HMRC – Understanding VAT Appeals and Time Limits

A recent Upper Tribunal (UT) decision involving whether VAT assessments were issued in time, resulted in a win for HMRC. The case was Nottingham Forest Football Club Limited v HMRC [2022] TC8577, which considered whether HMRC’s assessments were made within the relevant time limits.

This case provides a reminder of one of the differences between direct tax (income tax and corporation tax for example) and VAT, in relation to the legislation governing HMRC’s time limits for issuing assessments. There are also some subtle differences in the appeal process between direct tax and VAT. We have summarised some of the specifics of VAT appeals and time limits in this article.

HMRC Decision Letters

Once HMRC has reached a conclusion, in a VAT enquiry or VAT dispute, it will issue its view in what is called a ‘decision letter’. In HMRC’s decision letter, you will be offered a review and told how you can appeal to the Tribunal. You will need to ensure that you take action in time.

If you disagree with HMRC’s VAT assessment, you can either:

1. accept the offer of a review (with the option, that if you are still not satisfied with the review decision, you can still appeal to the Tax Tribunal)
2. notify your appeal directly to the Tax Tribunal

Either way you will have 30 days from the date of HMRC’s decision letter to decide and act.

It is important to ensure that any appeal is made in time, otherwise you may have to argue to get a ‘late appeal’ accepted. Late appeals are sometimes allowed if there is a reasonable excuse for the lateness, but there is no guarantee, and it can be hard to argue. We do help with late appeals and have been successful in the past. However, it is better to avoid the late appeal argument in the first place if possible.

Accept the Offer of a Review

If you accept the offer of a review, the original tax decision will be reviewed by someone at HMRC who was not involved in the original decision.

Once HMRC’s review is complete, it will write to tell you the outcome. The reviewing officer may agree with you, partially agree with you, or uphold the decision of the original caseworker.

There is a window of opportunity at this point to submit any additional evidence and to put forward any argument that you want the reviewing officer to consider. Even if there is nothing further to add at this point, we would always recommend sending the review team a summary of what has happened and what the issues in contention are and reiterate your arguments. If you can make it as easy as possible for the reviewing officer to follow your thread of evidence and argument, a positive outcome is more likely.

Depending on that review outcome, if you still disagree with HMRC’s decision, you can appeal to the tribunal.

Appeal directly to the tax tribunal

You can appeal directly to the Tribunal, where:

• you disagree with HMRC’s review decision
• you do not wish to accept HMRC’s initial offer of a review

Appeals to the Tribunal will need to be made within 30 days of either the original decision letter, or HMRC’s review conclusion, if a review was accepted. And once again, although ‘late appeals’ can be accepted, it is easier to avoid the late appeal argument, if possible.

Hardship Applications

Unlike for direct taxes, the tribunal will generally not hear appeals relating to VAT, unless the VAT amount in dispute has been paid.

However, if you believe paying the VAT in dispute would cause you hardship, you can ask HMRC to agree to suspend payment of the VAT until the tribunal appeal is decided. This is known as a Hardship application.

If HMRC do not accept your Hardship application, you may still apply to the tribunal to ask them to consider your Hardship application. The VAT appeal will not be able to proceed until the tribunal has decided the outcome of the Hardship application.

Alternative Dispute Resolution

Alternative Dispute Resolution (ADR) can be an option where a dispute is underway about VAT assessments. In ADR, you will meet with the HMRC inspector in a mediated setting, with the objective of trying to resolve the differences between the parties.

You can apply for ADR for VAT (Indirect Tax), following a decision from HMRC, when you have either:

• Accepted HMRC’s offer of a review and that review has ended. You must then notify the appeal to the Tribunal and when you have received an acknowledgement letter from the Tribunal, apply for ADR.
• Not accepted HMRC’s offer of a review. You must first notify the appeal to the Tribunal, and when you have received an acknowledgement letter from the Tribunal, apply for ADR.

ADR can be a productive process and inTAX have had many positive outcomes, and for the right cases we would certainly recommend considering this option. Even if you are unable to reach agreement at ADR, the areas in dispute are often narrowed, so that a more focused approach can be taken at the Tribunal.

Time Limits for VAT Assessments

Time limits exist throughout tax legislation, and VAT is no different.

Assessing time limits

The normal time limit for making a VAT assessment is four years from the end of the VAT period in which the error occurred. In limited circumstances this can be extended to 20 years, in cases such as deliberate behaviour (in other words tax fraud) and failure to notify. These time limits are subject to the one-year rule – as detailed below.

One year rule (Evidence of facts)

If a VAT assessment is made at a time more than 2 years after the end of the period of assessment, HMRC must consider the one-year rule. It is a somewhat tricky rule, and one that HMRC itself sometimes seems to forget or ignore.

This rule means that once HMRC has received sufficient details to enable it to make a best judgement assessment, the clock starts to tick, HMRC then has only one year in which to issue its VAT assessment. This was the issue considered in the Nottingham Forrest tax case mentioned at the start of the article.

For the one-year rule to apply, the ‘start’ date is often subjective and there have been a number of Tribunal decisions over the years where this has been considered. Often, it is a case of looking in detail at the facts and chronology and trying to determine the point at which it is arguable that HMRC had obtained sufficient evidence of facts such that it could raise an assessment. We have successfully helped clients to defend VAT assessments on this basis.

Differences between Direct Tax and Indirect Tax Appeals

As a reminder, here are some of the taxes classified as ‘direct’ and ‘indirect’.

Direct tax includes: Income Tax; PAYE Tax; Corporation Tax; Capital Gains Tax; National Insurance contributions and Inheritance Tax.

Indirect tax includes: VAT; Excise Duty and Customs Duty.

There are subtle differences in the appeal process for each.

1. For direct tax appeals, you have to appeal directly to HMRC before you can notify an appeal to the Tribunal, whereas for indirect tax decisions you can apply direct to the Tribunal, and
2. For direct tax appeals, you can request to postpone the tax in dispute until the appeal is settled. For indirect tax, you can only request a postponement whilst the case is subject to a review. Once an indirect tax appeal is notified to the Tribunal, the Tribunal will only hear the appeal where the tax in dispute is paid, subject to any hardship application.

How Can inTAX Help?

If you don’t agree with a VAT assessment, or if you are in the middle of a VAT enquiry, get in touch. We can help with the review process, ADR, Tax Tribunal appeals, arguing time limits and disputing penalties. We can help you to present your case, whether it is a technical issue, or a case where HMRC has alleged fraud, for example a Code of Practice 9 (“COP9”, or “CDF”) case.

We have helped hundreds of clients over the years who have had a dispute with HMRC. We provide helpful, practical advice and representation. If you need help in dealing with a VAT enquiry, dispute or appeal, get in touch with one of our team for a no-obligation initial discussion.

You can get in touch with our friendly and experienced team on: 0203 675 8122 or email jeremy.johnson@intaxltd.com.

inTAX is a specialist tax disputes firm. We deal with disclosures, investigations, and tax enquiries of all descriptions, including COP9, fraud investigations, VAT fraud, tax avoidance, let property disclosures and tribunal appeals. But we don’t just deal with the serious end of tax investigations; we are also happy to handle smaller enquiries, disputes and problems that can be equally as worrying for our clients.