Dispute resolution and the courts

As part of its How to Build a Better Tax System project, ICAEW has outlined five institutional pillars that it believes are vital to creating a UK system that is fit for the future. The judiciary is one of those pillars.

The diagnosis

Why dispute resolution matters

Taxpayers cannot plan or invest with confidence while significant tax positions remain unresolved for years. A tax system that cannot settle disagreements quickly, fairly and at proportionate cost undermines certainty, erodes trust between taxpayers and the state and weakens the voluntary compliance on which the whole system depends. Certainty of this kind is not a peripheral concern: it is the second of ICAEW's ten tenets for a better tax system, which holds that taxpayers should not normally need to go to court to understand how the rules apply to their affairs. The question this chapter addresses is therefore not narrowly procedural: it is how to build a system in which disputes are resolved at the earliest sensible point, taxpayers can be confident of a fair hearing, and the tribunals are free to concentrate on the cases that genuinely require judicial determination. 

The tax tribunal system exists to do something specific and important: to provide an independent forum in which complex disputes about the application of tax law can be resolved by judges with the expertise to decide them. It is the place of last resort – the mechanism that gives taxpayers and HMRC alike a final, authoritative answer when everything else has failed. That independence is not an administrative detail. The right to have a dispute with HMRC determined by an independent judge, rather than by the administration that made the decision under challenge, is fundamental to the rule of law and to confidence in the tax system. The judiciary is the institution at the heart of this pillar – but it cannot be strengthened by looking at the institution alone. Almost every pressure the tribunals face originates upstream, in how disputes arise and how they are conducted before they reach a courtroom, and this chapter therefore examines the dispute resolution system as a whole. That purpose depends on the system being accessible, efficient and trusted by all parties.

It is currently falling short on each of those counts. The First-tier Tribunal (Tax Chamber) has been operating under significant strain: members report cases taking 18 months to two years or more to reach resolution, and the Tax Law Review Committee identified delay as the overriding concern among tribunal users, although the absence of published Chamber-specific wait-time data makes the full scale of the problem difficult to assess. The Tribunal’s own leadership has recognised the need for change, and a sustained programme of operational reform is underway – including practice statements on alternative dispute resolution (May 2025) and on extension-of-time applications (November 2025), both updated in January 2026, together with firmer case management and work to improve the management and visibility of decisions. That work deserves recognition and support. But operational reform within the Tribunal, however effective it proves, cannot address the pressures that originate outside it: the rising volume and complexity of cases, constrained resources and a consistent failure to resolve disputes upstream, before they reach the tribunal at all. Cases that should never have been litigated are consuming the system’s limited capacity, crowding out the complex, precedent-setting disputes that the tribunal exists to resolve. The volume of penalty appeals is a clear example: many turn on settled questions of law or fact yet still consume tribunal time that would be better spent on genuinely contested points.

The consequences extend well beyond access to justice. For businesses with significant tax positions under challenge, an unresolved dispute is not a procedural inconvenience – it is a constraint on investment, a liability that cannot be recognised or quantified, and a source of uncertainty that affects every commercial decision the business makes. Individuals face a version of the same paralysis: a disputed residence position, a pension decision or the sale of a family home may have to be deferred for years until the underlying tax position is settled. When resolving a dispute can take two years or more, taxpayers exist in a kind of suspended animation: unable to plan, unable to account for it, and unable to move on. That is a direct drag on economic activity, and it compounds for every year the backlog grows.

Fixing the courts requires more than additional judicial resource, though that is necessary. It requires a fundamental rethink of the entire litigation pipeline – from the quality of HMRC decision-making through to the design of tribunal procedure itself. This chapter examines where that pipeline is failing and sets out what needs to change.

Upstream resolution: resolving disputes before the courtroom

Most tax disputes should not need to reach the tribunal. A large proportion of disagreements between HMRC and taxpayers involve questions of fact, valuation, or the application of well-established legal principles to particular circumstances. These are exactly the kinds of disputes that skilled HMRC caseworkers, properly empowered and properly supported, should be able to resolve. The fact that so many do not reflects a set of institutional failures that the tribunal system is being asked to absorb.

The empowerment problem

The first and most significant failure is one of caseworker confidence. HMRC officers who reach a view on a case – and who may well be right – are often unwilling to apply it if it means accepting a taxpayer’s position on a point where internal guidance is ambiguous or where a more senior officer might take a different view. The result is that cases are escalated not because they are genuinely uncertain but because the perceived risk of conceding a point outweighs the institutional cost of continuing the dispute. This is a cultural and structural problem, and it will not be fixed by guidance alone.

