Unfortunately, VAT registered businesses can find themselves in a position of conflict with HMRC. The most common reasons for this are:
• HMRC takes a different view to the business on the VAT liability of a transaction,
• a business fails to address a VAT matter in a timely manner, for example a late application to register for VAT, which can lead to penalties, or
• there are errors on VAT declarations, which again can lead to both assessments and penalties.
Often problems can be avoided by seeking timely advice from a professional. It is always best to consider the transaction while there is time to ensure that it is dealt with correctly, the correct documents are obtained to support the required VAT treatment and it is still possible to make the changes that may achieve a different outcome. However, this does not always happen and disputes arise. Where a matter is in dispute there is now an additional means of reaching a conclusion without proceeding to a Tax Tribunal. This process is known as Alternative Dispute resolution (ADR).
ADR can be helpful in reaching a negotiated settlement or agreeing the issues that require a legal ruling at a Tax Tribunal. In ADR an unbiased third party mediator assists in exploring how a dispute can be resolved. The process is generally quicker and less expensive than taking a case to the Tribunal and, even if an agreement is not reached, ADR is often helpful in narrowing down the issues to be addressed during a Tribunal hearing.
The ADR process offers an opportunity to settle certain disputes more quickly and with less expense for both sides. In stage 2 of recent trials of ADR 58% of cases were successfully resolved and on the 2 September 2013 HMRC announced that ADR would form part of their standard approach to dealing with small and medium enterprises and individuals. On 9 September 2012 it was announced that due to the positive findings of an ADR pilot on large and complex cases ADR would also be opened up to these cases.
Not all cases of dispute will be suitable for ADR but the following features in a dispute indicate that ADR may be appropriate.
* More evidence would be helpful
* Communications between parties have broken down
* There is scope for better understanding of the facts between parties
However, cases involving a difference of opinion on point of law are less likely to be suitable for ADR.
Helen Carey is an accredited mediator and is happy to discuss whether mediation may be helpful to any particular dispute.