By The Vat People
Picture the meeting, you or your client have received a VAT assessment or a decision from HMRC concerning how a business accounts for VAT. This has an adverse impact on the business, it will cost it money and possibly also impact on how it deals with its customers. As HMRC administer VAT surely the assessment must be right? Sadly this is not always the case and VAT inspectors and HMRC’s policy unit have been found to be incorrect on a number of occasions.
HMRC does have a review system and they have issued a revised fact sheet explaining about the procedure to follow when a VAT assessment or a decision regarding a VAT matter is issued. Much of the information contained in the guidance is in fact usually contained in the decision letter, but is not always correctly understood. HMRC are expected to write and explain the reason for a decision but we have seen assessments issued where HMRC have not provided a written reason for the assessment. This can cause obvious problems when the assessment may be issued based on a misunderstanding of the facts by HMRC, or when the business does not understand HMRC’s reason for the decision.
As an example we have dealt with one VAT assessment that was issued on the basis that certain costs were incurred for the benefit of another business as the costs did not (according to HMRC) relate to products that the business supplied, instead they were sold by the other business. In fact both businesses sell the same products but to different markets so HMRC’s decision is based on incorrect information. In another case a VAT inspector’s calculation of the amount of VAT due on sales made by a cash business using an estimation based on a very short snap shot in time of takings monitored by HMRC was simply incorrect and massively overstated leading to the assessment being withdrawn in full.
In any event a business has 30 days to request a review of the decision or alternatively it can appoint an advisor to do so on its behalf, this is different to making a formal VAT appeal. It is also possible to gain a review of the assessment outside of the 30 day period if additional information can be provided or in the event that HMRC have mistaken the facts. HMRC then have 45 days to review the decision unless they require additional time. Although not made clear in their guidance, if a business refuses HMRC additional time to carry out a review HMRC will simply uphold their decision.
If HMRC’s review process upholds the original decision it is possible to appeal to the VAT and duties tribunal or indeed to skip the review process and go straight to tribunal. Although HMRC’s guidance states that appeals must be lodged within 30 days of the decision or the end of the review, in fact appeals can be heard out of time, but only with the agreement of the tribunal chairman and HMRC. Therefore, it is always best to make an appeal in time.
Generally appeals are only heard if the VAT at stake is paid in advance, however if it can be proven that payment would cause the business to suffer adversely then the appeal can proceed with the disputed tax remaining unpaid.
The alternative to a formal appeal is HMRC’s alternative dispute resolution service; this may be a good option where the source of the dispute is something that is open to discussion such as the amount of VAT at stake on an estimated assessment. It is also useful to consider ADR when it appears that HMRC have misinterpreted or misunderstood the facts of a case. Its use may be more limited for issues that relate to HMRC’s interpretation of the law.