All the statutory powers previously exercised by Customs and Excise have been transferred to HMRC. HMRC are granted extensive powers by the Customs and Excise Management Act 1979 to deal with any ‘assigned matter’ (CEMA 1979, s. 1(1)), of which VAT is one. Further powers are vested in them by VATA 1994, Sch. 11, which deals with ‘administration, collection and enforcement’. Detailed provisions made under the authority of Value Added Tax Act 1994 are in the Value Added Tax Regulations 1995 (SI 1995/2518).

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Alternative Assessments

In University Court of the University of Glasgow v C & E Commrs [2003] BVC 501, the point at issue was whether Customs were competent to make and notify, in respect of the same transaction or series of transactions in one or more accounting periods, separate and distinct assessments for VAT on an alternative basis. The court held that it was implicitly within the powers of the commissioners to make distinct assessments on alternative bases under Value Added Tax Act 1994, s. 73(1) in respect of the same transaction or series of transactions.

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Best Judgement

HMRC must make any assessment to the best of their judgment (Value Added Tax Act 1994, s. 73(1)). In the leading case on this point, Van Boeckel v C & E Commrs (1980) 1 BVC 378, it was held (at p. 380) that this means:-

‘the commissioners will fairly consider all material placed before them and, on that material, come to a decision which is one which is reasonable and not arbitrary as to the amount of tax which is due. As long as there is some material on which the commissioners can reasonably act then they are not required to carry out investigations which may or may not result in further material being placed before them.’

In Spillane (1988) 3 BVC 1,417, it was held that the tribunal was justified in finding that the VAT officer who made the assessment, when faced with difficulties in getting information about the extent of the appellant’s business, was entitled, when making the assessment to the best of his judgement, to use figures towards the top of a possible range, leaving the appellant to show that this was incorrect.

It is not enough to show that the officer responsible for the assessment was negligent to establish that Customs failed to exercise best judgement. In Pegasus Birds Ltd v C & E Commrs [2000] BVC 68, the court held that there had to be a conscious or irrational failure to place a reasonable interpretation on the evidence to hand.

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Post-Finance Act 2008. Entry and Search of Premises and Persons

Under the provisions introduced by Finance Act 2008, Sch. 36, HMRC has the power to enter any business premises and inspect:-

  • The premises;
  • Business assets that are on the premises; and
  • Business documents that are on the premises.

They must give proper notice unless, exceptionally, they are authorised by a tribunal to visit the premises without prior notification.

Seeing business records at the business premises will allow HMRC to check against the available prime records, such as delivery notes or work sheets. It also enables them to compare the nature and scale of business activity as shown in the books against the reality of the business.

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Global Assessments

Vat Assessments – Value Added Tax Act 1994 – SJ Grange Ltd v C & E Commrs

It was held in SJ Grange Ltd v C & E Commrs (1978) 1 BVC 210 that a notice of assessment need not relate to each accounting period separately so that (at p. 212):-

‘in all cases where it is impossible for the C & E Commrs to split the assessment up into three-monthly periods, they can assess the amount of tax for any period of time which they specify (be it six, 12, 15 or 21 months) and such assessment will be good.’

When considering the time-limit for making such a global assessment, it was held that the two years referred to in Value Added Tax Act 1994, s. 73(6)(a) runs from the end of the first three months included in the assessment.

For the purposes of the time-limit in VATA 1994, s. 73(6)(b) as it applies to such global assessments, it was held in International Language Centres Ltd v C & E Commrs (1983) 1 BVC 545, that Customs could only use the provision to make an assessment in time if the facts (which came to their knowledge within the period of one year) sufficient to justify the making of the assessment for the whole of the sum thereby assessed. In this connection, it was held in Spillane (1988) 3 BVC 1,417, that evidence of facts coming to Customs’ knowledge did not include constructive knowledge.

In C & E Commrs v Le Rififi Ltd [1993] BVC 226, VAT was assessed for 24 prescribed accounting periods by one document, which was a single global assessment. The first of the periods was outside the time-limit for assessing and this invalidated the whole assessment. The first period could not be severed, leaving the remainder in operation. Customs unsuccessfully argued that there was nothing to prevent them from withdrawing the first period assessed, so that all the remainder were valid. Customs contended that this case was unlike Don Pasquale (a firm) v C & E Commrs (1990) 5 BVC 76, as it was not a hardship application under VATA 1994, s. 84(3) and there were 24 assessments referable to 24 periods.

