The scheme is a legal requirement because of the need to protect tennants from bad landlords
and to protect landlords from tenants skipping out without paying their last month's rent.
I am going through the process at the moment. This is what the DPS Guide for Evidence Submissions says:
"As a matter of law, the burden of proving the claim rests on the Landlord/Agent. Remember that the Tenant has no obligation to prove their argument, because the deposit remains their property until successfully claimed for by the Landlord. If the Landlord cannot prove their claim on the 'balance of probability', the adjudicator must return the disputed amount to the Tenant."
I understand that to mean that if there is no clear evidence, the decision will be based on that phrase, 'balance of probability' by taking all things into consideration.
In my case, this is being dealt with completely separately to the rent not being paid. The small claims court has already ruled in my favour and issued a CCJ for the rent owing.
This is what I wanted to caution the OP about. It's not as straightforward as just swapping your last month's rent for the deposit if there is any chance that the deposit could be disputed. I don't think it's worth risking a CCJ.
Unless the landlord agrees to this arrangement in writing, what defence would you produce to the court that you are not in default of rent payment? You cannot use the defence that the deposit will cover it if the deposit is in dispute. And, as can be seen, the small claims have resolved their case much quicker than the DPS which is still in progress.
Sorry for the long post, just wanted to make sure you were aware of the risk you are running.