A guide to the alternative dispute resolution (ADR) process

A guide to the alternative dispute resolution (ADR) process

Tax disputes with HMRC can be settled using ADR, but there are pros and cons to be considered.

Markel Tax has first-hand experience of successfully defending many clients using HMRC’s alternative dispute resolution (ADR). 

ADR can be used to help resolve a tax dispute before and after HMRC have issued a decision that can be appealed against, and at any stage of an enquiry.

We usually encourage our clients to consider this option because they usually only have two options to settle their dispute – ADR or tribunal. The client has nothing to lose, and ADR costs are much lower than those of a tribunal.

Process challenges

HMRC’s handling of cases has become somewhat back to front. For example, in recent IR35 cases, there seems to be a trend for HMRC to raise regulation 80 determinations, along with notice of decisions, then to issue conclusion letters following independent review stating that IR35 “could apply”. This suggests a conclusion has not been reached – so how can assessments be raised when a decision is yet to be made?

Given this, it might be a tactical advantage to skip ADR altogether and head straight to tribunal, where HMRC’s current process challenges are unlikely to make a favourable impression.

It is also worth noting that, depending on the type of dispute, ADR may be of little use because of a preconceived HMRC stance. With higher-profile cases such as those involving TV personalities, Markel’s view is that the best option is to go straight to tribunal!

Nevertheless, under normal circumstances, our advice to private-sector clients would be to always consider ADR to resolve disputes and avoid a tribunal.

Markel’s detailed fact-finding wins ADR case

In one example of ADR success, Markel Tax took over a case that was set to go to ADR. We carried out a detailed analysis and it was clear that HMRC had failed to establish the facts surrounding the fundamental factors: personal service, control and mutuality of obligations.

Markel Tax’s own thorough investigation showed the sub-contractor concerned was self-employed, and we advised our client to provide a witness statement at the ADR to outline their understanding of the engagement.

Presented with the new facts Markel Tax had obtained, HMRC concluded that an employment relationship did not exist as a “sufficient right of control could not be held to exist” and consequently reversed its opinion.

The absence of a contract, as with this case, always makes it more difficult for the parties involved to establish the implied terms and conditions of the working relationship to determine whether workers are to be treated as employees or self-employed sub-contractors.

It is important, therefore, to ensure contracts are put in place. If that had been true here, ADR would probably not have been necessary.

Click here to learn more about IR35 and how to determine your IR35 status.