This failure is compounded when caseworkers change during a dispute. A new officer who inherits a case part-way through is often reluctant to accept the agreed positions reached by their predecessor, preferring instead to re-examine points that have already been settled. The effect is to restart the clock on negotiations that may have taken years to reach, inflating costs and deepening frustration on both sides. HMRC should ensure that agreed positions are formally recorded, binding on successors, and not subject to routine revisitation when caseworkers change.

HMRC’s Litigation and Settlement Strategy (LSS) was designed to address the broader empowerment problem. Its core principles – that disputes must be resolved in accordance with the law, that HMRC should concede in most cases where it believes it is unlikely to succeed, and that settlement should reflect the likely outcome of litigation rather than a simple compromise – are sound. In ICAEW’s member evidence, however, the governance framework surrounding the LSS operates so cautiously that its practical effect is often to inhibit the settlements it was designed to enable. Approvals are required at multiple levels, risk tolerances are set so conservatively that cases with a reasonable prospect of defeat are still pursued, and HMRC’s own engagement with the profession suggests that awareness of the strategy among frontline caseworkers is limited. The strategy exists on paper; its application in practice is inconsistent at best. That rigidity did not emerge in a vacuum. The LSS was itself a response to public and parliamentary criticism of perceived “sweetheart deals”, and caseworkers operate in the knowledge that a commercial settlement reached today may be characterised as a compliance failure by a select committee or the National Audit Office years later. A culture of caution is the rational response to accountability that operates in only one direction – scrutinising the settlements that are reached, but never the cost of the settlements that are not.

ICAEW’s view is that the LSS needs to be substantially reformed: not in its principles, which remain valid, but in its governance and its reach. Caseworkers need genuine authority to settle cases within defined parameters without multiple layers of sign-off. That means clearer delegation, better training in commercial judgement and a performance culture that rewards resolution rather than escalation. It also means accountability that operates in both directions: where a caseworker settles within defined LSS parameters, later scrutiny should assess that decision against the strategy and the information available at the time, not with hindsight. Without that assurance, no amount of delegated authority will change behaviour – the safest course for the individual will always be escalation. Crucially, HMRC also needs to be clearer – internally as well as externally – about why it is pursuing any given case to litigation and what outcome it is seeking. Cases should not be passed to litigating teams as a way of deferring a decision that the caseworker is unwilling to take. A decision to litigate should represent a considered strategic choice, not an administrative default.

Statutory review

Before a case reaches the tribunal at all, most taxpayers have a statutory right to an internal review of the disputed decision by an HMRC officer not previously involved in the case. In principle this is the system’s most important filter: done well, it should catch poor decisions before they harden into litigation. In members’ experience, however, reviews too often confirm the original decision without a genuinely fresh examination, and long delays in HMRC correspondence can force taxpayers to lodge protective appeals with the tribunal simply to protect their position. ICAEW recommends that HMRC strengthens the independence of the review function – including separate reporting lines and published data on review outcomes by case type – so that review operates as a genuine check rather than a procedural waypoint.

Alternative dispute resolution

Alternative dispute resolution (ADR) provides an additional mechanism for resolving disputes before they reach the tribunal, and its use should be encouraged. Its value should also be understood more broadly than the avoidance of litigation altogether. Even where a case will ultimately require judicial determination, structured mediation can narrow the issues, establish agreed facts and define precisely what remains in dispute – shortening hearings, reducing cost and helping the tribunal concentrate on the points that genuinely require decision. However, ADR is not a panacea, and it is only as effective as the engagement of the parties. Members report that HMRC’s participation in ADR has in some cases been perfunctory – attendance to satisfy a procedural requirement rather than genuine engagement with the possibility of resolution. ADR also has its own costs in terms of preparation time, and these should not be understated. The aim must be to reduce the volume of cases requiring any form of special resolution measure; ADR is a useful tool within that framework, not a substitute for empowerment of caseworkers.

A modern Certificate of Tax Deposit

Even where goodwill exists on both sides, the financial dynamics of a disputed tax liability generate pressure that makes rational settlement harder. Interest accrues on unpaid amounts from the date of the original liability. For a business facing a substantial assessment, that accruing interest is not merely an accounting entry – it is a daily reminder of the cost of continued dispute and a pressure that can push taxpayers towards premature capitulation on substantive points simply to stop the clock. That pressure is sharpened by the asymmetry of the interest regime: late-payment interest is charged at a materially higher rate than HMRC pays on repayments, so time spent in dispute is systematically more expensive for the taxpayer than for the Exchequer.

