Tax Disputes: Alternative Dispute Resolution (ADR)

ADR is a mediation process that can be used to resolve disputes between taxpayers and HMRC. It offers an alternative method for reaching and agreeing a settlement with HMRC with both parties able to avoid the cost of going to Tribunal. Neither party is obliged to participate in ADR and both can withdraw from the process at any time they wish.

The popularity of ADR has increased over the recent years, with an increasing awareness amongst tax agents and HMRC case officers of both its existence and the benefits which ADR can offer.

How does the process work?

An application to participate for ADR can be made at any stage of an enquiry or at any stage of Tribunal proceedings, by either HMRC or the taxpayer or their agent. Where an offer of an internal review of an appealable decision has been made, the request for ADR must not be made until the review has concluded.

Applications for ADR can be made online and are considered by a dedicated team within HMRC. Decisions on whether the case can proceed under ADR are normally confirmed within 30 days of the application being submitted.

Once the case has been accepted into ADR, an HMRC mediator will be appointed. This will be an independent HMRC officer who has had no previous involvement in the case and is trained in mediation. The mediator’s role is to be entirely independent. They will ask both parties to prepare a statement on the matters in dispute, which sets the main facts and, where relevant, how the law applies to those facts. These statements will be shared with the other party in advance of a mediation meeting.

At the mediation meeting, which in our experience rarely lasts more than one day, both parties will put forward their view on the matters being discussed. The mediator will not make any decisions for the parties, as their role is to simply assist both parties consider all options with a view to reaching an agreement on how to resolve the matter(s) in dispute.

ADR meetings

The meetings themselves can be in person or, as is now becoming increasingly common, via video. There will be one room/virtual room where both parties and the mediator will meet to discuss the matters in dispute. Separately, both parties will have their own rooms to meet separately without the other party present, but occasionally with the mediator as and when required. The meeting must take place within 90 days of the case being accepted into ADR or the case will be ejected from the ADR process.

All discussions in mediation are without prejudice, as the purpose of the meeting is to encourage open dialogue between both parties without fear of comments or opinions being repeated at a later stage. This is not the same as “off the record” discussions and the distinction is important especially where ADR is not successful and the case proceeds to Tribunal. In addition, any notes taken during the ADR meeting must ordinarily be destroyed at the end of the process.

Assuming ADR has been successful, the mediator will ask the parties to prepare and sign a document detailing any outcomes reached.


There is no definitive list, but broadly this will be cases where any of the following apply:

  • Communications between HMRC and the taxpayer/their advisor have broken down.
  • Where there is a dispute about the facts.
  • Where there has been a misunderstanding leading to a dispute.
  • Where the dispute concerns a technical point or point of law.

ADR is not suitable in cases where the taxpayer is seeking to raise a complaint, disputes over default surcharges or cases categorised by the Tribunal as being ‘paper’ or ‘basic’. There are also some other less common types of cases where ADR would also not be available.

Do HMRC case workers welcome ADR?

It is clear from our discussions with HMRC’s ADR team that they still have much to do to raise the profile, and highlight the benefits, of ADR to many of their colleagues. However, to evidence the renewed push to promote ADR, on 1 February 2023 HMRC published a new manual to provide their colleagues with guidance on how to approach cases where ADR has been requested.

The new ADR manual builds on previous published statements, and it makes clear that the mediator will be provided by HMRC so whilst an external mediator can be used, this will be at the sole cost of the taxpayer. Furthermore, the external mediator will only be accepted if they work alongside the HMRC mediator who will retain overall control of the process.

At Menzies if we’re asked to assist in a case involving a dispute which is heading to ADR, we believe the value comes from sitting alongside the taxpayer rather than being appointed as an external mediator whose ability to influence the meeting is so restricted.

Is ADR right for me?

ADR can only work if both parties are prepared to enter into the spirit of the process, with a genuine desire to settle the case and avoid costly litigation. If the mediator thinks the taxpayer is using ADR as a strategy to delay Tribunal proceedings, then the ADR process will be stopped.

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 by the Court. 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) and how this may benefit you or your clients, 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:

Call our free confidential hotline – 07813003194

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