© 2024 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
Procedure.Tax
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G10: Time limits (indirect tax)
Effect of time limit: tax due but not payable
"[103] In this case it is not a failure to pay tax but rather there is tax that is undoubtedly due and would have been payable had an assessment been raised timeously. The simple fact is that it was not." (Monmore Properties Ltd v. HMRC [2024] UKFTT 137 (TC), Judge Anne Scott)
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Assessment must comply with both short stop and long stop
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Commencement of time limit
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Differing views where assessment is made to recover excessive input VAT claim (s.73(2))
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"There are still three different views on which prescribed accounting period must be assessed when making an assessment under section 73(2).
The first is that any assessment should be made for the accounting period to which the input tax was said to relate.
In its judgment in CCE -v- Croydon Hotel & Leisure Co Ltd [1996] STC 1105, the Court of Appeal held that assessments under section 73(2) must be made for the accounting period in which the claim for input tax was made.
However, in its judgment in CCE -v- DFS Furniture Company Ltd [2004] EWCA Civ 243; [2004] STC 559, the Court of Appeal also opined that such assessments should be made for the accounting period in which the claim for input tax was paid.
In view of this uncertainty, where you are issuing assessments under section 73(2) and the accounting period in which the claim was made and that in which the claim was paid are different, you should issue two assessments for the same amount.
The preferred assessment should be the one for the accounting period in which the claim related. The assessments for the accounting periods in which the claim was made and paid should be treated as alternative assessments and should not be enforced." (VAEC4070)
Time limit runs to when the assessment is complete
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“In this case, however, the subsequent assessments were out of time; if they are to be viewed as clarifying the earlier assessment, they would have to form a part of it. If they do ‘complete’ that assessment, then the assessment was not completed until the new assessments were issued: they were out of time, and that would make the entire assessment out of time. So we would find against HMRC on this point had we had to consider it.” (London School of Economics and Political Science v. HMRC [205] UKFTT 291 (TC), §85).
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Time limit runs to date when made, not notified
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“Although there are similarities between Ms Anufrijeva’s case [R (oao Anufrijeva) v SSHD [2003] UKHL 36] and that of the Appellants, the two can be distinguished. The Appellants’ rights were not adversely affected in the period between assessment and notification because they suffered no financial detriment and because their appeal right arose following assessment, not notification; no fundamental right was engaged by the delay in notification, and neither of Lord Scott’s additional reasons for allowing Ms Anufrijeva’s appeal applied to the Appellants…We also observe that the House of Lords gave judgment in Anufrijeva on 26 June 2003 and the Court of Appeal decided Courts on 17 November 2004. If Mr Hansen’s submissions were correct, Courts would have been decided per incuriam. That would be surprising, as Anufrijeva was a significant decision made just over a year earlier.” (Teletape (a firm) v. HMRC [2016] UKFTT 797 (TC), §§110 – 111).
Global assessment out of time if any element of the global assessment is out of time
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“ “The principle that if part of a global assessment is out of time the whole assessment fails was clearly established to protect the taxpayer against the prejudice that could be caused to him by [HMRC] choosing to use a global assessment rather than a series of separate assessments and thereby bundling together demands that would be out of time if made separately with those that were in time ... the time limit provisions are there to protect the taxpayer from tardy assessment; permitting [HMRC] to use a global assessment in the way envisaged by [counsel for HMRC] to defeat assessments in respect of particular excise duty points that would otherwise be out of time is inconsistent with that principle…In my view the VAT authorities demonstrate that when a global assessment is made, so as to create an accounting period which covers a number of prescribed accounting periods, then for the assessment to be valid it must be in time for all of the prescribed accounting periods that it covers.” There is nothing in ERF which contradicts these conclusions. We agree with them.” (Loughshore Autos Ltd v. HMRC [2017] UKUT 252 (TCC), §37, Judges Herrington and Hellier quoting Cozens v HMRC [2015] UKFTT 482 5 (TC) with approval).
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Same for excise duty assessment covering more than one duty point
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“The tribunal noted that s 12(4) FA 1994, which sets out the relevant time limit for excise duty assessments, provided that the time limit applied to “an assessment of the amount of any duty of excise due from any person” and that time began to run when a person’s liability to the duty arose. The tribunal held that the effect of this provision when read with s 12(6) FA 1994, which stated that the reference in s 12(4) to the time when a person’s liability to excise duty arose was a reference to the excise duty point of the goods in question, was that where an assessment was made covering a number of excise duty points arising during the period the assessment was stated to cover, then in order for the assessment to be valid it must be in time with respect to all of the excise duty points to which it relates…We agree with that reasoning and that it can be applied to assessments made pursuant to s 13(1A) HODA for the following reasons.” (Loughshore Autos Ltd v. HMRC [2017] UKUT 252 (TCC), §§37…38).
Difference between VAT and excise duty time limits
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“The VAT provisions state that no assessment may be made after the later of the periods mentioned in sub-paragraphs (a) and (b) whereas the excise duty provisions proscribe the making of an assessment after the earlier of corresponding periods in sub-paragraphs (a) and (b). Thus, the excise duty provisions have a three-year long stop which is not available in a VAT context.” (Loughshore Autos Ltd v. HMRC [2017] UKUT 252 (TCC), §41).
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Short stop time limits: 2 years of period end or 1 year of sufficient evidence
"(6) An assessment under subsection (1), (2) or (3) above of an amount of VAT due for any prescribed accounting period must be made within the time limits provided for in section 77 and shall not be made after the later of the following—
(a) 2 years after the end of the prescribed accounting period; or
(b) one year after evidence of facts, sufficient in the opinion of the Commissioners to justify the making of the assessment, comes to their knowledge,
but (subject to that section) where further such evidence comes to the Commissioners' knowledge after the making of an assessment under subsection (1), (2) or (3) above, another assessment may be made under that subsection, in addition to any earlier assessment." (VATA 1994, s.73(6))
Assessment to recover excessive payment or credit: period is the period of repayment/credit
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"(6A) In the case of an assessment under subsection (2), the prescribed accounting period referred to in subsection (6)(a) and in section 77(1)(a) is the prescribed accounting period in which the repayment or refund of VAT, or the VAT credit, was paid or credited." (VATA 1994, s.73(6A))
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Burden of proof on the taxpayer
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“The burden is on the taxpayer to show that the assessment was made outside the time limit specified in s 73(6)(b) of the 1994 Act.” (Pegasus Birds Ltd v. CEC [1999] STC 95 at 102).
