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Contact: michael.firth@taxbar.com
Procedure.Tax
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G8: VAT assessments
Assessment unnecessary in some situations
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Denial of input tax claim: Assessment not necessary unless amount due to HMRC
“In the exceptional case, the reduction was sufficient to produce an amount due to HMRC, but it was accepted that HMRC were too late to make an assessment and so the repayment was simply reduced to nil.” (DCM (Optical Holdings) Limited v. HMRC [2018] UKUT 409 (TCC), §18, Lord Tyre and Judge Dean and see FTT [2017] UKFTT 785 (TC), §217, Judge Anne Scott).
“This is not a situation involving “re-opening returns without limit of time” as argued for DCM. The periods in question were “open” from 07/05. Looking at both Section 73 VATA and the Authorities, the time limits enshrined in statute only come in to play when there is a repayment or a VAT credit or a VAT Return is found to be incomplete or incorrect giving rise to debt due by the taxpayer.” (DCM (Optical Holdings) Ltd v. HMRC [2017] UKFTT 785 (TC), §217, Judge Anne Scott)
Assessment unnecessary to refuse repayment claim
“In our view the FTT was therefore correct to hold that the time bar provisions in section 73(6) had no application to the officers’ decisions to reduce the amounts of the repayments claimed, because those provisions apply only to the power to assess. It follows that no formal time limits apply to the power to investigate and decide whether a repayment claim falls to be paid in full.” (DCM (Optical Holdings) Limited v. HMRC [2018] UKUT 409 (TCC), §18, Lord Tyre and Judge Dean).
Interpret procedural rules with common sense
“Moreover, there is some authority that even the VAT legislation may be interpreted from a commonsense point of view: in House (t/a P & J Autos…) Sir John Balcombe said ‘is there any reason why we should not let common sense apply and say that the taxpayer was here given proper and adequate notification of the basis upon which he had been assessed?....There should not be any requirement to carry out, or to notify, any calculations which would be simply otiose.” (Bassimeh v. CEC [1997] STC 33 at 41, Evan LJ).
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“We consider that common sense should be used in interpreting these provisions…Applying common sense, it seems to us that Parliament did not intend an assessment to be unenforceable for a minor technical defect in dating which has misled no one.” (London School of Economics and Political Science v. HMRC [2015] UKFTT 291 (TC), §§57…60).
Requirements for existence of assessment
Three stages (decision to assess, assessment, notification)
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"[46] I would accept the general proposition that, in principle, and for the purposes of analysis a conceptual distinction can be drawn between three stages: (1) a decision to assess; (2) the assessment itself; and (3) notification of that assessment. So much is supported by statements in this Court: see the quotations I have set out above from Don Pasquale and Bassimeh but also note what was said in Courts.
[47] Nevertheless, in my view, depending on the circumstances of a particular case, there may be no distinction in substance between stages (1) and (2), and indeed between stages (2) and (3), for example where it is decided to make an assessment and it is set out in a notification sent to the taxpayer. The fact that there has been such a decision will usually be implicit in the very fact that an assessment has been made; and the fact that an assessment has been made will be implicit in the notification of it. Conversely, on facts very different from those of the present appeal, there may be circumstances in which the deliberate decision is made not to assess. In principle there does exist a discretion, not a duty, in section 73(1) of the VAT Act, so that situation could arise. I would also accept in principle that the discretion has to be exercised lawfully, in accordance with public law principles. None of that, however, is material to the present appeal. As I have said, the crucial question in the present appeal is what was the true meaning of the two letters of 6 and 7 October 2008: when objectively construed did they record the fact that an "assessment" had been made and notify the Appellant of that fact?" (Aria Technology Ltd v. HMRC [2020] EWCA Civ 182, Singh LJ)
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Objective test
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"[44] In my view, the following relevant principles can be derived from the authorities:
(1) There is no statutory definition of "assessment". It is in general a legal act on the part of the Commissioners constituting their determination of the amount of VAT that is due.
(2) There is no particular formality required by either statute or regulations.
(3) There is no magic in the use of any particular form, for example one headed "Notice of Assessment". A notification of an assessment can be contained simply in a letter. It can also be contained in more than one document.
