Should You Always Accept a VAT Assessment?

Officers of HMRC are only human and VAT is complex so it is possible for HMRC to make errors in assessing the VAT liability of businesses, and equally HMRC may be correct that VAT has been understated. However assessments that are issued in error by HMRC can cause serious and unnecessary hardship for a business irrespective of its size.

 

It is often worth taking advice from a VAT professional before accepting that an assessment is valid as can be illustrated by the following two recent and contrasting cases we have successfully resolved for clients.:

 

1.       A business had invested heavily in development but had not made any VATable supplies. The owners were in the process of selling the business, or the assets of the business, as a VATable sale.   

 

A visiting officer took the view that the sale of the business or of its assets was not a business supply, and therefore as the client did not intend to make business supplies it should have de-registered for VAT and owed VAT on the open market value of the assets. The officer then forcibly de-registered the business and assessed for VAT on assets on hand worth many millions of pounds resulting in a substantial VAT liability.

 

Following our intervention and following protracted correspondence we were able to move the issue away from the assessing officer to a reviewing officer. Ultimately HMRC accepted our arguments that:

 

·        the valuation of the assets was incorrect as the officer had assessed on the basis of both physical and intangible assets value and

·        irrespective of this the sale of the assets was clearly a business supply,

 

Therefore the business was entitled to remain VAT registered so the decision to compulsory de-register it and the assessment were withdrawn.

 

2.       A small catering business was assessed for around £6K VAT on its takings; the assessment was issued on the basis that an invigilation exercise carried out by HMRC had established a higher proportion of standard rated hot food sales compared to zero rate cold takeaway sales being made during the officer’s visit than was shown on the VAT returns for previous years. The business had invested heavily in new facilities to allow it to double its capacity to make hot food a short while before HMRC’s visit.

 

Despite the business pointing this significant fact out to HMRC an assessment was issued that would have an adverse impact on the finances of the business. We made representations to HMRC regarding the reason for the increase in hot sales noted during HMRC’s visit and the fact that the assessment was clearly not in “best judgement” using relevant case law to support the argument.

 

HMRC accepted the argument presented and withdrew the assessment stating that they could not support it.  

 

If you have received an assessment for VAT, or HMRC have indicated that they intend to issue an assessment, it would be worth contacting our VAT helpine for an initial free consultation as the two businesses used in the above illustration did. A quick ten minute call may indicate that there is scope to remove or reduce the assessment and will be time well spent.

 

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