Alternative Dispute Resolution in HMRC Tax Disputes: History, Process, and Practical Insights
Are you seeking an effective way to unlock long-running and/or entrenched tax disputes with HMRC, and reach a resolution as quickly and efficiently as possible?
We have significant experience of leading the Alternative Dispute Resolution (ADR) process, with a track record of successful wins. Our Tax Risk and Dispute Management specialists help clients determine whether ADR is an appropriate route for their dispute and then support them throughout the process to resolution. We draw on our depth of tax technical specialists to support as required but can equally work alongside our clients’ existing tax advisers, bringing our knowledge and experience in handling ADR.
Below, we provide useful insights into the evolution of ADR and how it may help resolve enquiries that might otherwise proceed to the tribunal.
1. The Evolution of ADR
ADR was introduced by HMRC in 2013 as part of its commitment to resolving tax disputes more efficiently and reducing reliance on litigation. Initially launched in 2011 as a pilot programme, ADR aimed to tackle entrenched disagreements between taxpayers and HMRC without resorting to costly and time-consuming tribunal hearings.
The concept draws on established mediation practices in civil and commercial disputes: a neutral facilitator helps parties explore solutions collaboratively. HMRC adapted this model by creating a dedicated ADR team of trained mediators who are independent of the case officers involved.
ADR’s success has led to its integration into HMRC’s wider dispute resolution strategy, offering a pragmatic alternative to litigation while maintaining fairness and transparency.
2. How the ADR Process Works
ADR is a voluntary process available to individuals, businesses, and their agents. It can be requested at almost any stage of an HMRC enquiry, including after an appeal has been lodged, provided the case is not excluded (e.g. where HMRC is running a criminal investigation or wants to test a recurring issue through the tribunal). The core principles of ADR apply across all tax types.
Key Steps in ADR
- Application: The taxpayer or their agent applies online, explaining the dispute and why ADR is appropriate.
- Acceptance: HMRC reviews eligibility and, where the application is accepted, appoints a mediator, an HMRC officer from outside the case team who is trained in mediation techniques. It is also possible for the taxpayer to appoint a mediator of their choosing, who will act alongside the HMRC-appointed mediator.
- Preparation: Both parties gather relevant documents and clarify their positions. The mediator may request additional information.
- Mediation Meeting: Conducted virtually by default, the mediator facilitates discussions on a “without prejudice” basis, encouraging candid dialogue.
- Resolution: The meeting may end with full, partial, or no resolution. At the end of the meeting, the mediator will draft a summary of what has been agreed and/or what remains in dispute in consultation with the parties. Where some or all matters remain unresolved, the taxpayer retains rights to statutory review or a tribunal appeal.
3. Success Rates and Performance Metrics
HMRC reports indicate that around 85% of ADR processes closed each year result in issues being progressed, with matters either fully or partially resolved. No publicly available information provides the split of decisions going in the taxpayer’s favour, however our experience to date has been largely positive in this respect. Conversely, HMRC’s latest performance data indicates a litigation success rate of nearly 87% in its favour. ADR therefore appears to offer the taxpayers an increased chance of success compared to tribunal hearings.
Further benefits of using ADR are shown below:
| ADR | Tribunal Litigation | |
| Average Resolution Time | 3–4 months (HMRC target: 120 days) | Typically 6–18 months (often longer for complex cases, and subject to backlog delays) |
| Direct Costs | Limited in the main to advisory costs | Tribunal fees + significant legal/advisor costs |
| Resource Intensity | Low – single mediation session, virtual | High – multiple hearings, preparation, evidence bundles |
| Outcome Certainty | Negotiated settlement (mutual agreement) | Binding decision by tribunal judge |
These facts and figures underscore ADR’s value as a pragmatic solution for taxpayers and HMRC alike, reducing costs, accelerating resolution, and alleviating pressure on the tribunal system.
4. Practical Guidance: When To Use ADR
ADR is not a universal solution, but it can be highly effective in the right circumstances. ADR should be considered when:
- Disputes involve factual disagreements rather than points of law
ADR works best where the issue is about interpretation of evidence, valuations, or application of HMRC guidance, not where a legal precedent needs to be established. - Communication has broken down
If discussions with HMRC have become entrenched or adversarial, ADR provides a neutral forum to rebuild dialogue and explore compromise. - The case is complex but not criminal
ADR is suitable for disputes involving multiple issues or large sums, provided they do not involve fraud or criminal investigations. - There is willingness to negotiate
Both HMRC and the taxpayer must be open to finding common ground. ADR is voluntary and relies on cooperation.
When To Apply
As noted above, ADR can be requested at almost any stage of an HMRC enquiry. Given that HMRC enquiries can often last 17 months or more, requesting ADR as soon as it becomes clear that normal channels are not resolving the dispute, can substantially reduce resolution timelines and associated costs.
First Tier Tribunal Guidance on ADR Usage and Costs
In recognition of its ability to ease the burden on the Tribunal system, First Tier Tribunal guidance now sets out an obligation for the Tribunal to bring ADR to the attention of parties, where this is appropriate, and also sets out that unreasonable failure to consider or engage in ADR may, in an appropriate case, result in costs being awarded against a party or in a party recovering a lower proportion of their costs.
5. ADR in the Future
HMRC opened a consultation in April 2024 (“The Tax Administration Framework Review – Improving HMRC’s approach to dispute resolution”) which includes within it a number of potential new measures relating to ADR. These include steps to simplify and align ADR applications, and to raise awareness of ADR among taxpayers. Indeed, one possibility within the consultation is the requirement for taxpayers and HMRC to have considered ADR before appealing to the Tribunal. At the time of writing, responses to the consultation had not yet been published.
6. Conclusion
ADR has transformed HMRC’s approach to dispute resolution, offering a faster, more cost-effective, and less adversarial alternative to tribunals. Consideration of ADR may become mandatory prior to a Tribunal appeal. Given its cost and accelerated timeframe benefits, ADR should be an early consideration for businesses facing factual disputes or communication breakdowns.
Please contact A&M’s Tax Risk & Dispute Management team if you would like to discuss the suitability of ADR for your enquiry.
