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Why Choose Alternative Dispute Resolution for HMRC Disputes? A Comparison of Your Options

Posted: 25th September 2024

It’s important to resolve tax disputes with HMRC as effectively as possible – but this isn’t always easy. Disputes can bring a wealth of complexities and worry, and traditional resolution approaches like tribunals and court proceedings can have their drawbacks. Not only can they cause more stress, but they also require both time and money. Alternative Dispute Resolution (ADR) is a practical approach that many taxpayers are unaware of, but it can help you successfully resolve your case with HMRC. Let’s take a closer look at how ADR compares with other dispute methods so you can decide if it’s the right option for you.

Traditional Dispute Resolution Methods

When it comes to traditional approaches to tax dispute resolution, the two key methods include:

Tribunal: If you want to challenge a decision made by HMRC, the First-Tier Tax Tribunal will decide which category your case falls into. Default Paper Cases don’t require hearings, but Basic, Standard and Complex cases do. These processes are very formal and must be followed once an appeal has been made.
Court Proceedings: If you don’t have a formal right to an appeal but disagree with HMRC’s decision or approach, you can begin court proceedings in the form of a judicial review. This can be a long and expensive process, and you’ll need a legal expert to represent you. It’s important to bear in mind that there’s no guarantee that courts will rule in your favour.

Alternative Dispute Resolution works differently. While traditional methods are often formal, time-consuming and expensive, ADR offers a more flexible, less formal approach that could lead to faster resolutions, as it relies on paper evidence only. This means you won’t need to go to court.

A HMRC mediator will work with both you and HMRC to find a resolution by encouraging open communication, and make sure things stay on track by focusing on the specific areas that need to be settled. This doesn’t affect your right to appeal a decision or ask for a review.

ADR is used in cases when dialogue between both parties has broken down, or when facts may be disputed. Some taxpayers also use ADR as a means to gain clarification on specific areas of the tax dispute.

Here are the advantages and disadvantages of using this process.

Advantages and Disadvantages of ADR

The advantages of Alternative Dispute Resolution include:

Cost-Effective: ADR can be much more affordable than legal proceedings. If your dispute takes place in court, you may need to pay substantial legal fees.
Saves time: ADR timelines are much shorter than traditional dispute resolution methods, so your case can be resolved quickly and effectively.
Offers confidentiality: Unlike court proceedings, ADR processes are private, which means both the taxpayer and HMRC can have candid, informal discussions to reach a settlement.
Control and Flexibility: ADR allows both parties to have more control over the outcome, which can lead to more satisfactory resolutions.

While ADR’s benefits make it an attractive option for many, it’s essential to understand its limitations too.

The key disadvantage of ADR is that it’s not suitable for every dispute. In scenarios such as cases involving significant legal complexities or large sums of money, Alternative Dispute Resolution may not be the best course of action. ADR isn’t suitable for areas such as complaints about delays or misleading advice, as well as tax credits, late filing penalties and more.

Be sure to consider your circumstances carefully to determine if ADR is a suitable option for you. You can get help with this in our detailed blog post.

Moving forward with confidence

Settling a tax dispute in court isn’t for everyone. With lower costs, faster timescales, and more confidentiality and control than traditional dispute resolution methods, ADR serves as a viable means for taxpayers to resolve their disputes with HMRC as painlessly as possible.

That being said, it’s important to bear in mind that ADR isn’t a one-size-fits-all solution. Remember to consider your specific circumstances when selecting a tax resolution approach, and seek the advice of a professional if you need further support.

Be sure to contact our dedicated NHD Tax Solutions team for expert guidance on choosing and navigating the most appropriate dispute resolution method. We’re here to alleviate your worries and get your situation under control.