But the problem is that it is not ADR- as that term is normally understood.
It is not open to HMRC to agree to binding arbitration with a third party arbitrator (since they may not lawfully accept as binding a ruling from a third party other than a court or tribunal). HMRC can engage in non-binding mediation with a third party mediator in place (but do so only occasionally and only where HMRC is satisfied with the compliance record of the proposed mediator).
HMRC's form of ADR available to SMEs and individuals is neither arbitration nor mediation. It is "facilitated dispute resolution", where a person (a 'facilitator') not involved in the original tax dispute attempts to bring each side to a better understanding of the other side's position. It is available whether or not an appealable tax decision or assessment has been made by HMRC. Taxpayers who are locked in a dispute with an HMRC officer where they think the facts have been fully established and the enquiry is not going anywhere may welcome this alternative.
However, there is a significant catch: the facilitator will not be an independent third party, but another HMRC officer.
For that reason, we consider that any suggestion that this form of ADR should be adopted in an attempt to reach agreement with HMRC should be treated with caution. Any information that is disclosed to an HMRC 'third party' facilitator is not confidential (in contrast to information that is disclosed to a third party mediator). Such information can be used by HMRC.
We recommend strongly that independent legal advice is taken before making any application for HMRC's ADR process. The new ADR process is not really ADR at all; it is simply another form of negotiation with HMRC. It is similar to a review, but without the requirement for a decision to have been issued, and it may create more opportunity for a back and forth debate.
One alternative that should not be ruled out, even if it seems 'old fashioned', is sitting down, perhaps also with a professional adviser, with the HMRC officer involved and having an informed discussion about the dispute…