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HM Revenue & Customs has announced that SMEs (Small and Medium Sized Enterprises) can now apply online to join the Alternative Dispute Resolution (ADR) trial. ADR offers SMEs who are in dispute with HMRC to apply for a fresh approach with an independent mediator (or 'facilitator' in HMRC parlance) to encourage a negotiated settlement.

Whilst the number of cases taken through the ADR is still quite small, HMRC has been encouraged by the relatively high success rate and positive feedback from taxpayers and their agents.

Hui Ling McCarthy, a barrister at Gray's Inn Tax Chambers, has been involved with the Alternative Dispute Resolution Service since its initial trials and believes that many more taxpayers stand to benefit from the ADR.

“HMRC’s ADR pilot studies have produced extremely encouraging results.

A high proportion (around 60%) of SME disputes included in the first phase of the pilot have been wholly or partly resolved. This is an impressive result, bearing in mind that these were cases in which progress had stalled or communication had broken down. An early criticism of the SME pilot was the use of HMRC officers as facilitators. There was a perception that they would not be able to act impartially. However, this has not been borne out by the feedback from taxpayers and advisers – quite the opposite, in fact. There has been a significant amount of positive feedback about the extent to which the facilitator was able to treat both sides even-handedly.

Taxpayers involved in a dispute with HMRC would be well advised to take advantage of this facility, if they think that their case may be suitable, and apply to be included in the second phase of the pilot.

It is a voluntary process and it is hard to see how either side can emerge worse off – especially where taxpayers find themselves in a situation where the only other option is litigation.”

Ms McCarthy, who is also a CEDR accredited mediator, added that there remains scope for negotiation in tax disputes as part of HMRC's overall Litigation and Settlements Strategy (LSS):

 “In their new LSS commentary, HMRC are clear that ADR is not about ‘splitting the difference’ in order to settle a dispute.  However, it is nevertheless apparent that HMRC see ADR as an important technique which might help parties reach a compromise in cases where, for example, there are a number of issues on the table or a range of possible figures for tax due.”

Further information about the ADR trial for SMEs can be found at Alternative Dispute Resolution Trial for Small and Medium Enterprise Customers.  For the LSS commentary and ADR guidance, go to Litigation and Settlements Strategy (LSS)