ICAEW recommends reinstating a mechanism broadly equivalent to the former Certificate of Tax Deposit scheme, closed to new purchases on 23 November 2017. Under such a scheme, taxpayers could pay the disputed amount into a ring-fenced account at an agreed rate of return, stopping interest accruing without conceding the substantive point. Decoupling the financial pressure from the legal dispute allows both parties to assess the merits of the case without the distorting effect of mounting interest charges – experience suggests that doing so consistently reduces the adversarial heat in negotiations. Reinstatement should nonetheless be a redesign rather than a revival: digital by default, linked to an identified dispute or uncertainty, and with interest terms set so that the facility removes the pressure of accruing late-payment interest without offering a return that could be used for cash-management arbitrage – a criticism that contributed to the original scheme’s closure. 

A reinstated scheme should also address the situation in which the existence or character of a liability is genuinely uncertain – for example, where it is unclear whether an amount falls to income tax or to corporation tax. A redesigned scheme should allow a taxpayer to place funds on account in such cases and should specify, as a matter of design, the extent to which those funds protect against late-payment interest and, where appropriate, late-payment penalties while the liability cannot be quantified – removing a pressure that currently falls on the taxpayer alone.

The economic toll: the price of access to justice

A system that forces taxpayers to capitulate

The right of appeal to an independent tribunal is, in principle, available to all taxpayers. In practice, it is available only to those who can afford it. Members report that initial legal costs for a First-tier Tribunal hearing in a commercially significant dispute can reach £50,000 to £100,000 before a hearing date has even been fixed. For individuals and small and medium-sized enterprises (SMEs), those figures represent an insurmountable barrier. The practical consequence is that cases which should be tested – cases where the taxpayer has a genuine and reasonable argument – are conceded not on the merits but on cost grounds.

This is not merely an access-to-justice failure, though it is certainly that. It is a structural distortion of the system’s incentives. When HMRC knows that the cost of appeal is prohibitive for a significant proportion of taxpayers, the financial asymmetry becomes a lever in itself. Cases that may have had a realistic prospect of success are nevertheless settled in HMRC’s favour because the taxpayer cannot afford to test the point. The tribunal system is, in this respect, weighted towards those with the resources to use it. The same dynamic can operate even where a taxpayer holds fee-protection insurance: an insurer that concludes the cost of arguing a point outweighs the sum at stake may instruct the taxpayer to settle, so that the existence of cover is no guarantee a defensible case will be tested. This bears particularly on smaller businesses, for whom insurance is often the only realistic means of funding a dispute at all.

The Tax Law Review Committee suggested in its 2021 report on the tax tribunals that consideration be given to a pro bono advocacy scheme for litigants in person. ICAEW supports that proposal and sees a case for developing it into a more formal duty advocate model, providing basic representation at the hearing stage. The significant number of unrepresented taxpayers before the tribunal – many of them caught up in disputes about HMRC penalties or assessments they do not fully understand – is placing an additional burden on tribunal judges, who must manage proceedings in a way that is fair to parties who lack even a basic understanding of the relevant law. A duty advocate scheme would not solve the access problem in its entirety, but it would materially improve outcomes for the most vulnerable group of tribunal users.

Procedural agility: redesigning the machinery

Even where cases legitimately belong before the tribunal, the procedures for managing them are often poorly matched to the nature of the dispute – a case that turns on a single point of law follows the same procedural path as one involving multiple contested issues of fact, and near-identical cases arising from the same scheme are routinely relitigated one by one rather than resolved together. The result is a system that is simultaneously overloaded and inflexible, forcing cases through a linear process regardless of whether that process is the most efficient route to resolution.

Breaking the linear process

Many disputes involve multiple distinct issues – a primary legal question and secondary issues that only become live if the primary point is decided in a particular way. Where HMRC abandons or significantly modifies its primary argument in the course of proceedings, the current rules provide no clean mechanism for the parties to step back and resolve the remaining issues without a full hearing. The case proceeds, at full cost and delay, to a tribunal that may be deciding points the parties could have settled if the procedural framework permitted it.

ICAEW suggests exploring a formal “case remission” procedure: where HMRC significantly changes its position on a primary legal issue after proceedings have commenced, either party should be entitled to apply to remit the case to officer level for a defined period to resolve the remaining issues. If resolution is not achieved within that period, the case returns to the tribunal with a narrowed and clarified dispute. This mirrors the approach taken in other jurisdictions, where courts routinely remit factual questions rather than resolving everything themselves.

