Guidance

Alternative dispute resolution — CC/FS21

Updated 8 March 2024

This factsheet tells you about Alternative Dispute Resolution (ADR). It explains what ADR is, how it works and how to apply.

This factsheet is one of a series. For the full list of the factsheets in our compliance checks series, go to www.gov.uk and search ‘HMRC compliance checks factsheets’.

About ADR

ADR is a dispute resolution service offered by HM Revenue and Customs (HMRC). An HMRC officer who is professionally trained in mediation skills and techniques will act as a neutral and impartial mediator. They will help you and the HMRC officer work towards resolving the dispute.

What we mean by ‘dispute’

If you disagree with the officer dealing with your case about:

• the reason why they’ve asked you to do something
• their point of view about your tax liability

or if you’re not sure about either of these, please tell the officer straightaway.

In most cases you and the officer will be able to quickly resolve the matter, but if you cannot, we call this a dispute.

There are several ways that a dispute can be resolved, including:

• asking the officer to discuss your point of view with their manager
• asking for a review by an HMRC officer not previously involved in the matter, or appealing to an independent tribunal

When to apply for ADR

ADR is another way of dealing with disputes. As soon as you know that there’s a dispute, you should consider whether to apply for ADR.

If HMRC have opened an enquiry into your tax affairs, you can apply for ADR (any of the following apply):

• at any stage of an enquiry
• at any stage of the tribunal proceedings
• either when we cannot reach an agreement with you or when HMRC have issued their appealable decision

The following circumstances apply if HMRC have issued their decision.

Direct tax disputes after HMRC has made a decision

Direct taxes include:

• Income Tax
• Corporation Tax
• Inheritance Tax

You can apply for ADR when HMRC has made a decision about a direct tax issue you’ve appealed against and HMRC have taken one of the following actions. This is that we:

• accepted the appeal, but have not offered you a statutory review
• offered you a statutory review that you’ve accepted — you must wait for the review to end, appeal to the tribunal and have received an acknowledgement letter before applying
• offered you a statutory review that you’ve not accepted — you must appeal to the tribunal first, and have received an acknowledgement letter before applying

Indirect tax disputes after HMRC has made a decision

Indirect taxes include:

• VAT
• Excise Duty
• Customs Duty

You can apply for ADR when HMRC has made a decision about an indirect tax issue and you’ve (either):

• accepted our offer of a review — you must wait for the review to end, appeal to the tribunal and have received an acknowledgement letter before applying
• not accepted our offer of a review — you must appeal to the tribunal first, and have received an acknowledgement letter before applying

If ADR is used this does not affect your right to appeal or to ask for a review.

There’s more information about appeals and reviews in factsheet HMRC1. To find this factsheet, go to www.gov.uk and search ‘HMRC1’.

The benefits of ADR

ADR is a way of working together to resolve disputes. Where there’s a dispute, ADR aims to:

• improve your experience when dealing with us
• reduce the time it takes to complete a compliance check
• reduce the costs for you and HMRC
• reduce the need for independent tribunal hearings

Using ADR in more complex cases may avoid the need for you to make a long formal written submission to the tribunal to support your side of the dispute.

What types of disputes are suitable for ADR

ADR is suitable in the majority of disputes, examples include the following.

Where communications have broken down

This could include situations where we need information from you, but you do not agree that:

• you can get the information
• the information is needed to resolve the matter

In these types of situations, a mediator may be able to help restore communications to allow the dispute to be resolved. For example, by making sure that the importance of the information has been clearly explained to you and that you understand:

• why it’s needed
• how it’ll help resolve the dispute

If you cannot get the information, the mediator will help you to explore alternative ways of resolving the matter.

Where there are disputes about the facts

The mediator will make sure that you have the opportunity to ask for clarification of any matters that are not clear and reach agreement about what the relevant facts are and how they’ll be used. They’ll also check with you that you understand the answers that you’re given. If any facts are in dispute, the mediator will make sure that both you and the officer fully consider all points of view and that agreement is reached where possible.