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Logically only in relation to when the evidence came to HMRC's attention (not HMRC's opinion)
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It makes little sense for the taxpayer to be required to prove what HMRC's opinion was re the sufficiency of evidence of fact justifying the assessment. That is a matter exclusively within the knowledge of HMRC.
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"[19] Similarly, it was common ground that section 73(6)(b) should be construed in accordance with the observations of Aldous LJ in the Court of Appeal in Pegasus Birds Ltd v C & E Commissioners [2000] STC 91, who upheld Dyson J’s approach stating (para 11):
“The relevant evidence of facts is that which was considered, in the opinion of the Commissioners, to justify the making of the assessment. The one-year time limit runs from the date when the facts constituting the evidence came to the knowledge of the Commissioners.” (Emphasis added)
He went on to state (para 15):
“An opinion as to what evidence justifies an assessment requires judgment and in that sense is subjective; but the existence of the opinion is a fact. From that it is possible to ascertain what was the evidence of facts which was thought to justify the making of the assessment. Once that evidence has been ascertained, then the date when the last piece of the puzzle fell into place can be ascertained.”" (DCM (Optical Holdings) Ltd v. HMRC [2022] UKSC 26, Lord Hodge)
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- Consider components of assessment separately
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“In any event, it could not, in our view, be said as a matter of ordinary language that evidence of facts coming to the knowledge of the commissioners in relation to one matter can be utilised to justify the whole of an assessment that also seeks to recover VAT due as a consequence of another or other matters to which those facts have no relevance. Indeed, we would regard it as a somewhat startling proposition.” (DCM (Optical Holdings) Limited v. HMRC [2018] UKUT 409 (TCC), §79, Lord Tyre and Judge Dean - evidence relating to input tax component could not be used to justify late output tax assessment).
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"[338] The period ending 10/13 therefore has both issues. We agree with the appellant that the validity of the assessment must be considered separately in respect of each issue. Just because an assessment is in time for one issue does not make it in time for a different issue.
[339] We do not agree with HMRC's reading of Royal Bank of Scotland v HMRC. That case was concerned with the amount of input tax to be denied under Kittel principles. Here “the assessment in question” (Pegasus Birds at [101]) encompasses with two different issues, albeit based on substantially common facts, and assessments for output tax and denial of input tax. The test in section 73(6)(b) cannot be read as meaning that in principle an assessment for denial of input tax based on Kittel grounds, can bring into time a place of supply output tax assessment just because they relate to the same VAT period." (Fulfillment Logistics UK Limited v. HMRC [2023] UKFTT 131 (TC), Judge Hyde)
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In the Supreme Court
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"[22] In these circumstances the court does not need to address HMRC’s submission that the self-assessments which DCM submitted were each to be treated as a unitary assessment, comprising both output tax and input tax and giving rise to a net figure, which (if positive) would be a unitary demand for tax. On the basis of HMRC’s possession of the evidence relating only to DCM’s mixed supplies and the calculation of output VAT on those supplies, the assessment of 20 October 2005 was not made out of time under section 73(6)(b) as HMRC obtained the last pieces of evidence relevant to that assessment at the 2005 visit. Therefore, in agreement with the judgment of the Inner House delivered by Lord Doherty, I would reject DCM’s appeal on time bar." (DCM (Optical Holdings) Ltd v. HMRC [2022] UKSC 26, Lord Hodge)
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- Evidence of basic facts rather than inferences from basic facts
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What the Tribunal is looking for is evidence of basic facts rather than, for example, inferences from basic facts. Whether a given piece of information is evidence of fact is a question of law. Whether, and when, that evidence came to the knowledge of HMRC is a question of fact.
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“…the “evidence of facts” is evidence of “basic facts” not inferences of fact;” (Sayed Hoque Siddiquee v. CEC, VATD 20295, §18(iii)).
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“The 'evidence of facts' to which the sub-paragraph refers can be regarded as being the 'basic facts' in contradistinction to 'inferences of fact', those being deductions of facts from basic facts directly proved by the evidence.” (Lazard Brothers & Co Ltd v. CEC, VATD 13746).
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Calculations / time apportionments (not evidence of fact)
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"[124] The statutory test refers to “evidence of facts”, and it follows from that wording that the time limit does not run from the date HMRC finish considering those facts, making calculations based on those facts, or informing the taxpayer about their findings. Instead, it runs from the date “the last piece of evidence of these facts of sufficient weight to justify making the assessment was communicated to the commissioner”. This is clear from Pegasus Birds, and the first instance decisions in Lazards and Next both take the same approach." (Albany Fish Bar Limited v. HMRC [2021] UKFTT 221 (TC), Judge Redston)
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“All Mr Mintoft did with the numbers provided in the Appellant's schedules was to time apportion them by (a) dividing the annual figure by four, and (b) multiplying the result by the correct rate for each VAT period. We respectfully concur with the Tribunal in Lazards in finding that the mere performing of a calculation by an HMRC officer is not “evidence of facts” and so does not extend the time limit set by VATA s 73(6)(b).” (Temple Retail Ltd v. HMRC [2014] UKFTT 702 (TC), §49).
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“The Tribunal does not consider that the making of calculations upon facts in the possession of the Commissioners comes within the terms of evidence of facts sufficient to justify the making of the assessment.” (Lazard Brothers & Co Ltd v. CEC, VATD 13746).
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Legal effect of a statute / judicial decision (not evidence of fact)
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“In our judgment if the word 'facts' in s 78A(2) is given its natural meaning, regardless of context, it plainly will not include the legal effect of either a statute or a judicial decision. The enactment of a statute, or the pronouncement of a judicial decision, are undoubtedly facts, as are the form which they take and the words in which they are expressed; but, without entering into any kind of philosophical discussion, their legal effect seems to us to be of an entirely different, non-factual, character.” (CEC v. DFS Furniture Co plc [2004] EWCA Civ 243, §44).
