The recent First-Tier Tribunal case of Albany Fish Bar highlighted an area of incompetence within the HMRC when they failed to finalise a VAT assessment, resulting in a narrow escape for the fish and chip shop. Albany Fish Bar was being investigated due to systematically excluding lunchtime sales from its VAT returns. The case began on 9th August 2017 when an officer issued an assessment for £109,670 covering periods October 2010 to April 2017. A separate penalty of £87,736 was charged to the director and shareholder Mr Akhtar through a personal liability notice.
VAT errors can only be corrected for the last four years for both under and overpayments, which extends to a maximum of twenty years if underpayments are deliberate, as in the Albany case. However, there are other time limits in the legislation (s73(6), VATA1994:
- An assessment must be issued within "12 months of the date that evidence of the facts that justify making the assessment comes to our knowledge"
- If the 12-month time limit has passed, the maximum assessment period is two years.
With the case of Albany Fish Bar, the HMRC officer involved failed to make progress with the assessment. HMRC obtained till rolls and audit information from the fish and chip shop in July 2016, which confirmed there was an output tax problem. An assessment could have been raised straight away but was not issued until August 2017, covering October 2010 to April 2017. The period between July 2016 to August 2017 is clearly longer than 12-months and the judge therefore decided that the assessment was 'out of time' for periods October 2010 to July 2015; only the periods October 2015 to April 2017 were valid with the two-year limit.
This case emphasises that there are many issues to consider when reviewing a VAT assessment, including a check that the time limits in the legislation have been fully met. The law is there to protect taxpayers from late assessments. HMRC overlooked the importance of the July 2016 date and the result was that Albany Fish Bar ended up owing tax for two rather than seven years. A narrow escape for them.
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