Settling Your Tax Tribunal Case: Negotiation, ADR, and Section 54 Agreements

You've appealed to the tax tribunal. The acknowledgment letter has arrived. Now HMRC's caseworker is in touch, talking about "resolving the matter" and "reaching agreement." You're wondering: is this a trap? Should I negotiate? What happens if I agree to something?

These are the right questions. And the answer starts with a fact that surprises most people.

Why Most Cases Never Reach a Hearing

Around 75% of tax disputes settle without ever reaching a tribunal hearing. The tribunal is there as a backstop—an independent judge who will decide your case if the parties cannot agree. But for most appellants, the real resolution happens through negotiation, mediation, or formal agreement with HMRC.

This is not a sign of weakness. Settlement is the normal way tax disputes end. Cases that go to a full hearing take typically 6-12 months to reach a decision. Settling can resolve the matter in weeks. And a settlement agreement carries the same legal force as a tribunal decision—it is just as binding, just as final.

Whether settling is right for your case depends on the specifics. But understanding how the process works puts you in a much stronger position than going in blind.

How Settlement Negotiations Work

Who You Will Be Dealing With

Once your appeal reaches the tribunal, HMRC assigns it to a caseworker or litigator—usually someone different from the officer who made the original decision. This person's job is to manage the case through the tribunal process, including any settlement discussions.

You may deal with them directly by letter, email, or phone. If you have an agent or representative, HMRC will deal with them instead (or as well, depending on your instructions).

What HMRC Can and Cannot Agree To

HMRC operates under a framework called the Litigation and Settlement Strategy (LSS). This governs how HMRC resolves all tax disputes, and it imposes real constraints:

• Each issue must be decided on its merits. HMRC cannot do "package deals" where they concede one point in exchange for you conceding another. Every disputed issue is assessed separately.
• HMRC will not "split the difference." If HMRC believes the law supports a particular figure, they will not accept less simply to reach agreement. Equally, where HMRC's position is weak, the LSS requires them to concede.
• Settlements must be legally defensible. HMRC cannot agree to apply the wrong tax treatment for the sake of convenience.

In practice, this is actually protective. It means HMRC should not pressure you into accepting an unfair deal. But it also means that negotiation is not about haggling. It is about identifying which issues are genuinely in dispute and what the law says about each one.

How To Approach the Conversation

If HMRC contacts you about settling:

• Identify your strongest arguments. Before you discuss anything, be clear about which parts of HMRC's decision you think are wrong—and why. If your dispute involves a penalty, consider whether you have a reasonable excuse defence.
• Put proposals in writing. Verbal discussions are fine for exploring positions, but anything you agree to should be confirmed in writing. This protects both sides.
• Ask questions. If HMRC's caseworker explains their position and you don't understand it, ask them to clarify. You are entitled to know why HMRC believes you owe the amount they say you do.
• Take your time. You do not have to agree to anything on the spot. If HMRC makes a proposal, ask for time to consider it.

What Is a Section 54 Agreement?

When you and HMRC reach agreement on how your appeal should be resolved, that agreement is given legal force by a specific statutory mechanism. For direct taxes (income tax, capital gains tax, corporation tax, National Insurance), it is section 54 of the Taxes Management Act 1970. For indirect taxes (VAT, customs duty, excise duty), the equivalent provision is section 85 of the Value Added Tax Act 1994.

Both provisions work in essentially the same way.

How It Works

A section 54 agreement (or s.85 for VAT) records that you and HMRC have agreed the assessment or decision under appeal should be:

• Upheld without variation — HMRC's original decision stands
• Varied — the amount is changed (for example, reduced)
• Discharged or cancelled — the decision is withdrawn entirely

Once the agreement takes effect, "the like consequences shall ensue for all purposes as would have ensued if...the tribunal had determined the appeal" on those terms (section 54(1) TMA 1970). In plain English: it has exactly the same legal effect as if a judge had made the decision. It is final and conclusive.

Written and Oral Agreements

The agreement can be reached in writing or verbally. But if it is reached verbally—say, during a phone call—it does not take effect until the terms are confirmed in writing by either party (section 54(3) TMA 1970). This is important for the cooling-off period, which we'll get to next.

Your Agent Can Agree on Your Behalf

If you have an accountant, tax adviser, or other representative acting for you, they can enter into a section 54 agreement on your behalf (section 54(5) TMA 1970). Make sure you are comfortable with this—and that your representative understands exactly what you are prepared to accept before they negotiate.

The 30-Day Cooling-Off Period

Here is the safety net. After a section 54 agreement is reached, you have 30 days to change your mind. If you decide the agreement was a mistake, you can repudiate it—back out of it—by giving written notice to HMRC (section 54(2) TMA 1970).

The 30-day clock starts from:

• The date the agreement was reached, if it was in writing
• The date of written confirmation, if the agreement was originally verbal (section 54(3))

If you repudiate within 30 days, the agreement falls away and your appeal continues as if it had never been made.

