A tax dispute is when an individual or company disagree with HMRC over the amount of tax they have to pay and/or the date when a tax bill has to be settled by. Tax disputes can arise with sole traders, small companies or global entities. In other words, they are not limited to a single type of taxpayer, but all categories of tax payer.

It is possible, for instance, for a taxpayer to formally appeal against a decision made by the tax office. If the dispute can’t be resolved, then there is recourse to a court or tribunal hearing.

HMRCs Litigation and Settlement Strategy

The tax office has outlined its aim to handle disputes with taxpayers in a non-confrontational manner. This usually works, management insist, when the taxpayer him or herself is transparent and also intend on resolving the dispute.

In an effort to manage the process, HMRC often produce timescales for which decisions should be made and agreed upon.

In the event the tax office believes the taxpayer has been avoiding paying tax, then the police may be involved and action taken to lodge criminal court proceedings. Under such circumstances, it is a legal requirement for paperwork to be handed over to HMRC for checking if they request it.

Alternative dispute resolution and settling a tax dispute

Alternative Dispute Resolution (ADR) can help solve a dispute between the taxpayer and HMRC through attempting to come to an agreement or by helping the taxpayer prepare for court.
ADR is available for all taxpayers – however not all taxpayers will receive it. That’s because it is up to HMRC itself whether or not a taxpayer’s case is appropriate for the resolution service.

What ADR involves essentially is using a mediator to help the taxpayer with their dispute, whether that is with regard to sorting out paperwork or re-establishing communication with the tax office.

It is worth noting that if you don’t receive the outcome you were hoping for while using ADR, then it’s not the end of the line; you can still appeal against HMRC’s decision.

Type of cases where ADR is used

  • When neither side (payer and tax office) are in communication with each other;
  • When the taxpayer believes HMRC are making assumptions which are wrong;
  • If there is a misunderstanding somewhere down the line;
  • If HMRC are insisting you hand over additional paperwork, but haven’t said why.

Tax disputes can be direct (Income Tax, Corporation Tax and Inheritance Tax) or they can be indirect (VAT, Excise Duty and Customs Duty).

Individuals can apply for ADR via a form on the government’s HMRC website. Limited companies should use their accountant/tax adviser while larger companies may have a dedicated employee who deals with all HMRC and tax issues.

HMRC don’t like to keep individuals hanging around, so to this end have vowed to get back to applicants for ADR within 30 days of receiving their application. In the event they have agreed you can get ADR, you will then be asked to fill out a ‘Memorandum of Understanding’ form, which lets them know you want to go ahead with the process.