Tax disputes can put a significant strain on your business, so knowing how to navigate these is essential.
Recent statistics reveal that more than 60 per cent of firms are entangled in a tax dispute with HM Revenue & Customs (HMRC) that has persisted for over a year. Prevention is the best solution, but you must also know how to handle disputes if they arise.
Understanding the current situation
Out of 500 mid-sized businesses, three in five are currently involved in a tax dispute that has lasted more than a year, according to recent data.
HMRC’s most recent annual report reveals that there were 39,500 tax tribunal appeals in progress as of 31 March 2023, an 8 per cent increment from the previous year.
For large businesses subjected to an HMRC enquiry, the average duration to settle an enquiry, inclusive of those in litigation, is 36 months.
What is alternative dispute resolution (ADR)?
Despite these hurdles, there are different routes for tax dispute resolution that businesses may not be aware of, or fully utilising.
Whilst 92 per cent of those in disagreement with HMRC were aware of ADR pathways, the rates of ADR utilisation remain relatively low, according to the data. In 2022/23, there were only 1,013 applications for ADR.
ADR is a procedure where trained HMRC mediators collaborate with applicants and the HMRC officer handling their case to investigate ways to resolve the disagreement.
It can be used at any stage of a tax enquiry. Each application for ADR is evaluated on a case-by-case basis, and HMRC aims to conclude the ADR procedure within 120 days, a significantly shorter timescale than traditional dispute resolution methods.
How can you navigate tax disputes?
Invest in accounting software
Investing in modern accounting software that is compliant with tax regulations, such as Making Tax Digital rules, can help to avoid discrepancies.
With 87 per cent of ADR cases resulting in resolution, ADR is a valuable tool for dispute resolution that you should consider.
The later ADR is considered, the greater the risk of wasted time and high costs associated with a drawn-out disagreement.
With tax legislation constantly changing, keeping up-to-date to ensure compliance is essential.
You must regularly review and update internal processes in line with this.
Open communication with HMRC
Maintaining open channels of communication with HMRC can assist in resolving issues before they amplify into full-scale disagreements.
If you are uncertain about a particular tax issue, it is best to seek clarification from HMRC or a tax professional than to make an uninformed decision.
Need advice on how to navigate tax disputes? Contact our team today.