(4) The question whether an assessment has been made or not is to be determined on an objective analysis. The decision-maker's subjective state of mind cannot alter that objective fact." (Aria Technology Ltd v. HMRC [2020] EWCA Civ 182, Singh LJ)
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"[44] The significance of Aria Technologies to the present appeal is that it suggests an objective approach must be taken to the question of whether an assessment (which is analogous to that in issue in this case) has been made. Thus, HMRC argue, Aria makes it clear that the question in Mr Coyle’s case of whether the documents addressed to “Coyle Transport, 7 Dernalebe Road” validly raised an assessment against him is an objective question, based upon the view of the reasonable reader." (Coyle t/a Coyle Transport v. HMRC [2020] UKUT 113 (TCC), Judge Raghavan and Judge Dean)
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Statement that amount is due is an assessment
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"[48] In my view, the reasonable reader would have understood the letters of 6 and 7 October 2008, read together as they had to be, as recording and notifying a determination by the Commissioners of the amount of VAT assessed as being "due" and, moreover, as being due "now". On an objective analysis, they did record an "assessment" of the VAT due and were not simply a correction of the figures set out in the VAT return which had been submitted by the Appellant." (Aria Technology Ltd v. HMRC [2020] EWCA Civ 182, Singh LJ)
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Objective approach to identifying taxpayer
"[49] Crucially though, there is no indication from the analysis in Aria, that the question of whether any minimum requirements for an assessment are met (whatever those might be) in order to determine whether an assessment has been made on the taxpayer, is immune from an objective analysis carried out from the point of view of a reasonable reader. Indeed, it is difficult to think what useful role the objective analysis referred to by the Court of Appeal could serve as regards whether an assessment was made, subject to any contrary indications in the relevant statute, if it could only apply to attributes of an assessment that were non-essential. By definition nothing would turn, as far as the question of whether an assessment had been made, on matters which went beyond the minimum requirements." (Coyle t/a Coyle Transport v. HMRC [2020] UKUT 113 (TCC), Judge Raghavan and Judge Dean)
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Assessment addressed to business name of unincorporated business valid
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"[54] In our view, the FTT was clearly entitled to take account of those features in applying the reasonable recipient objective test. The documents, said by HMRC to assess Mr Michael Coyle, did not exist in a vacuum and the context provided by the prior communications between HMRC and Mr Michael Coyle trading as Coyle Transport, or those maintaining they were acting on his behalf, were pertinent to how the relevant documents would be understood. This is also consistent with the approach of the Upper Tribunal outlined in Mabutt which described the test (at [45]) in terms of the reasonable taxpayer “in the circumstances of the taxpayer in question”. In applying that test, they interpreted the tax year to which the letter referred to by reference to the return which the taxpayer had actually submitted (see [64]). Similarly, in GDF Suez the Upper Tribunal applied that test to the facts it reached its conclusion on the relevant return by reference to the return whose receipt the writer was acknowledging (see [117])." (Coyle t/a Coyle Transport v. HMRC [2020] UKUT 113 (TCC), Judge Raghavan and Judge Dean)
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No return or return incorrect (power to assess)
"(1) Where a person has failed to make any returns required under this Act (or under any provision repealed by this Act) or to keep any documents and afford the facilities necessary to verify such returns or where it appears to the Commissioners that such returns are incomplete or incorrect, they may assess the amount of VAT due from him to the best of their judgment and notify it to him." (VATA 1994, s.73(1))
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Must be an assessment for the new amount of VAT due
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"[42] Accordingly I conclude that an assessment under s 73 (1) must include an assessment of the net amount of VAT due." (HMRC v. BUPA Purchasing Limited [2007] EWCA Civ 542, Arden LJ)
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Non-established trader claim to recover VAT treated as a return
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"For the purposes of section 73 of the Act any claim made under this Part shall be treated as a return required under paragraph 2 of Schedule 11 to the Act made in respect of a prescribed accounting period." (SI 1995/2518, r.194)
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Includes VAT due in a representative capacity
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"(5) Where the person failing to make a return, or making a return which appears to the Commissioners to be incomplete or incorrect, was required to make the return as a personal representative, trustee in bankruptcy, trustee in sequestration, receiver, liquidator or person otherwise acting in a representative capacity in relation to another person, subsection (1) above shall apply as if the reference to VAT due from him included a reference to VAT due from that other person." (VATA 1994, s.73(5))
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Best judgment
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- Burden on taxpayer to show best judgment not used
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“The burden of showing that the assessments have not been made to the best of HMRC’s judgment falls on the taxpayer.” (Bustard v. HMRC [2015] UKFTT 546 (TC), §2)
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- Fundamental defect required to invalidate assessment
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“Even if the process of assessment is found defective in some respect…the question remains whether the defect is so serious or fundamental that justice requires the whole assessment to be set aside, or whether justice can be done simply by correcting the amount to what the Tribunal finds to be a fair figure on the evidence before it.” (Pegasus Birds Ltd v. CEC [2004] EWCA Civ 1015)
"[30] In an appeal against a best of judgment assessment under 73(1) VATA, it is open to the Tribunal, in the exercise of a quasi-supervisory jurisdiction, to find that the assessment was not raised to the best of HMRC's judgment and should never have been made at all, for instance on the ground that it was reached dishonestly or vindictively or capriciously, or was a spurious estimate or guess in which all elements of judgment were missing, or was wholly unreasonable (see Mithras (Wine Bars) v HMRC [2010] UKUT 115 (TCC) ("Mithras") at [9]-[11]).
