HMRC Litigation and Settlement Strategy: Sign-Off, ADR, and Reforms

HMRC’s Litigation and Settlement Strategy is the framework that governs how HM Revenue and Customs resolves every civil tax dispute in the United Kingdom, whether by agreement or through the tribunals and courts.¹²³

If you are in a dispute with HMRC, the strategy is what tells the officer opposite you what they can and cannot agree to. It explains why some offers get nowhere and why some cases settle quickly.

The Rules That Limit What HMRC Can Settle For

The strategy imposes firm limits on individual officers. They exist to keep settlements consistent across taxpayers and to stop ad hoc deals.

Every settlement must reflect the law. HMRC will not compromise its view of the correct legal position simply to close a case. If the department believes the law says you owe a particular amount, that is the figure it will pursue.²

No splitting the difference in all-or-nothing cases. Where a dispute is binary, meaning you either owe the full amount or nothing, HMRC will not accept a midpoint. If it thinks it is likely to win, it will demand 100% of the tax, interest, and penalties at stake. If it thinks its case is weak, it will generally concede rather than negotiate down.²

No package deals. Each dispute is handled on its own merits. HMRC will not trade a concession on one issue for ground on another unrelated matter with the same taxpayer.⁴

Best practicable return. When HMRC decides which cases to pursue, it weighs the tax at stake, the potential precedent value, and the effect on wider taxpayer behavior.² Small-value cases can still be litigated if a point of principle matters.

Collaborative working is the default. Both sides are expected to be open about facts and legal arguments and to test them jointly. HMRC generally shares the substance of its legal position, though it keeps privilege over its actual legal opinions.²

As a general threshold, HMRC will only take a dispute all the way through litigation where it believes it has a greater than 50% chance of winning.²

How a Dispute Progresses

A “dispute” under the strategy exists whenever HMRC and a taxpayer disagree about the tax due on a specific risk in a return, transaction, or arrangement. Unrelated risks in the same person’s affairs count as separate disputes.²

Most cases start with fact-finding. HMRC will try to establish the facts through open dialogue and, where needed, statutory information powers. Both parties then set out and test their arguments. Most disputes end here, on terms HMRC could reasonably expect to secure in court.⁴

If collaborative resolution fails, the formal path opens. You can request a statutory review, carried out by an officer who was not involved in the original decision.⁴ If that does not resolve the matter, the next step is an appeal to the independent First-tier Tribunal, with further appeals available to the Upper Tribunal and up through the court system.

The review stage is worth taking seriously. In 2015-16, 57% of all internal reviews resulted in the original HMRC decision being varied or cancelled.⁵

Who Actually Signs Off a Settlement

The officer running your case does not have unlimited authority. Larger disputes climb through a hierarchy of governance boards, and separation between the people negotiating and the people approving is a fundamental principle of the framework.

The Boards

The Customer Compliance Group Dispute Resolution Board is required for disputes above £5 million for non-large businesses, or £15 million for large businesses. In 2021-22, this board decided 78 of 84 referred cases.⁶

The Tax Disputes Resolution Board takes cases where the total tax at stake exceeds £100 million, or where the matter is novel, unusual, or sensitive enough to need commissioner-level input.⁴

A panel of Three Commissioners handles the largest and most sensitive cases, including those where the maximum possible adjustment exceeds £500 million or a potential Banking Code breach is involved.⁶

Cases affecting multiple taxpayers on the same legal point go through specialist bodies: the Contentious Issues Panel for far-reaching points of law, the Anti-Avoidance Board for avoidance matters, and the independent GAAR Advisory Panel where the General Anti-Abuse Rule may bite.⁴

The Tax Assurance Commissioner

The Tax Assurance Commissioner, a role created in 2012, has overall responsibility for civil dispute governance and reports publicly to Parliament each year. The holder of the role has no involvement in any individual taxpayer’s affairs. As of 2023-24, Justin Holliday held the post and chaired the three-commissioner panel deciding HMRC’s largest cases.⁷

HMRC also runs a Tax Settlement Assurance Programme that annually reviews a sample of around 400 settled cases to check governance and application of the strategy.⁸ The National Audit Office’s February 2026 report on large business taxation found HMRC’s governance “well established” and “consistently” applied, with a separate quality assurance programme finding governance was correctly followed in 98.1% of reviewed interventions in 2024-25.⁹

Alternative Dispute Resolution Inside the Framework

Alternative Dispute Resolution sits within the strategy as a mediation option. An HMRC mediator, independent of the case team, facilitates discussion between the parties but does not make binding decisions.¹⁰ Any agreement reached through ADR is still subject to the same governance rules, so it may need approval from a Dispute Resolution Board before it becomes final. It can be used at any stage of a compliance check or tribunal appeal.

