ICAS responds to proposals for improving HMRC’s approach to dispute resolution

Susan Cattell outlines the key points from our response to an HMRC consultation on improving dispute resolution, including why we support simplification, but don’t believe the proposed model is the best option.

We have responded to a consultation on proposals to improve HMRC’s approach to resolving disputes with taxpayers. There will inevitably be disagreements between HMRC and taxpayers, so it is important that these can be resolved as quickly and effectively as possible. 

The outcome of a previous consultation in 2024 indicated that statutory review and Alternative Dispute Resolution (ADR) were underutilised due to lack of awareness of the processes and concerns over independence (reviewers and mediators are HMRC staff). This can lead to cases going to the First Tier Tribunal unnecessarily, adding to costs (for HMRC and taxpayers) and prolonging the resolution process.

The current consultation proposes simplifying and aligning processes to allow easier and more consistent access to statutory review and ADR.

Simplification: One aligned process for appeals

We support simplification and alignment of the indirect and direct taxes processes. A single process should be easier for taxpayers to understand and would support making the right applications at the right time. However, the model proposed in the consultation isn’t the best option. In theory there could be some advantages to pre-decision letters, but they won’t be available in all cases and feedback indicates that those currently received are not generally helpful in clarifying details or resolving cases.

We would prefer a model closer to the existing direct taxes process that allows more time and opportunities for trying to resolve issues and accessing ADR and statutory review. Taxpayers should also retain the right to request a statutory review.  

Increasing usage of statutory review and ADR

We also support proposals to increase awareness and take up of statutory review and ADR. However, these must be backed by the provision of sufficient properly trained reviewers and mediators to meet increased demand. 

We already receive feedback that HMRC is increasingly asking for extensions to the time limit for statutory reviews, which may indicate that there are insufficient reviewers. Combined with a perception among many agents that reviewers are not impartial and simply ‘rubber stamp’ HMRC’s original decision, the delays may prompt some agents and taxpayers to decide to go straight to the tribunal instead. 

We also understand that it's difficult to schedule ADR, apparently because HMRC doesn’t have enough trained mediators. ADR can also be very slow and difficult to use where a significant technical issue is in dispute because of problems getting the right HMRC specialists to participate. 

The consultation asks for views on introducing a requirement to demonstrate that ADR has been considered. We don’t think this should happen until ADR is properly resourced and HMRC specialists are willing (and able) to engage without causing delays. If the benefits of ADR (as set out in the consultation) were publicised and visible to agents and taxpayers in practice, we anticipate that they would be keen to use it, so a ‘requirement to consider’ wouldn’t be necessary anyway.

There will always be a small number of cases where it’s obvious that the case will have to go to the tribunal, for example, where a significant technical issue is at stake and the point has never been considered by the courts before. Even if a general requirement were to be put in place, there should be an exception for cases where both HMRC and the taxpayer agree that ADR would serve no useful purpose.

Charging fees for ADR

We don’t support HMRC charging taxpayers for using the ADR service. This would introduce a two-tier system, where some taxpayers would be excluded from accessing ADR to resolve their disputes because they couldn’t afford to pay. Most taxpayers don’t choose to end up in dispute with HMRC - as a matter of principle they shouldn’t be charged for using the most effective dispute resolution mechanism for their case. There is also a risk that charging for ADR could be perceived as affecting HMRC’s impartiality, ie wealthier taxpayers being able to pay for a more favourable outcome, which would undermine trust in the HMRC and the tax system. 

Charging would be at odds with other proposals in the consultation for encouraging the use of ADR. It would also be unacceptable to introduce a requirement to demonstrate that ADR has been considered, if taxpayers had to pay to use ADR

Let us know what you think

We respond to tax consultations and calls for evidence and attend meetings with HMRC at which service levels, delays and other issues you raise with us are discussed. We welcome input from members to inform our work; email us to share your insights and feedback.

Get in touch