ADRG01900 - Tax facts are not treated as confidential to the mediation

There will be occasions when the customer will make reference to a “tax fact”. As noted under ADRG01700, a tax fact is a fact which has legal and technical implications for a taxpayer’s liability. A tax fact is not capable of being without prejudice. Examples of tax facts are: the receipt of a payment, the making of a supply, the identity of a customer, the place of supply.

For example, if a customer reveals for the first-time during mediation that some of their supplies were not being made in the UK, but were instead being made in another country, and so should be zero rated for VAT purposes, and documentation is identified that supported this fact, then this would be a “tax fact”. The customer could not claim that this information was being provided on a “without prejudice” basis. This “tax fact” has an impact on the customer’s tax liabilities, and HMRC cannot ignore it.

This scenario can be distinguished from a situation where there is negotiation about what the facts might be. For example, in a hypothetical situation where a sole trader has not recorded their cash sales (but did record credit card receipts) then the mediation day may include a debate about the proportion of sales that were cash sales. At some point during discussions on the day both parties may conclude that 30% of the sales were for cash. All parts of the discussion and negotiation would fall within the “without prejudice” part of the ADR, but the conclusion that they agree is a “tax fact” and should be recorded.

The mediator should make clear at the start of the mediation that any “tax fact” provided in the course of the discussions is not covered by the “without prejudice” rule. Particular attention should be drawn to the implications of making proposals which include the assertion, even implicitly, of a tax fact. At the end of the mediation, if discussions have revealed a tax fact that either party may wish to rely on in future proceedings, and both parties agree, then details of the tax fact should be included in the Record of Outcome.

Where there is no consensus about what should go in the Record of Outcome, then HMRC should set out details of this significant tax fact to the customer in writing at the end of the mediation.

During the mediation, whenever a customer asserts important new tax facts, the HMRC case team should check that they have fully understood the assertion, and enquire about supporting documentation. If the mediation is unsuccessful and there is a dispute about the tax facts in question, HMRC may need to make an application for legal disclosure of this documentation.