Introduction: Why HMRC Alternative Dispute Resolution Matters to Americans
HMRC alternative dispute resolution is a free mediation service in which a trained HMRC mediator, who has never worked on your case, helps you and the HMRC case team settle a tax dispute without going to the tribunal. For most British taxpayers, it is simply a faster and cheaper route to agreement. For an American living in Britain, however, it is something more important. The settlement it produces fixes the UK tax figure that your US foreign tax credit depends on.
That link is what every other guide to HMRC alternative dispute resolution leaves out. A US citizen or green card holder in London files two returns on the same income. Consequently, every pound HMRC adds, removes or leaves in dispute moves your US return as well. A careless settlement can strand a credit, reopen a closed US year, or turn into interest and penalties that the IRS never credits at all.
This guide explains how the process works in 2026, who can use it, what HMRC will and will not mediate, and how to shape an agreement so it works on both sides of the Atlantic. At TaxYork, we prepare US and UK returns for high-net-worth clients, investment bankers and company owners, so we see these disputes from both ends.
What HMRC Alternative Dispute Resolution Actually Is
HMRC alternative dispute resolution (ADR) is HMRC's in-house mediation service for individuals, small and medium businesses and their agents. According to HMRC's official ADR guidance, you can use it during a compliance check or after HMRC has made a decision you have appealed. Importantly, applying does not affect your appeal rights or your right to ask for a statutory review.
The mediator is an HMRC officer trained in mediation techniques and independent of the original decision-making team. Specifically, the mediator does not decide anything. Instead, the parties keep full control of whether and how to settle, as the HMRC Alternative Dispute Resolution Guidance manual makes clear.
Why the American Position Differs
A British taxpayer settles and pays. An American settles, pays, and then has to report the result to the IRS. Furthermore, the IRS treats a disputed foreign tax very differently from a settled one. Therefore, the timing, the wording and the allocation of your settlement all carry US consequences that a UK-only adviser will not model.
How HMRC Alternative Dispute Resolution Works in 2026
The process for HMRC alternative dispute resolution is short and informal by design. However, it has fixed timescales and conditions, and missing them can end your application before it starts.
Applying and the 30-Day Decision
You apply for HMRC alternative dispute resolution using HMRC's short online form, or by telephone on 03000 538177. Either you or HMRC can suggest mediation. Once your application arrives, HMRC aims to tell you within 30 days whether your case is suitable. Additionally, HMRC says any rejection is scrutinised by a separate panel before it becomes final, which gives weak refusals a second look.
When you apply, you must commit to two conditions. First, you must provide any information requested within 15 working days. Second, you must be available to attend the mediation within 90 days. Consequently, an American who spends long periods in New York needs to plan diaries and document retrieval before applying, not afterwards.
The Day of Mediation
Most HMRC alternative dispute resolution sessions now take place by video call, and they usually last a full day. Before the day, each side exchanges a short opening statement. On the day, the mediator runs a mixture of joint sessions and private sessions, during which you can speak frankly to the mediator away from the case team.
You may also appoint an external co-mediator alongside the HMRC mediator, although you pay for that person yourself. In our experience, few individual cases need one. However, it can help where the dispute is large and trust has broken down completely.
Timescales and the Four-Month Target
HMRC aims to conclude HMRC alternative dispute resolution within four months of the start of mediation, according to the ADRG manual. In practice, demand has grown quickly. HMRC's Annual Report and Accounts 2024 to 2025 records 1,653 applications, of which 663 were accepted, and 88.7% of closed cases recorded ADR as having a positive impact. Therefore, the service works, but acceptance is far from automatic.
Which Disputes HMRC Will Mediate, and Which It Will Not
Suitability is the first battle in HMRC alternative dispute resolution. A well-framed application explains why mediation will move the case forward, rather than simply restating your technical argument.
Cases That Suit Mediation
HMRC says HMRC alternative dispute resolution works best where communication has broken down, where the facts are disputed, or where there are misunderstandings about evidence. It also suits cases where you want HMRC to explain its assumptions, or where HMRC keeps asking for information you believe is irrelevant. For Americans, the classic examples are workday counts for overseas workday relief, split-year residence dates, the treatment of US equity awards, and valuations of US-held assets.
Moreover, mixed questions of fact and law suit mediation well. A dispute over how many London days a banker worked is a factual contest. By contrast, a dispute over what a statute means usually needs a judge.
Excluded Cases
The list of excluded cases in the ADRG manual covers criminal investigations, cases stood behind a lead case, and pure complaints. HMRC's public guidance adds debt recovery, automatic penalties, PAYE coding notices, accelerated payment notices, follower notices, civil evasion penalties and tribunal cases categorised as paper or basic.
That last group matters to Americans who used planning arrangements. If you have received an accelerated payment notice, HMRC alternative dispute resolution cannot touch it. Similarly, a flat late-filing penalty is an automatic penalty, so your route there is a reasonable excuse appeal, not mediation.
