VAT Disputes and Penalties

VAT seems straightforward. To a certain extent, it is. You pay HMRC what you have collected through your sales (your output tax) and claim back what you’ve paid out in expenses to your suppliers (your input tax).

But that apparent simplicity is a mirage.

It masks the complexity of the legislation. And it hides how difficult it can be to get through to HMRC when they believe you’ve done something wrong or owe them money.

Altion Law are specialists at advising and representing parties who have received Notices of VAT Investigations, VAT Assessments, VAT Penalties, VAT Surcharges, VAT Refund Refusals, are involved in a VAT Tribunal or have been challenged on the use of a VAT Rate by HMRC. For a confidential free discussion, call us today on 01908 414990,  alternatively email us at Hello@altion-law.co.uk or complete our Free Enquiry Form and we will call you back.

Are you locked in a VAT dispute with HMRC?

Do you feel like you’re banging your head against a brick wall, trying to get through to them?

You’re not alone.

In the many years we have been helping corporations and directors contest VAT assessments (estimates of how much HMRC considers it is owed) and wrongdoing penalties, there’s one thing we hear from clients time and time again:

“HMRC are not listening to what we’re telling them.”

The problem is many businesses and accountants don’t realise they’re failing to communicate. Often, the reason they’re not getting their message across is because they’re not speaking the same language as HMRC. They’re not playing the same ball game.

Here’s why.

Producing VAT invoices, completing VAT returns, and calculating your input and output tax: these are all accounting activities that are rightly handled by an accountant. But when you’re looking to challenge a VAT penalty or assessment, you’re entering the legal realm. Unless you know your way around all the different legislation and case law, that’s somewhere that can be difficult to navigate.

It’s not enough to be familiar with the provisions of the Value Added Tax Act 1994, as most accountants are. If you want to challenge a VAT assessment or VAT penalty, if you want to successfully negotiate with HMRC, you need to approach things from a legal position, not an accountancy angle.

As specialist VAT dispute solicitors, that’s where we come in.

Who do we help?

We specialise in advising and representing businesses that have received VAT assessments, notices of VAT investigations and wrongdoing penalties from HMRC.

Our clients vary in size. From large corporations to small and medium-sized enterprises (SMEs). From sole traders to company directors where HMRC is looking to pass a wrongdoing penalty on to them in their personal capacity.

They come from a wide range of industries. From commercial construction companies to specialist communications providers. From online sellers and vehicle wholesalers to gin distillers and wine and spirits importers.

What all our clients have in common is our undivided attention.

Because we know how involved a VAT dispute can become, how quickly it can grow arms and legs, and how many angles HMRC can try to come at you from, we choose to focus on a handful of cases at any one time.

When you choose to work with our specialist VAT dispute solicitors, we’re there to support you through each stage of your dispute with HMRC. However long it takes. However complex it becomes.

Altion Law are specialists at advising and representing parties who have received Notices of VAT Investigations, VAT Assessments, VAT Penalties, VAT Surcharges, VAT Refund Refusals, are involved in a VAT Tribunal or have been challenged on the use of a VAT Rate by HMRC. For a confidential free discussion, call us today on 01908 414990,  alternatively email us at Hello@altion-law.co.uk or complete our Free Enquiry Form and we will call you back.

 

A Word of Warning

Have you received a letter from HMRC informing you of their intention to raise an assessment or issue a VAT penalty?

The letter should set out HMRC’s reasons. As well as having a Human Rights Act notice explaining that you do not have to answer HMRC’s questions, the letter will probably ask you to comment or provide certain information.

Be careful how you respond.

Whatever you say to HMRC at this stage could come back to bite you at a later date. That’s why we would urge you to seek expert legal advice straight away.

 

“Do I need a VAT solicitor or can my accountant handle things?”

Imagine you’re building a new house or adding a new space to your existing building. You’re looking to make your dream home a reality. In theory, you could ask your builder to design and build it. But there are good reasons to work with an architect, as well as several risks if you don’t.

An architect can spot opportunities you may have missed. They can help you obtain planning permission. And, with years of formal training, their understanding of design can be the difference between a home that works and one that doesn’t.

In the same way, it makes sense to work with a specialist VAT dispute solicitor. The expertise you need lies not so much in how VAT works but in knowing how to persuade and negotiate with HMRC.

It’s the difference between an argument that works and one that doesn’t.

