18/12/23

HMRC VAT Assessments | Best Judgement

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Many of HMRC’s Investigations arise where it is believed that a taxpayer may have undeclared VAT output tax, has overclaimed VAT input tax and VAT has been wrongly calculated.

In these circumstances, HMRC has the power to issue VAT Assessments requiring payment of the amount believed to be outstanding.

When investigating and issuing a VAT Assessment, HMRC is required to fairly consider all of the evidence available, reach a reasonable conclusion using its ‘Best Judgement’.

Best Judgement | HMRC VAT Assessments

Meaning

Best judgement does not mean that HMRC will try to reach the most favourable outcome to an investigation, but one which is based upon sound, robust reasoning which is fair and logical.

HMRC’s guidance to its own officers, states:

Any assessments made must satisfy the best judgement criteria. This means that given a set of conditions or circumstances ‘’you must take any necessary action and produce a result that is deemed to be reasonable and not arbitrary’’.

In Van Boeckel v Commissioners of Customs and Excise [1981] 2 All ER 505, the Court considered what was meant by ‘best judgement’. It held that HMRC Officers:

  • must act honestly and candidly,
  • must base their decisions on materials which exist, rather than suspicions,
  • should fairly consider all material available, including that which harms HMRC’s case, and
  • are under no obligation to do the taxpayer’s work by doing an exhaustive analysis of the amount of tax due.

In an analysis of the latter point in Schlumberger Inland Services Inc v Customs and ExciseCommissioners [1987] STC 228, the High Court explained that an HMRC Officer:

is not required to possess and deploy the deductive powers of Sherlock Holmes and the clairvoyance of Madame Arcarti, provided that the Assessment raised is not in excess of what could reasonably be payable’.

Therefore, an HMRC Officer does not necessarily need to reach the exact amount due for a Tax Assessment, so long as the decision is reasonably likely to be accurate and based upon a sound consideration of all the material available.

Backdating Assessments

A HMRC Officer is entitled to consider that an error detected in a current Tax Return may have appeared and been repeated in historic returns and refer back to records for the previous twenty years.

For example, where a business has incorrectly zero-rated an item, which should have been charged at 20% VAT, HMRC may extrapolate the error to backdate an Assessment and account for the underpayment for as long as it occurred throughout the previous twenty years.

The Assessing Officer cannot simply detect an omission to pay tax on one occasion and assume it has never been paid in previous years. There must be an expectation that the tax error is capable of being identified as having been repeated across various returns.

HMRC is entitled to draw its conclusion using its Officer’s best judgement.

Appealing a Best Judgement Assessment

The amount found payable following a Best Judgement Assessment can be appealed by the Taxpayer.

Where the amount of the Assessment is successfully disputed, the Court will not usually find that the decision was made against the Officer’s best judgement and the reduced Assessment will be payable by the taxpayer.

Finding that the Assessment was not reached through the best judgement principles will also not prove fatal to a HMRC Assessment, unless the Officer’s judgement was far below the reasonable standard.

The High Court has described the factors which will indicate that a decision was not based upon sound judgement being where the Assessment:

  • involved an element of capriciousness or dishonesty,
  • is founded upon no reasonable evidence or calculation,
  • is spurious, or
  • amount was not rationally reached.

How Can We Help?

As with most Tax Assessment appeals, the onus is on the taxpayer to disprove HMRC’s Assessment. This process is complex and may be time consuming especially where important and pertinent tax records are no longer available.

Challenging any Assessment, whether a Best Judgement Assessment, or otherwise, or facing any kind of HMRC investigation, whether civil or criminal, requires experienced guidance and professional support.

The Team at KANGS supports clients, both individual and corporate when faced with an HMRC Investigation, Prosecution or Tax Assessment of any nature and would be delighted to assist you.

Pleases do not hesitate to contact us as shown below:

Telephone: 0333 370 4333

Email: info@kangssolicitors.co.uk

We provide initial no obligation discussion at our three offices in London, Birmingham and Manchester. Alternatively, discussions can be held virtually through live conferencing or telephone.

Hamraj Kang

Hamraj Kang
Senior Partner

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