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Skeleton argument (not evidence of fact)
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“The Skeleton Argument was in conventional form. It essentially argued that the assessment in question there, had, as a matter of law, been made for the wrong period. This was on the basis of the legal submissions contained in the Skeleton Argument (see paragraph 16 of the Skelton Argument). It did not specify the period in which the supply had been made. Very properly it was directed to matters of law on which the Appellant relied. It was not a Statement of Facts agreed or otherwise. We find this as a fact…Whilst the Respondents became aware as a fact of the Appellant's legal argument as to the assessment being for the wrong period that does not seem to us to be “evidence of facts” to justify the making of an assessment. It is of “a different, non-factual, character” as the Court of Appeal used that expression in DFS.” (Enron Europe Limited (In Administration) v. HMRC VATD 20436, §§24…30).
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Evidence that a possible fact is not the case (evidence of fact)
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“She gave evidence that in the absence of these figures she would not have been able to make the assessment of 28 March 1980 although in cross-examination she agreed that from the correspondence it was not likely that the taxpayer company had accounted for tax she had to make certain that this was the case before making an assessment. The tribunal accepted her evidence, namely, that 'in her opinion she did not have sufficient evidence of facts to justify her in making an assessment until she had obtained up to date details of the seconded employees and the figures relating thereto which she obtained on visits which she made to the taxpayer company on 22 May 1979 and in February 1980'.” (Cumbrae Properties (1963) Ltd v. CEC [1981] STC 799 at 804).
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- Evidence of fact of deliberateness required where relying on extended time limit
"[33] So returning to the debate, [Counsel for the taxpayer] accepted that in order to succeed he needed to establish that at the date he was contending for he needed to demonstrate that the Revenue had two essential pieces of the jigsaw puzzle such that it became Wednesbury unreasonable not to assess as at that date. The two essential pieces were the dishonesty of Mr Ellis (necessary to go back more than 3 years) and the figures to be assessed for those older periods. His first candidate date was 3rd October 2002.
[34] The Tribunal found that as at that date Mr Harold (whose job it was to deal with dishonesty, and whose views on the point ought to be attributed to HMRC) had not reached an opinion on dishonesty at this stage...
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[39] We think that an overall view of the material does not yield a conclusion that the Tribunal reached the wrong view about Mr Harold’s state of mind at the date of the meeting. Mr Harold formed his views in the run-up to a meeting at which the New 20 Approach was to be tendered. It is inherent in that approach that the taxpayer has an opportunity to present a factual case to HMRC, and HMRC holds off whatever it might do until the taxpayer has availed himself (or, we suppose, failed to avail himself) of it. In that context, it is a fair reading of the evidence that Mr Harold had been moving to an opinion which, if he were left entirely to his own devices, might well have crystallised to an opinion of dishonesty sufficient to amount to a piece of the jigsaw. But to have got to a state of finality about that in these circumstances would have gainsaid the purpose of the New Approach which was proffered bona fide to ERF. The relevant opinion of Mr Harold was that which he expressed towards the end of the meeting, which was that the matter would be approached with an open mind. It would have been disingenuous of him to have said that and in fact have had a firm, and irremovable, opinion of dishonesty, and no-one has suggested he was disingenuous. He was, in effect, invited not to have that opinion and he implicitly agreed. If one wants to pursue the metaphor, he might have been toying with the piece of the jigsaw in his hand, but he was invited not to put it down lest it be the wrong piece, and he agreed with that. There is nothing Wednesbury unreasonable with that. This is essentially what the Tribunal found in paragraph 122 of its decision. This was not only a view which it was entitled to reach; it was in our opinion the correct view.
[40] That means that one of the two pieces that Mr Harris relied upon to argue that the clock started running in October 2002 was not available to him. It is therefore unnecessary to consider whether the other one (quantum) was available or not, but we will deal shortly with his arguments, not least because the facts form part of the runup to the next crucial event in February 2003." (ERF Limited v. HMRC [2012] UKUT 105 (TCC), Mann J and Judge Hellier)
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- Actual knowledge by HMRC required
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“The knowledge referred to in s 73(6)(b) is actual, and not constructive knowledge (see Customs and Excise Comrs v Post Office [1995] STC 749 at 755). In this context, I understand constructive knowledge to mean knowledge of evidence which the commissioners do not in fact have, but which they could and would have if they had taken the necessary steps to acquire it.” (Pegasus Birds Ltd v. CEC [1999] STC 95 at 101).
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Knowledge of the evidence rather than knowledge of the material that contains the evidence
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“The statutory question focuses on the date on which HMRC acquire knowledge of the evidence itself, and not the date on which they become aware merely of its existence. Here, Mr Ansah identified the evidence he needed to examine (albeit the examination which led to the disputed assessment was later undertaken by Mr Gowrea) but we do not see how it could be said he had knowledge of the evidence itself…Mr Ansah identified material which was, rather than might have been, relevant, but the essential point remains the same: he identified the material, but was not in a position to identify the “evidence of facts” until the copies were supplied and he had the opportunity of examining them.” (Lithuanian Beer Limited v. HMRC [2017] UKUT 245 (TCC), §§39…40, Asplin J and Judge Bishopp).
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Not relevant that either party has delayed in seeking/providing information
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“Dealing first with the criticism that HMRC ought to have asked for information sooner the difficulty with this argument is that it amounts to saying that HMRC ought to have known the information at an earlier point in time. This would fall foul of the principle, as set out by Dyson J, that the relevant knowledge for the purposes of s 12(4)(b) is actual knowledge not constructive knowledge (the third principle above at [56]). The time limit is breached in situations where HMRC actually had the requisite evidence earlier not where it ought to have asked for it earlier. While the implication that HMRC might prolong their window of time to assess by not asking for information might seem surprising the words of s12(4)(b) refer to evidence of knowledge which “comes to” the Commissioners knowledge and there is no hook elsewhere in the provision to hang an argument that the time limit is breached by an omission by them to ask for information…As to HMRC’s complaint that an appellant cannot properly pray in aid the time in which they failed to provide the information sought in a similar way there is nothing in the relevant legal principles or the wording of s 12(4)(b) to suggest that this would provide a separate factor which would affect the start point of the time limit or the application of the one year period set out in the legislation once time had began to run. The only significance of a delay is the one that one follows indirectly; if an appellant has not provided the requested relevant information them it foregoes the opportunity to equip HMRC with actual knowledge and runs the risk of prolonging the start point for HMRC’s time to assess.” (Societe Air France v. HMRC [2016] UKFTT 136 (TC), §§92…93)
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HMRC’s entire knowledge to be taken into account
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“In my opinion, the tribunal were entitled to and, if pressed to do so, should have enquired as to the date when any relevant facts came to the knowledge of the commissioners.” (SJ Grange Ltd v. CEC [1979] STC 183 at 191).