Redesigning test cases

The current approach to test case litigation has a structural flaw. When a large number of cases involving similar arrangements are managed through a single lead case, the outcome of that case is formally binding on the others only if the facts are materially identical. Promoters of tax schemes have become adept at constructing factual variations – sometimes superficial, sometimes substantive – that allow scheme users to argue that the lead case does not bind them. The effect is that a taxpayer victory in a test case resolves very little for the taxpayer population at large, while an HMRC victory is frequently relitigated across scores of essentially identical cases.

ICAEW suggests exploring whether the tribunal rules might be amended to allow “scenario-based” test cases: rather than selecting a single lead case, HMRC and the tribunal should be able to designate a structured set of scenarios covering the factual variations that are known to exist across the affected case population. Judgments in scenario-based test cases would have defined binding effect across cases falling within each scenario. This would reduce the scope for promoters to exploit minor factual differences and would bring the benefits of test case litigation – principally the efficient resolution of bulk disputes – closer to being realised in practice. Such a mechanism would need to respect the principle that taxpayers are entitled to have their own facts determined: a party should be able to apply to be distinguished from a scenario where their circumstances are genuinely different in law rather than superficially modified. The tribunal rules already contain the architecture for this in rule 18, under which a lead-case direction binds related cases subject to the right of any party to apply for a direction that the decision does not apply to their case. Scenario-based test cases would be an evolution of that existing mechanism rather than a departure from it.

The leapfrog rule and Upper Tribunal access

Rule 28 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 allows cases to be transferred to the Upper Tribunal in appropriate circumstances, but in practice it is rarely used: applications require the consent of both parties, and the criteria for transfer are interpreted narrowly. Cases of genuine precedential significance are routinely decided at First-tier Tribunal level, adding years to the process of achieving a definitive answer. ICAEW’s view is that rule 28 should be amended to allow unilateral applications where a case raises a point of law of general importance or involves a sum above a defined threshold. Transfer should not require the agreement of both parties: the party opposing transfer has an obvious interest in delay, and that interest should not be decisive. 

Two safeguards would be essential. First, a unilateral application to transfer a case should trigger a decision by the president of the tax chamber, with the concurrence of the president of the Upper Tribunal's tax and chancery chamber, on whether the transfer should proceed, rather than an automatic transfer. Second, because the costs position in the Upper Tribunal differs materially from the First-tier Tribunal, where each party generally bears its own costs, a party transferred against its wishes – particularly an individual or smaller business – should be able to seek a cost-capping or cost-protection order. ICAEW suggests that consideration be given to making that protection automatic for an involuntarily transferred party, rather than something they must apply for, given that the transfer was not of their choosing. Without that protection, the prospect of adverse costs in the Upper Tribunal could itself be used to deter the pursuit of a defensible appeal, and a reform intended to accelerate certainty would instead sharpen the financial asymmetry described earlier in this chapter.

The same logic for prioritisation applies further up the chain. Delay does not stop at the Upper Tribunal: cases of genuine national significance can take years to reach a final answer once contested through the Court of Appeal and Supreme Court, and a parallel leapfrog mechanism already exists in principle for skipping the Court of Appeal in cases of general public importance. But there is little value in accelerating the higher courts while cases are still taking years to reach the Upper Tribunal in the first place. The priority is to fix the bottleneck closest to where disputes actually originate.

Systemic accountability and transparency

Within the Tribunal itself, leadership can and does drive operational improvement, and recent reforms demonstrate what sustained attention can achieve. What is missing is any formal mechanism for monitoring the health of the dispute system as a whole – one that spans HMRC’s litigation conduct, the design of the policy that generates disputes and the capacity of the tribunals together. His Majesty’s Courts and Tribunals Service (HMCTS) publishes aggregate tribunal statistics, but Tax Chamber-specific data – median wait times by case type, listing delays, the proportion of cases resolved at each procedural stage – is not published in a form that allows meaningful accountability. No single institution currently has the remit to identify patterns across the whole system, anticipate pressures, or propose structural responses before they become crises.

ICAEW proposes a standing mechanism for monitoring the health of the tax dispute system as a whole – whether a dedicated review function within an existing body or a new advisory forum bringing together HM Treasury, the Ministry of Justice, HMCTS, HMRC and the tax profession. Its purpose would be to monitor case-flow data, identify systemic blockages and direct recommendations to the bodies responsible for acting on them: proposals on tribunal procedure to the Tribunal Procedure Committee, which is the proper forum for changes to the tribunal rules, and proposals on litigation conduct to HMRC. Where the judiciary’s perspective is needed, it should be sought through the tribunals’ own leadership rather than by drawing serving judges onto an externally convened body, so that the independence of the tribunals is preserved. The mechanism would publish an annual assessment of systemic trends and the responses of the relevant bodies, creating a cycle of diagnosis, recommendation and accountability that the system currently lacks.