A VAT solicitor can help you spot gaps in information and holes in the evidence – whether yours or HMRC’s.

The other benefit of working with a solicitor is that the advice we give you will remain confidential. It’s legally privileged. That means you don’t have to disclose it to HMRC if you appeal a decision to the Tax Tribunal. That’s not the case with advice from an accountant.

If you are concerned you should be seeking legal advice, for a confidential free discussion, call us today on 01908 414990,  alternatively email us at Hello@altion-law.co.uk or complete our Free Enquiry Form and we will call you back.

What people often get wrong about VAT disputes

Has HMRC told you it plans to investigate your VAT payments? Maybe it’s raised an assessment. Or perhaps you’ve been notified of a penalty that you wish to challenge.

Whatever your situation, if there’s one thing you take away from this page, let it be this: The review process is your best chance of overturning HMRC’s decision. Please don’t waste it.

We say that for good reason. Often, we hear from businesses and accountants who want to challenge a VAT assessment. Far too often, we only hear from them after they’ve requested a review and that review has already taken place.

The review is your best opportunity to change HMRC’s mind. It’s a lifeline you don’t want to waste. Sadly, that’s precisely what many businesses and accountants do.

Instead of setting out compelling reasons why the original decision was wrong, they simply ask for another HMRC officer to look at the matter. They don’t put forward any new arguments or ask HMRC to consider additional evidence. So it’s no real surprise when the review comes back upholding the original decision.

We’ll make sure you don’t make the same mistake.

“Can’t I just take HMRC to the Tax Tribunal?”

If only it were that straightforward. Once a review has taken place, it becomes much harder to reverse HMRC’s decision.

Yes, it’s possible to challenge a review decision by taking a case to the Tax Tribunal. However, it’s not a simple matter of arguing that HMRC got its decision wrong. That’s not the legal test the tribunal will apply.

Forget notions of having your day in court and clearing your name. Once you get to the tribunal stage, it’s no longer about whether HMRC made the correct decision. The tribunal could even agree with you and yet still uphold HMRC’s original decision. That’s because what the tribunal has to decide is whether HMRC’s officers made a reasonable decision based on the evidence before them.

Think of it like a VAR review in football. If one team has been awarded a penalty in controversial circumstances, the question for the video assistant referee is not: ‘do I agree with that decision?’ Instead, they have to ask themselves: ‘has a clear error been made?’

If the person behind the monitor can’t say the referee has clearly made an error, the penalty must stand, even if they, themselves, wouldn’t have awarded a penalty.

Getting the legal test wrong is a common mistake businesses make. But that’s not the only thing that can come as a surprise.

If you are concerned that you are facing an HMRC Tax Tribunal, for a confidential free discussion, call us today on 01908 414990,  alternatively email us at Hello@altion-law.co.uk or complete our Free Enquiry Form and we will call you back. 

When you need to be prepared to pay

If HMRC has raised an assessment, you might think you can buy yourself some time by putting in an appeal. Unfortunately, that’s not how the Tax Tribunal system works. In fact, the opposite is true.

If you want to take an appeal to the Tax Tribunal, you’ll first need to pay the sum in dispute up front.

There are exceptions to this rule. But only if you can prove to HMRC that it would cause you hardship to pay the sum in dispute before your appeal has been decided.

And be in no doubt. Proving hardship is hard.

 

How might a VAT dispute arise?

VAT disputes can arise in many different ways. Some of the most common disputes we deal with include:

• Issues around VAT registration or deregistration
• HMRC refusing to grant a VAT refund
• HMRC reclaiming VAT already paid to a company where HMRC allege an error
• Incorrect VAT paperwork
• Input tax and output tax irregularities
• The refusal of VAT reclaims
• Acquisition tax issues
• Allegations of missing trader fraud

Whatever issue HMRC has raised with you, it’s important to seek expert legal advice at an early stage. Because if HMRC has concerns about one area, it may not be long before they start looking into other matters.

Altion Law are specialists at advising and representing parties who have received Notices of VAT Investigations, VAT Assessments, VAT Penalties, VAT Surcharges, VAT Refund Refusals and queries on VAT Rates from HMRC. For a confidential free discussion, call us today on 01908 414990,  alternatively email us at Hello@altion-law.co.uk or complete our Free Enquiry Form and we will call you back.

What to do if you want to challenge HMRC’s decision

If you’ve had a VAT claim refused by HMRC, there are three steps you should take.

