Gary Brothers, our Managing Partner, recently ran a poll on his LinkedIn page, inviting people to tell him how transparent they felt HM Revenue and Customs (HMRC) is during the Alternative Dispute Resolution (ADR) process.

The options and voting intentions were:

Always, couldn’t be better	9%
Somewhat, but could be better	32%
Not at all, the process is opaque	45%
Not sure	14%

A scientific YouGov election night poll it was not, but it did provide the inspiration for this article!

Gary was surprised at the percentage of people finding the process opaque and thought he would share some of the experience Independent Tax has garnered from going through ADR on many of our cases.

When is ADR available?

ADR is available when progress has stalled during a compliance check.

The impasse might be because:

1. There is a dispute about the facts and there is a feeling HMRC has made the wrong assumptions. We find these circumstances particularly prevalent during R&D enquiry cases, where the HMRC officers are trained in process and procedure, rather than in the exercise of common sense.
2. Communication has broken down with HMRC. This can be because of a multitude of factors, including intransigent Inspectors or multiple changes of Inspectors and/or agent representatives. In a case we settled 12 months ago, we were the third agent to be approached by the client to assist with his long running enquiry. Settlement negotiations had ground to a halt after seven years, before we were engaged to act. We proposed a different settlement methodology and achieved a great result through ADR for a very happy client.
3. A Review Conclusion Letter has been received from HMRC and ADR is the next option before Tribunal.

ADR is not available for issues such as complaints, late payment or late filing penalties, PAYE coding notices or High-Income Child Benefit Charges. The ADR route is also not an option for people or businesses under criminal investigation by HMRC.

When is the best time to apply for ADR?

An application can be made for ADR at any stage of a compliance check.

A compliance check can involve direct and indirect taxes, including:

• Income Tax, Corporation Tax, Inheritance Tax
• VAT, Excise Duty, Customs Duty

Timing is key.

It may seem obvious, but there is little point applying for ADR at the very start of a check before HMRC has been supplied with information and drawn a conclusion. ADR might be an option if HMRC asks for something in the opening request for documents which is contentious and HMRC refuses to withdraw the request. Waiting for an Information Notice and appealing that would probably be the most practical route in that scenario, rather than applying for ADR.

We think strategically about the enquiries we handle and do not have a fixed point in time on when to apply for ADR. We consider the specific circumstances of each case and consult with our client, before we make the decision to proceed.

However, as a general rule of thumb, we apply for ADR in the bulk of our cases when HMRC’s mind is made up on a particular decision. This will often mean we have a View of the Matter letter, will have requested an internal review and have received a Review Conclusion Letter supporting the original view by the HMRC Decision Maker.

How can ADR help?

Too often these days it is very difficult to get a Teams meeting with an HMRC officer, let alone a face-to-face discussion, so the end result is a seemingly endless round of emails and correspondence.

HMRC will always seek to understand an R&D claim by asking for reams of information to establish the baseline of the project, the advance, the uncertainties etc., but will rarely entertain an early meeting with the client to gain a greater insight. This is particularly frustrating when a letter arrives from HMRC asking for explanations in layman’s terms, or in a manner which a ‘non expert’ would understand.

By their sheer nature, R&D claims are highly complex. We are handling R&D claims ranging from engineering to media software to solar energy harnessing innovations to cloud computing, all of which are intrinsically complicated to an unqualified professional in those fields.

It is a requirement of the ADR process for a face-to-face Teams meeting to be held and can often be the first opportunity, after many months of an enquiry, to present the case in a manner which is easier for the HMRC officer to understand.

The same is true of more routine enquiries where explanations via correspondence have been exhausted and an impasse has been reached. Yes, sometimes a telephone call might help to progress matters, but in long running enquiries a fresh set of ears can help.

