Following a successful pilot of 400 cases HMRC decided in 2013 that Alternative Dispute Resolution (ADR) was to become a permanent feature of SME tax administration.

Using ADR parties are able to get together for an informal last-ditch attempt to resolve a contentious case and in so doing spare each side the expense of taking a case to the tax tribunal. Under ADR there is a mediator present to facilitate proceedings, HMRC funded the mediator during the pilot and continues to do so where an HMRC facilitator is used but where a jointly appointed mediator is appointed each party will contribute a share of the mediator's costs and where each party picks a joint mediator they each have to bear the cost of their chosen mediator.

During the pilot, Richard Summersgill, HMRC Director of Local Compliance said: “ADR is a fair and even-handed way of resolving tax disputes between HMRC and its customers. In brief, ADR will save time and help reduce costs for everyone...We have had good feedback from both SMEs and individual customers and are grateful to the accountancy and professional community for their assistance and support during the pilot stages.”

Our experiences:

During the pilot HMRC stated that ADR was not to be used where there was disagreement for technical matters, however, we found that the ADR facility offers a way of getting some types of cases moving once they have been past a "final" technical review by HMRC. Often the problem for both sides is that they "can't see the wood for the trees" and so the taxpayer may want to bring in its own expert, but it is too late for interaction. This may be once a case has gone for a senior HMRC officer to review and then it is not always possible to then engage with the reviewer. The ADR process can allow the extra time needed so that specialists may be able to get together and perhaps move the case on following discussion.

HMRC's guidance gives some examples of when ADR might help and when it is not appropriate:

Examples of when ADR might help:

  • You and HMRC have different views on the facts
  •  Communication has broken down between you and HMRC 
  • HMRC have not clearly explained why they need more information from you
  •  You are not clear what information HMRC has used and think they may have made some wrong assumptions.

Examples of when it might not help:

  • Requests for time to pay 
  • Disputes about fixed penalties on the grounds of reasonable excuse
  • PAYE coding disputes
  • HMRC delays in using information

Cases where there is already an established HMRC technical view will not be accepted for ADR.

HMRC figures show that in 2016-17 79% cases were resolved using ADR, with an increase to 82% in 2017-18.