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ADR: Handling SME v corporate cases

26th Feb 2014
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In last week's blog post, we met fictional characters Mr and Mrs Spencer-Smith, a couple going through alternative dispute resolution (ADR) to settle a tax dispute with the Revenue, which has ran for over three years.

The video highlighted the key points clients and advisers would have to consider before going through the process. But once the ADR avenue has been selected, what should you do next?

Manchester-based BDO partner Ed Dwan has taken several corporate cases through ADR, from small to very large.

He and BDO tax director Dawn Register share insights from cases they've both managed, showing how to handle cases involving private individuals, small/medium sized companies and larger corporate cases.

Private individual and small/medium sized company cases 

According to Register, the challenge with mediation and tax disputes on the private individual side is that it becomes “very personal" in nature.

"There is a challenge to try to keep the emotions under control and focus on the commercial situation.

"People do take it personally if they have been investigated for a number of years, as the video shows. The clients' reactions in the video are not that exaggerated, there are many who still feel like this," she said. 

Register says that clients getting aggressive or upset at the start of a mediation day gets in the way of things smoothly.

She advises individuals therefore to try and keep theirs minds focused on the commercial, rather than personal aspects of the case.

The second piece of insight Register offered is that, when giving evidence, ensure that it’s credible and gives HMRC as much background and detail as possible.

“In many cases, the underlying position is a credible one, but it doesn’t play out that way if you withhold information.

“HMRC is experienced at spotting gaps in information and evidence - if someone’s going to give evidence in an informal setting, it needs to be credible and complete,” added Dwan.

Finally, Register stressed the importance of clients understanding the mediation process.

Larger corporates and SMEs may be well versed in understanding processes such as ADR, but many individuals have only come across mediation in, for example, divorce cases. It is important that they brush up on the subject, she added.  

As the stakes are often high and the next stage, if no settlement can be reached, could well be court. 

"This can be frightening for a smaller case or individual, so it is highly advisable to bring someone independent in to get advice and if ADR is decided upon, they can also help you with that process.

"ADR is not something that lends itself to willing amateurs - you need to understand the process and recognise that there will be circumstances where HMRC is right and give that advice to clients, even though it may be hard for them to take," she warned.

Large and corporate cases

Partner and ex-HMRC inspector Ed Dwan deals primarily with corporate cases. From his experience of ongoing and former cases going through ADR, Dwan provides his insight into what works and what doesn't for these larger corporates, including the use of joint mediators.

"What's worked well for us is getting joint facilitation - i.e. using both the HMRC and an independent (BDO) mediator. The advantage of that is that it gets over the hurdle of people being wary and skeptical of using an HMRC facilitator.

"And with the independent mediator, find someone who is not on the normal client team and is independent enough to be seen as objective," he advised.

In addition to joint facilitation, getting the Revenue to bring along someone from their solicitor's office is also another element Dwan has seen in successful ADR cases, especially where there are fact-heavy cases with a level of personal testimony. 

In some cases Dwan has put through ADR, the presence of a solicitor has changed the Revenue's view of a situation. 

"If they understand what happens at tribunal, they are in the best position from the HMRC side to evaluate whether someone’s testimony is going to play well in court," he said. 

Another piece of insight Dwan had on dealing with larger and corporate ADR cases, is that clients and advisers should be prepared to enter the process with an open mind. 

"You can't predict the outcome of mediation," Dwan said. "Therefore, what this demands is that clients go into it being prepared to re-evaluate things if information emerges on the day you weren’t previously aware of.

Ultimately, tax disputes should be viewed as a commercial transaction in terms of how you try to resolve them and you should avoid getting too entrenched in a particular view."

Unsuccessful cases are those with clients who have an unrealistic perspective of what the outcome is going to be, so keep an open mind, Dwan said. 

Next week, we'll revisit Mr and Mrs Spencer-Smith in their second of five stages of mediation with HMRC - the opening phase. Keep an eye on the site - you won't want to miss this episode. 

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By David Gordon FCCA
26th Feb 2014 12:45

This is all very well but:

 Some time ago a weekly accountancy paper pointed out that 85% of all tax is paid by 15% of taxpayers.

 I and many of my professional colleagues deal with the other 85% of taxpayers that pay only 15% of the total tax take.

 This excellent note above carries the implication with it that a great £deal of professional time and money is involved in the resolution.

 The reality is that several millions of taxpayers and their professional advisers, simply cannot in any way afford the "Reasonable" procedure outlined above.

 I recently attended a CPD meeting at which a senior HMRC person outlined (HMRC's understanding of the ADR procedure). She then introduced a person who, she said, would be used by them as a mediator. It then turned out that this person was an experienced VAT officer.

 When members of the audience asked how we expect clients to accept that a senior VAT officer, with the best will in the world, could be an "Independent" mediator in tax disputes, their objections were brushed aside.

 Further the HMRC speaker made quite clear that the one subject that the ADR system would not deal with was the subject of HMRC penalties. Yet this is the one subject which causes more dislike of HMRC than any other, and there is no "Independent" way to resolve low £value  but high aggravation factor, disputes.

 Based on the experience of my one-man practice and the words of HMRC, as far as I am concerned this is just another attempt to paper over the cracks in the often dysfunctional workings of HMRC.

 There must now be thousands of HMRC employees who are doing anything but sitting behind a desk and making the system work. What a pity.

 

 

 

 

 

 

 

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