The ADR process is controlled by an HMRC Facilitator who effectively acts as a go-between the two sides. On our side it will be our client and ourselves, but on the HMRC side it will no longer be just the HMRC Decision Maker present, but a colleague of a similar grade or the Line Manager. We have also attended meetings with members of HMRC’s Policy Division present.

In an ADR meeting we attended with our client, the HMRC Decision Maker was sticking to his guns and defending the line he had been pursuing for months. However, his colleague who was in attendance, understood exactly the point we were trying to make and persuaded his colleague to change his mind.

That would never have happened via the normal correspondence, telephone calls route because it is only ever the Decision Maker who is the recipient of the information being presented.

In our experience the HMRC Facilitators are objective and do their best to try and help both sides make progress. Progress might not necessarily involve a complete resolution to the dispute and an ultimate settlement, but it can lead to the conclusion of say 3 out of 5 issues, leaving just two to resolve. This can often be the case in cross-tax enquiries, where there are tax and VAT problems, as well as contested penalty decisions.

The final benefit of the ADR process to highlight is that all the discussions are conducted on a without prejudice basis, so if the dispute remains unresolved and proceeds towards Tribunal, any settlement proposals discussed during the ADR process are not binding.

What preparation is required for an ADR meeting?

The HMRC Facilitator will ask for Opening Statements from both sides, in advance of the Teams meeting taking place.

Usually this will have to be presented to the Facilitator between 7 to 14 days prior to the actual meeting. The Facilitator will then share the Statements between both sides at the same time, to prevent any party having advance sight of what the other side has included.

The Facilitator will typically ask for the Opening Statements to be restricted to two pages of content and no more.

We prepare our Opening Statements almost as if we are going to present the dispute to a Tribunal Judge.

We set out the dispute to begin with, in terms of which tax or accounting year(s) is involved, before laying out our position and then including any useful references to relevant legislation, tax cases or other helpful third-party information. We conclude our Statement with a summary and an invitation to HMRC to enter the ADR meeting with a positive approach to resolving the dispute.

We also prepare our clients thoroughly beforehand and ask them to remember which period is in dispute. It is only natural for clients to respond in the present tense, with what they are doing now, when things might be very different to how they were done in history.

Finally, we think of what our strategy will be on the day.

Invariably, as the representative of the Appellant we will go first and present our case to HMRC. That does not necessarily mean that we will present the whole case at the very start, but we will say enough to get the conversation moving and to provoke discussion.

How is an ADR application made?

An ADR application is made online, using this link Use alternative dispute resolution to settle a tax dispute – GOV.UK

The online form will ask for basic details about the client such as, whether it is an individual or a company, the nature of direct or indirect tax, the amount in dispute and the reasons for the application.

The reasons do not need to be a statement of case, but rather a succinct summary of the dispute so that the ADR team can understand why the application has been made. The detailed reasons for the dispute are incorporated in the Opening Statement.

HMRC aim to give a decision in writing within 30 days of receiving the application.

However, what happens in practice is that the appointed Facilitator will usually ring you, the appointed representative, to discuss the application first. The Facilitator will ask what you hope to achieve from the ADR process and explain how the process will work in practice.

If the Facilitator is happy that the application is genuine and that ADR is appropriate, then the decision will be communicated in a letter, via email, shortly afterwards.

Summary

The ADR process can definitely help with long running disputes and highly contentious matters. It offers an opportunity to talk with HMRC officers face to face and to have an open discussion in real time, which is far more conducive than protracted correspondence.

It is so important to understand the process and to prepare thoroughly for the meeting, otherwise you may find the meeting is very short and could actually have made matters worse and set the dispute back, rather than the hoped for progress.

Independent Tax has been through the ADR process on multiple occasions, for all types of disputes and has found it a useful route to settlement. If you require advice concerning ADR, or any other tax or VAT dispute with HMRC, then please get in contact by calling us on 0800 001 6686 or by email at info@independent-tax.co.uk for a no obligation consultation and for more information.

Independent Tax. Strong by your side and strong in your defence.