[31] In making a best of judgment assessment, HMRC are required to consider fairly all material put before them by the taxpayer, but are not required to make investigations so long as there is some material on which they could reasonably base an assessment. Nevertheless, if HMRC do make any investigations, they must take into account the material disclosed by that investigation. (Van Boeckel v Customs and Excise Commissioners [1981] STC 290, 292g-293a.)" (Byrne v. HMRC [2024] UKFTT 103 (TC), Judge Staker)
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“The circumstances in which the Tribunal can decide that the assessment was not raised to the best of the Commissioners' judgment, and therefore should not have been made at all, are very limited, essentially being restricted to cases where the Commissioners have acted perversely or in bad faith (Mithras (Wine Bars) Ltd v Revenue & Customs Commissioners [2010] UKUT 115 (TCC)).” (Morrella Ltd v. HMRC [2017] UKFTT 13 (TC), §96(2), Judge Jonathan Richards)
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- Mistake as to true amount owed do not make the assessment void
“A case that an erroneously high assessment is necessarily void or voidable even to the extent it was validly made is in my view bound to fail. Mistakes are made; mistakes about the true amount owed does not make the assessment void or voidable.” (Foneshops Ltd v. HMRC [2015] UKFTT 410 (TC), §78)
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- HMRC must not ignore material in their possession
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“Although we accept that HMRC were working with limited information we find that they considered only one aspect of that information and did not demonstrate whether that one aspect was supported by other information which they stated that they had in their possession. Whilst it is not up to HMRC to carry out exhaustive investigations in order to establish upon which to base an accurate assessment, they should not ignore material in their possession in determining whether their assessment is reasonable…We find, therefore that HMRC’s assessment was not made to best judgment; HMRC selected a particular entry from each of the accounts on which to base their assessment and did not use other material in their possession to confirm whether or not it was reasonable to base the assessment on that accounts entry.” (O’Rourke v. HMRC [2018] UKFTT 70 (TC), §§36…37, Judge Fairpo – review of assessments directed)
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- No decision on specific case required when assessing certain penalties
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“We consider that the requirement for an assessment under section 76 of the VAT Act is likewise satisfied by HMRC programming a computer to perform the purely mathematical task of calculating a surcharge under section 59. We accept that section 76 gives HMRC a discretion to assess or not (which they have exercised by deciding not to assess surcharges of less than £400); but we do not consider that it imports a requirement to decide on an individual basis whether to assess or not; nor do we consider that it imports a requirement (and we doubt that it even gives a power) to assess an individually determined amount less than the amount produced by the statutory calculation. We so conclude for the same reasons as the Court of Appeal gave in Donaldson.” (Dentech Dental (Materials and Equipment) Ltd v. HMRC [2017] UKFTT 414 (TC), §16, Judge Paines)
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Recovery of excessive repayment or VAT credit (power to assess)
"(2) In any case where, for any prescribed accounting period, there has been paid or credited to any person—
(a) as being a repayment or refund of VAT, or
(b) as being due to him as a VAT credit,
an amount which ought not to have been so paid or credited, or which would not have been so paid or credited had the facts been known or been as they later turn out to be, the Commissioners may assess that amount as being VAT due from him for that period and notify it to him accordingly." (VATA 1994, s.73(2))
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Includes amount that ought not to have been paid due to cancellation of VAT registration
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"(3) An amount—
(a) which has been paid to any person as being due to him as a VAT credit, and
(b) which, by reason of the cancellation of that person's registration under paragraph 13(2) to (6) of Schedule 1, paragraph 9 or 11 of Schedule 1A, paragraph 6(2) of Schedule 2, paragraph 6(2) or (3) of Schedule 3 or paragraph 6(1) or (2) of Schedule 3A ought not to have been so paid,
may be assessed under subsection (2) above notwithstanding that cancellation." (VATA 1994, s.73(3))
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Includes VAT refunded to government departments
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"[26] [the taxpayer] argues that someone who is not a taxable person does not have any prescribed accounting periods. If, therefore, that phrase is given its ordinary and natural meaning, section 73 can only apply to VAT incurred by a person when acting as a taxable person. A public body, acting as such, is by definition not a taxable person. Section 73(2) cannot therefore apply to refunds of COS VAT.
