Alternative dispute resolution process

Produced by Tolley

The following Owner-Managed Businesses guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Alternative dispute resolution process
  • How cases are selected for ADR
  • When should ADR be considered?
  • How to request ADR
  • Rejection of the ADR application
  • What is agreed when the parties join up to ADR?
  • How does the ADR process work?
  • Does the mediation take place on a ‘without prejudice’ basis?
  • Note-taking at the meditation meeting
  • Outcome of ADR
  • More...

Alternative dispute resolution process

Alternative dispute resolution (ADR) is widely used in the commercial world as a cheaper, more time efficient and effective way of dealing with issues and disagreements than formal litigation. ADR can come in a number of different formats including mediation, arbitrations and third party negotiation.

In tax disputes with HMRC, ADR takes the form of mediation, where an independent mediator acts as a facilitator in order to try to resolve the dispute without binding the parties in advance of any outcome. The mediator will give directions for how the parties are to engage in the process. If ADR fails, the parties can still decide to adopt the litigation route. See the Appealing an HMRC decision ― outline guidance note.

For more information on the interaction between ADR and the HMRC litigation and settlement strategy, and the other issues to consider in relation to ADR, see the HMRC policy on alternative dispute resolution guidance note.

This guidance note considers the ADR process in more detail.

How cases are selected for ADR

ADR can be an alternative to taking cases to litigation. The following characteristics are outlined by HMRC as indicative of situations that it considers may be suitable for ADR process:

  1. there is a disagreement on key points between HMRC and the taxpayer

  2. working relationships between the parties have broken down

  3. both parties are entrenched in their own position and without the intervention of a third party are not prepared to consider alternatives

  4. there is a disagreement on the underlying facts of the case or on the relevance of certain facts. For example:

    1. the taxpayer wants to understand why HMRC has not agreed with the evidence they provided and it wants to use other evidence instead

    2. the taxpayer is not clear regarding what information has been used and they consider that HMRC has made incorrect assumptions

    3. HMRC needs to explain why it needs further information from the taxpayer

  5. further suitable evidence needs to be obtained to assist

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