Success rates once a case is inside the process are high: HMRC reports resolution in 84% of ADR cases in 2023-24 and 88.7% in 2024-25.¹¹¹² The bottleneck is entry. In 2023-24 HMRC received 1,309 ADR applications and accepted only 512, with roughly 61% rejected for procedural reasons or falling within a restrictive exclusion list.

A Practice Statement issued by the First-tier Tribunal’s Tax Chamber in May 2025 warned that “an unreasonable failure to consider or enter into ADR may, in an appropriate case, result in costs being awarded against a party,” citing Halsey v Milton Keynes General NHS Trust.¹³ Refusing to engage now carries real financial risk.

What Happens if the Case Goes to Tribunal

Because HMRC only litigates cases it expects to win, its published success rates are high. In the year to March 2021, HMRC reported an 86% success rate across all UK courts and tribunals, up from 75% two years earlier. That broke down to 86% at the First-tier Tribunal, 83% at the Upper Tribunal and Court of Appeal, and 40% at the Supreme Court, on just five cases.¹⁴ More recent figures for 2023-24 show 88% of 1,500 decided tribunal appeals going in HMRC’s favor or succeeding on substantive elements.¹¹

HMRC counts “success” as decisions in its favor or cases where it prevails on substantive elements, so the figures should be read with that definition in mind.

Practitioner Criticism

Tax advisors have long argued the strategy is too rigid. In a 2018 survey of practitioners from more than 20 advisory firms carried out for the Treasury Sub-Committee, 81% said HMRC’s governance and settlement processes prevent fair and proportionate resolution. Respondents called the framework “far too rigid” and a “straightjacket.” Ray McCann, then president of the Chartered Institute of Taxation, said it “cannot be acceptable to anyone, including HMRC, when the LSS is used to justify years of delay and an all-or-nothing approach is applied across the board.”¹⁵

A recurring concern is that HMRC sometimes pursues cases where the costs to both sides outweigh what is at stake, leaving taxpayers to pay disputed amounts because tribunal litigation is prohibitively expensive.¹⁶

Reforms Under Consultation

HMRC published a consultation in April 2025, closing in July 2025, on substantial reforms to dispute resolution as part of the Tax Administration Framework Review.¹¹

The main proposals would align the processes for direct and indirect taxes into a single model. HMRC would issue “pre-decision letters” before a formal decision, giving taxpayers a window to settle informally within the strategy’s rules before appeals begin. The restrictive ADR exclusion list would be replaced with a “principle-based approach” to widen eligibility, and both HMRC and taxpayers might have to show they had considered ADR before filing a tribunal appeal.

The Chartered Institute of Taxation opposed the unified model, arguing it too closely mirrors the indirect tax process and leaves too little time for pre-decision discussion; it wants all taxes moved onto the direct tax appeal process instead.¹⁷ The Association of Taxation Technicians supported pre-decision letters but said they should be mandatory rather than discretionary, warning otherwise they could be routinely bypassed for resource reasons.¹⁸ Both bodies opposed any fees for ADR, on the ground that fees would deter unrepresented and lower-income taxpayers.

HMRC has indicated it intends to update the Litigation and Settlement Strategy itself later in 2026.¹⁹ Until then, the rules described above are what any settlement offer will be measured against.

1
GOV.UK. Litigation and Settlement Strategy
2
GOV.UK. Resolving Tax Disputes: Commentary on the Litigation and Settlement Strategy
3
GOV.UK. Litigation and Settlement Strategy: LSS20100
4
GOV.UK. Code of Governance for Resolving Tax Disputes
5
Pinsent Masons. More Than Half of Taxpayer Challenges to HMRC Decisions Successful
6
Institute for Fiscal Studies. Large Business Tax Disputes
7
GOV.UK. HMRC Annual Report and Accounts 2023 to 2024: Our Accountability
8
GOV.UK. HMRC Annual Report and Accounts 2022 to 2023: Tax Assurance Commissioner’s Report
9
National Audit Office. Taxing Large Businesses
10
GOV.UK. Compliance Checks: Alternative Dispute Resolution
11
GOV.UK. The Tax Administration Framework Review: Improving HMRC’s Approach to Dispute Resolution
12
Tax Journal. HMRC Dealing With Backlog of ADR Cases
13
Judiciary.uk. Alternative Dispute Resolution Practice Statement for First-Tier Tax Chamber
14
Pinsent Masons. HMRC Successful in 86 Percent of Tax Disputes in UK Courts and Tribunals
15
Tax Journal. HMRC’s Approach to Handling Enquiries and Disputes: Practitioners’ Views
16
UK Parliament. Written Evidence: Chartered Institute of Taxation
17
Chartered Institute of Taxation. Improving HMRC’s Approach to Dispute Resolution: CIOT Response
18
Association of Taxation Technicians. ATT Response: Improving HMRC’s Approach to Dispute Resolution
19
Tax Journal. HMRC’s Litigation Settlement Strategy: Overdue for Reform