It is fair to say HMRC has increased its focus on non-compliance and perceived tax avoidance, with a particular focus offshore as set out in its ‘no safe havens’ strategy document and subsequent consultations.
As a result we have seen both an increase in tax enquiries generally, and in the number of cases being listed for tax tribunal. Guidance given to inspectors is that, if they believe they have a better than 50 per cent chance of success, they should pursue their argument. Many of these cases reach a resolution, often with a negotiated settlement. However, a number of cases become entrenched, the enquiry process grinds to a halt and often there is no apparent end in sight: not a great position for taxpayers and their professional advisers.
ADR may be able to offer a confidential and time-efficient way to resolve a dispute with HMRC.
ADR was first trialled in 2011, aimed at helping resolve disputes or reach an agreement with HMRC, where it has not been possible to settle on issues which otherwise are likely to end up before the tax tribunal.
Under the ADR process facilitators seek to help HMRC and the taxpayer reach a negotiated solution with the main advantages being that it:
- avoids costly litigation;
- is time-efficient;
- is a confidential process;
- allows the taxpayer and adviser to retain control; and,
- helps to plan for a possible tax tribunal hearing in the event an agreement cannot be reached.
As a result, even if no agreement is reached, time has not been wasted.
Since the first trial, the use of ADR has steadily increased. New figures show the number of personal and small business tax disputes accepted for ADR has risen by over 70 per cent in the last year. Figures, obtained by RSM under a freedom of information request, reveal that HMRC accepted 413 applications for ADR from SMEs and individuals in 2014/15, up from 240 in the previous year.
The statistics also show the taxman is increasingly likely to try and resolve tax disputes through ADR mechanisms rather than expensive civil litigation. In 2013/14, 66 per cent of applications were accepted for ADR, but in 2014/15 this figure had risen to 82 per cent.
History shows some disputes can result in a complete breakdown of trust between HMRC and the taxpayer or their adviser. Having the option of a neutral mediator getting involved can often break the deadlock. HMRC offers facilitators with advocacy training at no cost. Invariably these are HMRC personnel, so while they cannot accurately be described as being truly independent, in our experience they have always been scrupulously fair to both parties. The taxpayer has the option to appoint an independent mediator, but these need to be mutually agreed and costs determined.
So with continued focus offshore and the Common Reporting Standard just around the corner, more investigations are anticipated in areas such as:
- UK resident and non UK resident non domiciliaries (non doms) with UK and overseas assets;
- overseas trustees with UK assets or UK resident beneficiaries receiving taxable benefits; and
- non doms having to change, in April 2017, from the remittance basis to the arising basis.
RSM’s Tax Risk and Investigation Management team has been involved in several ADR cases, which have resulted in significant benefits for taxpayers and advisers when compared with other options for resolution.