ADR and HMRC Compliance Checks

When a client has a compliance check opened by HMRC, it can bring a range of emotions and uncertainty, particularly where the claim in question is technical or complex. The process itself can feel drawn out, and the avenues available to resolve disagreements are not always obvious at the outset. Where a claim is either fully or partially rejected, there are several potential routes to challenge or resolve HMRC’s position, one of which is Alternative Dispute Resolution, known as ADR.

ADR seeks to offer a practical way of resolving disagreements without escalating matters straight to formal appeals or tribunal proceedings. It is intended to help both sides communicate more effectively, clarify misunderstandings, and work towards a constructive outcome with the support of a trained HMRC mediator. In situations where an enquiry has reached a deadlock and correspondence is no longer moving matters forward, ADR can provide a structured opportunity to reset discussions.

In recent years, HMRC’s focus on compliance activity has increased, particularly in areas where there is a perceived risk of error or abuse, including R&D tax relief. As a result, compliance checks are often running for longer and becoming increasingly technical in nature. In that context, ADR has become a useful tool for actively progressing enquiries that might otherwise remain unresolved through written exchanges alone.

The process begins with a straightforward online application to HMRC, setting out the nature of the dispute and explaining why ADR could help. In practice, ADR is often raised informally with the HMRC case officer or agent before a formal application is submitted. HMRC will then consider whether ADR is suitable for the specific case and typically responds within around 30 days. ADR is generally most effective where there is a genuine disagreement over facts, evidence, or technical interpretation, rather than where the issue turns solely on a point of law.

If accepted, a trained mediator is appointed to help guide discussions and focus on the key areas of disagreement. Meetings usually take place by telephone, video call, or in person within around 90 days of acceptance and can last a full day. The mediator does not determine the outcome of the dispute. Instead, their role is to ensure both parties are communicating effectively, that discussions remain focused on the issues preventing resolution, and that areas requiring further explanation or evidence are properly explored.

One of the key benefits of ADR is the level of transparency it can bring to the process. Unlike a tribunal, where evidence is tested in a formal legal setting, ADR gives businesses the opportunity to explain the rationale behind their R&D claim, share technical insight in plain terms, and hear directly from HMRC about their concerns. This often helps unlock misunderstandings and identify precisely where HMRC considers the claim to fall short, which is not always clear from written correspondence alone.

However, ADR is not a process that works by default. Its effectiveness depends heavily on preparation and engagement from both sides. This was highlighted in the recent case of M&C Educational Training Services Ltd v Revenue & Customs Commissioners (4 December 2025), where the taxpayer argued that the ADR process had been fundamentally flawed and had failed to properly engage with the technical evidence put forward. While the Tribunal made clear that it was not its role to adjudicate on the conduct of ADR itself, the case serves as a useful reminder that ADR will only be effective where the technical issues are clearly presented, the evidence is properly structured, and the process is approached in the right spirit.

This point is particularly relevant in cases where claims have been prepared and submitted by third-party advisers and later come under scrutiny. In those situations, we often see technical gaps, inconsistent project narratives, or unsupported cost allocations that need to be addressed before ADR, or any meaningful progress, can be achieved.

ADR does not affect a taxpayer’s right to appeal and can be used at almost any stage of a compliance check. It is not intended to deal with service complaints or delays, but to resolve substantive disagreements about the tax position. Even where ADR does not fully resolve the dispute, it frequently narrows the issues in contention, reduces time and cost, and helps move an enquiry forward in a more constructive way.

From a practical perspective, the decision to pursue ADR should be made carefully. This is an area we have significant experience in, both in resolving HMRC R&D compliance checks before ADR becomes necessary and in stepping in where claims prepared by third-party advisers have resulted in technical or evidential issues. Where ADR is appropriate, having a clear technical narrative, robust supporting evidence, and a focused understanding of HMRC’s concerns can make a meaningful difference to breaking a deadlock and bringing a long-running enquiry to a conclusion.

If you would like to arrange a meeting to discuss ADR further or other Enquiry Resolution services Streets offering, please see the link below for the team’s Calendly. https://calendly.com/streets-innovation/enquiry-resolution-service