Our first experience of reaching an agreement with HMRC via Assisted Dispute Resolution (ADR)
posted 5th October 2023
It's a "joke" in the VAT world that the answer to every VAT question is the same..."it depends". There are many grey areas of VAT and so its not unusual for us to review letters from HMRC to our clients which we disagree with, or for HMRC to make a decision that we don't think is quite right.
In such situations, you will be pleased to hear that it is not just a case of HMRC saying "no" and you accepting that answer. We have a great legal system in the UK and a workable procedure to follow for tax disputes with HMRC and at Tribunal which is roughly as follows:
- HMRC issue a VAT decision that you don't agree with - for example, at a VAT inspection, refusing a repayment on a VAT return, or a decision following the submission of an error correction.
- Often once an Officer has indicated that they disagree with your view, you can engage with that same Officer to try and find a solution. Most disputes we have been involved in are resolved at this stage, and are resolved in favour of our clients.
- If an HMRC Officer issues a decision that you disagree with, you usually have the right to appeal to an independent Officer. As this is the last stage before Tribunal proceedings start, we usually suggest submitting a more detailed appeal to HMRC including legislative references and any further relevant information. We have only had two cases ever get this far. In both cases HMRC have not changed their minds at this stage. Being slightly sceptical, I do wonder how closely the appeal Officer looks at these cases and I wonder if HMRC think that most businesses will just "give up" after this stage due to the time and costs involved in Tribunal.
- If HMRC say no here, usually the only option is to start Tribunal proceedings, and ADR is a possible option along this route. Here, my client and I considered the merits of quitting or moving ahead - I was still convinced of my argument but had to consider the possible costs of Tribunal. However, it is always your decision as the taxpayer - consider here your attitude to risk, quantity of VAT, and likelihood of success. In this case, there were lots of factual errors in HMRC's decisions and some points they made which seemed "odd" (plus I was convinced of the argument and couldn't find anyone who could put together a valid argument against us). As such, we started Tribunal proceedings against HMRC...
Proceeding to Tribunal
The initial admin involved in appealing to Tribunal was fairly straightforward and involved submitting forms to the Tax Tribunal. There are various stages and time limits for different documents and notifications. Although these submissions were not difficult, I had to read each document carefully to make sure I knew exactly what was required and by what time. I am sure that seasoned lawyers can do this without really thinking about it, but as a first-timer, I had to pay full attention!
Once Tribunal proceedings have started, ADR becomes an option. This is a separate request submitted to HMRC via another form. There is no guarantee that HMRC will agree to ADR and you have to be formally accepted into the process. (We understand, for example, that HMRC have a formal policy of refusing to carry out ADR with any TOMS disputes.) The point of ADR is to get all parties in a room to discuss the matter civilly and try and come to an agreement without the cost and time involved in a day out at Court. From all the advisors I have spoken with who have been through ADR, it has mixed results - in many cases a compromise is reached, sometimes one party withdraws their argument completely, or no-one does. The point is not to "play games" and try and see who has a better hand for Tribunal, but to genuinely try and resolve an issue. Sometimes, even a negative outcome for a taxpayer, but one that ends with a better understanding of how to fix something going forward, can be a good result.
In our case, we thought ADR would be a good solution - there seemed to be a lot of confusion about the nature of the supplies my client was making, and some of the arguments HMRC had used seem to contradict other comments they had made. We thought that talking things through with a mediator present would help both these points.
ADR is mediated by an HMRC Officer who is not involved in the case. I was really sceptical about this, as I privately questioned how impartial an Officer could be when our "opposition" was the one who signed their paycheck! However, my first conversation with the mediator proved productive and she seemed to genuinely be interested in our views and why we were pursuing the argument. She agreed that this was a good case for ADR and we were accepted into the process.
Preparing for an ADR meeting
Once we were accepted into the process, Tribunal proceedings were formally put on hold. The only requirement prior to our ADR was to submit to the mediator an "opening statement". The opening statements are then shared with the other side in advance of the meeting, and they are read out on the day at the start of the session as a way of getting the discussions started. I obsessed over this quite a bit as, having been told it should be "around 1 page" had a lot to fit in! Remember here that this is something you will be reading out on the day, so try and make it "flow" well!
In the lead up to the meeting, we spent a lot of time preparing different threads of our argument. As we felt that one of the main issues in our case was that the supply did not appear to have been fully understood by HMRC, we prepared some diagrams and costing schedules to assist in the proceedings. I had briefed my client on what to expect. In these types of session, your advisor should do most of the talking and discussions about the legal and technical side, but a representative from the business itself is best to answer any questions HMRC had about any facts. My main advice to businesses here is not to panic about your role here - facts are facts. Some facts might not be helpful, but we always need to disclose these honestly so there should be no "pressure" on your answers.
We also checked with the mediator in advance that the HMRC team would include someone who had the authority to resolve the matter on the day.
The ADR meeting
The meeting itself took place online. The HMRC mediator had organised a number of TEAMS rooms - one for the main meeting, and others for private discussions Once the meeting started in the main discussion room, we read out our opening statements - HMRC first, followed by me on behalf of my client. After this point, the mediator invited us to initiate comments.
We felt that the discussion was very civilised and that HMRC respected the business and our arguments throughout the whole session. We in turn listened to HMRC's point of view and will be following up on one point they made going forward. Ultimately, we were really impressed with HMRC's attitude and their willingness to listen, as we felt this had not been the case in the earlier stages of this case.
The meeting ended with a good result for us but either way I think I would definitely recommend this as a potential way of solving a dispute as this is perhaps the most impressed I have even been with HMRC. As tax advisors, we want the best for our clients but we also want the result to "sit right" with us (we like to sleep at night!). Its good to see this side of HMRC too.
Ultimately this was less time-consuming and costly than Tribunal for both sides, and something I was very pleased to be a part of. From my discussions with other advisors, I know that results can vary and I'm sure this depend on the case, the Officer and the circumstances. However, it is absolutely a viable option and one I will be discussing seriously if and when the opportunity next arises!