Reviews and appeals for indirect taxes

Appealing against a Her Majesty's Revenue & Customs (HMRC's) decision or assessment:

What decision can be appealed against ?

Section 83 VAT Act 1994 is an exhaustive list of the Tribunals jurisdiction, and VAT decisions outside of Section 83 are not appealable. Nor are discussions about hypothetical supplies, or non-statutory clearances given before a supply is made. If HMRC does not provide a decision, or states there are no outstanding issues there can be no appeal.

The re-statement of an existing HMRC decision does not create a fresh decision for the purposes of appeal time limits.

The absence of appeal and review rights in a HMRC decision letter does not invalidate a tax decision. Similarly their inclusion cannot give the Tribunal a jurisdiction it does not have. However it may be appropriate to allow a late review request where the appeals wording is missing.

The tribunal has a limited jurisdiction in certain cases . Where the law gives HMRC a discretion to allow a request, appeal rights only arises where the legal requirements for that discretion are met. There is no right of appeal on the basis those requirements can be waived.

• Section 83(1)(a) Registration and Deregistration

Only the registration or cancellation of a registration falls under this heading. A HMRC refusal to allow administrative concessions such as divisional registration or exemption from registration (on grounds of zero-rating) are not appealable.

If a taxpayer is compulsorily registered by HMRC then normally the first accounting period will be assessed. If the taxpayer disputes the registration (for example maintaining all supplies made are exempt while HMRC’s view is that supplies are standard rated) then HMRC’s decision to register the taxpayer can be appealed under s83(1)(a).

Technically speaking the first period assessment itself cannot be appealed until a return is made and either the assessment is paid or hardship granted. However HMRC will not normally seek to enforce the first period assessment until after the registration appeal is determined.

Parts of Schedule 1 VAT Act 1994 appear to make certain deregistration decisions a discretionary matter for HMRC by using the language ‘if the Commissioners are satisfied’. While the tribunal may have either a supervisory or an appellate jurisdiction in these cases, the taxpayer has a clear right to appeal under 83(1)(a) under either jurisdiction.

• Section 83(1)(b) The VAT chargeable on the supply of any goods or services

An appeal under section 83(1)(b) is not confined to cases where HMRC have decided the precise amount of VAT to be charged and should be construed broadly. Case law confirms that this encompasses any issue between a taxpayer and HMRC where HMRC has made a decision which is ‘material to the chargeability of the taxpayer to VAT’.

However it should be stressed that no appealable decision can be given before a supply is made and this has been confirmed by a High Court decision. This includes non-statutory clearances where no supply has yet been made.

Also the Tribunal cannot waive legal conditions relating to VAT Liability and has no jurisdiction to consider arguments on grounds of fairness. For instance, to qualify for zero-rating under the VAT personal export scheme, tertiary legislation requires a form to be submitted to and returned by HMRC prior to the supply. There is no discretion in law if the conditions of the scheme are not met. In those circumstances, a right of appeal exists against the resulting decision on VAT liability but the Tribunal has no jurisdiction to allow zero-rating on the grounds that the requirements of the scheme were unfair.

Either the supplier or the recipient of a supply can appeal a ruling on the amount of VAT chargeable on a supply, and even in some cases other interested parties. However only the supplier can make a claim for over-declared output tax to HMRC (a section 80 claim).

• Section 83(1)(c) The amount of input tax which may be credited to a person

This covers appeals in respect of a person’s right to credit for input tax ‘under the VAT legislation’. It does not give the First-tier Tribunal jurisdiction to decide the amount of something which is not input tax and which is not to be credited in accordance with the statutory provisions.

Both Sections 83(1)(c) and 83(1)(e) ‘the proportion of input tax allowable under section 26’ are subject to Section 84(4). Where disputed input tax concerns VAT on the supply, acquisition or importation of something in the nature of a luxury, amusement or entertainment – the tribunal shall not allow the appeal unless it considers HMRC’s view was unreasonable, or is unreasonable considering information since brought to the tribunals attention.

HMRC have a discretion under Regulation 29(2) of the VAT regulations 1995, to allow a credit for input tax notwithstanding the absence of a valid document or tax invoice. The tribunal only has a supervisory jurisdiction in these cases. This means the tribunal can make HMRC revisit the decision but not make its own decision on the matter.