Timing Against a Statutory Review or Tribunal Appeal
You can apply for HMRC alternative dispute resolution at almost any stage. However, HMRC does not normally run it while a statutory review is in progress. Furthermore, once your appeal is notified to the First-tier Tribunal, HMRC generally only accepts ADR where the tribunal has categorised the case as standard or complex. The compliance handbook page CH280400 also stresses that ADR suits cases that have genuinely reached an impasse.
The Deadlines Mediation Does Not Stop
This is the most expensive misunderstanding we see. Applying for HMRC alternative dispute resolution does not pause any statutory deadline.
The 30-Day Appeal Clock
Under section 31A of the Taxes Management Act 1970, you generally have 30 days to appeal an assessment, an amendment or a closure notice. Mediation does not extend that period. Therefore, if HMRC has already issued a decision, you should lodge the appeal first and mediate second. The GOV.UK tax appeals guidance sets out the routes and deadlines.
Likewise, if you are offered a statutory review, the 30-day windows to accept it or notify the tribunal continue to run. Our guide to the HMRC statutory review for US filers explains that choice in detail.
Asking the Tribunal for a Stay
If your appeal is already with the tribunal, you can ask it to pause proceedings while you mediate. Rule 5 of the First-tier Tribunal (Tax Chamber) Rules 2009 gives the tribunal power to stay proceedings. In practice, the tribunal is usually sympathetic where both parties want to mediate, although much depends on how far the case has progressed.
Postponement and Interest
While an appeal is open, section 55 of the Taxes Management Act 1970 lets you apply to postpone payment of the disputed tax. Meanwhile, late payment interest keeps running, at 7.75% at the time of writing. For a British taxpayer, postponement is usually sensible. For an American, however, postponement can quietly destroy the US credit, as the next section explains.
The US Side: What an HMRC Settlement Does to Your Foreign Tax Credit
This is where HMRC alternative dispute resolution stops being a purely British process. Every settlement changes a number on your US return.
Contested Tax Is Not Creditable Tax
Under the foreign tax credit regulations at 26 CFR 1.901-2, a foreign tax you are contesting is not treated as paid until the contest ends. Consequently, money you remit to HMRC during a dispute earns no automatic US credit. If you postpone the tax instead, nothing is remitted at all, so there is nothing to credit either.
Fortunately, there is an escape route. The regulations under section 905 of the Internal Revenue Code allow a cash-basis taxpayer to elect a provisional credit for contested tax in the year it is remitted. You make the election with Form 1116 and then file an annual notice for every later year until the dispute resolves. The IRS instructions for Form 1116 explain the reporting mechanics.
When the Settlement Changes the Number
Once HMRC alternative dispute resolution produces an agreement, the UK tax is final. If you paid more than the agreed figure and HMRC refunds the difference, that refund is a foreign tax redetermination. You must then report it on Schedule C of Form 1116 and amend any year where your US tax changes. Furthermore, the HMRC repayment interest you receive is itself taxable US interest income.
If the agreed figure is higher than what you paid, the extra tax is creditable when you pay it on the cash basis. However, the credit is only useful if you have enough foreign-source income in the right basket to absorb it. Therefore, an American who settles after moving back to the United States can find the credit has nowhere to go, apart from a one-year carryback or a ten-year carryforward. The IRS page on the foreign tax credit covers these limits.
The Ten-Year Window
The usual US refund period is three years. However, section 6511 of the Internal Revenue Code gives a special ten-year period for claims based on foreign tax credits, as IRS Tax Topic 856 confirms. Therefore, a UK dispute that lasts years does not automatically cost you the US credit, provided someone tracks the dates.
Shaping the Agreement So It Works on Both Returns
Every settlement reached through HMRC alternative dispute resolution is recorded in writing. How that record reads decides how easily your US preparer can use it.
The Record of Outcome and Section 54
At the end of the mediation, the mediator drafts a "Record of Outcome" of what was agreed and what remains in dispute. According to ADRG02500 on concluding ADR, agreements use statutory language, such as section 54 of the Taxes Management Act 1970, so they are conclusive. Under section 54, an agreement settling an appeal has the same effect as a tribunal decision. However, you have 30 days to withdraw from it by written notice.
Those 30 days are valuable. Specifically, they give your US preparer time to model the settlement before it becomes binding. We always recommend using them.
Splitting Tax, Interest and Penalties
A lump-sum settlement is a US problem. Only the income tax element is creditable. By contrast, HMRC interest and penalties earn no US credit, and neither does National Insurance covered by the US-UK totalisation agreement. Therefore, the Record of Outcome should state the tax, interest and any penalty separately, tax year by tax year. In addition, it helps to identify which income each adjustment relates to, because the US credit is limited by category.
Without Prejudice, but Not Confidential
Discussions during mediation are held without prejudice. However, ADRG01900 confirms that tax facts disclosed during ADR are not confidential to the mediation. HMRC can use a fact you reveal. For an American with unreported US accounts or missed returns in either country, that matters. Accordingly, get your US position clean before you walk into the session, not after.
HMRC Will Not Split the Difference
Finally, HMRC settles within its Litigation and Settlement Strategy. As ADRG02600 explains, HMRC will not simply meet you halfway. Instead, any agreement needs a credible basis in the facts and the law. Hence, the strongest mediation cases arrive with evidence, such as diaries, flight records, board minutes and payroll data, rather than arguments alone.
