If you are involved in a dispute with HM Revenue & Customs (HMRC) over a VAT payment, the legal process involved can be time-consuming, costly and stressful, regardless of whether or not the final ruling goes your way. As such, it can be beneficial to consider Alternative Dispute Resolution (ADR) as a means of avoiding this.

The purpose of ADR is to provide both sides of the dispute the opportunity to discuss their respective positions, understand all points of view and ideally reach an agreement on the way forward, without recourse to a VAT tribunal. Although this will not be successful in 100% of cases, it can often lead to much smoother outcomes.

Here, the experts at The VAT People will outline the basic details of how ADR works in VAT dispute cases, as well as detailing some of the key benefits we have seen our clients achieve by engaging with this process.

How does Alternative Dispute Resolution work for VAT claims?

ADR was introduced by HMRC in September 2013 as a simpler and less onerous method of helping small and medium enterprises and individuals to resolve tax disputes. It is intended to provide an alternative to a full litigation process, conducted through a VAT tribunal hearing.

With ADR, a HMRC-appointed mediator trained in mediation skills and techniques will work with you and the HMRC officer dealing with your case, acting as an independent and neutral observer to aid negotiation between the two parties. They will also serve as an arbitrator and clarify areas where the parties may have misunderstood each other’s viewpoints.

Rather than taking over responsibility for solving the dispute, their aim will be to reestablish communication, focus on the areas that need to be resolved and help both parties reach a mutual conclusion about the best way forward. This could be a concession that one party in the dispute is correct, or a compromise agreement; alternatively, it could simply lead to a mutual realisation that a tribunal hearing is definitely required to resolve the matter.

How can I apply for Alternative Dispute Resolution?

It is possible to apply for ADR at any stage of your VAT dispute, or at any stage of the tribunal proceedings, using HMRC’s online application form. If you are working with an agent or tax adviser such as The VAT People, we can handle this process for you, as well as assisting during the mediation process itself.

HMRC will then decide whether or not to accept your application for ADR, letting you know within 30 days. ADR will be available as an option in the following instances:

• When communications between you and HMRC have broken down
• When the facts of the case are in dispute, or the conflict may be the result of a misunderstanding
• When HMRC has not agreed with evidence you have provided them and you wish to know why
• When you are unclear about what information HMRC has used, or if HMRC wishes to explain why more information is needed from you

By agreeing to take part in the ADR process, you will need to commit to providing HMRC with information about your dispute, as well as any correspondence that you have received. You will also need to agree to share this information promptly and make yourself available for meetings to resolve the dispute.

What are the benefits of Alternative Dispute Resolution?

When ADR was first introduced, many were sceptical about its potential benefits, given that this is a HMRC-staffed and controlled offering. However, to date we have been pleasantly surprised by how useful an ADR meeting can be, if well managed by both the ADR facilitator and the taxpayer’s representative. 

There is no denying that the main alternative to ADR - a VAT tribunal hearing - can be a hugely costly process, both in terms of time and money. ADR can ensure that disputes are resolved more quickly and amicably, giving taxpayers and HMRC a clearer understanding of each other’s respective positions.

Although in some cases an agreement cannot be reached through ADR and the case will need to move to the tribunal stage, we have overseen numerous cases in which HMRC has ended up withdrawing a disputed decision via ADR, or where a compromise has been reached successfully.

In one such case, The VAT People’s representations during an ADR meeting was able to bring an end to a two-year-old VAT dispute over business use of costs, which had caused the business owners considerable distress and financial impact. Although in our view there was a good argument to be made for a full VAT recovery, it was judged that the time cost and further stress for the client in pursuing the appeal to tribunal made the option of a compromise worth agreeing with HMRC.

Find out more

To learn more about the ADR process or find out whether it could be suitable for your case, take a look at the official government guidance.

If you are looking for specialist advice on how to get the most out of the ADR process or are looking for an agent to support and represent you during the mediation, give The VAT People a call. Our expert team has years of experience overseeing all aspects of ADR, with a strong track record of favourable outcomes, and will be able to advise you on the best way forward.

Call our free VAT helpline on 0161 477 6600 to speak to one of our expert VAT consultants; you can also visit our HMRC dispute prevention and resolution page to find out more about our services.