• Section 83(1)(e)The proportion of input tax allowable under section 26

The tribunal has a general appellate jurisdiction to determine on the basis of all the facts and matters found by them at the time of their decision whether a partial exemption method secures a fair and reasonable attribution of input tax to taxable supplies.

However there is no express right to appeal the exercise of HMRC’s power under Regulation 102 of the VAT regulations to direct or approve the use or termination of a special method for attributing input tax.

• Section 83(1)(l) Requirement to give security

The tribunal has different jurisdictions depending on whether the requirement for security is made under Paragraph 4(1A) or 4(2) of Schedule 11.

If a tribunal comes to the conclusion the decision to require security is wrong under Paragraph 4(2) it does not have the right to substitute its own decision. It should simply allow the appeal and HMRC may take a fresh decision on the facts now known if it sees fit.

• Section 83(1)(p) and (r) VAT assessments under section 73 and 75 VAT Act

There is no right to appeal an assessment under Section 83(1)(p) unless a return for the period being assessed has been made and either the amounts assessed have been paid or the taxpayer makes a successful hardship application. The requirement for a submitted return does not apply to appeals against assessments made under Section 73(7) or (7A) or (7B) or 75.

Also assessments made on the basis set out in section 77(4), i.e. is that are made more than four years after the end of the relevant VAT period can be appealed under Section 83(1)(r) without the submission of a return.

For Liable no Longer Liable cases, although HMRC has a right to make an assessment for the period when a taxpayer was liable, the taxpayer is unable to appeal this assessment under Section 83(1)(p) as no returns have been submitted. The Liable no Longer Liable process is an administrative concession and if quantum is disputed, the taxpayer will have to submit a return before making an appeal under this heading.

An appeal can be made against the validity of the assessment (for example on best judgement grounds) or its quantum. If it is not clear which element the taxpayer is appealing against, the tribunal will normally assume the appeal is against both.

• Section 83(1) (n) and (q) Liability to Penalties and Surcharge, and amount of Penalties, Surcharge and Interest

Under Section 84(3) VAT Act 1994 an appeal against penalties, surcharge or interest shall not be entertained unless the ‘amount which HMRC have determined to be payable as VAT has been paid’.

My interpretation is that the ‘amount…determined to be payable as VAT’ only refers to actual VAT and not to the penalty, etc. itself. Therefore where an underlying VAT return or assessment has been paid (or a successful hardship application made) the taxpayer does not need to pay the associated penalty, surcharge or interest before making an appeal.

A taxpayer has no right to appeal the fact that Interest has been charged, only the quantum. Under section 84(6) the tribunal cannot vary the amount of Interest charged except to reduce it to the amount which is appropriate under sections 59 to 70.

Section 83(1)(wb) any refusal of the Commissioners to grant any permission under, or otherwise to exercise in favour of a particular person any power conferred by, any provision of Part1 of Schedule 10

HMRC has a discretion under Paragraph 23 of Schedule10 to allow an Option to Tax on a property to be revoked but only within 6 months of the option coming into effect. Any request made after the 6 months has expired is out of the scope of the discretion and not appealable.

In certain cases the tribunal’s jurisdiction is limited to a power to review and it cannot substitute its own judgement for that of HMRC.

An appeal will only be allowed if the tribunal considers that HMRC could not reasonably have been satisfied that there were grounds for that decision. The tribunal has to consider whether HMRC have acted in a way which no reasonable panel of commissioners could have acted or whether they have taken into account some irrelevant matter or have disregarded something to which they should have given weight. The tribunal may also consider whether HMRC have erred on a point of law.

This includes appeals under:

Section 83(1)(fza) - HMRC’s decision to refuse or withdraw a flat rate scheme authorisation or the appropriate percentage to be applied (see s84(4ZA))

Section 83(1)(k) - HMRC’s decision to refuse a new group application or a change in its composition on protection of the revenue grounds (see s84(4A))

Section 83(1)(ka) - A section 43C(1) notice terminating membership of a VAT group for the protection of the revenue (see s84(4C)) or eligibility (see s84(4D))

Section 83(1)(u) - A direction there is a single taxable person (see s84(7))

Section 83(1)(wa) - A direction or assessment under Schedule 9A (see s84(7A))

Section 83(1)(wb) - A refusal to grant permission to opt to tax (see s84(7ZA))

Section 83(1)(y) - A refusal to authorise or termination of authorisation use of the cash accounting scheme

Section 83(1)(zza) - A direction to keep specified records under Schedule 11 Paragraph 6A (see s84(7B)).