Is it just me, or are there more estimated VAT assessments being appealed? The most recent one across my desk was Kingsley Douglas, who operated CTN (confectionery, tobacconist, newsagent) shops in the Liverpool area. The decision highlights the correct HMRC procedure, so is a useful resource.
The first stage is that HMRC have to see evidence of incorrect Returns. Strictly they cannot undertake a substantial exercise to re-calculate Returns unless they have such evidence. Para 85 comments that the taxpayer had been in an almost consistent VAT repayment position. HMRC decided this was not credible. I agree.
This initial evidence was supported by the taxpayer indicating he had had problems with his tills.
Having established that the Returns are wrong, HMRC carried out a ‘business economic exercise.’ This involved a review of one quarter’s purchases and a calculation of the expected selling prices. Whilst this methodology is frequently challenged, there is solid case law on HMRC’s side. The decision refers to Van Boeckel and Rahman t/a Khayam Restaurant (No.2). The latter is a Court of Appeal decision. The Tribunal highlighted four key principles:
- HMRC should not be required to do the work of the taxpayer;
- HMRC should carry out their task honestly and fairly by considering all of the material before them;
- A decision should be reached on the basis of that material which is reasonable and not arbitrary;
- There must be some material before HMRC upon which they can base their judgement.
As long as HMRC have approached their calculation fairly the burden of proof moves to the taxpayer. Whilst it is often possible to ‘chip’ an estimated assessment it is very hard to demolish a ‘best judgment’ assessment entirely.