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“The person whose opinion is imputed to the commissioners is the person who decided to make the assessment. It does not matter that he or she may not be the person who first acquired knowledge of the evidence of the facts which are considered to be sufficient to justify making the assessment. The knowledge of all officers who are authorised to receive information which is relevant to the decision to make an assessment is imputed to the commissioners.” (Pegasus Birds v C&E Comrs [1999] STC 95)
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“…in part (ii) of his principle 4, Dyson J frames the test by reference to when information was received by the commissioners and not when it was received by the officer making the assessment. I believe that is deliberate.” (Lithuanian Beer Ltd v. HMRC [2015] UKFTT 441 (TC), §42).
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But there is an approach that holds that if the actual assessing officer was not aware of all the evidence held by HMRC, the question is whether the failure to make an assessment earlier was wholly unreasonable.
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“The question for the tribunal on an appeal, therefore, is whether the commissioners' failure to make an earlier assessment was perverse or wholly unreasonable. In some cases, the position will be clear. Suppose that evidence of all the facts which in the opinion of the commissioners justified the making of the assessment was known to the commissioners at the beginning of year one, and the assessment was not made until the beginning of year three. Suppose further that the reason for the two-year delay is that the file was lost, or there was a change of staff with the result that the officer who had acquired the evidence did not pass it on to his successor. In those circumstances, the delay in making the assessment would be wholly unreasonable, and an appeal would succeed on the time-limits point.” (Pegasus Birds Ltd v. CEC [1999] STC 95 at 104).
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“Given the conclusion I have reached at [78], it is not necessary to consider the Wednesbury issue that Dyson J identified. However, even if I had concluded that all information of sufficient weight to justify the making of the Assessment had been communicated to Officer Salami in February 2010 or Officer Ansah during his visit on 2 November 2010, I would not have considered that the failure to make an earlier assessment was “wholly unreasonable or perverse”.” (Lithuanian Beer Ltd v. HMRC [2015] UKFTT 441 (TC), §79).
- Sufficiency
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The piece of evidence that justifies making an assessment that would not previously have been justified
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“An opinion as to what evidence justifies an assessment requires judgment and in that sense is subjective; but the existence of the opinion is a fact. From that it is possible to ascertain what was the evidence of facts which was thought to justify the making of the assessment. Once that evidence has been ascertained, then the date when the last piece of the puzzle fell into place can be ascertained. In most cases, the date will have been known to the taxpayer, as he will be the person who supplied the information.” (Pegasus Birds Ltd v. CEC [2000] STC 91 at 98).
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“The making of the nil returns did not amount to 'evidence of facts' for the purposes of s 31(2)(b). In saying this I should make it clear that I am referring here to the contents of the particular returns. Sometimes returns could contain evidence of facts which were not previously within the knowledge of the commissioners. If this is the case, and this evidence resulted in there being evidence sufficient in the opinion of the commissioners to justify the making of an assessment which would not have been justified before this evidence came to the knowledge of the commissioners, then the position would be different.” (Parekh v. CEC [1984] STC 284 at 287 – 288, per Woolf J)
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“…the tribunal must decide what were the facts (or evidence thereof) which justified the Commissioners' opinion and then decide when the last of those facts (or evidence thereof) came to the knowledge of the Commissioners.” (Sayed Hoque Siddiquee v. CEC, VATD 20295, §18(vi)).
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Sufficiency: relates to the evidence, not the facts
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“The commissioners' opinion referred to in s 73(6)(b) is an opinion as to whether they have evidence of facts sufficient to justify making the assessment. Evidence is the means by which the facts are proved.” (Pegasus Birds Ltd v. CEC [1999] STC 95 at 101).
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"In isolation, this could mean either 'evidence of such facts as are sufficient in the opinion of the Commissioners to justify the making of the assessment' or alternatively, 'such evidence of facts as is sufficient in the opinion of the Commissioners to justify the making of the assessment.' We consider that the latter interpretation is correct, for, in order to get rational force out of the sub-paragraph, and to reconcile what appears in (b) with the sub-paragraph's last provision (about an additional assessment on further evidence), it seems necessary to treat the phrase 'evidence of facts' as being the subject matter throughout (b).” (Lazard Brothers & Co Ltd v. CEC, VATD 13476).
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- Sufficiency: the evidence must be sufficient to justify the actual assessment made
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"[20] It is clear from these dicta, which in my view are a correct statement of the law, that section 73(6)(b) addresses the assessment which HMRC has in fact made and not a hypothetical assessment which they might have made but did not. The words of the subsection are clear: “facts, sufficient in the opinion of the Commissioners to justify the making of the assessment.” (Emphasis added)...
[21]...The First-tier Tribunal’s findings of fact, which I have summarised in paras 10 to 12 above, contradict the submission that HMRC had the evidence of facts sufficient to justify the assessment dated 20 October 2005 before they obtained access to DCM’s VAT account at the 2005 visit. Further, HMRC in their written case point out that in the challenged 20 October 2005 assessment HMRC used figures for DCM’s mixed supplies for the accounting periods from October 2002 until January 2004 which were uncovered at the 2005 visit. Those figures differed from the figures for the group’s total outputs disclosed in DCM’s VAT returns for those periods by £11,378,146." (DCM (Optical Holdings) Ltd v. HMRC [2022] UKSC 26, Lord Hodge)
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“The evidence in question must be sufficient to justify the making of the assessment in question…” (Pegasus Birds Ltd v. CEC [1999] STC 95 at 101).
“In my judgment, HMRC are correct to highlight the reference to “amount” in s12(4). The assessment, the making of which is referred to in s12(4)(b), is the “assessment of the amount of any duty of excise due”.” (Societe Air France v. HMRC [2016] UKFTT 136 (TC), §88).
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“In other words, we start with the assessments which HMRC have actually made, not with assessments that they could have made if they had been in time to make them, and consider when evidence of facts, sufficient in their opinion to justify making the assessments actually made, came to HMRC's knowledge.” (Weight Watchers (UK) Ltd v. HMRC [2010] UKFTT 384 (TC), §54)
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“Sub-paragraph (b) speaks of “evidence of facts sufficient … to justify the making of the assessment” [our emphasis]. The use of the definite article indicates to our mind that the test is to be applied by reference to an actual assessment which has been made and that the question to be answered is whether that assessment was made within the 12 month time limit. The question is whether the Commissioners had the evidence to justify that assessment more than 12 months before it was made, not whether they could have made a different assessment at an earlier stage.” (Sayed Hoque Siddiquee v. CEC, VATD 20295, §19, emphasis original).
