Alternative Dispute Resolution: The importance of being well prepared

    Background

    Alternative Dispute Resolution (ADR) has been part and parcel of HMRC’s processes since September 2013. HMRC’s recent statistics show that its popularity is increasing year on year, with applications more than doubling in 2016/17 from the previous year.

    Despite the increase in the amount of applications, ADR is not always given due consideration as a way forward when a dispute arises. We regularly discuss dispute situations with advisors seeking opinion on taking their case to tribunal and we always ask, “Have you considered ADR?”.

    The prospect of reaching a resolution through ADR is high, with more than 80% of cases resolved through the process in 2017/18. In cases where an impasse exists, ADR gives an avenue to discuss matters frankly and openly with HMRC, in the presence of a facilitator, with a view to resolving the areas of dispute. 
     

    Preparation

    When making the application to the ADR team you will have outlined the details of the dispute together with your reasons for applying. The ADR team expect all parties to enter the process with an open mind with a view to reaching a resolution.

    The fact that a case is accepted into ADR demonstrates there are issues to be resolved. It is in all parties’ interests to try and do this amicably, avoiding the more lengthy and costly process of troubling the tax tribunal. 

    As in all areas of life, being well prepared will stand you in good stead for what lies ahead. Whilst, there is no guarantee of a successful outcome at ADR, you should treat ADR as a dry run for the appeal hearing before the tribunal in order to give your client the best chance of resolving the dispute with HMRC. A lack of preparation can lead to problems with the ADR process. In one case we have seen there have been issues in meeting the timescale agreed within the Memorandum of Understanding and the facilitator was not prepared to allow any additional time. This has meant that additional information needed to support the case is not available and weakens the case significantly. 

    It is therefore vitally important to have a plan and to stick to what has been agreed at the outset. It is also important to maintain dialogue with the facilitator, and to adequately prepare for the ADR meeting giving full consideration to what details and information is needed to support your client’s case. This allows the best possible case to be presented which gives a better prospect of success. In the worst case scenario, where the facilitator takes the view that co-operation with the process is not acceptable, the case can be removed from the ADR process altogether, which is clearly of no benefit to the client.

    It is worth commenting that HMRC does not always prepare well for ADR meetings and will simply rely on the case correspondence to date with little to add. Whilst the facilitator in the case does not act as judge and jury, they are there to listen to the arguments presented and to challenge both sides point of view. Both sides sign up to a Memorandum of Understanding at the outset of the process and are bound by that agreement. It is up to the facilitator to ensure that the parties are fully engaged with the process.

    The key areas you should consider in advance of the meeting are as follows:

    1.    Statement of Case

    This opening statement is read out at the start of the meeting and should be used to set out the main facts of the case and your view on the areas in dispute. Where relevant, you should comment on how you believe the law applies to these facts. 

    This is an ideal opportunity to reiterate the key points made during the course of the enquiry to date and to set the tone for the discussions to be held during the day. It is also important to emphasise the desire to reach a resolution to the dispute through the ADR process.

    Failure to prepare a strong case at this point allows HMRC the opportunity to take the initiative and achieve a stronger position at the start of proceedings on the day. 

    2.    Client engagement 

    Brief the client fully on what to expect at the meeting. This is not an interview situation, however, they will be asked to comment on matters and answer questions that are relevant to the dispute. Ensure that the client is fully aware of the points in dispute and discuss with them the potential outcomes at ADR.

    The facilitator may well ask the client to detail the impact the dispute has had on them personally and this is an opportunity for the client to give that personal input. In a long-running dispute, which has been stressful and difficult for the client, this is the perfect opportunity to express this to the facilitator and HMRC face to face. This face to face element of the meeting can have a very different impact with explanations given directly by the client.

    3.    Be prepared for lengthy debate 

    Emphasise the strength of your case in your opening remarks and during the discussions. You need to be prepared to engage in detailed discussions and debate with HMRC as they will not change their opinion easily if they consider their view on the matter is equally as strong.

    The ADR meeting normally follows the pattern of the initial exchange of opening statements, followed by both parties’ responses and further meetings both together, and independently, throughout the day, with breaks agreed, as required. Bear in the mind that the desire is to be able to resolve the matter on the day, so, be prepared for the possibility that the meeting will take the whole day.

    4.    Keep an open mind

    Many areas of tax are not black and white and disputes are down to interpretation or opinion. For example, the client’s behaviour that led to an inaccuracy in the tax return. Was it deliberate or careless? If careless, is suspension of the penalty an option? This is an opportunity for the client in such circumstances to give their own first-hand account of why the error arose and this can be very helpful in persuading HMRC, with the facilitator’s input, that their initial view should be reconsidered.

    The reality is that many tax disputes lead to a compromise situation that enables an amicable resolution to be reached. In our experience, even in cases where HMRC has said previously that they have no intention of changing their position, they have done so at ADR.

    5.    Focus on the important points first

    It is also important to avoid getting side tracked with minor issues and to stay focused on what you are trying to achieve through ADR.
     

    Summary

    ADR has a proven track record of resolving disputes and should be considered at the earliest opportunity in cases where an impasse has been reached or communications have broken down. At the end of the ADR process, if a resolution is not reached, at the very least, both sides will be very clear on where they stand if the matter progresses to a tribunal hearing.

    The chances of reaching a resolution at ADR are very good and this is undoubtedly best achieved when you have prepared well for the meeting. The failure to consider what is needed to support your case effectively in advance of the meeting is likely to weaken your position and not achieve the result you were hoping for.

    As the saying goes, fail to prepare, prepare to fail……

    Abbey Tax specialise in tax dispute resolution and have successfully represented clients on all types of tax dispute that have opted to utilise the ADR process.

    For more information on the process and how we can help please contact James Cordiner or Steve Price, two of our senior tax consultants, on 0345 223 2727.