumstances, the two parties can agree to jointly pay for a professional mediator from outside HMRC.

Intended to save time and money for everyone involved, ADR is particularly suited to private individuals and small businesses. A full tribunal can often be extremely costly, both in terms of taking advice to fight the case and the lost business which all too frequently proves to be the result. As a free service which can prove far more efficient than the arduous process of pursuing a tribunal, ADR could potentially benefit at least some of the many contractors who find themselves at odds with the taxman every year.

HMRC says that the new system will be rolled out across the UK as one of its standard services some time later this year. Contractors who find themselves in dispute over their tax liabilities cannot actually insist that their claims are dealt with through the new process - which is being offered on top of, rather than to replace, the statutory tribunal process - but for those who find that their dispute is more serious or more complex than first thought, this may provide much greater flexibility to use the procedure which best suits the case.

Nevertheless, applications for the pilot scheme are still being accepted from individuals and small firms which prefer to settle their claims without the need for a full tribunal. Indeed, because the number of claims is expected to rise sharply over the remainder of the year, the evaluation report even recommends that HMRC should train more staff to act as mediators and increase the overall size of its team.

“Tax dispute resolution has been in need of reform for far too long,” says Yvette Nunn, president of the Association of Taxpayer Technicians. “This is, I believe, the shape of things to come; I look forward to further HMRC announcements on the rolling out of ADR.”

By Victoria McDonnell

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