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Markel Tax

06 Aug 2020

Fundamental changes to HMRC’s Alternative Dispute Resolution (ADR) process

HMRC has announced two important changes to its ADR process. Steve Price considers the implications.

HMRC’s short announcement on 23 July was through an email from its Business Help and Support team which could easily have been overlooked given the high volume of emails from that source in recent weeks.

The first change follows updates to the Tribunal Rules announced on 15 June, which is presented here, confirming that ADR applications can now be made at any stage of the process right up to the date of the Tribunal. Previously HMRC would only consider applications made before the date by which its statement of case was due to be submitted.

The main thrust of the Tribunal’s announcement encourages the use of ADR to resolve disputes without the need for the Tribunal’s involvement. This was undoubtedly motivated by the need for it to address the backlog of cases caused by the Covid-19 pandemic and the fact that most cases can actually be resolved by negotiation if the situation is managed correctly.

While the number of cases affected by this change is likely to be relatively small, any steps taken to enhance the opportunity for meaningful negotiation with HMRC should be welcomed.

The second and more significant change concerns face to face meetings both now and in the future.

Prior to the Covid-19 pandemic face to face meetings were offered in almost every case. Lockdown brought a period of uncertainty until HMRC began offering mediation by exchanges of correspondence or telephone / video conference calls to try to move cases forward.

These arrangements have been further clarified in HMRC’s most recent announcement but it also states that meetings will no longer be offered routinely in every case, instead being offered as only one of several different options available. This is a fundamental change in the process drawing similarities with the Tribunal’s use of paper based reviews rather than personal hearings.

The importance of face to face meetings to the potential success of the ADR process cannot be overstated. They give an unparalleled opportunity for all parties to have difficult discussions in a controlled and confidential environment to try to resolve disputes and are a fundamental contributor to HMRC’s impressive record of resolving around 90% of disputes on the day of the meeting.

It was inevitable that HMRC would need to find new ways of working as a result of the pandemic and while it is not yet known how HMRC will decide if a meeting is appropriate or to what extent HMRC’s case officers will be able to influence the decision, the loss of this option could severely undermine the whole process.

By its very nature successful mediation relies on bringing the relevant parties together to iron out their differences within an unfettered environment and there is no better platform for this than that created by a meeting. To limit this option in favour of other less effective methods is likely to have a significant impact on the chances of a successful outcome.

Experience shows that many cases are taken to ADR as a result of HMRC’s intransigence which is easy to maintain in exchanges of correspondence. Face to face meetings change the whole dynamic and create opportunities to break down this intransigence. Severely limiting this option will simply protect HMRC from what would otherwise be a stern test of its position and potentially deny taxpayers the opportunity for a full and fair hearing.

This is clearly not a positive move and can only lead to the process becoming far less effective than it once was. We will need to wait to see if HMRC’s desire to impose a quicker, less costly and potentially less efficient process overrides the right of taxpayers to a fair hearing.

All advisers should be aware of this fundamental change and are encouraged to lobby for the option of face to face meetings in all cases, subject of course to Covid-19 restrictions.

As the situation develops we will provide further updates but if you would like more information or need help with cases that are proving difficult to resolve please contact Steve Price or call on 0333 920 5708.

Our COVID-19 Hub contains a range of information and resources to best support our clients during this difficult time. To receive the latest news and insights by email sign-up here.

Tagged Tax investigations Tax investigations COVID-19
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COVID-19 and the impact on EMI schemes