Leonard J said at p. 230D that Dillon LJ in Don Pasquale had said that it would be quite unreal to treat three pages of running assessment covering 25 periods as constituting 25 separate assessments, rather than one assessment in the total sum of the three pages. There was nothing on the facts to distinguish that case which was binding on the court. It must be concluded that there was only one assessment. Thus the VAT assessment was discharged.

Global assessments are less common these days, since the computerisation of the assessment issuing procedure and the introduction of default interest. Instead, a pro-rata calculation is used to allocate a global figure to the periods involved.

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Persons Affected

A new trader often receives a ‘notice of requirement to give security’ if HMRC doubt his competence, solvency or integrity, for example if he or a related person has a poor VAT compliance record or a criminal record. Therefore all persons who actively manage the business should give evidence in person at any hearing, to help the tribunal decide whether they are competent, solvent and honest.

A new trading company can be part of the ‘phoenix syndrome’ where an individual has traded through the medium of a limited company, which then becomes insolvent with unsettled VAT liabilities. Later the same individual restarts the same or a similar trade using the new company and even perhaps the same address and fixed assets. Sometimes the new company’s directors and members are different, but are mere ‘fronts’, as only the individual takes an active role in the new company’s activities. In due course the new company also may become insolvent, but HMRC hope that any security they have received will cover any VAT liabilities, penalties, interest and surcharges.

Also, some persons seek to reclaim large amounts of input tax prior to making any positive-rated taxable supplies, so HMRC sometimes argue that they need security to protect the revenue.

Overseas traders often have to provide security if they have few assets in the UK on which HMRC can distrain to collect unpaid VAT liabilities.

An existing trader often has to provide security if his or a related person’s compliance record is poor or if he commits a serious criminal offence.

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HMRC Powers of Arrest

HMRC have power to arrest without a warrant anyone suspected of criminal fraud or using false documents (Value Added Tax Act 1994, s. 72(9)). Ministerial assurance was given that this power would be exercised only by specialist investigators and in the most serious cases.

HMRC is responsible for investigating suspected criminal activity across the whole range of its responsibilities, including investigating tax credit fraud and VAT fraud, which can involve organised crime. As part of HMRC’s review of its powers since its formation, it has sought views on applying the relevant provisions in the Police and Criminal Evidence Act 1984 (PACE) across all its activities.

Before the merger of the Inland Revenue and Customs and Excise to form HMRC, those powers and their associated safeguards were only available for specific taxes and duties. Changes introduced by Finance Act 2007 give trained officers harmonised powers to apply for search warrants and production orders, and powers of arrest across all taxes, all of which are subject to the important safeguards which attach to criminal investigations generally. Appropriate powers have been enacted for use in Scotland and Northern Ireland to integrate with its legal system.

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HMRC Powers in Respect of Records – Post-Finance Act 2008

The statutory record keeping requirement contained in Finance Act 2008, Sch. 37 is supported by the information powers included in Finance Act 2008, Sch. 36. These apply to all taxes administered by HMRC, including VAT, and permit HMRC to check a taxpayer’s records at any time (as has always been the case for VAT). There is no appeal against HMRC’s request to inspect a person’s records but the request would have to be reasonable. As an example of what would not be considered reasonable HMRC instance repeated requests to see the same records.

The new information powers give HMRC the right to see the statutory records that the taxpayer is required to keep and permit them to request any other records that they consider necessary to check the taxpayer’s tax position. Information other than the statutory records is referred to as ‘supplementary information’. The power to request supplementary information will allow an officer to request:-

  • Information, explanations and schedules, including business diaries, appointment books, private bank account statements, etc.;
  • Information that is not written such as photographs of an asset;
  • Something that has to be created or brought into being (so the power would not be restricted to existing documents).

The power to require the provision of supplementary information has to be used reasonably and there is a right of appeal against it.

HMRC have also obtained a new information power that enables them to demand information from accountants and tax advisers to explain any information or document they assisted the client in preparing for submission to HMRC. While HMRC have for some time been able to demand to see the ‘link papers’ (the workings showing how figures derived from various sources related to the figures on a return), this new power goes further. It is not linked to an entry in a tax return and can be used to demand information or documents that are reasonably required for the purpose of checking a person’s tax position. It can be used, therefore, to require accountants and tax advisers to provide explanations for their advice to their clients.

