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FTT publishes practice statement on ADR

Newsletter issue - July 2020.

The First-tier Tribunal (FTT) has published a practice statement setting out its practice in appeals against HMRC decisions where the parties wish to engage in Alternative Dispute Resolution (ADR) after an appeal has been made to the Tribunal.

What is ADR?

ADR aims to provide an alternative way of resolving tax disputes by using an independent facilitator, who mediates discussions between the taxpayer and the HMRC caseworker in an attempt to resolve the dispute.

ADR can be used before and after HMRC have issued a decision that can be appealed against, and at any stage of an enquiry, including:

  • during a compliance check when the taxpayer has been unable to reach an agreement with HMRC, or where progress in the enquiry has stalled; and
  • at the end of a compliance check, when a decision has been made that can be appealed against.

ADR does not affect the taxpayer's right to appeal, or to ask for a statutory review.

Each application is considered on a case by case basis. ADR is not a statutory process and HMRC reserve the right to reject applications that they do not consider appropriate for ADR.

The ADR service may be particularly useful where the facts of a case need to be firmly established, but where communications have broken down between the taxpayer and HMRC.

An application to use the service must be made to HMRC using the application form on the Gov.uk website. The ADR team will advise within 30 days of receiving an application if ADR is right for resolving a particular dispute.

If a case is accepted into the process, the taxpayer must follow the principles that are agreed in the online form. If these terms are broken at any time, HMRC can remove the dispute from the ADR process.

All ADR applications that are recommended for rejection must follow strict governance procedures. Any decision to reject an application must be agreed by a panel made up of independent tax professionals.

If a case is accepted for ADR, HMRC will contact the taxpayer, or their representatives, and introduce them to their facilitator who will explain their role in more detail.

The facilitator will be an HMRC member of staff who has undergone training in facilitation and has had no prior involvement with the dispute.

Benefits of using ADR

ADR has the potential to speed things up. HMRC's original aim in introducing ADR was to provide a means of settling disputes more efficiently - both in terms of time and cost for both the taxpayer and their agent. ADR is now very much an accepted part of HMRC's overall Litigation Settlement Strategy (LSS).

A specially trained HMRC go-between is assigned to any accepted ADR case who effectively acts as a third party. The 'umpire' acts as a mediator between taxpayer and HMRC to try to work out an agreement.

Having a new, impartial third party can help highlight the areas causing an impasse. If communications with HMRC have become acrimonious, the presence of a mediator can often get things up and running again.

ADR also offers potential cost savings for individuals and SMEs who can gain access to the facility free of charge. For large, complex cases, there is usually an external mediator. Here costs would generally be split between client and HMRC.

Tribunal practice

If HMRC accept an application for ADR after an appeal has been made to the Tribunal, the Tribunal should be informed as soon as possible. The Tribunal will usually be willing to stay proceedings in order to facilitate the use of ADR at any stage of the proceedings, including after HMRC have served their Statement of Case or the parties have exchanged lists of documents or witness statements. A stay means that the proceedings are temporarily put on hold. The Tribunal will normally allow a stay of 150 days where an appeal has been accepted for ADR. If more time is needed to complete the ADR process, the taxpayer must ask the Tribunal to grant the parties further time.

Where parties wish to use ADR after a hearing date has been set, the Tribunal will only be willing to stay proceedings if satisfied that the hearing will be able to go ahead on the date set if ADR does not resolve the dispute.

At the end of the ADR process, the taxpayer should inform the Tribunal whether the dispute has been resolved. If the dispute is not resolved, the Tribunal will still hear the appeal as normal. The taxpayer may also wish to ask the Tribunal for further case management directions, for example, permission to amend the grounds of appeal or to submit further evidence.

Further guidance from HMRC on the ADR procedure and when a case is appropriate for ADR can be found at https://www.gov.uk/guidance/tax-disputes-alternative-dispute-resolution-adr