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But note the unfairness this can lead to:
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“But if we are correct in our interpretation of the words and a taxpayer goes to the Commissioners and says “it looks to me as if my turnover was £100 more than I declared” and for 12 months the Commissioners do nothing, and then he realises he was a bit wrong and goes back to them and says “actually it was £99”, then his honesty gives the Commissioners a chance to assess within 12 months of his later statement, because now they have evidence of facts sufficient for an assessment by reference to a £99 underdeclaration. And if his new figure is £101 notifying it puts him at risk of a £101 assessment and not just the extra £1…It seems to us that this is not a result which makes a mockery of the statutory purpose. It creates some discomfort at the margin but when seen on the context of a régime where the onus is on the taxpayer to make full and accurate disclosure it is not an anomalous or absurd result.” (Sayed Hoque Siddiquee v. CEC, VATD 20295, §§23…24).
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And the potential incentive not to co-operate:
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“One of the odd aspects of this case is the fact that had the Appellant not provided the exact figures for the VAT due in the periods 12/05, 03/06, 06/06 and 09/06 just days before the third anniversary of the end of the periods respectively (in the case of the period 06/06 on the third anniversary itself), giving HMRC the opportunity, which they took, to make the assessments complained of before the expiry of the 3-year time limit, then the only sanction which the Appellant would have suffered for non-production of the exact figures would have been liability to a small penalty, while the substantial VAT liabilities would have gone un-assessed without any other redress available to HMRC…[HMRC] said that if that had happened, the Appellant would have been classified by HMRC as a non-compliant trader, which would have led to a more active supervision of its future compliance.” (Weight Watchers (UK) Ltd v. HMRC [2010] UKFTT 384 (TC), §48).
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“It might also be said however that our interpretation means that the section discourages open and constructive dialogue between the taxpayer and the Commissioners: if each little new piece of information – whether in a taxpayer's favour or against it – starts a new 12 months running if that piece of information is relevant to an assessment, why should the taxpayer discuss anything? Much better keep silent and let time take its course…We do not find this argument compelling. It would, (supposing always that they had some information) always be open to the Commissioners to make an assessment at an early stage on the basis of that information if they acted honestly and genuinely. Then if the taxpayer wanted to have that assessment reduced he could provide further information. Assessment (or re-assessment) on the basis of that new information would be no worse (and indeed better) than saying nothing and then appealing against the assessment and getting the tribunal to reduce the assessment. The fact that the Commissioners, rather than making a formal assessment on the basis of their information as a first step, instead initiate negotiations with the taxpayer with the aim of moving to a more fair or accurate assessment does not mean that the free exchange of information in those negotiations is truly inhibited: all that can be said is that on our interpretation the taxpayer loses the possibility of a windfall gain arising by virtue of the failure of the Commissioners to assess at the earliest opportunity (or within 12 months thereafter).” (Sayed Hoque Siddiquee v. CEC, VATD 20295, §§25…26).
- Subjective opinion of officer on sufficiency to justify an assessment is what is relevant
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“An opinion as to what evidence justifies an assessment requires judgment and in that sense is subjective; but the existence of the opinion is a fact.” (Pegasus Birds Ltd v. CEC [2000] STC 91 at 98).
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But note it is a question of law for the Tribunal to determine whether information is evidence of fact or not - see above.
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Genuinely held opinion of insufficient evidence can only be challenged on public law grounds
"[20] The focus is also on the subjective opinion of the relevant HMRC official, which is a Page 8 question of fact. Absent a perverse view, akin to Wednesbury unreasonableness, on the part of the official as to the adequacy of the evidence before him or her in relation to the assessment which is later made, it is HMRC’s knowledge of the evidence relevant to the particular assessment which starts the clock running under section 73(6)(b)."
(DCM (Optical Holdings) Ltd v. HMRC [2022] UKSC 26, Lord Hodge)
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“An officer's decision that the evidence of which he has knowledge is insufficient to justify making an assessment, and accordingly, his failure to make an earlier assessment, can only be challenged on Wednesbury principles, or principles analogous to Wednesbury…” (Pegasus Birds Ltd v. CEC [1999] STC 95 at 102).
“In the light of my findings that the visiting officer was made aware from explanations and from records provided in the course of the visit that the "livery" supplies included food which had been zero-rated, I am satisfied that he had sufficient evidence to justify the making of an assessment at the standard-rate for the supplies of hay etc. as food in the course of the livery activities. His failure to do so was, in the technical sense that the word was used in Cumbrae Properties v Commissioners of Customs and Excise, [1981] STC 799, perverse.” (Collins v. CEC VATD 13579).
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Reasonable further enquiries mean it is not perverse to not assess
“The question is whether it was perverse not to assess, not whether it was or was not perverse to consider that she had sufficient information to assess. There will be cases where HMRC have sufficient information to justify an assessment but seek further information to justify a better assessment. In such a case if it was not unreasonable to seek that further information it will not have been perverse to decide 40 not to assess even if an assessment could have been made at the earlier time…It was perfectly reasonable for HMRC to seek better to quantify the excise duty which might have been lost before raising an assessment.” (Loughshore Autos Ltd v. HMRC [2017] UKUT 252 (TCC), §§47…50, Judges Herrington and Hellier).
Waiting for final report not unreasonable
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"[16] The result of ERF’s (BDO’s) further investigations was a further BDO report, (BDO/2) submitted to HMRC at the end of January 2003. This report acknowledged the dishonesty of Mr Ellis and revealed culpable arrears of £13.37m. A meeting took place after this report was submitted at which Mr Harold held and expressed the view that he would be content to take the disclosure of BDO/2 as to the amounts of VAT due without any further work, but ERF/BDO indicated that the figures were still not correct and would be reduced by yet more work. In those circumstances Mr Harold formed the view that it would be unreasonable not to allow further investigation to be done.
...