If you do not repudiate within 30 days, the agreement becomes final. At that point, it is treated as a tribunal decision, and you cannot reopen the issue. As the tribunal put it in Miah v HMRC [2022] UKFTT 228 (TC): "once an issue has been settled under TMA s 54, it is treated as if it has already been finally and conclusively decided by the Tribunal."

If you have any doubts about an agreement you've reached, consider getting professional advice before the 30 days expire.

The Deemed Settlement Trap

The 30-day cooling-off period is a genuine protection. But there is a category of settlement where it does not apply at all—and this catches people out.

If HMRC offers you a statutory review and you neither accept it nor notify your appeal to the tribunal within 30 days, your appeal is automatically treated as settled in HMRC's favour under section 49C(4) TMA 1970. Similarly, if HMRC completes a review and you do not notify your appeal to the tribunal within 30 days of the review conclusion, the review's conclusions are treated as a binding settlement under section 49F(2) TMA 1970.

These are called "deemed" settlements—they happen by operation of law, triggered by your silence. And critically, you cannot repudiate a deemed settlement (section 49C(5), section 49F(3)). There is no cooling-off period. Once the 30 days pass without a response, the matter is settled on HMRC's terms—permanently.

What This Looks Like in Practice

In Miah v HMRC [2022] UKFTT 228 (TC), Mr Miah's accountant agreed with HMRC on one issue (rental income) and requested a statutory review on another (car benefit). HMRC issued the review decision, but Mr Miah did not notify his appeal to the tribunal within 30 days. Eight months later, HMRC sent confusing correspondence that wrongly told him he could still repudiate the agreement. His accountant filed a tribunal appeal.

The tribunal struck it out. The rental income issue had been expressly settled under section 54. The car benefit issue had been deemed settled under section 49F. The confusing HMRC letters did not create fresh appeal rights—HMRC cannot make two discovery assessments for the same issue (per Tooth v HMRC [2021] UKSC 17).

The tribunal also refused permission for a late appeal, finding that the eight-month delay was serious and significant with no good reason.

The lesson: never let a deadline pass without responding. If HMRC has offered you a review or sent you review conclusions, you must act within 30 days—even if that action is simply notifying your appeal to the tribunal. Our guide to HMRC's internal review explains these deadlines in detail.

Alternative Dispute Resolution (ADR)

What ADR Is

Alternative Dispute Resolution is a free mediation service offered by HMRC. An impartial HMRC-trained mediator—someone independent of your case—helps you and HMRC explore ways to resolve the dispute without a tribunal hearing.

ADR is not binding unless both sides agree to a resolution. The mediator facilitates the conversation but does not make the decision. If ADR fails, your tribunal appeal continues as before.

All discussions during ADR are "without prejudice"—meaning nothing said during mediation can be used against you in tribunal proceedings if ADR does not succeed.

How To Apply

You can apply for ADR at any stage of the dispute—before or after filing a tribunal appeal. If you have already appealed, you will need your tribunal acknowledgment letter before applying.

Apply through the GOV.UK ADR page:

• Online: Complete the application form on GOV.UK
• Phone: 03000 538177

HMRC will respond within 30 days to confirm whether your case is suitable for ADR.

What Happens at ADR

Three people from HMRC typically attend: your caseworker, a counter-signing officer, and the impartial mediator. Mediation is usually conducted by video call (Microsoft Teams), though face-to-face sessions are available on request.

The mediator helps both sides identify the real issues in dispute and explore possible resolutions. They do not take over responsibility for the dispute or impose a solution. Both parties retain control over the outcome—nothing is agreed unless you agree to it.

Success Rates and Timescales

According to published figures for 2024-25, around 89% of concluded ADR cases recorded a positive outcome—meaning full resolution, partial settlement, or clarified issues that enabled a decision. HMRC targets a four-month resolution timeframe, though around 43% of cases exceeded this in 2024-25.

ADR is free. There is no charge for the mediator or the process.

Who Cannot Use ADR

Not all cases are eligible. HMRC's ADR guidance excludes:

• Cases allocated as Default Paper or Basic by the tribunal
• Criminal investigations
• Debt recovery or payment disputes
• Tax credits disputes
• High Income Child Benefit Charge disputes
• National Minimum Wage disputes
• Accelerated payments and follower notices
• Civil evasion penalties
• Default surcharges and automatic penalties

The Default Paper and Basic exclusion is significant. Many unrepresented appellants—particularly those appealing penalties—find their cases fall into these categories. If your case is Basic, ADR is not available to you. This is a gap in the system, and it is worth being aware of.

Costs Consequences of Refusing ADR

The First-tier Tribunal's Practice Statement on ADR (issued May 2025, updated January 2026) strengthens the tribunal's approach to ADR. The tribunal may now issue directions that effectively require parties to engage in ADR where a judge considers it appropriate.

More significantly, the Practice Statement warns that "an unreasonable failure to consider or enter into ADR may result in costs awards against a party." In practice, this is most relevant in Complex category cases, where the costs-shifting regime applies. But unreasonable refusal to engage with ADR could also constitute "unreasonable conduct" under Rule 10(1)(b) of the Tribunal Procedure Rules—which applies in every category.