The Power to Make Assessments

HMRC’s powers to make assessments to recover VAT are in Value Added Tax Act 1994, s. 73.


  • There has been a failure to make a return;
  • Documents required for the purposes of VAT have not been kept;
  • Facilities to verify a person’s returns have not been afforded;
  • It appears to HMRC that a return is incomplete or incorrect (VATA 1994, s. 73(1)); or
  • Any refund or repayment of tax has been incorrectly repaid or credited, or any incorrect input tax claim has been made (VATA 1994, s. 73(2))

HMRC may make an assessment to the best of their judgement.

If new evidence comes to light which indicates that the assessment is inadequate, HMRC may make an additional assessment (VATA 1994, s. 73(6)).

Even where no new information is available, HMRC may, otherwise than in circumstances falling within VATA 1994, s. 73(6)(b) or 75(2)(b), increase the amount of the original assessment if it appears to them that the amount which ought to have been assessed exceeds the amount assessed: a supplementary assessment is made in the amount of the excess on or before the last day on which the original assessment could have been made.

Any assessment must state the reason why it has been made.

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HMRC Power to take Samples, etc

If considered necessary for the protection of the revenue, HMRC can take samples from goods in the possession of a supplier to determine how goods have been, or ought to be, treated for VAT purposes (Value Added Tax Act 1994, Sch. 11, para. 8). This may be necessary, to check whether a supply is zero-rated, for example, whether water’s purity is within the standard in VATA 1994, Sch. 8, Grp. 2, item 2(a). The trader should receive compensation if the sample is not returned within a reasonable time and in good condition. Under para. 9, gaming machines can be opened to ensure VAT is being paid on the full amount of the supplies.

Recovery of VAT

VAT due from a taxable person is a debt due to the Crown (Value Added Tax Act 1994, Sch. 11, para. 5(1)). For the purpose of recovery proceedings, VAT includes:-

  • VAT shown as due by a return;
  • VAT, penalties, interest or surcharge included in any assessment issued by HMRC (VATA 1994, s. 76(9));
  • Penalties awarded by a tribunal in respect of any failure to comply with a direction or summons (VATA 1994, Sch. 12, para. 10(4)); or
  • VAT shown on any invoice issued by an unauthorised person (VATA 1994, Sch. 11, para. 5(3)).

The VAT charged in an assessment becomes due when no appeal is made against the assessment or when any appeal becomes final and conclusive. At that point HMRC may take any of the following steps to recover the VAT:-

  • Distraint proceedings, without the need for a court order (Value Added Tax Regulations 1995 (SI 1995/2518), reg. 212 and 213); VATA 1994, Sch. 11, para. 5(4) and (5));
  • Civil recovery proceedings in the High Court;
  • Darnishée proceedings, a Mareva injunction or attachment of earnings;
  • Bankruptcy proceedings; or
  • By way of set-off against moneys due to the person by HMRC (VATA 1994, s. 81(3)–(5); R v C & E Commrs, ex parte Richmond (1989) 4 BVC 100).

If the person has left the UK, but is within the member states, HMRC may apply to the authorities of the country where the person is to have the matter pursued through the courts of that country.

Where a director of a limited company has given a guarantee to satisfy HMRC’s demand for security, he may be held personally liable for any VAT due from the company and he may, in any event, be liable for a civil penalty for fraud, which is chargeable on the company, whether or not he has provided a personal guarantee.

Partners are jointly and severally liable for all partnership debts and, unless he notified HMRC that he had left the partnership, a retired partner can be held responsible for the payment of VAT in respect of a period after he retired from the firm (VATA 1994, s. 45(2) and (5)).

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Time-Limits for making an Assessment

The normal time-limit for making an assessment is the later of:-

  • Two years after the end of the prescribed accounting period to which the assessment is intended to relate; or
  • One year after evidence of facts, sufficient in the opinion of HMRC to justify the making of an assessment, comes to their knowledge

but, in any event, not later than three years after the end of the prescribed accounting period (Value Added Tax Act 1994, s. 73(6) and 77(1)).

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Further Reading

Vat Investigation