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16th November 2021

Partner Blog: VAT Assessments – are taxpayers paying more than they need to?

What proportion of VAT assessments are withdrawn or reduced after a taxpayer requests a review? 1 in 20? 1 in 10?

The last available data produced by HMRC indicates that over 40% are completely withdrawn and a further 7% are varied as a consequence of HMRC being asked to reconsider the basis or the calculation of their assessment.

How should we interpret this?

Firstly, it’s important to recognise that HMRC have a tough job managing VAT compliance to ensure that the shortfall between expected VAT revenue and actual VAT revenue is kept to a minimum. This VAT ‘Tax Gap’ for the fiscal year 2020 – 2021 is £9.8 billion.

With this pressure, the overarching principle adopted by HMRC, when it comes to VAT compliance, is that the taxpayer is fully responsible for VAT return data and must always be able to substantiate their declarations when asked to do so.

Put simply – it is not HMRC’s job to prove that a return is accurate or complete.

The result of this is that if an inspector is not wholly satisfied with the value of VAT declared on any return and their enquiries of the taxpayer are not answered to their complete satisfaction, then they are empowered to raise an assessment for what may, effectively, be an estimated amount of missing VAT.

This approach is wholly within the HMRC Charter which sets out the standards of behaviour that HMRC aim to meet in their dealings with taxpayers. The Charter states that HMRC will work with taxpayers to get their tax right, but there is a limit to how far HMRC can assist and how long they can be expected to do so.

It is not surprising then, that inspectors and HMRC’s compliance protocols generally, lean on the side of HM Treasury. It also shouldn’t be a surprise that more VAT is assessed by VAT inspectors than is actually collected as a consequence of those assessments.

But if nearly half of the VAT assessments issued are overstated or incorrect, does that suggest that the system is a little too biased against the taxpayer?

The current turbulent times may be exacerbating this situation. We are seeing an increasing number of VAT and environmental tax assessments being substantially reduced or wholly withdrawn after they are challenged. Sometimes HMRC have good grounds for their approach and successfully challenging the assessment will require detailed technical and legal argument to achieve a positive outcome for our clients.

However, many assessments appear to have been issued by HMRC in haste and are incorrect – and this is a real concern for taxpayers.

This may be due to pressures within HMRC – reduced staff, the Treasury’s increased need for cash, or many other reasons that we can all speculate upon.
Whatever the underlying reason, we believe that it is now particularly important that taxpayers facing the threat of VAT (or other tax) assessment, or who have already received an assessment, should take the time to examine the detail and basis for it, and consider challenging it.

The odds of reducing or removing this additional tax cost and avoiding penalties that could be added to the assessed tax, are better than a taxpayer or their advising accountant may think.

How Centurion can help:

• Immediately on receipt of an assessment – remember the importance of requesting a review or appeal within 30 days of the assessment date – contact your usual Centurion adviser to discuss the basis of the assessment.
• If you are new to Centurion, use our central email address – emailus@centurionvat.com or call 0330 124 7740.
• On that call we will establish the basis of the assessment and discuss with you any scope for a viable challenge.
• There is no cost to that initial call.
• If there is any scope of a reasonable challenge, we can agree a budget to review the assessment in more detail, including documentary evidence and assessment calculations and engage with HMRC to request a formal review.

Just one example – In a recent assessment for £1.4m in respect of incorrect VAT evidence to support VAT recovery on costs, our review of the basis for the assessment and our technical support to challenge it, led to a reduction of the assessment to only £7k.

Whether you are a taxpayer or an advising accountant, don’t hesitate to get in touch with Centurion to establish the potential for successfully challenging any VAT or environmental tax assessment.

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