In HMRC v Elbrook (Cash & Carry) Limited [2017] UKUT 0181 the Upper Tribunal (UT) allowed a VAT hardship application even though the taxpayer had a number of valuable investments.

Certain VAT assessments can only be appealed if either the VAT has been paid, or HMRC (or on application the FTT) agree that paying it would cause the taxpayer hardship.

  • The taxpayer is a cash and carry wholesaler who also has other activities, including holding investment properties and 2 French subsidiaries.
  • HMRC raised a VAT assessment for £771k on them following a decision to disallow credit for input tax.
  • HMRC did not accept that paying the VAT would cause the taxpayer hardship, so the taxpayer made a ‘hardship application’ to the FTT.

The FTT agreed that paying the assessed tax would cause hardship to the taxpayer.  HMRC appealed this decision to the UT on the grounds that:

  • The FTT were wrong to conclude that the taxpayer’s ability to borrow under existing facilities or on its non-business assets was not relevant.
  • The FTT failed to take into account a number of relevant factors, including the taxpayer’s property investments, French subsidiaries and their delay in making a hardship application.

The UT rejected this appeal, finding that the FTT were correct to grant the hardship application:

  • To be taken into account resources must be immediately or readily available.
  • The fact that other sources of finance might be explored, or that a taxpayer may have equity in property or other assets to support borrowing, does necessarily mean such borrowing is immediately or readily available.
  • No distinction should be drawn between business and non-business assets: there is nothing in the legislation to confine hardship to the taxpayer’s trade only.
  • If borrowing against or selling non-business assets such as property investments would cause any financial hardship to the taxpayer then this should be taken into account.
  • There was no evidence to show that the properties held by the taxpayer were readily realisable.
  • The French subsidiaries should not be regarded as a source of readily available finance: there was no evidence that the requirements of the taxpayer were ordinarily be met by cash advances from them.
  • The delay in making the hardship application was not relevant: this would only be important the delay caused the hardship, which was not the case.


Our subscriber guide: Penalties (VAT)

Case reference: HMRC v Elbrook (Cash & Carry) Limited [2017] UKUT 0181