Alongside this, ICAEW recommends that HMCTS be required to publish Tax Chamber-specific performance data on a quarterly basis, including median wait times from filing to hearing, the proportion of cases settled before hearing and the distribution of delays across case types. HMRC should separately publish data on the outcomes of cases it litigates, including its win rate at tribunal and the proportion of cases in which it abandoned or substantially modified its position in the course of proceedings. Without this data, it is not possible to hold either institution to account for the quality of its litigation decisions or to identify where structural reform is most urgently needed.

There is a further accountability gap that the system currently ignores: what happens after a decision is reached. When a tribunal or court rules against HMRC’s position, the department’s response in terms of updating its published guidance and cascading the implications to frontline caseworkers is, in members’ experience, often slow, inconsistent and inadequate. Advisers regularly encounter officers who are unaware of recent decisions directly relevant to the case in front of them. This is not merely an inconvenience – it means that disputes already resolved by the courts are relitigated at caseworker level, generating costs and uncertainty that the original litigation was supposed to eliminate. HMRC should be required to publish its interpretation of significant tribunal decisions within a defined timeframe, as HMRC often does for VAT cases following major rulings, and to ensure that guidance is updated and communicated to caseworkers without delay.

From diagnosis to delivery

The root cause

Every recommendation in this chapter addresses a symptom of a deeper problem. Tribunal backlogs, disproportionate costs, procedural rigidity and the volume of cases arising from policy failures are all consequences, to a significant degree, of a single underlying cause: tax legislation that is too long, too complex and too poorly drafted to be applied with confidence by the people – taxpayers, advisers and HMRC caseworkers alike – who are required to apply it.

Estimates of the length of the tax code vary widely depending on what is counted. Commercial tax handbooks run to many thousands of pages, but the Office of Tax Simplification (OTS) cautioned that handbook length is an imperfect proxy: such volumes include footnotes, repealed and revoked legislation and duplicated material. The better point is not the precise page count but a recognition that the body of tax law is large, has grown substantially over recent decades and is increasingly difficult to navigate. Much of that length reflects not the genuine complexity of the underlying policy but the failure to express policy clearly: provisions that address the same issue in multiple places with slightly different language; anti-avoidance rules drafted so broadly that they catch transactions they were never intended to reach; and fact-specific tests – employment status being the most prominent example – that generate a continuous flow of litigation precisely because they cannot be applied with confidence. Every drafting failure of this kind is a potential dispute between taxpayers and HMRC, and many eventually become one.

The Tax Law Rewrite (TLR) project, which was brought to an end in 2010, demonstrated that UK tax legislation can be expressed in plain, accessible language without loss of precision. The project rewrote a substantial portion of existing legislation in a form that many practitioners – particularly those newer to the legislation and those without legal training – found clearer and easier to navigate, although views were not unanimous. It was then quietly wound down in favour of the OTS, itself now consigned to history. ICAEW’s view is that the case for resuming the work of the TLR – or for establishing a standing body with an equivalent mandate – is now stronger than it has ever been. The principles established by the TLR for writing quality tax legislation also appear to have been lost along the way, giving rise to much poor quality legislation in the intervening years. However, the quality of legislation bears directly on the volume of disputes reaching the tribunal. The clearer the law, the fewer disputes it generates; the fewer disputes it generates, the more the tribunal can concentrate on the ones that genuinely need it. Rewriting the existing stock of legislation is, however, only half the task: restraining the flow of new complexity is a question of how tax policy is made and is addressed in the policymaking pillar of this series.

The path forward

The recommendations in this chapter form a coherent programme rather than a list of independent proposals. 

• Empowering HMRC caseworkers to settle cases to reduce the volume reaching the tribunal.
• Reinstating a mechanism equivalent to Certificates of Tax Deposit to remove the financial distortions that make settlement harder. 
• Reforming tribunal procedure to reduce the cost and time required to resolve the cases that do proceed. 
• Establishing systemic accountability mechanisms to ensure that structural problems are identified and addressed before they become entrenched.

Many of these changes should be achievable without primary legislation, although some would require changes to tribunal rules or new statutory machinery. What they all require is political commitment, institutional will and the kind of sustained cross-departmental cooperation between HMRC, the Ministry of Justice and HMCTS that has historically been difficult to uphold. A tribunal system that resolves disputes fairly, efficiently and at proportionate cost is a precondition for a functioning tax system; its absence imposes real and growing costs on taxpayers, businesses and the public finances alike. The Tribunal’s own recent reforms show what sustained attention can achieve. The task now is to match that momentum across the rest of the system.