Revenue warms to ADR for large tax disputes

Achieving a solution by mediation can work, says HMRC pilot

Alternative dispute resolution (ADR) in large or complex tax cases has helped resolve disputes worth £58m but works best when people with the seniority to make decisions are involved, an evaluation of an HMRC pilot has found.

Overall the assessment was positive. The pilot involved disputes covering the spectrum of tax regimes and actual cases involved issues such as qualification for relief, share awards, employee benefit trusts, and determination of profits.

The overall time taken for cases in which ADR achieved a resolution was 24 weeks, compared to 34 weeks for those where ADR failed. Where no ADR was attempted and an appeal was made to the Tribunal Service, the average time taken for the appeal to be heard was 70 weeks.

Cases otherwise destined for adjudication at tribunal were accepted for ADR by an internal HMRC panel – which included the agency’s general counsel and the head of its dispute resolution unit – in about two thirds of cases.

When applications were rejected, it was mainly either because a tribunal date was approaching or because the case involved a ‘red line’ issue for HMRC that needed to be adjudicated.

Of the 28 cases where ADR was used, all but two of them were by facilitated discussion and the remainder by external mediation.

The evaluation concluded that “ADR and structured, facilitated discussion is a useful tool in resolving entrenched disputes” and could be carried out either by external mediators or trained HMRC people. But it found that success in resolving a dispute by ADR was more likely if a tribunal hearing was some way off.

It continued: “To get the best out of a facilitation or mediation day, the right people have to be present with the seniority to make decisions for the customer and HMRC. They may be empowered to reach a binding decision on the day or to agree a proposal which they will recommend to their appropriate governance bodies.”

While it conceded there were difficulties in quantifying cost and time savings from the use of ADR, the evaluation concluded: “Qualitatively, HMRC are confident that they have made significant savings in both cost and time in resolving disputes through the ADR process for both HMRC and the customer.”