Independent VAT Consultant
Share this content

HMRC: Pay the VAT before we refund you

HMRC rejected a taxpayer’s hardship appeal over a disputed VAT assessment, although the company was owed significant tax refunds in other taxes. 

5th Jun 2020
Independent VAT Consultant
Share this content

In the last few months, there have been a number of VAT tribunal cases where, to put it bluntly, HMRC seems to have ‘gone for gold’ by raising massive VAT assessments against fairly small businesses.

These assessments have usually been raised on the basis of the HMRC officer’s ‘best judgment’ (s73(1), VATA1994), often where accounting records have been lacking in key areas, mainly for cash traders.

Pay before hearing

For disputes concerning direct tax (eg income tax, corporation tax) the tax at stake can usually be deferred until the dispute is resolved, although this is not the case where an accelerated payment notice (APN) has been raised. Under the indirect tax rules (eg for VAT) the taxpayer has to pay the assessment before the appeal can be heard at the first-tier tribunal (FTT).

Hardship grounds

The legislation gives a taxpayer the right to request that HMRC defer the collection of any VAT assessment in dispute if payment “would cause the appellant to suffer hardship” (s84(3B), VATA1994). This issue was the crux of the appeal in the case of Rok Construction and Hire Ltd (TC07638).

Case facts

The director’s key argument was that HMRC should not chase payment of a VAT assessment for £6,189 raised in October 2018 because it owed the company £13,000 for another VAT period. Furthermore, the director claims the company was also due refunds of £34,958 relating to the construction industry scheme (CIS).

The VAT assessment was linked to errors made on returns for December 2015 and March 2016. He appealed to HMRC for a financial hardship order in November 2018, which was considered by HMRC’s hardship team.

Information requested

A key lesson from this case is that the HMRC hardship team does not give out hardship orders as freely as cake samples at a bakery. They requested a lot of information from the director about the company’s financial affairs:

  • bank statements for the last three months
  • analysis of debtors and creditors in the 2018 financial accounts  
  • details of overdraft facilities with the company’s bankers
  • management accounts
  • budget forecasts and cash flow forecasts for the next six months
  • details of investments held by the company
  • information about its current debtors and creditors position.

No information given by company

Needless to say, the director did not forward the comprehensive and time-consuming list of documents and the hardship appeal was therefore rejected. The tribunal supported HMRC by dismissing the appeal.

On the Companies House website, the company’s balance sheet in the accounts to 31 March 2019 looks pretty solvent. Even if the information had been duly submitted, I think HMRC would have still rejected the hardship request.

Taxpayer must prove hardship

The message in this situation is clear: a business must either fully pay the disputed assessment or prove financial hardship. The argument that consideration should be given to other tax rebates that are in the pipeline was irrelevant and the HMRC hardship team strictly applied the legislation.

The judge’s decision was based on the fact that “the appellant has not provided the information requested by HMRC for the purposes of determining its current financial position”.  An easy win for HMRC.


Replies (5)

Please login or register to join the discussion.

By frankfx
06th Jun 2020 10:14


Another excellent article looking at the practical issues.

One must be concerned that the impositions to prove hardship may be inequitable and abuse of power.

But HMRC may feel that too often the taxpayer is playing a game.

Really emphasises the mantra:

"Get it right ( Vat return) first time and everytime."

Thanks (0)
By Ian McTernan CTA
08th Jun 2020 11:32

This goes to show how disjointed our tax system is, when you can be owed £34k by one branch of HMRC and yet HMRC cannot balance the company's overall account with HMRC and insist on payment of an assessment which might not even be right.

If only we had a more modern system (like Ireland, for example) where there are not loads of different numbers for the same company, and a company has an overall account with HMRC and you can offset different taxes easily.

Thanks (4)
By Al G McC
10th Jun 2020 11:39

Hi I believe it is possible for a taxpayer to request HMRC offset one tax against another - I don't think it's a formal procedure but I will stand correcting but historically when in practice we had a client who paid his VAT into his CT Account and eventually after too mant calls HMRC CT accepted a letter of authorisation from the client and the CT folk transferred the paymemnt to his VAT account - not sure if this helps or not!

Thanks (0)
By dgilmour51
10th Jun 2020 11:43

Its an outrage, really.
The artifice of 'separate accounts' within HMRC is fundamentally a convenient fiction to enhance the possibility of the tax proxies of fines and penalties.
Its a bit like saying that NI and RoadTax are not part of 'General Taxation'.
If stuff was really ring-fenced then there might be vestigal excuse - otherwise its just another offensive (sic) strategem.

Thanks (0)
By Malcolm McFarlin
10th Jun 2020 12:29

I have very little sympathy with the Appellant. I have never had a HMRC hardship application refused by HMRC with the tribunal cases I have had to deal with. I'm surprised the Appellant was not able and willing to provide this evidence with regard to a £6K assessment particularly when one weighs up the cost of taking a case to a tribunal hearing.

I'd be interested to know what the client's agent charged for this service which included being present at the hearing.

The client received poor advice in my opinion.

The VAT repayments appear to have been withheld by HMRC for a specific reason which is not clear in the judgement although they could have been offset if HMRC were satisfied they were genuine claims.

Thanks (1)