Three in five businesses (61%) say they are currently involved in a tax dispute with HMRC which has lasted more than one year, according to a new survey from accountancy and business advisory firm BDO.

The new figures, which come from a BDO survey of more than 500 mid-sized businesses, underline the difficulty that many businesses have in navigating the UK’s complex tax system. The delays also reflect widely reported concerns around HMRC’s resources and its ability to swiftly respond to and resolve taxpayer queries.

Those businesses embarking on formal legal disputes with HMRC also face a long wait for resolution. HMRC’s latest annual report shows there were 39,500 tax tribunal appeals ongoing on 31 March 2023, an 8% rise on the previous year. For large businesses subject to an HMRC enquiry, the average length of time taken to settle an enquiry – including those in litigation – is 36 months.

Although the vast majority (92%) of those surveyed by BDO who were in dispute with HMRC said they were aware of Alternative Dispute Resolution (ADR) routes to resolving tax issues, ADR rates remain relatively low. The latest information shows there were only 1,013 applications for ADR in 2022/23.

BDO partner and accredited ADR mediator, Talia Greenbaum, said: “The UK’s tax system can be very complex and difficult to navigate, so it’s no surprise that this can result in business tax disputes. Simplifying and modernising the system would certainly help to reduce these difficulties. There is also a strong argument for giving HMRC more resources which would enable it to offer a better service to small and medium-sized businesses, the vast majority of whom simply want to pay the right amount of tax.

“Cases in litigation can significantly increase the length of time an HMRC enquiry takes to resolve. Many businesses would, therefore, do well to explore the option of Alternative Dispute Resolution at an early stage. HMRC seeks to conclude the ADR process within 120 days which is a far shorter timescale than would otherwise be the case. 

“With 87% of ADR cases concluding in resolution this is an important and valuable tax dispute resolution tool. However, the later ADR is considered, the higher the risk of wasted time and high costs associated with an unnecessarily protracted dispute.”

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, but not only, after HMRC has issued a decision.

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.