Severn Accounting
Tax & Accounting

Alternative dispute resolution – is it worth using

By Ali Jaw ·

Disputes with HMRC can be stressful, time-consuming and expensive. Whether you’re disagreeing over a tax assessment, VAT treatment or employment status classification, the prospect of a prolonged battle through the formal appeals system might feel overwhelming. But there’s another route: alternative dispute resolution (ADR). We’ve helped many Worcester businesses explore this option, and it’s worth understanding whether it might work for you.

What is alternative dispute resolution?

Alternative dispute resolution is exactly what it sounds like – a way to resolve disputes without going through the traditional court or tribunal system. HMRC offers several ADR options, including internal dispute resolution, mediation, and arbitration. These processes are designed to be faster, less adversarial and more cost-effective than formal appeals. They’re particularly useful when both parties acknowledge there’s a genuine disagreement, but neither wants the expense and time commitment of lengthy proceedings.

The beauty of ADR is flexibility. Unlike the formal appeals process – which follows strict procedural rules and timelines – ADR can be tailored to suit your circumstances. You can often resolve matters within weeks rather than months, and both you and HMRC have greater control over the process.

When should you consider ADR?

ADR isn’t suitable for every dispute. It works best when:

  • The facts are relatively straightforward, but the tax treatment is genuinely unclear
  • You and HMRC have fundamentally different interpretations of the law
  • You’re both willing to explore a middle ground
  • You want to avoid the cost and publicity of a tribunal hearing
  • Time is a factor – you need resolution quickly

For example, if you’ve claimed business expenses that HMRC has disallowed and you believe they’re legitimate, but there’s no clear case law, ADR might help you reach a sensible settlement. However, if HMRC’s position is clearly unreasonable or based on factual errors you can prove, a formal appeal might be your stronger option.

It’s also worth noting that ADR typically requires both parties to agree. If HMRC won’t engage, or if you’re challenging an assessment that involves deliberate tax evasion (rather than an honest disagreement), ADR won’t be available.

Understanding the costs and timescales

One of the biggest advantages of ADR is cost. Formal appeals can easily run to £5,000–£15,000 or more in professional fees, depending on complexity. ADR processes are usually significantly cheaper because they’re shorter and less bureaucratic. However, you’ll still need professional representation – it’s rarely sensible to handle these matters alone, even in ADR.

Timeline-wise, mediation can often be concluded within two to three months, whereas a formal appeal through the tribunal system might take eighteen months to two years. For self-employed contractors and small business owners, that time saving can be invaluable.

The process explained

If you and HMRC agree to mediate, you’ll work with an independent mediator – usually someone with tax expertise. The mediator doesn’t decide who’s right or wrong; instead, they help both sides communicate, understand each other’s position and find common ground. You’ll typically have separate meetings with the mediator before any joint sessions, so there’s no pressure to agree on the spot.

For arbitration (a less common but available option), an arbitrator does make a decision – but it’s binding on both parties. This is sometimes used for technical disputes where an expert’s ruling would be final.

Throughout the process, your discussions remain confidential and “without prejudice”, meaning nothing said during ADR can be used against you if the dispute later goes to tribunal. This confidentiality encourages openness and increases the chance of settlement.

Is it right for you?

Before deciding, consider whether you genuinely believe there’s room for negotiation, whether the amount at stake justifies the cost of representation, and whether you can afford to wait a few months for resolution. If you’re confident in your position and want a definitive legal ruling, a formal appeal might be better. But if you’re looking for a pragmatic solution that avoids prolonged conflict, ADR is increasingly popular for good reason.

The key is getting proper advice early. A tax adviser can review HMRC’s position, assess the strength of your case and advise whether ADR is a sensible next step – or whether another route would serve you better.

For tailored advice, contact Severn Accounting — we’re here to help.