Tax tribunal backlog likely to drive interest in Alternative Dispute Resolution

New figures from the Ministry of Justice have revealed a backlog of 50,000 unresolved cases at the First-tier Tax Tribunal (FTT) as at the end of March 2023, 33% higher than at the end of the 2021/22 tax year and double the figure at the end of 2020/21. 

The long delay facing businesses and individuals is likely to lead to many more parties seeking to resolve their disputes through the Alternative Dispute Resolution process, according to accountancy and business advisory firm BDO.

The latest MoJ data includes all outstanding appeals and applications, including those subject to group management which are stayed pending the outcome of other proceedings or consolidated with other cases. 

According to the MoJ, the FTT saw a surge in cases from Q2 2021/22 through to Q1 2022/23 due to the Treasury and HMRC taking increased action against umbrella companies employing potentially fraudulent VAT schemes. These cases now account for a significant proportion of all outstanding appeals and are subject to group management.

In 2022, the FTT cleared 6,430 cases, 1,150 of which were determined by a Tribunal. A significant proportion of cases are cleared when the FTT makes a determination on a lead case, or because of the outcome of other proceedings before the FTT, Upper Tribunal or higher court. Parties can also decide to settle their dispute before a hearing can be arranged.

Talia Greenbaum, BDO Partner and accredited Alternative Dispute Resolution mediator, added: “The back-up in cases at the First-Tier Tribunal leaves those with tax disputes facing the prospect of a protracted wait. This is likely to prove difficult for many parties, both from a financial and emotional perspective. As a result, we expect a growing number of people to seek to settle their tax disputes through the Alternative Dispute Resolution process. 

“These lengthy delays can also pose significant difficulties for businesses. Outstanding tax disputes can be a major obstacle for business owners looking to sell. Businesses also run the risk of accruing large tax debts in the event of a decision going against them, not least because interest rates on late payments are at their highest level for 14 years.”

The latest figures from HMRC’s Annual Report show that there were 1,047 applications for Alternative Dispute Resolution (ADR) in 2021/22, a 26% increase from the 834 applications received in 2020/21.  
Under the ADR process, trained HMRC mediators work with applicants and the HMRC officer dealing with their case in order to explore ways to resolve the dispute.

ADR can be used at any stage of a tax enquiry, including after HMRC has issued a decision. However, the closer the case is to the date of a Tribunal hearing, the less likely it is that HMRC will accept the ADR application. 

Each application for ADR is treated on a case-by-case basis. HMRC will let applicants know within 30 days of receiving an application whether the ADR route is an acceptable means of resolving a dispute.  

ENDS

Note to editors

The Statistics show 50,000 cases outstanding at March 2023, compared to 38,000 at March 2022 and only 25,000 in March 2021.

See latest stats at:Tax tribunal backlog likely to drive interest in Alternative Dispute Resolution

See 2022 stats at:
https://www.gov.uk/government/statistics/tribunal-statistics-quarterly-january-to-march-2022/tribunal-statistics-quarterly-january-to-march-2022

For the latest ADR statistics, see table 23 of HMRC’s Annual Report here: https://www.gov.uk/government/publications/hmrc-annual-report-and-accounts-2021-to-2022/hmrc-annual-report-and-accounts-2021-to-2022--2

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