Where a dispute is a result of a misunderstanding

This could include situations where a compliance check has been continuing for some time and you cannot understand why the officer keeps asking you for different information. A mediator will consider your point of view and establish whether the officer dealing with the compliance check needs the information that they’re asking for.

Where the dispute concerns a technical point or a point of law

Mediation can be considered in these cases. A mediator could help:

• you gain clarity and understanding of the officer’s view
• give you an opportunity to have your view heard
• reassure you that you’ve been listened to

It may be that a resolution cannot be found in these circumstances, but the mediation process will have helped everyone prepare for tribunal.

In all cases we’ll consider your application and if we decide it’s not suitable, we’ll tell you.

What types of disputes are not suitable for ADR

ADR is not available to customers who have a disagreement with HMRC in the following circumstances:

• complaints and disputes about HMRC delays in using information or giving you misleading advice
• cases that HMRC’s criminal investigators are dealing with
• cases the First-tier Tax Tribunal have categorised as ‘paper’ or ‘basic’
• debt recovery or payment issues
• disputes about tax credits
• disputes over default surcharges
• automatic late payment or late filing penalties
• PAYE Coding Notices
• Extra Statutory Concessions
• pensions liberation schemes
• high income child benefit charges
• disputes about the National Minimum Wage
• accelerated payments and follower notices
• civil evasion penalties
• forfeiture

What happens if you apply for ADR

If you want to use ADR to resolve a dispute, you’ll need to apply. Details of how to apply are shown below.

Once we receive your application, we’ll contact you and the HMRC officer to discuss your application
in more detail. We’ll carefully consider the case and then decide whether ADR is an effective way of resolving the dispute.

Each application is considered on a case by case basis. ADR is not a statutory process and we reserve the right to reject applications that we do not consider appropriate for ADR.

We’ll normally tell you whether the case has been accepted or not within 30 days of receiving your application. If your application is not suitable for ADR, we’ll tell you why.

If your case is accepted

Both you and HMRC must participate in ADR. This is not optional. You should only apply for ADR if you’re prepared to fully commit to it.

When completing the application, you’ll be asked to agree to some principles committing you to full participation in the ADR process.

These principles are:

• you and your representative, if you have one, understand that the mediator has responsibility for the ADR process — you and HMRC share the responsibility for deciding the tax outcomes
• you and your representative must be available within 90 days for a mediation meeting — this may last a full day, and will take place by telephone conference call, video call, or in a face to face meeting
• if the mediator asks for more information, you will provide this within 15 days
• if you discover new information before a meeting, you will provide this to the mediator and the caseworker as quickly as possible
• if you cannot meet any deadlines, you must tell the mediator
• mediation is carried out on a ‘without prejudice’ basis — see below for the meaning of ‘without prejudice’
• all information disclosed by either side in the dispute during the mediation can be referred to in later formal proceedings if no resolution is achieved
• all documents exchanged during the ADR process are treated in the same way as information exchanged with HMRC at any other time
• if you make a formal complaint about the process, the mediator will be asked to comment

If the terms and conditions are broken at any time, HMRC can remove your dispute from the ADR process.

Meaning of ‘without prejudice’

Without prejudice is a legal term with a precise and quite narrow meaning. In the context of ADR, it means that you and HMRC will be able to freely suggest and explore possible solutions to the dispute. Those discussions will not be regarded as an admission should you not be able to reach agreement during the mediations. It does not, however, include a ‘tax fact’.

Tax facts

A ‘tax fact’ is a fact that has legal and technical implications for a customer’s tax liability, it’s not capable of being without prejudice.

Examples of tax facts are:

• receipt of a payment
• making of a supply
• place of supply
• identity of a customer

What happens next

Once your case has been accepted into ADR, the mediator will decide on the most effective way to help you and HMRC resolve the dispute. This may be by email, phone or a meeting.

Where the mediator thinks a meeting is necessary, the following will help you to prepare.

Preparing for any mediation meeting

In preparation for a mediated meeting the mediator will ask you to write a statement of the matters
in dispute, including your view of each matter. Your statement should:

• be brief — no more than 2 sides of A4 paper
• set out the main facts and, where relevant, how you believe the law applies to these facts

Your statement should not be a history of the compliance check.

