In The CBD Flower Shop Limited v HMRC [2023] 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)
VAT: Where do I start? What is VAT? Who has to register for VAT? What rate should you charge? How do you calculate VAT? When are your VAT filing obligations?

Food: Catering and takeaway
What is the VAT rate charged on food? How does this differ depending on hot or cold food and food consumed on or off the supplier's premises? 

How to appeal an HMRC decision
Disagree with an HMRC decision? How to appeal, what type of decision can you appeal and what are your different options when you disagree with HMRC? What are the key steps in making an appeal?

Statutory Review (by HMRC)
What is a Statutory Review? Is it automatic? What happens in a Statutory Review? Can you challenge a Statutory Review's findings? Can you influence a Statutory Review? 

External links

The CBD Flower Shop Limited v HMRC [2023] TC8724


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