If your case is eligible for ADR and HMRC or the tribunal suggests it, think carefully before refusing. ADR is free, has a high success rate, and declining without good reason could count against you.

After You Settle

Withdrawing From the Tribunal

If you reach a settlement—whether through direct negotiation, ADR, or a section 54 agreement—you need to notify the tribunal that the case is resolved. You do this by withdrawing under Rule 17 of the Tribunal Procedure Rules.

You can withdraw by:

• Sending or delivering written notice to the tribunal, or
• Making an oral withdrawal at a hearing

The tribunal will notify HMRC (or the other party) of the withdrawal.

The 28-Day Reinstatement Window

If you withdraw and later realise you made a mistake—perhaps the settlement falls apart, or you discover new information—you can apply to reinstate the case. The application must be made in writing within 28 days of the tribunal receiving the withdrawal notice (or the hearing where you withdrew orally) (Rule 17(3)–(4)).

After 28 days, reinstatement is no longer available.

Finality

Once a section 54 agreement takes effect (after the 30-day cooling-off period expires without repudiation), HMRC cannot reopen the settled issue. In Easinghall Ltd v HMRC [2016] UKUT 105 (TCC), the Upper Tribunal held that HMRC could not use a tax return enquiry to reopen matters already covered by a section 54 settlement. The settlement is treated as a tribunal decision, and it is final.

This works both ways. You cannot reopen the issue either. But it does mean that once you settle, you have certainty—HMRC cannot come back later and demand more on the same point.

Interest and Payment After Settlement

Once a settlement is reached, the agreed amount becomes payable. Interest on the underlying tax runs from the original due date—not from the date of the agreement. This means the longer the dispute has taken, the more interest will have accrued. Ask HMRC to confirm the total amount including interest before you finalise any agreement. If you cannot pay the full amount immediately, you can contact HMRC to discuss a Time to Pay arrangement.

Consent Orders

There is one other mechanism worth knowing about. Under Rule 34 of the Tribunal Procedure Rules, the tribunal can make a "consent order" at the request of both parties, disposing of the case on agreed terms. A consent order has the same legal effect as a tribunal decision.

In practice, consent orders in tax cases are rare. HMRC's internal guidance (ARTG8470) notes that settlement usually occurs through section 54 agreements instead. But if you and HMRC want the tribunal to formally record the outcome, a consent order is available.

Practical Tips

• Get everything in writing. If you agree to something by phone, confirm it in writing immediately. The 30-day cooling-off period for verbal agreements only starts from the date of written confirmation.
• Do not let deadlines pass. If HMRC offers a review, respond within 30 days. If HMRC sends review conclusions, notify the tribunal within 30 days. Silence can settle your case on HMRC's terms—permanently.
• Understand what you are agreeing to. Before you sign anything, make sure you know exactly what the agreement says. What amount are you accepting? What issues are being settled? Are penalties included?
• Use the 30-day cooling-off period. If you agree to a section 54 settlement and then have second thoughts, you have 30 days to back out in writing. But remember: this does not apply to deemed settlements.
• Consider ADR. If your case is eligible, ADR is free and resolves the majority of cases positively. It does not affect your right to proceed to a tribunal hearing if mediation fails.
• Know what to do if HMRC won't engage. If HMRC's caseworker is unresponsive or takes a firm line you disagree with, you still have the right to a hearing. The tribunal process continues regardless of whether settlement discussions are productive. See our guide to preparing for your hearing for what to expect if your case goes to a hearing.
• Keep records. Save copies of every letter, email, and document you send or receive. Note the date of every phone conversation and what was discussed.
• Seek professional advice if in doubt. Whether to settle depends on the specifics of your case. If you are unsure, a qualified tax adviser or solicitor can review your position before you commit.

Key Deadlines

Official Sources

• Section 54, Taxes Management Act 1970 — settling direct tax appeals by agreement
• Section 85, Value Added Tax Act 1994 — settling indirect tax appeals by agreement
• Section 49C, TMA 1970 — deemed settlement when review offer is not accepted
• Section 49F, TMA 1970 — deemed settlement after review conclusions
• Tribunal Procedure Rules 2009 — including Rule 17 (withdrawal) and Rule 34 (consent orders)
• HMRC Litigation and Settlement Strategy — the framework governing HMRC settlement conduct
• Alternative dispute resolution for tax disputes — GOV.UK ADR guidance and application
• FTT Practice Statement on ADR — the tribunal's position on ADR and costs consequences
• HMRC internal guidance on settling appeals (ARTG2720) — HMRC's own settlement procedures
• How to appeal to the tax tribunal — our step-by-step filing guide
• HMRC's internal review — the free step before tribunal, including deemed settlement deadlines
• Understanding your appeal rights — what to do when you first receive an appealable decision
• Tax tribunal tracks and costs — case categories and costs regime

This article is for informational purposes only and does not constitute legal or tax advice. For advice specific to your situation, consult a qualified tax adviser, accountant, or solicitor.