Mediation and 'nudge' letters prove effective

In recent weeks, HMRC has announced that they will be increasing the use of ‘nudge’ letters, as well as creating specialist taskforces, according to PfP.

This is part of HMRC’s initiative to focus more on tackling “upstream” tax evasion, warned Ruth Stanier, HMRC’s director general for Customer Strategy & Tax Design at PfP’s annual Tax Investigations Conference in London last week.

By taking steps to prevent non-compliance as early as possible in each taxpayer’s relationship with HMRC before the investigation stage, this will allow for more resources to be placed on the more serious cases.

According to PfP’s statement, Stanier cited the increase in ‘nudge’ letters, data analytics to build the profile of the taxpayer, and the introduction of more taskforces that will focus on specific groups. Under ‘revenue loss prevented’ in 2017-18, HMRC recorded £9.7bn, which is up from £7.9bn in 2016-17.

HMRC has also seen a 62% rise in disputed tax collected through mediation, RPC has reported. The tax authority collected almost £41m this way in 2016-17, thus proving it to be an effective source of revenue. According to RPC, HMRC appears to be increasingly keen to clear old disputes through mediation.

RPC stated that the “number of successful tax dispute settlements through Alternative Dispute Resolution (ADR) has seen a rise of 23% from 370 in 2016-17 to 455 in 2017-18.” Furthermore, the law firm has claimed that HMRC seem to be increasingly willing to use ADR in order to settle disputes with taxpayers.

Adam Craggs, partner and head of tax disputes at RPC, said: “HMRC seems to have realised the value that mediation can offer to both sides in a tax dispute. It can provide a speedy and effective method of resolving tax disputes which benefits both taxpayers and the Treasury.

“With the Treasury continuing to exert pressure on HMRC to increase the tax yield, mediation offers an opportunity for long-running and complex disputes to be resolved without the need for formal litigation and the inevitable delay that can bring.

“Mediation provides an excellent forum for taxpayers and HMRC to discuss their dispute whilst sat around the table, rather than in an adversarial litigation environment when positions can become entrenched.

“Taxpayers who are looking to enter mediation with HMRC should always take appropriate professional advice before doing so. There can be significant sums of tax at stake, and whilst medication can provide an excellent mechanism for taxpayers to end a dispute on terms that make commercial sense, there are pitfalls for the unwary.”