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ADR proving more relevant for smaller cases

13th Feb 2014
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HMRC's newest dispute resolution process, Alternative Dispute Resolution (ADR) is proving more relevant for small to medium sized and individual cases than for large corporate ones, according to HMRC figures. 

ADR, an alternative form of dispute resolution to, for example, going to tribunal was fully rolled out in September 2013 after a two year pilot.

The figures show that from April 2013 to January 2014, there were 275 SME and individual case applications, 70% of which were accepted by the Revenue.

Almost all of these cases reached a decision within 30 days (91%), with an overall success rate of 81%.

"Overall, in the SME scheme, we are seeing somewhere around 60 applications made each month with more than 70% of applications being successful," said David Croad, Head of HMRC’s ADR Business Unit.

In contrast, there have been 78 applications to ADR for large and complex cases during the same period, with almost half of these rejected for inclusion in the process.

The Revenue added that the average length of time a dispute has been running before it goes to ADR is two years for a direct tax case and eight months for a VAT case.

The success rate for these kinds of cases is higher than that of the smaller ones at 83%, but that is likely to be becasuse of the specific issues involved in the cases which are accepted for ADR.

BDO’s tax partner Paul Clarke has taken individual VAT and corporate cases through the ADR pilot He said that the discrepancy between many large corporate cases being rejected while small to medium size cases are accepted by the Revenue is a logical one.

“If you take the top end, large and corporate cases; a lot of those are ‘red line’ policy issues or are lead cases whereby they have to go to tribunal as there are several cases awaiting decisions which may be bound by the result. This is why they may not be suitable for ADR.

“Small to medium size cases generally only involve a dispute over the facts of that particular case. When they are resolved, they are dealt with in isolation and don’t influence other cases,” he said.

Dawn Register, BDO’s tax director and Centre for Effective Dispute Resolution (CEDR) accredited mediator, added that many of the issues in larger cases may be resolved without mediator intervention.

She added that many of the large corporate cases are resolved prior to ADR where Customer Relationship Managers at HMRC can bring the parties together, in addition to being more likely to have technical policy disputes which need to go to tribunal.

Both Clarke and Register said that in general, they believe many practitioners still have not yet grasped the significance of ADR in tax disputes going forward.

"This is a huge change in the way the Revenue is going to try to resolve the deadlock in lots of cases, potentially including those log-jammed in the currently backlogged tribunal system," they said. 

Going forward, the Revenue fully intends to ensure that ADR remains embedded in its dispute resolution process and standard practice. 

"As effective collaborative working continues to be standard practice, it is hoped that disputes will become fewer and farther between but when they do occur ADR will provide an invaluable resource in dealing with them effectively," Anthony Allgood, senior HMRC policy director said. 

The UK is not the only country to implement ADR - with Australia having already implemented and embedded it.

The Revenue has even liaised with an officer from Australia to mutually share design lessons, Mathew Umina, assistant commissioner at the Australian Tax Office, by bringing him to the UK on secondment. 

Register added that such a move shows how important HMRC perceives ADR to be. “This suggests that it is definitely a permanent fixture in the range of tools available to solve tax disputes,” she said.

AccountingWEB will be ramping up its coverage of ADR in the coming weeks through a BDO video mini-series, beginning 18 February. This will show practitioners curious about the process a dramatisation of the proceedings across five episodes. Keep an eye on the site for more closer to the time. 

Case study: ADR in Australia: Interview with Mathew Umina

ADR is very much in its early stages in the UK, having been piloted for two years before being rolled out fully as a 'standard' dispute resolution service by the Revenue in September 2012. But in Australia, it's already an established process.

Assistant Commissioner at the Australian Tax Office (ATO) Mathew Umina has been advising HMRC on the process. Below, he outlines how the process works in Australia and how it has changed the country's tax enquiry processes:

Over recent years the ATO has been looking for opportunities to avoid and resolve disputes.

Early engagement and direct negotiation are our primary means of avoiding, minimising and resolving disputes. ATO Officers are advised that dispute resolution approaches should be considered at every stage of their review and audit processes. We encourage the early resolution of disputes without recourse to litigation and will work with taxpayers to avoid disputes where possible.

A recent initiative, designed to further embed ADR principles into our work practices, is the development of an Independent Review process. Briefly, this process allows for a taxpayer to request a review of the position being adopted by the ATO Officers shortly after they have formed their initial views.

Although in its infancy, early signs are that this process is extremely effective in creating a better understanding for both the taxpayer and the ATO Officers.

The ATO also makes use of more formal ADR channels such as Mediation, Early Neutral Evaluation and Case Appraisals where other ADR techniques have not resolved matters.

It is also important to note that the ATO is continually looking to improve our approach to ADR and our conduct at ADR. We are currently seeking feedback from all participants in ADR on how we can improve and this process is being managed by an independent (external) body.

A viable UK solution

As Governments around the world are asked to demonstrated increased effectiveness and efficiency, it is incumbent upon tax administrators to look to adopt less adversarial approaches to tax administration. ADR is one such method and it has proved to be extremely effective in Australia in reducing cycle times, areas for disputation and for increasing taxpayer satisfaction with the tax system.

Based on this experience, I believe that ADR will become more prevalent in the UK.

The experience in Australia is that ADR is best suited to cases where the dispute relates to matters of a factual nature, for example valuation types of issues.

The increased emphasis on ADR has highlighted the need for ATO Officers to obtain all relevant facts as quickly as possible, to understand the business environment in which the entity operates, as well as the need for open dialogue.

Two ATO publications that detail the context within which ATO Officers are to engage with taxpayers and their advisors are our Plain English Guide to ADR (ATO Plain English Guide to ADR) and our Dispute Management Plan (ATO Dispute Management Plan).

 Mathew Umina is an Assistant Commissioner at the Australian Tax Office (ATO) and is working at the Joint International Tax Shelter Information Centre (JITSIC). 

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By ShirleyM
13th Feb 2014 10:02

I used ADR recently

It was extremely good, and brought a quick resolution to a compliance check that would have gone on indefinitely, even though it was a quite straightforward situation. The outcome was very satisfactory:

 

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