[30]...The actual assessment in the present case was based on figures that only became apparent as a result of BDO/3, and contained the figures from that document (save for one period). For almost all of the periods the figures were different from those which had appeared in previous reports, and no-one suggested that the actual figures that were assessed could have been reached any earlier than BDO/3. That being the case, it is plain that HMRC could not have raised these assessments earlier than the date of receipt of that document, so it would not be possible to mount a challenge under principle 5 on the footing that a decision not to raise that assessment was unreasonable before receipt of the report.
[31] However, [the taxpayer's] challenge is not based on that premise. His challenge is based on the premise that a different assessment could and should have been made earlier, on one or other of the two occasions mentioned above...
...
[44] We do not agree. The Tribunal found that the context in which BDO/2 was produced was the New Approach, under which it was accepted that more work would be done. It found (paragraph 134):
“Whilst that work was continuing, whatever the thoughts of HMRC officers as to its likely outcome might have been at any stage, in the exercise of their best judgement, it was neither perverse nor wholly unreasonable for them not to make an assessment until the investigation was complete. Until BDO had produced their final report nothing that had previously been provided in BDO/2 could be regarded as complete or conclusive, and in our view it was reasonable for HMRC not to regard the information in BDO/2 as evidence of facts sufficient in their opinion to justify the making of the assessment. Mr Harold’s expression of willingness to accept BDO/2 was overtaken by his actual acceptance of the further investigation to be carried out by BDO. It is not enough that there merely be evidence of facts. That evidence must be sufficient, taking into account the obligation to exercise best judgement, to justify the making of the assessment. That does not simply refer to the quantum of the evidence, but it refers also to its quality. Mr Harold, by accepting the further investigation, was accepting that BDO/2 did not have the necessary quality of factual evidence on which an assessment could be based.”
[45] That assessment was open to the Tribunal, and, save only that we would have said “should” rather than “could” in the last sentence, we agree with it. HMRC, and Mr Harold, were being invited to hold off forming a final view until the taxpayer had done some more work, and acceded to that invitation. A final view was not formed. That was not an unreasonable view for HMRC to take. True it is that Mr Harold was sceptical as to whether that work would produce a more favourable result for the taxpayer (and he turned out to be right) but that does not mean that it was unreasonable for him not to make an assessment." (ERF Limited v. HMRC [2012] UKUT 105 (TCC), Mann J and Judge Hellier)
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Not perverse to wait for information to stop taxpayer arguing all relevant considerations were not taken into account
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“Whilst Officer King might have made the Assessment without having seen the further material, in my view it was not perverse or wholly unreasonable of her to consider that the Assessment might have been open to challenge on the basis that Carbondesk did in fact enhance its due diligence procedures after the warnings it received about the risk of its transactions being connected to fraud and this enhancement should have been taken into account before making the Assessment, so that in failing to do so HMRC did not take into account all relevant circumstances as it was obliged to do.” (Carbondesk Group Plc v. HMRC [2015] UKFTT 367 (TCC), §84).
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Not perverse to wait for response to notice of intention to raise assessment
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“In our view, it was not perverse for the officer not to make an assessment at the time of the Notice [of intention to assess giving 21 days to provide further relevant information], and reasonable for her to wait until either the Appellant responded to the invitation to provide further information or the 21 days elapsed.” (Loughshore Autos Ltd v. HMRC [2017] UKUT 252 (TCC), §§47…50, Judges Herrington and Hellier).
HMRC must remember that they can assess without exhaustive enquiries
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“It is common ground that, in forming their opinion of what evidence of facts is sufficient to justify making the assessment, the commissioners must have regard to their obligations to act to the best of their judgment as explained in Van Boeckel v Customs and Excise Comrs [1981] STC 290. Thus, they must perform their function honestly and bona fide, and fairly consider all the material placed before them, and, on that material, come to a decision which is reasonable.” (Pegasus Birds Ltd v. CEC [1999] STC 95 at 102 - 103).
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“The Tribunal considers that in forming their opinion of what is evidence of facts sufficient to justify the making of an assessment, the Commissioners are bound to have regard to the obligations upon them as defined by the judgment in the appeal of Van Boeckel. The obligation on the Commissioners is inter alia to make an honest and bona fide value judgment to come to a view as to the amount of tax due. They must fairly consider all material placed before them and as long as there is some material on which the Commissioners can reasonably act they are not required to carry out investigations which may or may not result in further material being placed before them. This means, in the view of the Tribunal, that in judging what evidence is sufficient, they may not neglect the consideration that they can assess without exhaustive enquiries and on the material which is before them.” (Lazard Brothers & Co Ltd v. CEC, VATD 13476).
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“I note that, in common with the VAT assessment provisions that Dyson J was considering, the excise duty assessment provision set out in s12 of FA 1994 similarly contains a requirement that an assessment be to “best judgment”. Therefore, I regard Dyson J’s reasoning in this regard as equally applicable to s12 of FA 1994.” (Lithuanian Beer Ltd v. HMRC [2015] UKFTT 441 (TC), §40).
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- Seeking the taxpayer’s agreement does not stop the clock
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“Further it is relevant to the Commissioners' powers to assess to the best of their judgment that the desire to reach an agreement with the taxpayer though laudable, is not one which should of itself be taken to interrupt the running of the time limits imposed by statute.” (Lazard Brothers & Co Ltd v. CEC, VATD 13476).
- Further investigations that produce no new evidence do not stop the clock
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Further enquiries that produce no new evidence, including asking whether there are any further relevant facts, is not evidence of fact. In other words, an absence of evidence is not evidence of fact. Were it otherwise, it would always be open to HMRC to re-start the clock by asking the taxpayer if they are aware of any further relevant facts and then relying on a negative answer. There is, however, a difference between obtaining evidence that an identified, relevant possible fact is not the case (which is evidence of fact – see above) and an absence of further relevant information.
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“Pegasus Birds makes it clear that the tribunal must determine when the assessing officer received the last piece of evidence which in the officer’s opinion was of sufficient weight to justify the making of the assessment. Therefore, if the further investigations produce nothing of material significance the result must be that the last such piece of evidence was received before the officer asked for the further information.” (Carbondesk Group Plc v. HMRC [2015] UKFTT 367 (TCC), §21).
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“[The Officer] learnt, by a letter of 16 June 2006 from Next, that it had no more relevant documentation regarding the motives behind the scheme…He was, however, forced to concede that the letter of 16 June did not add any evidence to that which he already had (it was, rather, an absence of evidence)…” (Next Group plc v. HMRC [2011] UKFTT 122 (TC), §§68…69).