[27] I do not accept this argument. First, the Trust (like most, if not all all, public sector bodies) does in fact make supplies which fall within the scope of VAT. But in any event it is also required to be registered in order to take advantage of the refund scheme. It is therefore a taxable person. In my judgment the distinction that Mr Southern seeks to draw between the same body being a taxable person for some activities but not for others, is an artificial reading of section 73 when seen in the context of section 41. Nor does it accord with the statutory definition of a taxable person in section 3 (1)." (Milton Keynes Hospitals NHS Foundation Trust v. HMRC [2021] EWCA Civ 942, Lewison LJ)
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"[26] Mr Southern submitted that section 73(2) cannot be used to assess a wrongly claimed refund under section 43(1) because “COS VAT is not VAT but is extraneous to the VAT system”. If by that is meant that an amount claimed under section 43(1) is not input tax, we agree. However, in relation to the construction of section 73(2) that is 10 nothing to the point. The question is solely whether as a result of the claim made by MKH under section 43(1) there has been paid or credited to MKH an amount “as being…a refund of VAT” which HMRC consider ought not to have been so paid or credited. Looking at the wording of section 43(1), which requires HMRC to “refund to [MKH] the amount of the VAT so chargeable”, it is in our view plain that there has. At 15 the risk of stating the obvious, a colloquial label such as “COS VAT” or “non-input VAT” does not mean that an amount claimed under section 43(1) is not VAT; it is simply VAT actually charged to MKH but not otherwise recoverable." (Milton Keynes Hospitals NHS Foundation Trust v. HMRC [2020] UKUT 231 (TCC), Zacaroli J and Judge Thomas Scott)
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Distinction between s.73(1) and s.73(2)
"[120] However, my understanding of the two subsections is that:
(1) s 73(1) applies where a fully taxable business has overclaimed input tax in a VAT period or periods; and
(2) s 73(2) only applies where a person’s input tax has exceeded its output tax, in other words, where HMRC have paid VAT to that person, and subsequently seek to recover it.
[121] That understanding is consistent with the commentary in the De Voil Indirect Tax Service, at Chapter V5.132B and the guidance in HMRC’s VAT Assessments and Error Correction Manual at VAEC2940. I also considered the case law and identified a small number of cases which related to assessments under VATA s 73(2), namely C&E Commrs v Laura Ashley [2003] EWHC 2832(Ch); Milton Keynes Hospitals v HMRC [2020] UKUT 231 (TCC); and LSE v HMRC [2015] UKFTT 291(TC) (“LSE”). In all of those judgments, the assessments had been made following a repayment of VAT to the trader. In LSE Judge Mosedale said at [46] that VATA s 73(2) applies where “HMRC seek to recoup by assessment a repayment made to a taxpayer which they consider should not have been made”. I agree.
[122] The telent group was a fully taxable business, with a turnover of £320m in 2014 (see §18). The VAT at issue in the Assessment Appeal totalled £1,146,590, spread over the 15 quarters to May 2014, and so was far below the threshold for triggering a repayment. I therefore find as a fact that the Assessment was raised under VATA s 73(1), and as such, it was a necessary condition of its validity that it was made to HMRC’s best judgement." (Telent Technology Services Limited v. HMRC [2022] UKFTT 147 (TC), Judge Redston)
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Assessments for same period may be combined
"(4) Where a person is assessed under subsections (1) and (2) above in respect of the same prescribed accounting period the assessments may be combined and notified to him as one assessment." (VATA 1994, s.73(4))
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Global assessments (assessments covering more than one prescribed accounting period)
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“It is undoubtedly permissible for the commissioners to make a single or 'global' assessment which covers more than one accounting period. In practice this may be necessary when it is impossible or impracticable for the commissioners to identify the specific accounting period or periods for which the tax claimed is due (see S J Grange Ltd v Customs and Excise Comrs [1979] STC 183 at 193, [1979] 1 WLR 239 at 242–243; International Language Centres Ltd v Customs and Excise Comrs [1983] STC 394 at 396). In such a case the six-year time limit prescribed by s 22(1) of the 1985 Act runs from the end of the first prescribed accounting period included in that assessment. The power for the commissioners to make a global assessment is, however, not confined to those cases where it is impossible or impracticable to identify the specific accounting period or periods for which the tax claimed is due…So it is a question of fact in any case whether there has been one global assessment or a number of assessments notified together.” (CEC v Le Rififi [1995] STC 103 at 107 Balcombe LJ)
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However:
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"[58] For completeness, although it is not in dispute between the parties, I have considered International which deals with different and older legislation but it makes it explicit that:
(a) HMRC has a wide power of assessment but that that power can only be exercised within the prescribed time limits, and
(b) The use of global assessments is confined to those cases where it is not possible to identify a specific period for which the tax claimed is due.
