Mediation of Tax Disputes – Part 2

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Part 2 of my article about the Mediation of Tax Disputes was published today online and in print by Taxation (Tolley). https://lnkd.in/eeP3-vCY

For subscribers to Taxation the link to the article is: Off to mediation with HMRC | Taxation
There are also links on the ‘Publications’ page to my other related and recently published articles:
– ‘Follow the Yellow Brick Road – Off to Mediation with HMRC – Part 1’. 
– ‘Mediating Probate and Trust Disputes – Process Challenges and Tools – Part 1.’ Published online by Oxford University Press in Trusts & Trustees 14.11.2022 which will be published in hardcopy in the Journal in February 2022.].
– ‘Back to the future’ – Part 2 – Mediation and Estate/Business Succession Planning. Taxation (Tolley) 08.03.2022.
– ‘Back to the future’ – Part 1 – Mediation and the tax-efficient settlement of probate disputes. Taxation (Tolley) 01.03.2022.
 
The ‘Tax Gap’ i.e the amount of uncollected tax = £36 Billion.
The hole in public finances = £40-50 Billion.
£36 Billion = 90% of £40 Billion.
Therefore, the amount of uncollected tax a proportion of which can be settled and collected through Mediation of tax disputes, represents 90% of the hole (at its narrowest) in the public finances. See Uncollected tax which can be settled through Mediation = 90% of the hole in public finances | Carl’s Wealth Planning Blog
As I discuss in Part 1 of the article:
·        Tax mediation Works.
·        Mediation is available in almost any kind of tax dispute, and HMRC are keen to encourage tax-payers to enter into the process.
·        However, the total number of tax disputes that entered into mediation in 2021/2022 was about 1000, which is a tiny fraction of the total number of tax disputes that remain unresolved and would benefit from ADR, thereby also saving FTT resources funded by all taxpayers.
 
In Part 2, I conclude:
·        Success in HMRC ADR depends upon HMRC and the TP [Taxpayer] acting reciprocally in good faith – which is a two-way street.
·        The HMRC Mediator will treat the TP’s ‘negotiating position’ as ‘private’ unless and until the TP is prepared to share it with the HMRC case team.
·        In order to develop creative and bespoke ‘pre-mediation strategies’, the P’s need to think commercially, and put a ‘price’ on settlement versus proceeding to trial.
·        At some point in the Mediation Day, the Mediator has to say to both the TP and HMRC – ‘Is there any benefit to you in settling today? If there is put a value on it. Combine that with pricing up the risk of doing better or worse at a hearing and that gives you the exit price.’
·        Thus, calculation of the ‘exit price’ by each P ahead of the Mediation Day, is the ‘golden key’ to success in the Mediation of a tax dispute.

What can Government and Mediation organisations do to: (i) unchain Mediation in tax disputes; (ii) educate; and (iii) encourage the use of Mediation by TP’s – thereby ednabling the ‘Tax Gap’ to be reduced?

In other words, ‘What systemic, i.e. institutional, policy and management changes, need to be made to enhance the collection of unpaid tax through Mediation by encouraging TP’s to enter into the process? When researching Part 3, the author will discuss these issues with constituents in each participant community. Meanwhile to catalyse debate and test the institutional resilience of the ‘system’, the author poses the following two questions. If readers would like to comment either on an ‘attributable’ or ‘non-attributable’ basis about any of the issues discussed in these articles, they are invited to write to the author at carl@ihtbar.com:

  • While the contents of the Record (which is not a minute of meeting and is essentially a summary of: (a) issues that have been agreed; (b) issues which remain to be agreed[i]; and (c) proposals for continuing the Mediation conversation going forward toward final overall resolution), must be agreed,  what legal justification is there for any concern by a TP or their legal representatives, that anything said in the course of Mediation may subsequently be relied upon by HMRC as being a new and significant tax fact.
  • What contract terms need to be agreed by a COM[ii] with a TP in order to both comply with HMRC overriding ‘Principles,’ and the:
  • Code of Professional Conduct of the COM’s professional regulator.
  • Code of Ethics, of any Mediation organisation, to which the COM belongs.
  • Terms of the COM’s professional indemnity cover.’

[i] I.E. there will be no Record of the outcome unless and until it has been agreed by both sides.

[ii] The author understands that while in certain cases, HMRC will agree to the appointment of a single external Mediator, that the number of cases in which this is appropriate and has happened is vanishingly small.