Recent figures disclose that over 60 per cent of businesses find themselves embroiled in a tax dispute with HM Revenue & Customs (HMRC) for over a year.
Averting such scenarios is the most effective approach, but understanding how to manage disputes when they occur is also crucial.
Assessing the current situation
Amongst 500 mid-sized businesses, the current data shows that three out of every five are enmeshed in a tax dispute lasting more than a year.
According to HMRC’s latest annual report, as of 31 March 2023, there were 39,500 ongoing tax tribunal appeals, marking an 8 per cent rise from the preceding year.
For large enterprises under HMRC scrutiny, the average time to resolve an inquiry, encompassing those in litigation, stands at 36 months.
What does alternative dispute resolution (ADR) entail?
Despite these obstacles, several routes exist for resolving tax disputes, which businesses might be unfamiliar with or not utilising fully.
While 92 per cent of those at odds with HMRC were cognisant of ADR options, the usage rates of ADR remain comparatively low according to the data. There were only 1,013 ADR applications recorded in the 2022/23 period.
ADR is a process where certified HMRC mediators work in conjunction with applicants and the HMRC officer overseeing their case to explore potential solutions for the dispute.
ADR can be invoked at any point during a tax inquiry. Every ADR application is assessed individually, and HMRC aims to finalise the ADR process within 120 days, a significantly reduced timeframe compared to conventional dispute resolution methods.
Strategies to effectively manage tax disputes
Here are some techniques you can employ to alleviate the stress of tax disputes:
Invest in compliant accounting software – Procuring modern accounting software that adheres to tax laws, such as the Making Tax Digital regulations, can help prevent conflicts.
Explore ADR – Given that 87 per cent of ADR cases reach a resolution, ADR is a valuable mechanism for dispute resolution that warrants your consideration.
The longer you wait to consider ADR, the higher the chances of incurring unnecessary time expenditure and escalating costs tied to a protracted dispute.
Keep up-to-date – With tax laws frequently shifting, it is crucial to stay updated to ensure compliance.
This necessitates regular reviews and modifications of internal processes in line with these changes.
Maintain transparent communication with HMRC – Keeping open lines of communication with HMRC can help resolve problems before they escalate into major disputes.
If a particular tax matter leaves you uncertain, it’s better to seek guidance from HMRC or a tax professional rather than making a decision without full knowledge.
If you need advice on corporate tax disputes, please contact your Seymour Taylor representative today or email enquiries@stca.co.uk or call 01494 552100.
This blog is for guidance only, professional advice should be obtained before acting on any information contained herein. The information was correct at the time of publishing 23 August 2023.