Alternative Dispute Resolution’s (ADR) Success in UK R&D Tax Disputes: Avoidable Burdens

What is Alternative Dispute Resolution (ADR)?

ADR is a voluntary process offered by HMRC to help resolve tax disputes without resorting to formal litigation. It uses an independent, trained mediator to facilitate structured discussions between the taxpayer and HMRC. The goal is to clarify facts, explore misunderstandings, and identify common ground so that both parties can reach an agreement quickly and collaboratively.

In this article, Tom Haslehurst, Director, R&D Technical at Ryan, explores how ADR works and why its success rate makes it a critical tool for easing the burden of R&D tax disputes.

How Does ADR Work?

ADR is effective for disputes that hinge on interpretation or technical detail rather than fraud or deliberate non-compliance. It does not replace HMRC’s decision-making authority or the taxpayer’s right to appeal, but it provides a faster, less adversarial route to resolution compared to the First-tier Tribunal (FTT) process. HMRC’s own published figures and commentary from independent professionals show that ADR resolves disputes successfully in roughly 85 to 90% of cases, with most mediations finishing within 120 days. This mirrors our experience at Ryan. 

Even at the conservative end of the range (85%), ADR delivers an exceptionally high success rate for a process designed to de-escalate technical disputes. If roughly 9 out of 10 disagreements that reach ADR can be resolved quickly, it raises an important question: how many of the standoffs that have clogged the research and development (R&D) system since 2021 could have been settled earlier?

Instead, between 2021 and 2025, HMRC moved R&D compliance into a high-intensity posture with nudge campaigns, sector sweeps, and administrative changes, such as the additional information form and prenotification. Some of this was necessary to counter error and fraud, and we applaud that, but the cumulative effect was friction. Disputes lengthened, uncertainty increased, and the volume of appeals at the FTT rose. In that context, ADR’s track record should have been treated as a pressure relief valve, particularly for fact-heavy disagreements about eligibility, scope, or cost treatment where the issue is clarity rather than criminality.

The Standard Industrial Classification (SIC) Code Problem: A Blunt Proxy in a Nuanced Regime

R&D relief is defined by whether a project aims to resolve scientific or technological uncertainty, focusing on what work was done and why.  Yet risk triage often leaned on sector labels and the nature of trade. This created conditions for SIC-led sweeps of sectors “not normally expected” to deliver valid claims. The problem is obvious: SIC codes often lag reality, and many businesses operate at the edges of traditional categories. A fit-out contractor experimenting with novel materials, or a creative fabrication studio developing unique manufacturing processes, may carry a “low R&D” SIC yet meet the definition of qualifying R&D. These are exactly the situations where a live, facilitated conversation separates boundary-pushing from abuse far better than a proxy flag.

The Avoidable Burden on HMRC and Claimants

HMRC’s governance doctrine is clear: resolve matters “as quickly and cost effectively as possible,” in line with the Litigation and Settlement Strategy (LSS). When cases drift, HMRC’s Solicitor’s Office and Legal Services (SOLS) must resource statutory reviews, instruct counsel, and defend appeals, work that is inevitably labour intensive. A high ADR success rate means many of those cases should never have required legal escalation. The same goes for frontline caseworkers: extended, correspondence-heavy enquiries drain capacity, and they also degrade customer experience and delay certainty for compliant firms. If a predictable four-month pathway—properly signposted and readily accepted—were the norm, with discussion where appropriate, countless enquiries would shorten. Positions would soften earlier, and fewer matters would reach the FTT.

A run of R&D appeals during 2024–2025 laid bare the true nature of many disagreements. Tribunals spent their time on facts and characterisation. Was there a genuine technological advance or uncertainty? Who decided to undertake the R&D and bore the risk (versus “contracted out” or “subsidised” costs)? What exactly happened on the projects? Those are archetypal ADR questions. Mediation does not replace litigation where a point of law needs clarifying for the wider regime. But the texture of these disputes suggests a large share were not about rewriting the rules; they were about aligning on the facts, evidence, and correct application of existing rules. ADR is designed to do precisely that, but it should not, for a vast number of claimants, have been necessary.

