In Andrew Quay Hull LLP v HMRC [2024] TC09291 the appellants' three-year battle against a VAT penalty assessment four years after an Alternative Dispute Resolution (ADR) agreement was finally resolved.
The hearing was held on the First Tier Tribunal's video hearing platform with representatives of the media and members of the public able to join it by application.
- The appellant did not attend the hearing.
- The partnership made an application for a postponement for six months on the basis that the only witness was medically unfit to attend. No supporting evidence such as a medical certificate was provided. Also, neither the appellant nor HMRC disputed the evidence set out in the witness's statement.
- The matter was initially listed for a hearing on 9 December 2021 after HMRC had applied for enforcement of an ADR exit agreement.
- The tribunal judge refused the postponement application.
- The appellant renewed the postponement application two weeks later on the basis the witness was also serving as their advocate.
- The postponement was refused again. The judge did not feel the witness's attendance was necessary for a proper consideration of the issues.
There were no factual matters in dispute:
- There had been a series of appeals relating to various HMRC decisions in respect of five connected appellants. The parties agreed to settle matters in dispute, including the issue of VAT and penalties relating to the appellant through 'shuttle mediation' in February 2020. Shuttle mediation involves going back and forth between the parties in separate rooms to resolve a dispute.
- The ADR Exit Document was signed by all parties. It said:
- The appeal against the VAT assessment is withdrawn.
- HMRC would reverse the output tax due from the appellant under the Bad debt provisions such that no VAT will be payable.
- The appeal against the Penalty determination is withdrawn.
- The amount of VAT at stake before the bad debt relief was £750,000. The penalty assessment was for £472,500 for a deliberate inaccuracy in VAT returns.
In the appeal against the penalty assessment:
- The appellant argued the agreement was signed on the basis no VAT was payable. There had been no discussion about revisiting the penalty position. They had understood the withdrawal of the appeal against the penalty was because no VAT was being paid meaning that no penalty would be payable.
- The judge accepted the appellant had signed the exit agreement under a misapprehension.
- That misapprehension was not apparent to HMRC.
- The wording of the exit agreement was clear and explicit. The VAT liability was dealt with by bad debt relief. The amount of the penalty was still payable.
The ADR exit agreement was valid and binding and HMRC's application to enforce it was allowed.
Useful guides on this topic
Alternative Dispute Resolution for SMEs
In 2013, following a trial, the HMRC Alternative Dispute Resolution service was extended to Small and Medium-sized Enterprises.
Bad debts: VAT recovery
When can you recover VAT on a bad debt? How much VAT is payable to HMRC or recoverable from HMRC when only part of an invoice is paid?
Penalties (VAT)
When do penalties apply for VAT? What penalties are charged and how can they be mitigated?
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