Step 1: Fully understand the position

The first thing to do is to understand precisely why your claim has been rejected. Not just so you can work out whether it’s worth challenging it. But also because when HMRC disallows a VAT reclaim, it could turn out to be just the tip of the iceberg. If you’re not careful, it could open up a can of worms and lead to more serious action being taken against your business.

In addition, HMRC has the power to charge a VAT surcharge (or VAT default surcharge). This is a penalty for late payment. It increases in value each time you make a late or defaulting payment. Over time, this can have a serious financial impact on your business.

That’s why it’s important to seek advice as soon as possible. To help you understand the position, the implications of what’s involved, and what could be at stake.

Step 2: Make an informed decision, but don’t delay

Once you know why your VAT claim was rejected, you will need to decide what you want to do. To weigh up whether it’s worth mounting a challenge.

If you do decide to challenge the disallowed tax, make sure you’re aware of the deadline for doing so. In most cases, you only have a limited period of time to challenge HMRC’s decision.

Step 3: Build your case

As with any legal dispute, arguments alone are rarely enough. To succeed, you need to prove your points. That requires evidence.

This may involve gathering together documents in support of your position. Or it may be a case of speaking with suppliers, transporters or other third parties, to establish their version of events and help you understand what has happened.

 

Why might HMRC refuse a VAT reclaim?

The most common reasons are:

• Incorrect documents

To comply with the Value Added Tax Regulations 1995, VAT invoices need to include certain information. If your invoices lack necessary details, HMRC may say they’re not valid VAT invoices.

• Questions about the VAT return

HMRC may have queries about your VAT return itself. It may be that there are errors in your return that will need to be corrected before they can deal with any claim for a refund.

If there are any issues with your return, we recommend you discuss these with your accountant first of all. They may be able to help you resolve the matter relatively quickly.

• Question marks over the validity of documents

HMRC may have concerns about the documents your business has put together. Or it could be they have concerns about documents from one of your suppliers. In either situation, you need to act fast and seek out expert legal help.

When HMRC has concerns about the use of invalid documents, the situation can escalate alarmingly quickly, and it can lead to investigations for missing trader intra-community (MTIC) fraud.

 

Missing trader VAT disputes

Cases of suspected missing trader intra-community (MTIC) fraud are among the most complex VAT disputes to defend. They can take several years to resolve and can come in many different guises, including what’s known as carousel fraud.

What makes these disputes so invidious is they can bite you even when you have done nothing wrong.

That certainly applied to a recent client. They had paid VAT on to their suppliers, who had then failed to pass that on to HMRC. This triggered an HMRC investigation of the entire supply chain and led to an accusation being levelled against our client that they “knew or should have known” that there was VAT fraud in the chain. In short, HMRC accused them of failing to carry out due diligence properly – an allegation we are helping our client to rebut by way of an appeal to the Tax Tribunal.

Where HMRC has suspicions of MTIC fraud, it will withhold any VAT repayment until it has concluded its enquiries. That means you could be waiting many months, even years, to receive what you are due.

But the consequences can be much worse. Ultimately, it can lead to a criminal prosecution and time in prison.

If you find yourself implicated in a missing trader investigation, don’t hesitate to get expert legal help. Altion Law are specialists at advising and representing parties who have received Notices of VAT Investigations, VAT Assessments, VAT Penalties, VAT Surcharges, VAT Refund Refusals and queries on VAT Rates from HMRC. For a confidential free discussion, call us today on 01908 414990,  alternatively email us at Hello@altion-law.co.uk or complete our Free Enquiry Form and we will call you back.

VAT penalties

If you fail to resolve your VAT dispute with HMRC, your business could be made to pay a VAT penalty. This is a type of ‘wrongdoing penalty’.

Why might HMRC issue a VAT penalty?

There are all sorts of reasons why you might receive a VAT penalty. The most common examples we see include penalties for:

• Not keeping VAT records
• Late payment of VAT
• Going over the VAT threshold
• Not being registered for VAT
• Evading VAT

How much will the penalty be and how is it calculated?

HMRC takes various matters into account. These include the amount of potential lost revenue for the taxman and whether your conduct was:

• Innocent
• Deliberate
• Deliberate and concealed
• Disclosed voluntarily by you

The risks of doing nothing

If you decide not to dispute a VAT penalty, HMRC will assume that you accept responsibility. They will pursue you for payment. If you do not pay HMRC will take further action to pursue the payment, if you want to understand what will happen, please read our page on what happens if you are issued with an HMRC assessment or penalty and do not pay.

