In The CBD Flower Shop Limited v HMRC  TC8724, HMRC tried to make a late amendment their statement of case in a VAT appeal, they challenged the legality of cannabidoil (CBD) sales. The First Tier Tribunal (FTT) blocked the application: the late amendment would have prejudiced the taxpayer's case.
- The taxpayer claimed that their sales of CBD products were 'food products' and should be Zero-Rated.
- HMRC disagreed and standard rated the sales, it raised VAT assessments for £430k, which upheld following a Statutory Review.
- The taxpayer Appealed the assessments to the tribunal.
- The parties followed the judge's directions, however, prior to the hearing, HMRC applied to change its case on the basis that the taxpayer was making illegal supplies of cannabis which do not attract a zero rating.
- The taxpayer opposed the HMRC's application to amend its case.
The FTT reviewed the application and found that:
- The FTT had the power to grant HMRC permission to amend its statement of case if it was fair, just to do so and had a real prospect of success.
- The application had a real prospect of success as:
- The Misuse of Drugs Act 1971 classified all parts of the cannabis plant as a controlled drug which gave the illegality argument a real prospect of success.
- HMRC application was late and accepting it would be unfair as:
- The application was made by HMRC after reaching their decision and issuing the assessments to the taxpayer.
- While the legality of cannabis was not with HMRC’s expertise, it could have made enquiries with other departments prior to issuing decisions.
- Allowing the application would prejudice both appellant and the taxpayer, however, the acceptance of the application would be more prejudicial to the taxpayer:
- HMRC being denied the application will prejudice them in that a relevant factor would not be considered.
- The taxpayer will be prejudiced if the application is allowed as the resulting amendment is advancing a new case to answer at a late stage in the process.
- Case law has opined that prejudice to HMRC is a less important factor in the prejudice balance, particularly when it has not acted promptly to obtain evidence of the new issue they seek to raise.
- The application was dismissed due to the timing and the resulting prejudice that allowing the appeal would create.
The application was dismissed.
Useful guides on this topic
A beginner’s guide to VAT (freeview)
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Food: Catering and takeaway
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How to appeal an HMRC decision
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Statutory Review (by HMRC)
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