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“The first conclusion is that the time limit set out in paragraph 4(5)(b) is stated to be fixed. It is not open to either party to extend it, nor is it extended by the fact of the Commissioners asking for further information, subject always to the conditions as to the sufficiency of the evidence in the opinion of the Commissioners.” (Lazard Brothers & Co Ltd v. CEC, VATD 13476).
- Non-disclosure of information by taxpayer does not stop the clock​
"[61] In response to a question from the Tribunal, we were told by Mr Hickey-Baird that a litigation decision had been taken not to call the assessing officer. So be it. We welcome his candour, but the decision not to call the witness was one which HMRC took with its eyes open.
[62] It was no answer for HMRC to say that the Appellant had brought the situation - ie., the issue of an assessment - on itself by not disclosing information to HMRC as it should have done.
[63] We were not taken to any 'carve-out' in the legislation, nor any reported decision of this Tribunal, which justifies the issue of an assessment under these provisions in those circumstances.
[64] The Assessment was out of time, and the appeal against it must be allowed." (Yorkshire Agricultural Society v. HMRC [2023] UKFTT 389 (TC), Judge McNall)
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Ordinary long stop time limit: 4 years
"(1) Subject to the following provisions of this section, an assessment under section 73, 75 or 76, shall not be made—
(a) more than 4 years after the end of the prescribed accounting period or importation or acquisition concerned, or
(b) in the case of an assessment under section 76 of an amount due by way of a penalty which is not among those referred to in subsection (3) of that section, 4 years after the event giving rise to the penalty." (VATA 1994, s.77(1))
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Identifying the prescribed accounting period
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"(3) In relation to an assessment under section 76, any reference in subsection (1) or (2) above to the prescribed accounting period concerned is a reference to that period which, in the case of the penalty, interest or surcharge concerned, is the relevant period referred to in subsection (3) or (3A) of that section." (VATA 1994, s.77(3))
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Long stop for deliberate behaviour: 20 years
"(4) In any case falling within subsection (4A), an assessment of a person (“P”), or of an amount payable by P, may be made at any time not more than 20 years after the end of the prescribed accounting period or the importation, acquisition or event giving rise to the penalty, as appropriate (subject to subsection (5)).
(4A) Those cases are—
(a) a case involving a loss of VAT brought about deliberately by P (or by another person acting on P's behalf),
(b) a case in which P has participated in a transaction knowing that it was part of arrangements of any kind (whether or not legally enforceable) intended to bring about a loss of VAT [...]" (VATA 1994, s.77(4) - (4A))
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Extended time limit only applies to loss caused by deliberate behaviour
"[83] The total amount of input tax relating to the Prendergast invoices in respect of the periods December 1991 to March 1992 is £174,752·40. The argument that seems to have been accepted by the tribunal is that s 77(4) can be invoked by the commissioners, and the extended 20-year period utilised, in respect of all irregularities in a tax return for a particular accounting period, provided that VAT has been lost as a result of s 60(1) conduct in relation to at least one of those irregularities. There is no obvious reason why Parliament should have intended such a disproportionate and extravagant power to be given to the commissioners. In my judgment, the court should be slow to impute such an intention to Parliament in the absence of clear evidence in the statute. The time limits for irregularities other than s 60(1) conduct leading to a loss of VAT are stated in s 77(1): they are much shorter than the 20-year limit that is imposed by s 77(4). This distinction was plainly made because Parliament recognised the difficulties that fraud causes to the commissioners, and the need for generous time limits to ensure, so far as reasonably possible, that taxpayers are not allowed to retain VAT lost to the commissioners as a result of fraud. But there is no logical justification for extending the s 77(1) time limit for other irregularities in the return for an accounting period, simply because there also happens to have been a loss of VAT as a result of s 60(1) conduct in relation to the same accounting period.
[84] Mr Parker was unable to concede that the tribunal made a mistake in relation to the Prendergast invoices, but neither did he seek to support this part of para 271 of the decision with any enthusiasm. In my view, he was right not to do so. As he fairly pointed out, there is no reason why, if necessary, there cannot be a number of assessments in respect of the same accounting period. That is expressly envisaged by s 73(4), which provides that, where a person is assessed under sub-ss (1) and (2) of s 73 in respect of the same accounting period, the assessments may be combined. Moreover, s 77(6) expressly empowers the making of supplementary assessments otherwise than in circumstances falling within ss 73(6)(b) or 75(2)(b)." (McNicholas Construction Co Ltd v. CCE [2000] STC 553, Dyson J)
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Meaning of deliberate
See G4: Time limits (direct tax)
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Deemed deliberateness if document contains deliberate inaccuracy
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"(4B) In subsection (4A) the references to a loss of tax brought about deliberately by P or another person include a loss that arises as a result of a deliberate inaccuracy in a document given to Her Majesty's Revenue and Customs by that person." (VATA 1994, s.77(4B))
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Intention to mislead unnecessary
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"[98] We therefore find that the Court of Appeal's analysis in Tooth applies to VATA s 77(4B), so that the time limit is extended where a person knows that the return he is submitting contains an error, even when there is no intention to mislead." (Leach v Revenue and Customs Commissioners [2019] UKFTT 352 (TC), Judge Redston)
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"[44] We are conscious that Leach was a First-tier Tribunal decision and so is not binding on us. However, we agree with the analysis in Leach and adopt the reasoning at [96] to [98]. For the purposes of section 77(4B) of VATA 1994, therefore, it is only necessary for HMRC to show that Mr Baig knew he was not using the correct numbers rather than showing that he intended to mislead HMRC." (Baig v. HMRC [2020] UKFTT 318 (TC), Judge Richard Chapman QC)
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See further G4: Time limits (direct tax)
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Long stop where there was a failure to notify: 20 years
"(4) In any case falling within subsection (4A), an assessment of a person (“P”), or of an amount payable by P, may be made at any time not more than 20 years after the end of the prescribed accounting period or the importation, acquisition or event giving rise to the penalty, as appropriate (subject to subsection (5)).
(4A) Those cases are—
[...]