They may also decide to take further action – particularly if they consider the wrongdoing to be deliberate.

In such cases, HMRC could look to cross the penalty over to you as a director or partner in your personal capacity. There could be a criminal investigation. Or they could bring civil proceedings to have you disqualified as a director. Indeed, that’s something we are seeing more and more of, particularly since the pandemic.

There are other risks.

HMRC could decide to investigate earlier tax returns. They could potentially go back as far as 20 years if they decide there has been a deliberate attempt to avoid paying tax that was due. Even if an innocent mistake has been made, they can go back 4 years, while a careless mistake would enable them to go back 6 years.

That’s why we recommend seeking specialist legal advice as soon as HMRC notifies you of their intention to issue a VAT penalty. Even if it’s just a warning, we can help prevent the matter from escalating.For a confidential free discussion, call us today on 01908 414990,  alternatively email us at Hello@altion-law.co.uk or complete our Free Enquiry Form and we will call you back.

 

What are the time limits for challenging a VAT penalty?

If HMRC doesn’t accept you have a reasonable excuse for whatever wrongdoing it has found, it will formally raise a VAT penalty. You then have two choices: pay the penalty or request a review.

You only have 30 days to request a review.

If HMRC doesn’t overturn its original decision on review, you have one final recourse: an appeal to the Tax Tribunal. The same time limit applies. You must submit your appeal within 30 days of the date HMRC issued its review decision in writing.

If you have missed an HMRC VAT deadline, please review our page on options and evidence to support out of time HMRC appeals.

In some situations, however, there may be reasons why you decide to skip the review stage and proceed straight to an appeal.

Whatever your particular circumstances, we can advise you on the best course of action.

Altion Law are specialists at advising and representing parties who have received Notices of VAT Investigations, VAT Assessments, VAT Penalties, VAT Surcharges, VAT Refund Refusals and queries on VAT Rates from HMRC. For a confidential free discussion, call us today on 01908 414990,  alternatively email us at Hello@altion-law.co.uk or complete our Free Enquiry Form and we will call you back.

Amazon VAT issues

Have you been told your business owes Amazon thousands of pounds in VAT? Do they say you’re not established for VAT purposes in a country where you should be? Are you struggling to get them to accept the reality of your situation?

That was precisely the problem facing one of our recent clients.

The business had been trading in the EU for many years. It was registered and paid VAT in more than one EU member state. But that didn’t stop Amazon from conducting its own investigation and concluding that the business was not established in the EU for VAT purposes. As a result, Amazon announced it would start collecting VAT on our client’s future sales to consumers in the UK and EU.

Matters got worse. Amazon claimed our client owed VAT on past sales stretching back to 2021. It was demanding a huge sum of money. Until that was paid, it put heavy restrictions on our client’s ability to operate. Many of our client’s accounts with Amazon were frozen worldwide. Overnight, cash flow dried up.

Of course, our client tried to get Amazon to see sense and accept that the business was based in the EU. But no matter how much they protested, they simply weren’t getting through. Nobody seemed to be listening.

Our client brought us in to liaise with Amazon and its lawyers. We managed to persuade Amazon to change its mind. It removed the hold on our client’s business accounts and revoked the demand for alleged outstanding VAT.

If you’re having difficulties with Amazon over VAT, we can help. We offer a fixed cost review if you have received communications challenging you UK VAT status. For a confidential free discussion, call us today on 01908 414990,  alternatively email us at Hello@altion-law.co.uk or complete our Free Enquiry Form and we will call you back.

 

Put your business in the best possible light

Wherever you are, specialist advice is only a phone call away. We’re based in Milton Keynes but act nationwide and internationally for our clients.

Let us help you get through to HMRC. Contact us today to discuss your situation and start putting the right legal strategy in place.

Your first call is free and there are no obligations. We’ll let you know our fees for carrying out the work we recommend. But you are free to accept or decline.

Altion Law are specialists at advising and representing parties who have received Notices of VAT Investigations, VAT Assessments, VAT Penalties, VAT Surcharges, VAT Refund Refusals and queries on VAT Rates from HMRC. For a confidential free discussion, call us today on 01908 414990,  alternatively email us at Hello@altion-law.co.uk or complete our Free Enquiry Form and we will call you back.