As can be seen from paragraph 6 above, the schedule attached to the Notices of Assessment(s) identifies the details for each individual period. I accept that in this instance there is not a global, or single, assessment. Therefore, the time bar issue affects only the Disputed Periods. The decision in Le Rififi reinforces that view." (Monmore Properties Ltd v. HMRC [2024] UKFTT 137 (TC), Judge Anne Scott)
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Interpret the documents
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“Whether the Commissioners have made a global assessment or a series of individual assessments is a question of fact, which is resolved by looking at the relevant documentation…” (Keyes Transport Limited v. HMRC E00878, Judge Khan).
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Objective test
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“In assessing the facts to decide if a global assessment was made one has to be objective and the state of mind of the person making the assessment is not relevant. It is important to look at what was done by the assessing officer, not what he intended to do (Courts v. Commissioners of Customs & Excise [2005] STC 227, per Jonathan Parker L.J. at para. 99).” (Keyes Transport Limited v. HMRC E00878, Judge Khan).
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Not Tribunal’s role to correct HMRC’s mistakes
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“The Tribunal's role is to look at the facts and not to assist the Commissioners with any deficiencies in their work.” (Keyes Transport Limited v. HMRC E00878, Judge Khan).
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Examples
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“we conclude that the First Assessment was a single global assessment covering several excise points. The final page of the covering letter refers to “a notice of assessment” for a single amount; the Form EX501 lists six “period/default dates” on a single form; and the review decision dated 28 January 2015 refers throughout to the matter under review as one assessment.” (Logfret (UK) Ltd v. HMRC [2017] UKFTT 484 (TC), §126, Judge Kempster).
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See Bassimeh [1997] STC 33 – global assessment
Amending assessments
No power to amend an assessment to increase amount due, but power to amend basis for assessment of same or lower figure
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"[69] In the recent case of Liaquat Ali v HMRC [2006] EWCA Civ 1572, Lloyd LJ, with whom Tuckey LJ agreed, observed that the Commissioners had no power to amend an assessment (judgment [9]). However, that observation was made in the context of a case where the Commissioners purported to increase the amount of VAT due from a taxpayer. The Commissioners subsequently accepted that that amended assessment was invalid. Therefore the court (of which I was a member) did not have in mind the situation that has arisen in this case, where Commissioners have sought to amend the input tax and output tax on which the computation of the amount due was based." (HMRC v. BUPA Purchasing Limited [2007] EWCA Civ 542, Arden LJ)
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Power to amend by reference to amounts due for other accounting periods in respect of the same "series of transactions"
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"[68] I prefer the submission of Mr Pleming that these circumstances are permissible because the tax in question relates to the same series of transactions as are included in the original assessment. I do not consider that their inclusion would be contrary to the principle of fairness imposed on the Commissioners by public law. If the taxpayer is entitled to additional input tax in respect of a series of transactions, he should bear the burden of additional output tax that should have been borne on that series of transactions.
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[70]...For the reasons given above, the amendments can in an appropriate case relate to inputs and outputs in different periods than that covered by the assessment, but I do not consider that that can affect legal certainty. There is no requirement (as submitted) for an assessment to set out the legal basis for the assessment." (HMRC v. BUPA Purchasing Limited [2007] EWCA Civ 542, Arden LJ)
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Second assessment for same period
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“I can see no good reason in principle or of policy why Parliament should have intended to prevent the commissioners from waiting until after a determination by the tribunal so as to be able to base a new corrective assessment on the tribunal’s own finding of what is due rather than its own further and better estimate (Bennett v. CEC No.2 [2001] STC 137, §32)
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Res judicata/issue estoppel
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“The principles of issue estoppel and res judicata would mean that the commissioners would be bound by that finding in any subsequent appeal from the new assessment…[I]f the commissioners were to seek to re-litigate such issues by means of a new assessment it would I think be open to the taxpayer as an alternative to challenge that exercise of the 73(1) power as an abuse in proceedings for judicial review” (Bennett v. CEC No.2 [2001] STC 137, §33)
Repeated failure to submit VAT return permits higher assessment
"(8) In any case where—
(a) as a result of a person's failure to make a return for a prescribed accounting period, the Commissioners have made an assessment under subsection (1) above for that period,
(b) the VAT assessed has been paid but no proper return has been made for the period to which the assessment related, and
