In GLS Limited (GLS) v HMRC [2020] TC07985, HMRC assessed output VAT on unknown income following a visit to the company's premises. The taxpayer claimed it was from loans. The First Tier Tribunal (FTT) found that HMRC had wrongly rejected evidence of actual and enforceable loan agreements.

  • GLS is a property development company. In 2016, the company received seven payments totalling £282,000 from Midside Finances (MF) advances by way of a loan.
  • GLS had a history of borrowing money from MF, the two companies held a common director as well as having other directors who had been personal friends for a long time.
  • GLS did not report these loan payments as income on its VAT return: they were not income.
  • HMRC inspected GLS and was shown the loan agreements but the visiting officer dismissed the documentation as insufficient evidence that the payments were loans as some of the loan documents were signed only by GLS and not reflecting a relationship of lender and borrower between MF and GLS.
  • HMRC issued a ‘best judgment’ VAT assessment in relation to the ‘loan’ payments of £47,000 calculated on a VAT inclusive basis i.e. £282,000 x 1/6.
  • GLS appealed against this assessment on the grounds that it received the funds by way of a loan and not as taxable income for a supply of services.

The FTT found that the company has issues with its record keeping, and went carefullly over the agreements. Some were signed and some were not, the sums paid into the bank totalled the amounts advanced as loans.

HMRC had incorrectly rejected evidence and the VAT assessments should not have been raised. The appeal was upheld.


This case is yet another VAT case that should never had reached a tribunal. It demonstrates that a lack of robust supporting documentation/record keeping lead to potential HMRC enquires.

Useful guides to this topic

Loan relationships toolkit: Directors' loans
This guide provides an outline summary as to when a balance owed by a company may fall within the loan relationship rules.

Close company loans toolkit (loans to participators)
This guide takes a detailed look at the Corporation Tax treatment when a Close Companymakes a loan to a participator (director-shareholder).

External Link

GLS Limited (GLS) v HMRC [2020] TC07985

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