A collection of cases with links on "best judgement" VAT assessments: section 73 VATA 1994.

Scaffolder: assessment method was unrefined

In M Hodges v HMRC [2015] a taxpayer successfully appealled VAT penalties of £394,694 to £7,807. He was found guilty of dishonesty however HMRC had failed to exercise “best judgement” in assessing the VAT penalties. Their methodology was unrefined: they based their assessment on a sample that was too small to be capable of extrapolation and then failed to notice that it would have been impossible for a small company to erect the amount of scaffold required to produce their claimed turnover.

Products and ecomomics

In Dawn Owens t/s Bizar Hair Salon [2014] TC03544 the taxpayer was unsuccessful making an appeal against a VAT assessment made on HMRC’s best judgement following a business economics exercise.

  • HMRC worked out takings according to product use.
  • No evidence was provided to show that HMRC’s calculations based on shampoo usage is incorrect.
  • The Appellant’s accountant’s calculations were rejected: they were based on figures from till rolls and assumed that every sale was rung into the till and was rung through correctly.

Reprogramming tills

In Kenan Guzel t/a Can Supermarket v Revenue & Customs [2014] TC03560 a Casio till had been programmed so that sales made from a special key did not show up on the till’s Z reading report.

  • HMRC estimated a 64% suppression on under s 73 VATA 1994 using their best judgement, including penalties for dishonesty.
  • The taxpayer was unable to prove any different figures.

Small print

VAT Act 1994: Section 73 Failure to make returns

(1) Where a person has failed to make any returns required under this Act (or under any provision repealed by this Act) or to keep any documents and afford the facilities necessary to verify such returns or where it appears to the Commissioners that such returns are incomplete or incorrect, they may assess the amount of VAT due from him to the best of their judgment and notify it to him.

(6) An assessment under subsection (1), (2) or (3) above of an amount of VAT due for any prescribed accounting period must be made within the time limits provided for in section 77 and shall not be made after the later of the following -

(a) 2 years after the end of the prescribed accounting period; or

(b) one year after evidence of facts, sufficient in the opinion of the Commissioners to justify the making of the assessment, comes to their knowledge, but (subject to that section) where further such evidence comes to the Commissioners’ knowledge after the making of an assessment under subsection (1), (2) or (3) above, another assessment may be made under that subsection, in addition to any earlier assessment.

(8) In any case where -

(a) as a result of a person’s failure to make a return for a prescribed accounting period, the Commissioners have made an assessment under subsection (1) above for that period,

(b) the VAT assessed has been paid but no proper return has been made for the period to which the assessment related, and

(c) as a result of a failure to make a return for a later prescribed accounting period, being a failure by a person referred to in paragraph (a) above or a person acting in a representative capacity in relation to him, as mentioned in subsection (5) above, the Commissioners find it necessary to make another assessment under subsection (1) above, Then, if the Commissioners think fit, having regard to the failure referred to in paragraph (a) above, they may specify in the assessment referred to in paragraph (c) above an amount of VAT greater than that which they would otherwise have considered to be appropriate.’