Firm victory in VAT security payment case

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Schedule 11, paragraph 4, VATA, gives HMRC powers to require a non-compliant business to make a security payment as a condition of continuing to make taxable supplies. The affected taxpayer can, under s. 83, VATA, request HMRC to review this decision, explains Graham Elliott.

The delightfully named Half Penny Accountants sought such a review, but the decision to require security was upheld by HMRC. The taxpayer appealed to the tribunal (TC04845).

Its argument was that HMRC did not take into account a relevant fact. This was that the accountancy business was in the process of being sold at the time that the officer carrying out the review of the original decision was considering his decision. The sale of the business, had it been successful, would have generated enough cash to settle all of the VAT debts of the company, and the business would then have been in the hands of new owners. However, with the security demand over their heads, they would be unable to sell the business, as the company would have to cease trading prior to sale. This had the effect, pointlessly, in the taxpayer’s view, of denying it the ability to make amends, which would also be to the disadvantage of HMRC.

The review officer had refused to accept that the intended sale of the business made any difference, since to do so would create inequality with other ongoing businesses. There was little dispute that the original decision to demand security, prior to any knowledge of an impending sale of the business, could be justified by HMRC. The entire argument was over this decision of the reviewing officer to ignore the impending sale.

The tribunal thought this went too...

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Very Interesting case

although I don't think HMRC will change its stance. What happens if it's not sold? Where do HMRC stand then? It could take years to sell.

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It was good of the tribunal to make their decision

Extract above

'The tribunal thought this went too far, and that the potential sale of the business, at the time the review was carried out, ought to be reflected in HMRC’s decision'. 

 

Well done the tribunal you win some you loose some, I believe the Treasury leans on the Tribunal panel to get a result in their favour.

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Political pressure on courts

" I believe the Treasury leans on the Tribunal panel to get a result in their favour."

Welcome to the World of real politics! I maintain that I have suffered in a similar manner, although not directly related to an HMRC issue.

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Security payment ???

Schedule 11, paragraph 4, VATA, gives HMRC powers to require a non-compliant business to make a security payment as a condition of continuing to make taxable supplies

 

I did not know non-compliant business can be asked to make security payments.

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We have had several clients

who fell behind with VAT payments and were asked for a security payment lasting 12 months. HMRC can put you in prison if you do not pay up as they deem you are trading illegaly. All good stuff.

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Thanks

johnjenkins wrote:

who fell behind with VAT payments and were asked for a security payment lasting 12 months. HMRC can put you in prison if you do not pay up as they deem you are trading illegaly. All good stuff.

 

Okay thanks, they fell behind with their vat payments.

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Fundamentally
If you are accountants and cant budget for your own vat bill to this extent....

...somethings fundamentally not right

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@Andrew

I think the original idea was that when people went bust and started again the security payment was linked to an upfront payment of what might be due so that the "customer" could never get behind. The cases we had were hard core non payers (due to them not being paid on time) and the secure deposit was returned within 12 months with interest. The "customer" still has cashflow problems. We did think of appealing, but the cost would have been more that the deposit. Th ebit that is worrying is that to not pay the deposit and not appeal you are deemed to be trading illegally and could be sent to prison.

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