ADR is a useful mediation process available for businesses to resolve disputes with HMRC across a range of taxes. The taxes are CT, IT, Inheritance Tax, VAT, excise duty and customs duty. The James Cowper Kreston VAT team has used the ADR process successfully to reduce assessments and inaccuracy penalties. ADR is particularly useful when communication has broken down between the taxpayer and the HMRC case officer. In our experience the HMRC appointed ADR mediator is impartial and fair.
Recent experience of other professionals and businesses is that some HMRC officers view the ADR process solely as a method to gain additional information about the business and resolutely refuse to amend their assessment, contrary to HMRC policy and strategy. HMRC benefit from ADR as it can often lead to agreement, end a stalemate and remove the need for a costly and time consuming Tribunal process.
Traditionally HMRC policy was that all discussions and information exchanged at the face to face ADR meeting would remain confidential and could not be used by either party outside ADR. So for example if HMRC agreed to reduce their assessment but the taxpayer chose not to accept their offer, this fact could not be mentioned or used by the taxpayer at a subsequent Tribunal. However, recently HMRC have changed their confidentiality policy as explained in their Compliance Factsheet CC/FS 21, copy attached. The relevant paragraph is cut and paste below. Such a change will likely cause James Cowper Kreston to advise clients to be wary and less open at ADR meetings when providing information to HMRC, which removes one of the significant attractions of the process.
Discussions in mediation are confidential whether in joint or private session. But any new information or evidence disclosed by you that has an effect on the tax position will be on record.
Notes can be taken during the mediation for your own use during the day. However, both parties will be asked to destroy these at the end of the process, with the exception of notes about material tax facts mentioned above. Mediation is a confidential process carried out on a ‘without prejudice’ basis – this means that things said during ADR cannot be used as evidence later, however, if you tell us something which significantly changes your tax or penalty position, or provides evidence of criminality, it must be shared with HMRC and may be used in formal proceedings.
The statement that facts or information which “significantly changes” the tax position may be used later by HMRC in formal proceedings is concerning. It would be reasonable that new information from a taxpayer that met the HMRC criminal prosecution standard should not be private, but because HMRC do not define what is “significant”, the risk is that all information provided by the taxpayer at ADR becomes available to HMRC to use in future civil assessments. HMRC do not suggest that routinely all additional information provided by the taxpayer will be used in the future but doubts about the practical implementation of this policy change will most likely deter some taxpayers from applications to ADR.
