ADR: Preparing your clients for the mediation
The latest article in our Alternative Dispute Resolution (ADR) series with accountancy firm BDO deals with two important elements of the mediation process: what mediation options are available and preparing your clients for the mediation day.
Tax investigations director at BDO, Helen Adams, provides her insight into mediation - running through the different mediators available and what elements need to be considered when preparing clients for mediation day.
Types of mediator:
The mediation process is identical all the way through regardless of which mediator is chosen. The only thing that differs is that there is a range of options for the type and number of mediators you can have, depending on the case.
“The question is whether you need one mediator or two, whether the mediator is employed by HMRC and whether they are trained externally by a body such as the Centre for Effective Dispute Resolution (CEDR),” Helen Adams said.
“Mediators are not judges - they facilitate the parties reaching an agreement during the mediation; the parties remain the decision makers. Mediators are trained to be independent”, she added.
But there remains skepticism among some taxpayers whether any mediator who works for HMRC is sufficiently independent. Depending on the client’s preferences, their finances and the complexity of the case, there are up to three options to choose from.
Option one: HMRC mediator
The first option is that HMRC provides the mediator. Most HMRC mediators are CEDR trained although some who undertake mediations on relatively small cases are trained internally by HMRC.
The Revenue provides the mediator at no cost to the taxpayer, and the mediator is from a different location and department from the inspector involved in the dispute. The mediator may well never have heard of or met the case worker before.
Option two: Third-party mediator
Option two is where a third-party mediator is paid for jointly by HMRC and the taxpayer.
Adams said it is very likely that this mediator would be an experienced mediator who is accredited by CEDR (or an equivalent).
They may have experience of mediating tax disputes, but would also have considerable experience of mediating other types of commercial disputes.
She added that this knowledge and experience of the mediation process and techniques would make them very capable of facilitating a solution. This mediator would be unknown to the Revenue team and the taxpayer’s team and this option is usually used in the bigger cases.
Adams said: “You have a completely independent person, and depending on their background, they may not have a high level knowledge about tax. But this is not a bad thing - you just need someone familiar with the mediation process and techniques who knows what to ask to explore the issues, unlock deadlock and help the parties look at explore the options for settlement.
"But they also need to familiarise themselves with HMRC’s Litigation and Settlement Strategy (LSS) as HMRC are unable to agree terms of settlement that do not fit within the LSS”.
Option three: Dual mediators
The third option is to have dual mediators.
One person is provided by the Revenue in this instance together with an additional mediator provided by a professional services firm, usually the firm representing the taxpayer. Neither mediator would have worked on the case previously.
The two mediators will go from one room to the other during the mediation process as well as jointly hosting meetings with both parties.
Generally it is advisable to indicate whether you want anyone other than a sole HMRC mediator when making the application for ADR to HMRC. This enables HMRC to consider the request and discuss it with the applicant or their adviser early in the process.
For more information on the process, see:
Next steps:
After an application for ADR is accepted by both parties the next stage is to start preparing your clients for the process, including meeting HMRC.
Adams said: “It’s only natural, given the nature of the situation where, for example, someone may have been under enquiry for many years, that they get stressed and angry about what is going on and how long things are taking.
"They may, therefore, find it difficult to contemplate being in the same room as the HMRC team, even for a relatively brief joint meeting at which they may not have to say anything more than confirming who they are.”
Preparing clients:
The first consideration is whether the taxpayer or their accountant needs some additional assistance if they have not experienced a mediation before. They may choose to seek the advice of an accountancy firm with tax investigation specialists experienced in dealing with ADR.
Helen Adams provided insight into how she and other BDO advisers might prepare clients for the day. She said:
- First of all, if the mediator (or one of the joint mediators) is from HMRC we take time to sit with clients and explain that mediators are externally trained, come from a completely different part of the Revenue, have never seen the case before and are here to facilitate and not to make decisions
- We discuss the issues with the client, agree who will make the initial statement at the joint opening meeting and what that will cover, as well as what the client’s role in that meeting will be. It may be that they do not wish to speak at all, or the opposite may be the case. If the issues include particularly technical points then we will often ensure that the relevant technical specialist is available to join the mediation day, in addition to the one or two people who will be with the client throughout the day
- The team with the client will meet them when they arrive on the day and be with them to support them. They will be in the opening meeting with the client and in all the meetings that follow and will remain with the client during the gaps in the meetings with the mediator too, as the client often wants to air any concerns and discuss options at that time. They will help answer the mediator’s questions, come up with suggestions to resolve points and talk through the options when it is time to negotiate a settlement. This all means that the client team needs to prepare thoroughly, considering the options and ensuring they have all the information and documentation at their finger-tips on the day
- Someone also needs to give careful consideration to the non-tax elements of the dispute such as how much the client can afford and how to pay the tax bill. This can include whether to negotiate a “Time to Pay” deal and, if so, what terms may be required or what penalties may be sought by the Revenue and how to defend against them. It may be that information needs to be collated in advance to help deal with this aspect at the end of the day.
- In general, thorough planning increases the likelihood of settling the case, but the client’s team need to be flexible and adaptable so that any slowing of progress on the day can be overcome if at all possible and a written agreement in principle reached at the end
Next Tuesday, we'll re-visit Mr and Mrs Spencer-Smith in our fly-on-the-wall video mini-series the second stage of their mediation day. Keep an eye out for it on site!
Replies (2)
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ADR
Another process to increase costs and "persuade" the taxpayer into accepting HMRC's position, which inevitably arose from them acting wholly unreasonably.
If HMRC simply trained its personnel correctly and stopped promoting the troublesome officers, then disputes would reduce dramatically.
CLAC
Would you recommend an ex CLAC client (under investigation because of the actions of CLAC, their previous accountant) opt for mediation?