Why Proper Discussion Was Underused, and Why That Matters Now

Awareness of the necessity for spoken communication is still uneven among some HMRC teams. As a result, cases that should close sit in extended correspondence or inch toward appeal. When parties finally try ADR, it often succeeds—just much later and after more cost on both sides. Reframing meetings with HMRC as a default early step (rather than a last resort) aligns with the direction of travel in tribunal practice and HMRC guidance, which increasingly contemplates consequences where parties unreasonably refuse meetings. The message should be simple: if the dispute is fundamentally about facts, scope, or the proper characterisation of costs, get into a room with HMRC early.

Imagine a different triage model during the peak of R&D friction:

  1. Triage: Where a case is flagged by nondeterminative risk markers (including SIC), the default offer is a meeting, not a broad information notice, unless there are fraud indicators or a clear point of law.
  2. Process: Within around 30 days, an HMRC caseworker screens suitability and schedules a session. Most cases close or materially narrow within about 120 days.
  3. Outcome: Historical data shows that most cases resolve quickly, with fewer prolonged enquiries, SOLS instructions, and appeals, as well as faster certainty for claimants—including appropriate withdrawals where claims do not stack up.

That is not a counsel of perfection; it is applying HMRC’s own dispute resolution doctrine earlier, to the right kinds of cases, and with better triage.

A Word on Fairness

None of this argues for going soft on abuse. HMRC was right to address the spike in error and fraud and to introduce stronger controls. But as error/fraud metrics have improved, the case for precision over bulk scepticism grows stronger. 

ADR is a precision tool. It focuses both sides on the facts that matter, surfaces misunderstandings quickly, and narrows genuine differences. Matching that level earlier in the process, without the need for appeal, is an obvious choice, and it protects public funds twice over by releasing HMRC capacity for the hardest cases and accelerating correct outcomes (including denials) for claimants.

Three Pragmatic Fixes HMRC Could Adopt Now

  1. Make meetings the default for fact-heavy R&D disputes. When a case is flagged by nondeterminative risk markers (SIC, “nature of trade,” or other proxies), offer a meeting before launching a broad, open-ended enquiry, unless fraud indicators point elsewhere. High success rates and short cycle times justify this as standard practice.
  2. Treat SIC as a soft indicator, not a definitive measure of eligibility. If a SIC appears “off-sector,” request a brief explanation of activities, and address that promptly in discussion rather than through months of correspondence.
  3. Publish simple ADR metrics for R&D. Acceptance rates, time to resolution, and outcome data, sliced for R&D, would build trust and nudge earlier discussions. HMRC already collates ADR and litigation statistics; publishing a light-touch R&D view would be high signal and low effort.

Bottom Line

With hindsight, three forces collided to create avoidable burden:

  • ADR’s very high success rate and fast turnaround
  • Prolonged enquiries and a busy tribunal pipeline
  • SIC-led triage that over-captured compliant businesses

Earlier and broader use of meetings would have reduced pressure on the tribunal, conserved SOLS capacity for genuinely precedent setting issues, and lowered the administrative burden on claimants, while still protecting public funds. The fix is not radical: make meetings the default for fact-rich R&D disputes, use proxies like SIC as prompts rather than gates, and move faster from triage to facilitated resolution. When 9 in 10 mediated disputes find a home within months, the system should be designed to get them there sooner.

Sources:

HM Revenue & Customs. “Alternative Dispute Resolution Guidance and Updates on Process and Suitability.” GOV.UK. https://www.gov.uk.
Accountancy Age. “HMRC Figures Indicate ~90% ADR Resolution within ~120 Days.” Accountancy Age. https://www.accountancyage.com.
BDO. “Commentary on ADR Resolution Rate (~87%).” BDO UK. https://www.bdo.co.uk.
Tax Adviser. “Analysis of ADR Outcomes Averaging ~85% over Five Years.” Tax Adviser Magazine. https://www.taxadvisermagazine.com.