Lee Ellis, Victor Cramer, David Pickstone and Cristiana Bulbuc have drafted the United Kingdom chapter of the Ninth Edition of the Tax Disputes and Litigation Review, recently published by The Law Reviews. The book gives information on tax disputes across 22 jurisdictions.
Below is the section of the chapter on alternative dispute resolution or ADR. The introduction can be found here.
HMRC has long been open to engaging in settlement discussions with taxpayers; however, in recent years it has increased its use of formal alternative dispute resolution (ADR) procedures.
ADR is a different method of dealing with tax disputes. It is a confidential process between the taxpayer and HMRC that aims to help resolve disputes or reach an agreement on issues that otherwise need to be decided by the Tax Tribunal and, as necessary, the courts.
The ADR process broadly involves an independent person from HMRC (a facilitator) who has not previously been involved in the dispute mediating between the taxpayer and the HMRC officer dealing with the case to try to broker an agreement between them. Entering into the ADR process does not affect the taxpayer’s internal review and appeal rights discussed above.
Cases involving tax avoidance schemes or arrangements are generally unsuitable for ADR. If the taxpayer has participated in a scheme disclosed to HMRC under the disclosure of tax avoidance schemes (DOTAS) regime, or an arrangement that HMRC considers to be a tax avoidance scheme, it is unlikely that HMRC will consider ADR to be appropriate. HMRC guidance confirms that ADR cannot be used for accelerated payment and follower notices. The accelerated payment and follower notice regime was introduced in 2014 with a view to countering the proliferation of tax avoidance. The regime seeks to reverse what would otherwise be the cash flow advantage to the taxpayer of tax avoidance, given the UK’s reliance for the most part on a self-assessment tax system.
Taxpayers are encouraged to ask HMRC to consider using ADR by means of an online form found on their website. HMRC will respond within 30 days with an answer as to whether ADR is appropriate for resolving the dispute. If so, the taxpayer will be bound by the terms agreed to when completing the online form.
On 15 June 2020, the Tax Tribunal published a practice statement63 on the use of ADR in tax disputes once an appeal has been made to the Tax Tribunal. HMRC currently only uses ADR for cases that have been categorised as standard or complex ((Rule 23(2) FTR). If HMRC accepts an application, the taxpayer must inform the tribunal as soon as possible. The Tax Tribunal will usually stay proceedings for 150 days to facilitate the use of ADR, although the taxpayer may request additional time if required. However, if a hearing date has been set, the Tax Tribunal will usually only stay proceedings if it is satisfied that the hearing can go ahead on that date if ADR does not resolve the dispute. Once the ADR process has been completed, the taxpayer must let the Tax Tribunal know whether the dispute has been resolved as soon as possible.
The practice statement concerns only applications for ADR after an appeal has been made but notes that ADR can be used before; in such cases, taxpayers should discuss ADR with HMRC directly. In addition, the practice statement stresses that using ADR does not affect statutory appeal rights or time limits.
In an update to its guidance on 25 June 2020, HMRC has confirmed that taxpayers may apply for ADR at any stage of an enquiry and at any stage of an appeal before the Tax Tribunal.
The full UK chapter of the Tax Disputes and Litigation Review Ninth Edition, can be accessed here.
The Tax Disputes and Litigation Review Ninth Edition, can be accessed in full here.
Reproduced with permission from Law Business Research Ltd
This article was first published in March 2021
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