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Alternative Dispute Resolution for SMEs ‘has to be good news’, says CIOT

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HMRC has launched an Alternative Dispute Resolution service for SMEs, in an effort to resolve disputes ‘much earlier’ than at present and reduce compliance costs.

ADR will use ‘independent HMRC facilitators’ to resolve disputes during a compliance check but before a decision or an assessment has been made, HMRC said. The pilot will run in North Wales and the North West of England, after a successful small-scale trial in which 60% of disputes were ‘either fully or partially resolved’.

PKF said it was not convinced that the procedure would provide SMEs with a meaningful alternative to a tribunal hearing. But the CIOT welcomed today’s announcement and suggested that participants may be able save ‘stress, time and costs’ by using the ‘entirely voluntary’ ADR process.

The announcement comes a week after Conservative MP Priti Patel accused HMRC of seeing smaller businesses as ‘low-lying fruit’ in order to meet its targets. Chuka Umunna, the shadow Business Secretary, said concerns that HMRC had left itself open to suspicion that relationships with some companies were ‘too cosy’, while smaller firms had not been given the same service as large firms, must be addressed immediately to restore trust.

However, ADR is not a new concept and its possible application to tax disputes was discussed at length during a Tax Journal round table discussion in April 2010. 

Jim Stevenson, HMRC Assistant Director, Local Compliance, said: ‘We have found that often there are communication problems. So the HMRC facilitator will help all parties reach a shared and full understanding of the disputed facts and arguments. They will also ensure there is good communication, and help explain what each side is trying to say to the other. The aim is to resolve the dispute or, if not, as many issues as possible.’

John Cassidy, tax investigations and resolutions partner at PKF, said: ‘On the face of it, any measure that provides SMEs with an alternative to a tribunal, which can be disproportionately costly and time consuming for smaller companies, will be welcomed by business owners. 

‘However, SMEs will need to be reassured that a procedure reliant upon an HMRC facilitator is genuinely independent – bosses will shun the ADR unless they believe that they’ll get a fair hearing from the taxman. Entrepreneurs may also point out that the Treasury is asking them to make a leap of faith that it is not prepared to make itself – why can’t the resolution procedure be mediated by the SME’s tax advisers, provided that they are a reputable practice?’

Cassidy said many SMEs were ‘already wary of the taxman following recent accusations of a bias against smaller enterprises’. Regaining the confidence of business owners would be ‘critical’ to the success of the pilot.

The CIOT said that while the facilitator will be an HMRC employee, ‘they will have had no prior involvement in the dispute and will have a brief to be independent, having been previously trained in dispute resolution techniques’.

Andrew Gotch, Chairman of the CIOT’s Owner Managed Business Sub-Committee, said: ‘This is a welcome move. ADR has the potential to be a valuable Gordian knot-cutter in investigations and technical disputes that have run into the sand. Anything which can help resolve disputes between HMRC and taxpayers to mutual satisfaction without the need to resort to expensive and time-consuming litigation has to be good news for all sides.’

Gotch said he would encourage all small businesses and tax advisers who can take advantage of the facility to consider using it where there are ‘intractable’ disagreements with HMRC.

‘This is an entirely voluntary process, from which neither side can possibly emerge worse off.  In fact, evidence from the earlier phase of the pilot suggests that participants usually emerge far better off either in terms of getting a solution or understanding each others’ positions better, thus saving stress, time and costs all round.’

Cases potentially suitable for ADR include those where the facts are ‘capable of further clarification’, or there are issues ‘capable of further mediation and settlement by agreement within the framework of the Litigation and Settlement Strategy’, HMRC said.

Cases considered not suitable for ADR include disputes on matters that need to be clarified in the public interest.

Guidance is available on the HMRC website