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VAT Voice by Andrew Needham

Andrew Needham, Director of VAT Solutions (UK) Ltd, reports on the recent VAT Tribunal case Anjun Suhail & REBA Textiles Ltd (VTD 19,448), in which the Chairman found in favour of the taxpayer and brought up a number of issues that are important to businesses.

Background

Mr Suhail was the MD of REBA Textiles, which was suffering cashflow problems. He fell into arrears with HMRC, and failed to send in some VAT returns on time. As a result, HMRC issued a central assessment for an amount that was less than the actual liability. The taxpayer paid the central assessment whilst negotiating finance to cover its true liability. To confuse matters further, the taxpayer had failed to claim bad debt relief to which it was entitled, and then HMRC came out for a visit.

During the visit, the VAT Officer decided that Mr Suhail had intentionally paid the central assessment knowing that his liability was higher. The VAT Officer noted that bad debt relief had not been claimed, but made no allowance for it, and issued an assessment for the difference between the recorded liability and the central assessment that had been paid. He also decided that Mr Suhail had been dishonest in his action of paying the lower assessment, and he was subsequently interviewed with a view to imposing a civil evasion penalty. When the refinancing came through, REBA immediately paid its outstanding VAT liability and, in error, actually overpaid by £6,000.

Confess, confess

Quoting the Tribunal Chairman on the conduct of the interview:

“The interview was aggressively conducted, in a hectoring, insistent manner. It proceeded at a fast speed. When Mr Suhail attempted to reply to the points made to him by the Customs officers, his answers were frequently cut off by one or other officer interrupting, so that Mr Suhail was not allowed to give a proper explanation of himself. In the latter part of the interview, both Customs officers joined in questioning Mr Suhail alternately. In our view, excessive persuasion was sought to be applied, and the atmosphere in which the interview was conducted was one of undue pressure exerted upon an unrepresented layman not versed in VAT matters.”

In finding for the taxpayer, the Tribunal Chairman commented that it was always Mr Suhail’s intention to pay his VAT liabilities and indeed he had overpaid when the funds were available. In addition, HMRC had failed to take account of the unclaimed bad debt relief, and the failure to pursue the matter with the taxpayer’s accountant when figures were supplied was strongly criticised, as this would have substantially reduced the overall VAT liability due.

Tips

There are a number of points to take from this case.

Firstly, if you pay a central assessment knowing that it is lower than your true VAT liability, it can leave you open to a penalty for dishonest conduct. In this case, the penalty was avoided because it was always the taxpayer’s intention to pay the correct liability once funds were available. They seemed to have treated the payment of the central assessment as a payment on account, coupled with the lack of certainty as the actual liability, due to a failure to claim bad debt relief.

Secondly, the failure to claim bad debt had appeared to increase the taxpayer’s VAT liability. You should always check what bad debt relief is available to you, and claim it promptly to minimise any VAT liability.

Finally, you should be aware that HMRC investigators can be aggressive, and can put undue pressure on a taxpayer during a formal interview. You should always ensure that you are properly represented at such a meeting by an experienced professional advisor, as otherwise, HMRC could end up overstepping the mark.

July 2006

Andrew Needham
Director, VAT Solutions (UK) Ltd
Email: andrewneedham@vatsolutions-uk.com


VAT Solutions (UK) Ltd
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VAT Solutions (UK) Limited is an established independent firm of Chartered Tax Advisers, formed by Andrew Needham and Steve Allen. The company has a cross-section of clients from multi-national companies through to medium-sized and numerous smaller regional firms of accountants and solicitors. They produce a regular publication 'VAT Voice', which can be downloaded directly from the Internet via their website: