An evaluation of the pilot project on alternative dispute resolution (ADR) for large taxpayers has been published by the HMRC. The pilot, run by HMRC’s Dispute Resolution Unit, looked at the effectiveness of using ADR techniques in large and complex tax cases. The pilot project used mediation and the techniques used in a mediation process to either find a settlement that was acceptable to both parties in a dispute or to clarify the facts or arguments in a way that would make litigation more efficient.

External mediation was used in two cases and facilitated discussion in 26 cases. For those cases that were resolved the average time from submission of an application for ADR to resolution of the case was 24 weeks. For the cases that were not resolved by ADR the average time from the application to the attempt to resolve the case by ADR was 34 weeks.  Generally (with one exception) the ADR event took place in one day. The issues covered included partial exemption; valuation; qualification for a relief; employee benefit trusts; determination of profits and sideways loss relief.

The pilot project showed that for success in ADR people of the correct level of seniority must be present and they must have the authority to come to a binding decision or to agree a proposal for recommendation to their governance bodies. There needs to be clarity about the extent of authority that each participant has to reach a binding decision. The time-scale required for ratification by any governance authority should be known in advance. If external mediators are engaged they must be familiar with the terms of HMRC’s litigation and settlement strategy.