ADR has returned to the forefront of HMRC’s attention following the FTT’s release of an updated Practice Statement.
In May 2025 The First Tier Tribunal (“FTT”) released a new Practice Statement regarding the use of Alternative Dispute Resolution (“ADR”) in Tax Disputes. The statement reminds HMRC, taxpayers and their representatives of the importance of ADR and how, in some cases, failure to consider ADR can result in costs being awarded against one of the parties.
We previously wrote in detail about the usage and process of ADR in tax disputes here and ADR remains a popular method of resolving tax disputes and for good reason!
What is ADR?
ADR offers a way of resolving your tax dispute with HMRC that is focused on being cost effective and reaching an agreement earlier on in the process. Crucially if ADR is successful a dispute can be resolved without the higher costs and public nature of litigation. You must apply to use ADR and you can do so at any point during a compliance check (with the exception of when the case is being considered at ‘review’ stage). It is important to note that using ADR does not affect your right to appeal.
Neither HMRC or the taxpayer is obliged to participate in ADR and both parties can withdraw at any time.
The mediation process involves the taxpayer, their representative (if they have one), the HMRC case worker and a trained, externally accredited HMRC mediator. In practice, it is estimated that 90% of ADR cases are resolved within 120 days which is much faster than going to tribunal.
For a more detailed breakdown of the process and the types of cases ADR works for
Why now?
What next?
Only around 40% of cases that applied for ADR were accepted in 2023/24 (per HMRC’s annual report), however HMRC are currently reviewing their principles for accepting cases to assist in supporting and encouraging more taxpayers to use the process.
HMRC has separately sought external views on ADR and the results showed that the process was underutilised due to a lack of awareness of the process, even with HMRC officers themselves, and a lack of trust in HMRC’s independent mediator.
HMRC’s annual report suggests that 84% of the cases accepted into ADR were resolved or “positively progressed” which means to have been fully or partially resolved or by clarifying both sides’ positions and enabling them to make an informed decision on how to move forward.
HMRC are considering a proposal whereby ADR must be considered before a taxpayer can appeal to the tribunal. This doesn’t mean that parties would be required to use ADR but they must be able to demonstrate that they have given it due consideration.
It is clear that ADR will gain prominence in the coming years and agents will need to consider if ADR is right for their client, and whether they are prepared for this change in approach to tax disputes.
In our experience ADR is a really attractive option to help conclude cases quicker and should always be considered when an appeal is heading to the Tribunal. If a case does reach the Tribunal, any failure to have attempted to settle the dispute through ADR will also be viewed negatively and is contrary to Rule 3 of the Tax Chamber Rules. Whilst HMRC are bound by the Litigation and Settlement Strategy (LSS), which prohibits them from “doing deals”, ADR affords some flexibility in that both parties can and should be prepared to make concessions provided there is a legal basis for doing so.
If you would like to discuss Alternative Dispute Resolution (ADR) to settle tax disputes, especially in long-running cases which seem to have reached an impasse, please contact Menzies’ Tax Disputes and Disclosures team on our free confidential helpline below:
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