Choosing Mediation, Review or the Tribunal
HMRC alternative dispute resolution is one of three routes, and it can run alongside the others. Choosing well depends on the kind of dispute you have.
When Mediation Is the Right Call
HMRC alternative dispute resolution is the right call where the dispute turns on facts, where correspondence has stalled, or where the amounts justify a day of focused effort. It also suits Americans because speed matters more on two returns. A dispute that ends in months keeps your US credit aligned with the right year.
When to Choose a Review or the Tribunal
A statutory review suits a clear error that a fresh HMRC officer can correct on paper. By contrast, a point of pure law affecting many taxpayers usually belongs in the tribunal. Moreover, if the UK outcome determines treaty residence, you may need the mutual agreement procedure under the US-UK tax treaty instead, because only the two tax authorities together can resolve genuine double taxation.
Missed Returns and Wider Disclosure
Disputes rarely arrive alone, and HMRC alternative dispute resolution works best when nothing else is hidden. If an enquiry has exposed missed UK tax returns, or a missed FBAR on the US side, deal with the whole picture together. The FinCEN FBAR filing page explains the US reporting duty, and our article on HMRC special relief for missed UK tax returns covers estimated assessments that can no longer be appealed.
Case Study: A Workday Dispute Settled in One Day
The following case is illustrative, based on the type of dispute we handle regularly.
The Facts
Michael is a US citizen and managing director at a London investment bank. For 2022/23, he claimed overseas workday relief for days spent in New York. HMRC opened an enquiry, rejected most of his travel evidence, and issued a closure notice charging £182,000 of additional income tax. Correspondence had stalled for fourteen months. Our guide to the HMRC closure notice for US filers explains how enquiries reach this stage.
What We Did Before Mediation
We lodged the appeal within 30 days to protect the deadline. Next, rather than postponing everything, Michael paid £100,000 on account in February 2025 and postponed the remaining £82,000. On his 2025 US return we made the provisional credit election, claiming about $131,750 of credit at the IRS average rate for that year. Then we applied for HMRC alternative dispute resolution, supported by badge-in data, flight records and US payroll allocations.
The Mediation
The HMRC alternative dispute resolution session took place by video in June 2026 and lasted one day. Once the case team saw the badge-in data, most of the factual dispute fell away. The parties agreed additional tax of £71,000, interest of £9,400 and a penalty of £7,100. At our request, the Record of Outcome listed each figure separately against 2022/23.
The Result on Both Returns
HMRC refunded £29,000 of the tax paid on account, and Michael paid the interest and penalty separately. On the US side, the refund was a redetermination. Accordingly, we reduced his 2025 credit to about $93,540, filed Form 1116 Schedule C and a Form 1040-X, and reported the HMRC repayment interest as income. Michael kept a credit on £71,000 of UK tax. Had he postponed the whole amount, he would have had no US credit until 2026 and would have paid 7.75% interest on the full £182,000 throughout. Moreover, a tribunal hearing would likely have taken two years and cost far more in fees.
How TaxYork Can Help
We prepare the UK and US sides of a dispute together, so the settlement you sign is one your US return can actually use.
Before You Apply
We review the dispute, protect every appeal and review deadline, and decide whether to pay, postpone or pay on account. In addition, we make any provisional credit election on your US tax returns for expats before money moves. Furthermore, we work to the professional standards promoted by the ICAEW Tax Faculty and the Chartered Institute of Taxation, and we follow AICPA and CIMA tax guidance on the US side.
During and After Mediation
We prepare the HMRC alternative dispute resolution application, the opening statement and the evidence bundle. After the mediation, we check the Record of Outcome inside the 30-day withdrawal window, then file the Form 1116 redetermination and any amendments. Where the dispute touches residence, pensions or investment structures, our cross-border planning team aligns both returns for later years.
Conclusion
HMRC alternative dispute resolution is one of the fastest ways to end a stalled UK tax dispute, and HMRC's own figures show it usually helps. However, it pauses no deadlines, excludes several common disputes, and treats every fact you disclose as fair game. For Americans, the bigger risk lies after the mediation. A settlement that lumps tax, interest and penalties together, or that arrives after the tax was postponed, can cost more in lost US credit than the UK dispute was worth.
Therefore, treat mediation as a two-country exercise from the first day. Appeal on time, decide pay versus postpone with the US credit in mind, and insist on a Record of Outcome your US preparer can use. Handled that way, HMRC alternative dispute resolution closes the UK dispute and keeps your US return whole.
Contact Us
If you are considering HMRC alternative dispute resolution and you also file US returns, please book a consultation with our US-UK team. Email hello@taxyork.com or call 020 3488 8606. We will review the dispute, the deadlines and your US position, and set out a clear plan for both sides.
Disclaimer
This article provides general information about HMRC alternative dispute resolution for US citizens, green card holders and other cross-border taxpayers in Britain. It does not constitute tax or legal advice for your specific circumstances. UK and US tax rules change frequently, and the case study is illustrative only. You should obtain professional advice based on your own facts before acting. TaxYork accepts no liability for decisions taken on the basis of this article alone.