(c) as a result of a failure to make a return for a later prescribed accounting period, being a failure by a person referred to in paragraph (a) above or a person acting in a representative capacity in relation to him, as mentioned in subsection (5) above, the Commissioners find it necessary to make another assessment under subsection (1) above,
then, if the Commissioners think fit, having regard to the failure referred to in paragraph (a) above, they may specify in the assessment referred to in paragraph (c) above an amount of VAT greater than that which they would otherwise have considered to be appropriate." (VATA 1994, s.73(8))
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Business goods go missing (power to assess)
"(7) Where a taxable person—
(a) has in the course or furtherance of a business carried on by him, been supplied with any goods, acquired any goods from another member State or otherwise obtained possession or control of any goods, or
(b) has, in the course or furtherance of such a business, imported any goods from a place outside the member States,
the Commissioners may require him from time to time to account for the goods; and if he fails to prove that the goods have been or are available to be supplied by him or have been exported or otherwise removed from the United Kingdom without being exported or so removed by way of supply or have been lost or destroyed, they may assess to the best of their judgment and notify to him the amount of VAT that would have been chargeable in respect of the supply of the goods if they had been supplied by him." (VATA 1994, s.73(7))
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Fiscal warehousekeeper (power to assess)
"(7A) Where a fiscal warehousekeeper has failed to pay VAT required by the Commissioners under section 18E(2), the Commissioners may assess to the best of their judgment the amount of that VAT due from him and notify it to him." (VATA 1994, s.73(7A))
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Person removing goods from fiscal warehouse (power to assess)
"(7B) Where it appears to the Commissioners that goods have been removed from a warehouse or fiscal warehouse without payment of the VAT payable under section 18(4) or section 18D on that removal, they may assess to the best of their judgment the amount of VAT due from the person removing the goods or other person liable and notify it to him" (VATA 1994, s.73(7B))
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Person acquiring new means of transport or excise goods from another member state (power to assess)
"(1) Where a person who has, at a time when he was not a taxable person, acquired in the United Kingdom from another member State any goods subject to a duty of excise or consisting in a new means of transport and—
(a) notification of that acquisition has not been given to the Commissioners by the person who is required to give one by regulations under paragraph 2(4) of Schedule 11 (whether before or after the commencement of this Act);
(b) the Commissioners are not satisfied that the particulars relating to the acquisition in any notification given to them are accurate and complete; or
(c) there has been a failure to supply the Commissioners with the information necessary to verify the particulars contained in any such notification,
they may assess the amount of VAT due on the acquisition to the best of their judgment and notify their assessment to that person." (VATA 1994, s.75(1))
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Penalties and interest (power to assess)
"(1) Where any person is liable—
(a) to a surcharge under section 59, section 59A, paragraph 16F of Schedule 3B or paragraph 26 of Schedule 3BA, or
(b) to a penalty under any of sections 60 to 69C, or
(c) for interest under section 74, or
(d) a penalty under regulations made under section 135 of the Finance Act 2002 (mandatory electronic filing of returns) in connection with VAT,
the Commissioners may, subject to subsection (2) below, assess the amount due by way of penalty, interest or surcharge, as the case may be, and notify it to him accordingly; and the fact that any conduct giving rise to a penalty under any of sections 60 to 69C or the regulations may have ceased before an assessment is made under this section shall not affect the power of the Commissioners to make such an assessment." (VATA 1994, s.76(1))
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Assessment must be for the relevant prescribed accounting period
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"(3) In the case of the penalties, interest and surcharge referred to in the following paragraphs, the assessment under this section shall be of an amount due in respect of the prescribed accounting period which in the paragraph concerned is referred to as “the relevant period”—
(a) in the case of a surcharge under section 59 or 59A, the relevant period is the prescribed accounting period in respect of which the taxable person is in default and in respect of which the surcharge arises;
(b) in the case of a penalty under section 60 relating to the evasion of VAT, the relevant period is the prescribed accounting period for which the VAT evaded was due;
(c) in the case of a penalty under section 60 relating to the obtaining of the payment of a VAT credit, the relevant period is the prescribed accounting period in respect of which the payment was obtained;
(d) in the case of a penalty under section 63, the relevant period is the prescribed accounting period for which liability to VAT was understated or, as the case may be, for which entitlement to a VAT credit was overstated;
(e) in the case of interest under section 74, the relevant period is the prescribed accounting period in respect of which the VAT (or amount assessed as VAT) was due; and
(f) in the case of a penalty under regulations made under section 135 of the Finance Act 2002, the relevant period is the prescribed accounting period in respect of which the contravention of, or failure to comply with, the regulations occurred.
