UK tax tribunal issues beefed up practice direction on ADR

The First-tier Tax Tribunal (FTT) issued an updated practice direction (3-page / 200KB PDF) which covers alternative dispute resolution after an appeal has been made to the tribunal.

The practice direction states that the FTT’s rules empower it to direct parties to engage in ADR in appropriate cases, subject to considering the views of the parties.

Secondly, the statement also introduces new directions in relation to the interaction between ADR and costs. It highlights that an unreasonable failure to consider or enter into ADR may result in costs being awarded against a party or may constitute unreasonable conduct. It also explains that where an appeal is within the complex category, the costs of ADR may be recoverable.

The practice direction updates an earlier statement (3-page / 200KB PDF) on ADR in relation to proceedings in the FTT’s tax chamber that was published on 15 June 2020.

Commenting on the updates, Bryn Reynolds, a tax expert at Pinsent Masons, said: “Overall, the new version of the practice statement does encourage the parties to enter ADR with slightly more force than previously,” he said. “On the one hand it reminds parties to continue to consider trying to find ways to resolve the dispute in order to avoid a hearing, and on the other it reminds parties that failing to do so effectively could result in a negative costs outcome.”

The updated practice direction covers situations where there are live appeal proceedings. HM Revenue and Customs (HMRC) has its own policy on the use of ADR in tax disputes. In February 2023, the tax authority published its first full manual on its approach to ADR, including outlining the roles of the mediator, HMRC caseworker and their manager in the process, and the expected timeframe of the entire process.  HMRC is also currently consulting on ways to increase the use of ADR in the pre-appeal stage, including considering the possibility of requiring taxpayers and HMRC to have considered ADR prior to an appeal to the tribunal and the option for applications for ADR before an appeal in indirect tax cases.

Jake Landman, tax disputes expert at Pinsent Masons, said the updated statement from the FTT could encourage more taxpayers to consider using ADR to resolve their tax disputes. “Tribunals already have the power to award costs on the basis now highlighted in the updated statement and have done so in published decisions, but it is not widely used or, perhaps, widely understood,” he said. “Taxpayers are often sceptical about the ADR procedure with HMRC, which always involves an HMRC mediator. This updated statement, alongside the possible upcoming amendments to HMRC’s approach, may may provide more reasons to consider ADR.”