It’s probably fair to say that when it comes to the amount of tax due, taxpayers and HMRC do not always agree.

Disputes between taxpayers and HMRC are inevitable, and unfortunately, they cannot always be easily resolved. It’s not in the taxpayer’s or HMRC’s interests that a dispute drags on and on as it takes time and can be costly, but there is a solution.

The Alternative Dispute Resolution Scheme

HMRC’s Alternative Dispute Resolution Scheme (ADR) gives HMRC and business taxpayers the chance to put an end to appeals, tribunals and court hearings and sit down with a neutral third party, work through the case and try to reach a mutually acceptable resolution.

If you have stopped making progress in your dealings with HMRC then you can apply for ADR. The third party mediator leading the ADR will not take over the dispute but will work with you both, through meetings and telephone calls, to re-establish communications and resolve the dispute.

Importantly, for the taxpayer, applying for an ADR does not affect your right to appeal or to ask for a statutory review.

When might Alternative Dispute Resolution help?

Alternative Dispute Resolution is not a prospective solution in every tax dispute. For example, some tax charges, penalties and interest payments are fixed and non-negotiable, so in this case, you will have to appeal the decision or pay. ADR can also not be used in cases where one side cannot change its position due to the relevant facts and the law. However, it can be used where:

  • Communication between the taxpayer and HMRC has broken down;
  • The taxpayer and HMRC have different views on the facts of the case;
  • The taxpayer cannot understand why evidence provided has not been accepted by HMRC;
  • HMRC wants more information and the taxpayer’s not sure why;
  • The taxpayer is not sure what information HMRC has used and thinks it may have made the wrong assumptions.

How successful is Alternative Dispute Resolution?

ADR has proved to be particularly successful when dealing with VAT and other direct tax disputes between HMRC and SMEs. It has also proved to be of value in large and more complex cases involving corporation tax and VAT. Even where ADR does not directly lead to a resolution, simply getting HMRC and the taxpayer into the same room can reopen lines of communication and move the dispute forward.

How to apply for Alternative Dispute Resolution?

Small and medium sized businesses can use an online form to apply to HMRC for ADR. HMRC will inform you whether the dispute is right for ADR within 30 days. If it is, you will be asked to complete a Memorandum of Understanding which sets out the process and confirms your agreement to take part. If the terms of the agreement are broken at any time you can be removed from the ADR process.

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