Posted by James Pearson on 16 Oct 2013

HMRC Ordered to Pay Legal Costs on VAT Appeal

A successful appeal by a taxpaying company against a VAT investigation and allegations of fraud have proven costly for HM Revenue & Customs (“HMRC”) which has been ordered to pay the company’s legal costs.

Simple Solutions GB Limited had a VAT assessment raised against it after HMRC maintained VAT had been claimed on goods that had not been supplied to the company and further that the company had claimed VAT based on false documents, therefore suggesting fraudulent activity.  The case was subsequently brought to tribunal level after HMRC rejected initial appeals and maintained this stance.

The company gave explanations that the transactions being questioned were genuine and backed this up with documentary evidence, denying that paperwork had been falsified to support fraudulent VAT reclaims. On being cross-examined, the HMRC officer who carried out the inspection on the company’s premises accepted that no checks had been made with suppliers that would have supported the nature of the transactions.

The tribunal concluded that HMRC’s evidence had been “inadequate” and that the allegation of fraud having been perpetrated was not supported by it. The burden of proving fraudulent activity had rested with HMRC. Documentation presented by the company was determined to be in accordance with the VAT regulations and the appeal was successful.

An order for HMRC to pay costs in this type of case would not usually be made, however, the conclusion that HMRC had made unsubstantiated allegations of fraud and presentation of its case on this basis was deemed unreasonable and HMRC was required to meet the company’s legal costs in defending the VAT assessment.

This case serves as a reminder that as well as taxpayers meeting their obligations, HMRC must ensure that it follows due process and should not make serious allegations without having supported and substantiated information to underline their claims. It is unfortunate that the company involved was subject to the initial costs and time commitment of having to defend an ultimately incorrect VAT assessment.

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See also…

HMRC Guidance Wrong on Directors Tax Returns

HMRC Free to Access Taxpayer Bank Accounts

Main Residence Exemption: An Update on Recent Court Cases

US Limited Liability Companies (LLCs): Swift Case

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