(3A) In the case of a surcharge under paragraph 16F of Schedule 3B or paragraph 26 of Schedule 3BA, the assessment under this section is of an amount due in respect of “the relevant period”, that is to say, the tax period (see section 76A) in respect of which the person is in default and in respect of which the surcharge arises." (VATA 1994, s.76(3) - (3A))
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Special accounting schemes
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"(1) References in section 76 to a prescribed accounting period are to be read as including a tax period so far as that is necessary for the purposes of the references in section 76(1)(a) to paragraph 16F of Schedule 3B and paragraph 26 of Schedule 3BA (assessment of surcharge in certain cases involving special accounting schemes).
(2) References in section 77 to a prescribed accounting period are to be read accordingly.
(3) In this section and section 76 “tax period” means a tax period as defined in paragraph 23(1) of Schedule 3B or paragraph 38(1) of Schedule 3BA, as the case requires." (VATA 1994, s.76A)
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Use best judgment if cannot be readily attributed to particular period
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"(4) In any case where the amount of any penalty, interest or surcharge falls to be calculated by reference to VAT which was not paid at the time it should have been and that VAT (or the supply which gives rise to it) cannot be readily attributed to any one or more prescribed accounting periods, it shall be treated for the purposes of this Act as VAT due for such period or periods as the Commissioners may determine to the best of their judgement and notify to the person liable for the VAT and penalty, interest or surcharge." (VATA 1994, s.76(4))
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Assessment must identify penalty and interest separate to tax
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"(5) Where a person is assessed under this section to an amount due by way of any penalty, interest or surcharge falling within subsection (3) or (3A) above and is also assessed under section 73(1), (2), (7), (7A) or (7B) for the prescribed accounting period which is the relevant period under subsection (3) or (3A) above, the assessments may be combined and notified to him as one assessment, but the amount of the penalty, interest or surcharge shall be separately identified in the notice.
(6) An assessment to a penalty under section 67 by virtue of subsection (1)(b) of that section may be combined with an assessment under section 75 and the 2 assessments notified together but the amount of the penalty shall be separately identified in the notice." (VATA 1994, s.76(5))
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Must specify how penalty or interest will continue to accrue
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(7) In the case of an amount due by way of penalty under section 66 or 69 or interest under section 74—
(a) a notice of assessment under this section shall specify a date, being not later than the date of the notice, to which the aggregate amount of the penalty which is assessed or, as the case may be, the amount of interest is calculated; and
(b) if the penalty or interest continues to accrue after that date, a further assessment or assessments may be made under this section in respect of amounts which so accrue." (VATA 1994, s.76(7))
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No further penalty or interest will accrue if default remedied by date specified
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"(8) If, within such period as may be notified by the Commissioners to the person liable to a penalty under section 66 or 69 or for interest under section 74—
(a) a failure or default falling within section 66(1) or 69(1) is remedied, or
(b) the VAT or other amount referred to in section 74(1) is paid,
it shall be treated for the purposes of section 66 or 69 or, as the case may be, section 74 as paid or remedied on the date specified as mentioned in subsection (7)(a) above." (VATA 1994, s.76(8))
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Supplemental assessment permitted if still in time
"(6) If, otherwise than in circumstances falling within section 73(6)(b) or 75(2)(b), it appears to the Commissioners that the amount which ought to have been assessed in an assessment under that section or under section 76 exceeds the amount which was so assessed, then—
(a) under the like provision as that assessment was made, and
(b) on or before the last day on which that assessment could have been made,
the Commissioners may make a supplementary assessment of the amount of the excess and shall notify the person concerned accordingly." (VATA 1994, s.77(6))
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Online marketplace operator (power to assess)
"(1) The Commissioners may assess the amount of VAT due from the operator of an online marketplace by virtue of section 77B or 77BA to the best of their judgment and notify it to the operator.
