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19 October 2015
We look at some recent examples of where HMRC have made simple errors when issuing assessments. 

These examples reinforce that HMRC don’t always get it right and that the basic facts should always be checked before getting into discussions on technical grounds.

Errors on Accelerated Payment Notices

Accelerated Payment Notices (APNs) were introduced in 2014 and give HMRC the power to demand disputed tax to be paid up front where the taxpayer has used a tax avoidance scheme. There has been a wave of APNs issued in 2015 with very little wriggle room for the taxpayer to avoid paying up.

As the demand is quite likely to be of a sizeable sum, it is a given that the amount stated on the APN should be cross-checked, even if this is just a formality. Unfortunately, however, it appears that this formality is leading to the realisation that errors are common.

One APN received in our Cheltenham office contained four different figures within the three page letter. The figures ranged from £1,000 to £76,000! After numerous calls to HMRC trying to locate someone who could assist and a number of discussions, the lower amount was finally agreed as the correct figure and  new APN issued.

Another APN was issued with relief being denied for the full interest amount on the individual’s tax return, whereas actually only part of the relief related to the scheme in dispute. Representations were made to the relevant officer on this basis which had the effect of extending the deadline for payment of the APN. In the meantime, however, HMRC’s debt management team continued to chase the client for payment. Again numerous calls were required to resolve the issue and receive the amended APN.

Yet another APN was issued with the incorrect amount stated. Representations were made which HMRC accepted, but then a new APN was issued with an even higher amount, nearly £90,000 more than was actually due.

The good news, as mentioned above, is that where HMRC have made errors, representations can be made and the deadline for paying the APN liability pushed back. Therefore, HMRC making an error could lead to more time for the taxpayer to free up the cash to pay their APN. This is dependent though on the mistake being picked up and not taking what HMRC say as holy law.

For those familiar with APNs, the money paid is merely an up front payment of the tax in dispute. The technical argument as to whether the liability should actually apply is yet to be had, which does not fill us with much hope if they can’t get the numbers right to begin with!

The assessment window

A VAT case heard by the Upper Tier Tribunal at the beginning of the year found that the sale of a building to a college by a property development company should not be treated as a transfer of a going concern. This should have resulted in a VAT liability of almost £3.5million being applied on the sale, at the standard rate of VAT at 20%.

The twist comes, however, with the taxpayer not having to pay the VAT liability as, although they lost on technical grounds, it was held that the assessment was made out of time by HMRC. For VAT returns, HMRC must raise an assessment by the later of:
  • two years after the end of the VAT period; or
  • one year after HMRC have sufficient evidence to make the assessment;
but in any event no later than four years after the end of the VAT period.

The moral of the story is to always check whether HMRC have made their assessment within the set time limits, before launching into a dispute on technical grounds.