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BDO ADR mini-series

Helpline pilot gives ADR a new push

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10th Jun 2014
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A couple of years ago Jennifer Adams attended a seminar given by HMRC when Alternative Dispute Resolution (ADR) was in its infancy. She looks back here on how the new approach has evolved.

The Alternative Dispute Resolution (ADR) has been available to the taxpaying public for over two years now. When the service was tested as a pilot scheme a few years ago, there was no guarantee that it would continue. However the pilots went well enough that HMRC decided to continue with it

Therefore, when CIOT/ATT announced that HMRC were asking for members to test drive f a new addition to the service – a dedicated ADR helpline - it made sense to give it a try to see how ADR has been working in practice, and how it is likely to evolve. John Neale, a member of the HMRC ADR team, has also been in touch and answered some of the questions I had about the mediation approach.

How ADR works

The service is split into two separate schemes: one for smaller enterprises (SMEs); and the other the larger and more complex cases (L&C). HMRC’s ADR guidance explains the how the process works in more detail.

The main benefit is the obvious reduction in cost for both sides plus the facility for “both sides to sit back, take stock and with a trained facilitator see if both parties can solve a problem without the cost of going to a tribunal or further”, as Andrew Gotch of CIOT’s OMB sub-committee put it.

ADR commences with a request from the customer. The one-page online form only allows 2000 characters to set out the case details, but this is only a basic overview as the dispute will already be known to both sides.

After agreement to use the ADR service has been made, one of 20 independent HMRC facilitators is appointed. They will not have previously been involved in the dispute but the intention is that they will work with the taxpayer (and their agent/adviser) and the HMRC case worker to reach agreement. In a stalemate situation, an independent facilitator can act as a neutral third party mediator.  To view the practicalities and procedure of the process see BDO’s ADR video mini-series.

Practicalities update

  • ADR need not take up much time – increasingly matters are being settled on the phone although a meeting may be relevant in some cases. The BDO video shows a meeting between taxpayer and facilitator, but this need not be preferable or practically possible.
  • Using ADR stops the constant letters going backwards and forwards. The average time from start to finish for those cases that were part of the pilot was 12 weeks, a significant reduction on cases within the tribunal system. The current time scale has improved such that that average has halved. The average turnaround from application to agreement to use is two weeks and in 95% of cases this time frame is achieved. Interestingly, the cases in the pilot scheme had already been outstanding for an average of 23 months. ADR is now offered at six months.
  • VAT is the most used heading under ADR but this is only because it is a broad subject; disappointingly, the main subject that the ADR system is unable to tackle is the one that possibly brings most complaints – penalties.
  • The new dedicated helpline is intended to speed up the service and offer an introduction to the process. Should the helpline be implemented, taxpayers and agents who may have been considering applying for ADR but are unsure as to whether their specific case fits the criteria, will be able to speak to a qualified member of the ADR team and be advised accordingly. This could save the need to submit a form, only to find that the service cannot be used or is not relevant to their particular situation. The ADR helpline is not intended to answer questions relating to a specific case, but to advise as to whether the procedure is right for the caller’s particular problem. A recent CIOT notice offers more information on the helpline pilot.

Use of the ADR scheme - member’s views

Reaction to the scheme by those taxpayers who have actually used it has been favourable. The main professional bodies have been welcoming but even so, the take up has been disappointingly low among SME and individual taxpayers who are represented by agents. The topic also only tends to get a lukewarm response from members when articles are published on AccountingWEB. ADR has also only featured a few times on the Any Answers page.

When they do comment, AccountingWEB members have given the scheme mixed reviews, with some questioning its independence and value to small business. The main concern centres around the facilitator’s independence; if he or she works for HMRC, how can that be independent? Perhaps it is not appreciated that a meeting (and the costs that a meeting will incur) is not compulsory.

Perhaps accountants think there is no need for the service. Past experience in dealing with HMRC and reading tribunal decisions may give convince them that a similar case will result in a win for HMRC – so why bother?

Whatever the reasons HMRC’s John Neale confirmed the department is aware of the situation and is working to understand why take up is not as high as anticipated. The feedback from those who have actually used ADR has been positive, so HMRC currently thinks the reason for its non-use is that many accountants remain unaware of either its existence or its benefits.

The future for ADR.

Ideally HMRC would like to move to a position where ADR  is needed because both sides are handling disputes collaboratively with a view to resolving them rather than winning the argument. ADR is a “last resort” and HMRC would prefer agreement be reached before ADR is used. On many an occasion a case is on its way to tribunal (sometimes with only two weeks to go) before ADR is called upon. By then, of course, it is too late to put a halt to court proceedings as it is not cost effective to start again. The tribunal option will always be there but ADR can save time and costs all round.

HMRC employees have been asked to be more proactive in considering its use in cases that appear to not be reaching a conclusion. The ADR team believe that knowledge of the scheme is growing within HMRC, and increasing with experience. A review of all cases that remain unresolved after six months is being undertaken, with case workers being encouraged to consider whether ADR would be relevant and suggest its use to the customer.

Ideas to encourage ADR:

  • Issuing examples of the detail needed in the ADR process - but the problem is ensuring anonymity in any examples that are sited.
  • The ADR form itself is somewhat restrictive and not ideal. At the moment, it’s all HMRC has got, but it is being kept under review.
  • Compiling statistics of subjects heading, the number and outcome of each case, but again anonymity is an issue.

HMRC thinks ADR offers tangible benefits to both sides; so why are agents so reluctant to use it? Is the remit too restrictive? 

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