(c) a case involving a loss of VAT attributable to a failure by P to comply with a notification obligation, [...]." (VATA 1994, s.77(4) - (4A))
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Notification obligations
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"(4C) In subsection (4A)(c) “notification obligation” means an obligation under—
(a) paragraph 5, 6, 7 or 14(2) or (3) of Schedule 1,
(aa) paragraph 5, 6 or 13(3) of Schedule 1A,
(b) paragraph 3 of Schedule 2,
(c) paragraph 3 or 8(2) of Schedule 3,
(d) paragraph 3, 4 or 7(2) or (3) of Schedule 3A, or
(e) regulations under paragraph 2(4) of Schedule 11." (VATA 1994, s.77(4C))
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Long stop where DOTAS duties not complied with: 20 years
"(4) In any case falling within subsection (4A), an assessment of a person (“P”), or of an amount payable by P, may be made at any time not more than 20 years after the end of the prescribed accounting period or the importation, acquisition or event giving rise to the penalty, as appropriate (subject to subsection (5)).
(4A) Those cases are—
[...]
(d) a case involving a loss of VAT attributable to a scheme in respect of which P has failed to comply with an obligation under paragraph 6 of Schedule 11A [or an obligation under paragraph 17(2) or 18(2) of Schedule 17 to FA 2017." (VATA 1994, s.77(2))
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Long stop in the event of death: 4 years after death
"(5) Where, after a person's death, the Commissioners propose to assess a sum as due by reason of some conduct (howsoever described) of the deceased, including a sum due by way of penalty, interest or surcharge—
(a) the assessment shall not be made more than 4 years after the death" (VATA 1994, s.77(5))
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Penalty and interest assessments: 2 years from when the VAT is finally determined
"(2) Subject to subsection (5) below, an assessment under section 76 of an amount due by way of any penalty, interest or surcharge referred to in subsection (3) or (3A) of that section may be made at any time before the expiry of the period of 2 years beginning with the time when the amount of VAT due for the prescribed accounting period concerned has been finally determined." (VATA 1994, s.77(2))
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Final determination in cases of unless orders means when all time limits for reinstatement and appeal have expired
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“It seems unarguable to me that Parliament clearly had in mind proceedings coming to a final end; it had in mind the end of any appeal process and, it necessarily follows, any reinstatement process. The strike out (whether it took place on 5 May or 29 June), while it ‘determined’ the proceedings, could not have been final until the time for a reinstatement application elapsed without such application being made, or if such application was made, until it was finally resolved. Final resolution in this appeal was when the appeal against the reinstatement refusal was finally determined in the Upper Tribunal on 3 March 2014.” (Foneshops Ltd v. HMRC [2015] UKFTT 410 (TC), §91).
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“The date on which Foneshops VAT liability was “finally determined” was “when the appeal against the reinstatement refusal was decided in the Upper Tribunal on 3 March 2014”. That outcome is completely consistent with our analysis and that in RS Garments, because as a matter of historical fact Foneshops’ liability became final when the Upper Tribunal refused permission to appeal. We respectfully disagree with the dicta in Foneshops that “finally determined” means that “it is no longer possible to reverse the [strike-out] order by a reinstatement application”. That is to move away from historical fact into the realm of possibility, which is not contemplated by the words of the statute.” (Teletape (a firm) v. HMRC [2016] UKFTT 797 (TC), §50(2), Judge Redston).
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But note:
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“Ms Roberts submitted in the alternative that even if the amended penalty had not been notified by the Statement of Case, the time for making a new penalty was 2 years from the date on which the VAT Assessment is finally determined. The VAT Assessment will not be finally determined until the present appeal has been finally concluded. Potentially therefore HMRC would still be in time to make a new Penalty Assessment. In the light of our findings it is not necessary for us to address that point.” (Amin v. HMRC [2016] UKFTT 544 (TC), §99).
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Final determination when appeal withdrawn not when normal period for seeking reinstatement ends
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“We agree with Mr Hansen that the term means “when the liability is fixed and agreed”, and that this is a question of historical fact. The Appellants’ position was therefore “finally determined” when their appeal was withdrawn. It follows that we reject Mr Shepherd’s submission that the VAT due was only “finally determined” at the end of the 28 day period during which an application for reinstatement could have been made under Rule 17(4) of the Tribunal Rules… The end of the 28 day period is not the last possible date on which a person could apply for his appeal to be reinstated, because the Tribunal has the discretion to allow a late application. For example, an appeal was recently reinstated after having been struck out over six years previously, see Hattons v HMRC [2016] UKFTT 710 (TC).” (Teletape (a firm) v. HMRC [2016] UKFTT 797 (TC), §49, Judge Redston).
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Assessment to recover overpaid interest: within 2 years of sufficient evidence
"(2) An assessment made under subsection (1) above shall not be made more than two years after the time when evidence of facts sufficient in the opinion of the Commissioners to justify the making of the assessment comes to the knowledge of the Commissioners." (VATA 1994, s.78A(2))
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Assessment to recover overpaid s.80 claim: within 2 years of sufficient evidence
"(4AA) An assessment under subsection (4A) shall not be made more than 2 years after the later of—
(a) the end of the prescribed accounting period in which the amount was credited to the person, and
(b) the time when evidence of facts sufficient in the opinion of the Commissioners to justify the making of the assessment comes to the knowledge of the Commissioners." (VATA 1994, s.80(4AA)
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EC sales lists penalties: within 2 years of sufficient evidence
"(2A) Subject to subsection (5) below, an assessment under section 76 of a penalty under section 65 or 66 may be made at any time before the expiry of the period of 2 years beginning with the time when facts sufficient in the opinion of the Commissioners to indicate, as the case may be—
(a) that the statement in question contained a material inaccuracy, or
(b) that there had been a default within the meaning of section 66(1),
came to the Commissioners' knowledge." (VATA 1994, s.77(2A))
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Time limits for assessing online marketplace operators
"(3) An assessment for any month may not be made after the end of—
(a) 2 years after the end of that month, or
(b) (if later) one year after evidence of facts, sufficient in the opinion of the Commissioners to justify the making of an assessment for that month, comes to their knowledge.
(4) Subsection (5) applies if, after the Commissioners have made an assessment for a period, evidence of facts sufficient in the opinion of the Commissioners to justify the making of a further assessment for that period comes to their knowledge.
(5) The Commissioners may, no later than one year after that evidence comes to their knowledge, make a further assessment for that period (subject to subsection (6)).
(6) An assessment or further assessment for a month may not be made more than 4 years after the end of the month." (VATA 1994, s.77C(3) - (6))
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