(2) Subject to subsections (3) to (6), an assessment may be made for such period or periods as the Commissioners consider appropriate." (VATA 1994, s.77C(1) - (2))
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Recovery of overpaid interest (power to assess)
"(1) Where—
(a) any amount has been paid to any person by way of interest under section 78, but
(b) that person was not entitled to that amount under that section,
the Commissioners may, to the best of their judgement, assess the amount so paid to which that person was not entitled and notify it to him." (VATA 1994, s.78A(1))
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Recovery of excessive s.80 claim amount (power to assess)
"(4A) Where—
(a) an amount has been credited under subsection (1) or (1A) above to any person at any time on or after 26th May 2005, and
(b) the amount so credited exceeded the amount which the Commissioners were liable at that time to credit to that person,
the Commissioners may, to the best of their judgement, assess the excess credited to that person and notify it to him." (VATA 1994, s.80(4A))
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“Liable at that time” refers to actual rather than perceived liability
“As I understand it, the appellant relies on Cardiff [2004] STC 373, as the taxpayer’s s 33 claim was exhausted by being set against a perceived not actual tax liability, for the proposition that ‘liable at that time’ relates to perceived rather than actual tax liability. But I do not think that any authority for such a proposition can be taken from Cardiff. The crucial reasoning in Cardiff was that the taxpayer’s completion of the tax return created a legal liability to pay the output tax declared on it unless and until it was amended. So it was really an actual rather than perceived liability that the s 33 claim was set against, albeit an actual liability that (had the claim been in time) would have been reduced…In this situation, even assuming that the only reason HMRC could have avoided the repayment was by raising the defence of unjust enrichment, it is clear that HMRC paid an amount which exceeded what they were liable to pay. There was no equivalent to a tax return which effectively crystallised liability to pay the wrong sum. HMRC were only ever liable to pay the s 80 claim to the extent the money was actually overpaid and there was no unjust enrichment defence. S 80(4A)(b) therefore refers to actual and not perceived tax liability: indeed it would make a nonsense of s 80(4A) if that were not so.” (Ukinbound Ltd v. HMRC [2016] UKFTT 414 (TC), §§157…158)
Take into account defences HMRC could have relied on
“Ordinary use of language suggests that ‘liable at that time to credit’ means what it says and there is no liability where there is a complete defence. S 80(3) is effectively a qualification on s 80(1): there is no liability under s 80(1) where or to the extent a s 80(3) defence exists.” (Ukinbound Ltd v. HMRC [2016] UKFTT 414 (TC), §160)
Treat in same way as assessment to recover overpaid interest
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"(4C) Subsections (3) to (8) of section 78A apply in the case of an assessment under subsection (4A) above as they apply in the case of an assessment under section 78A(1)." (VATA 1994, s.80(4C))
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Can be used to reverse unjust enrichment
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“In other words, looking at the tense used, HMRC can raise an assessment under s 80(4A) if, at the time HMRC made the repayment, the crediting of that amount would have resulted in unjust enrichment of the appellant.” (Ukinbound Ltd v. HMRC [2016] UKFTT 414 (TC), §149).
Amount due back to HMRC under arrangements for reimbursing customers (power to assess)
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"(1) Where any person is liable to pay any amount to the Commissioners in pursuance of an obligation imposed by virtue of section 80A(4)(a), the Commissioners may, to the best of their judgement, assess the amount due from that person and notify it to him." (VATA 1994, s.80B(1))
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Treat in same way as assessment to recover overpaid interest
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"(2) Subsections (2) to (8) of section 78A apply in the case of an assessment under subsection (1) above as they apply in the case of an assessment under section 78A(1)." (VATA 1994, s.80B(2))
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Assess amounts given by set off
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"(1A) Where—
(a) an amount (“the gross credit”) has been credited to any person under subsection (1) or (1A) of section 80,
(b) any sums were set against that amount, in accordance with subsection (2A) of that section, and
(c) the amount reimbursed in accordance with the reimbursement arrangements was less than the gross credit,
subsection (1B) below applies.
(1B) In any such case—
(a) the person shall cease to be entitled to so much of the gross credit as exceeds the amount so reimbursed, and
(b) the Commissioners may, to the best of their judgement, assess the amount due from that person and notify it to him,
but an amount shall not be assessed under this subsection to the extent that the person is liable to pay it to the Commissioners as mentioned in subsection (1) above.
(1C) In determining the amount that a person is liable to pay as mentioned in subsection (1) above, any amount reimbursed in accordance with the reimbursement arrangements shall be regarded as first reducing so far as possible the amount that he would have been liable so to pay, but for the reimbursement of that amount.
(1D) For the purposes of this section, nil is an amount." (VATA 1994, s.80B(1A) - (1D))
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Withdrawing assessments (VAT)
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“the commissioners may withdraw an assessment at any time and may make a new assessment covering the same period provided that the power to do so under s.73(1) can still be exercised.” (Bennett v. CEC No.2 [2001] STC 137, §27).
Unjust enrichment of HMRC
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No unjust enrichment where HMRC assess tax that customer could have recovered as input tax
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"There is nothing in the principles of fiscal neutrality or effectiveness that require the tax authorities of a member state to insulate a taxpayer from the consequences of the insolvency of its counterparty where it has made a mistake in applying the relevant VAT rules.” (J&B Hopkins Limited v. HMRC [2018] UKUT 382 (TCC), §57, Snowden J and Judge Sinfield).