The officer dealing with your compliance check will be required to do the same.

These statements form the basis of discussion on the mediation day and they’ll be exchanged between you and the officer prior to the mediation meeting.

Before the meeting your mediator will take time to talk you through the day and will do the same for the officer.

About the mediation meeting

The mediator will open the meeting and invite discussion about the statements. There will be opportunities throughout the mediation for you to ask questions and put forward your point of view through joint discussion and/or private discussion with the mediator.

The mediator will help you and the officer dealing with your check to explore the matters in dispute and consider all options for resolution. The mediation may involve joint discussions and/or separate discussions with you and the HMRC officer, depending on the particular circumstances of your dispute.

The mediator will not suggest or impose solutions but will help you and the HMRC officer work through the matters in dispute. There will only be a resolution if you and the HMRC officer can reach a mutually acceptable agreement.

Litigation and settlement strategy

When resolving disputes, HMRC are bound by the litigation and settlement strategy (LSS). This is the framework within which HMRC sees to resolve tax disputes. Both sides are encouraged to read the LSS before the mediation meeting. This will help you and the HMRC officer understand the clear ground rules that HMRC must follow when trying to reach an agreement with the customer.

Read more about the litigation and settlement strategy online. Go to www.gov.uk and search ‘litigation and settlement strategy’.

Note taking during ADR

You can take notes during the mediation but please keep these to a minimum. If information supplied by you or HMRC during the mediation has an impact on your tax liability, then you or HMRC can make a note of it. It can be referred to in any later proceedings.

You can choose to ask someone to take part in the meeting with you, for example, your tax adviser, a friend, or a family member. You’ll be asked to confirm that you’re happy for your tax affairs to be discussed in detail in front of them.

What happens after ADR

At the conclusion of the ADR process, the mediator will explain your next steps. This will be dependent on the outcome. In certain cases, the mediator will ask you and the HMRC officer to help draft a document recording the outcome of the mediation. For example, where a full meeting has been held. We call this document the ‘Record of outcome of ADR’. Once drafted, you will be asked to confirm your agreement to it. This will be the only agreed record of the final position you have reached at the end of the mediation. If you have resolved the dispute, this can be noted in the document, as well as any future actions that you and the officer intend to take.

The document may also be used to record that the ADR process is concluded without agreement.

In some special categories of cases, the final decision on whether the HMRC officer can agree to the solution proposed during mediation can only be made by a ‘Dispute Resolution Board’ or similar panel. To read HMRC’s code of governance for resolving tax disputes, go to www.gov.uk and search ‘resolve tax disputes’.

In these instances, any potential agreement negotiated during mediation is provisional. It needs to be approved by the appropriate board or panel before it can be agreed by HMRC. This will be made clear to you during the mediation.

How to apply for ADR

To apply for ADR, you need to complete the application form. You can find this form online, go to www.gov.uk and search ‘use alternative dispute resolution to settle a tax dispute’. If you do not have access to the internet and need additional help, please phone us on 03000 538177.

More information

If you have any health or personal circumstances that may make it difficult for you to deal with the ADR process, please tell the officer that’s contacted you. We’ll help you in whatever way we can. For more details, go to www.gov.uk and search ‘get help from HMRC if you need extra support’.

You can also ask someone else to deal with us on your behalf, for example, a professional adviser, friend or relative. We may however still need to talk or write to you directly about some things. If we need to write to you, we’ll send a copy to the person you’ve asked us to deal with. If we need to talk to you, they can be with you when we do, if you prefer.

If you need help

If you have any health or personal circumstances that may make it difficult for you to deal with the ADR process, please tell the officer that’s contacted you. We’ll help you in whatever way we can. For more details, go to www.gov.uk and search ‘get help from HMRC if you need extra support’.

You can also ask someone else to deal with us on your behalf, for example, a professional adviser, friend or relative. We may however still need to talk or write to you directly about some things. If we need to write to you, we’ll send a copy to the person you’ve asked us to deal with. If we need to talk to you, they can be with you when we do, if you prefer.