The Alternative Dispute Resolution process

The Alternative Dispute Resolution (ADR) process is becoming more widely used with HM Revenue & Customs (HMRC) as it is cheaper and a more time efficient and effective way of dealing with issues and disagreements than formal litigation.

Although ADR can come in a number of formats, in tax disputes with HMRC it takes the form of mediation. This is where an independent mediator (not involved in this case) attempts to facilitate agreement between the parties.

The mediator will give directions for how the parties are to engage in the process. If ADR fails, there is still an option to adopt the litigation route. 
ADR can be useful where:

• There has been a breakdown in communications with HMRC
• The facts are in dispute
• The dispute has arisen following a misunderstanding
• There is a different view on exactly what has happened (i.e. the facts of the case)

Even where ADR is not successful, it can be useful in clarifying issues prior to proceeding to a Tribunal. 

Signing up for ADR

On signing up to the ADR process, the taxpayer is required to sign a memorandum of understanding (MoU) agreement to confirm their participation and commitment to the process.

This includes a summary outlining what is in dispute and asks for the taxpayer to agree to the below points:

• You and your representative understand that the mediator has responsibility for the ADR process. You and HMRC share the responsibility for deciding the tax outcomes
• You and your representative must be available within 90 days for a meeting. This may last a full day, and will take place by telephone conference call, video call, or in a face to face meeting
• If the mediator asks for more information, you will provide this within 15 days
• If you discover new information before a meeting, you will provide this to the mediator and the caseworker as quickly as possible
• If you cannot meet any deadlines, you must tell the mediator
• Mediation is a confidential process carried out on a ‘without prejudice’ basis. This means that things said during ADR cannot be used as evidence later. However, if you tell the mediator something which significantly changes your tax or penalty position, or provides evidence of criminality, this must be shared with HMRC and may be used in formal proceedings.
• If you make a formal complaint about the process, the mediator will be asked to comment. This may include information you have told them confidentially.
• On acceptance for ADR, a mediator will be appointed. The mediator will contact both sides to discuss the application in more detail. 
• Once this has happened, a date will be set for ADR provided the mediator still thinks that this is an appropriate route. 

Preparation

The mediator will ask for a written statement of the matters in dispute from each side, including each side’s opinion of these matters. These statements should:

• Be brief
• Set out the main facts and, where relevant, how each party believes the law to apply to these facts

A history of the compliance check should not be given.

These statements will be provided to each side prior to the meeting and will form the basis for the discussion in the meeting. It is best to prepare for the day as though it was a Tribunal hearing to ensure you get the most out of it.

A taxpayer can be represented in ADR.

On the day of the meeting

The mediator will open the meeting and invite discussion on each side’s submitted statements. This should take the format of a brief presentation by each side briefly summarising their position and what they would like to achieve in the mediation. Usually the taxpayer will go first.

The format of the day will be a mixture of joint discussions with all parties and private discussions to reflect and identify an outcome. During the private discussion periods, the mediator will move between the two sides to hopefully facilitate an agreement to be reached. 

Questions can be asked throughout the meeting and counter arguments can be raised either through joint discussion sessions and/or in private discussion with the mediator. 

All discussions that take place throughout the session are confidential whether in joint or private session; however, any new information or evidence that is disclosed that will have an impact on the tax position will be on record. 

Notes can be taken during the mediation process; however, both parties will be asked to destroy these notes at the end of the process. The only exception will be in respect of any notes about material tax facts. Any notes taken by the mediator will also be destroyed at the end of the process. 

The purpose behind the discussions between all parties should be to test each side’s evidence and to challenge their views. All correspondence should be open and transparent.

The mediator will not take any part in any decisions that may be agreed on the day. 

End of the meeting

The mediator will require both parties to prepare and sign a document detailing the outcome of the meeting. This will be the formal record of the position agreed (if there has been agreement). If no agreement has been reached, the next steps that can be taken will be made clear. 

Any agreements reached on the day will be binding so the decision-maker for the firm does need to be involved in the ADR process. There may be some leeway with this timeframe currently due to the mediation taking place via Microsoft Teams. 

Our experience of ADR (Employment Status)

Based on our experience, HMRC will go into the mediation with the viewpoint that they expect the taxpayer to change their mind and accept that the workers are employees.

This is not a particularly helpful stance; however, ADR can still be useful in understanding HMRC’s stance and obtaining agreements of the key facts of the case, and can reopen lines of communication. 

If you have any questions regarding any of the above, please contact your normal Bishop Fleming contact or a member of the Employer Solutions team. 

Further information

For more information on employer issues check out our Employer Solutions Knowledge Hub.