Topic: How to deal with HMRC assessment and HMRC time limits

A client has recently had an assurance visit from HMRC. An assessment has been issued in respect of an alleged under-recording of sales in the past 3 years. I believe this is down to accounting adjustments. How does HMRC base their assessment haven't dealt with an assessment before so need as much help and advice on how to contest this matter as far as the First Tier Tribunal. What are the time limits for HMRC To raise an assessment? Does a court decision reset the time limits for assessment? How can my client resist penalties? How does the appeal work?

Re: How to deal with HMRC assessment and HMRC time limits

Firstly an assessment is based on the commissioner’s “best judgement” [VAT Act 1994] within time limits. [A good case on best judgement is Singh case].

The time limits at which HMRC can raise an assessment is:

o    2 yrs from VAT return period OR 1 year after new evidence
o    Overall 4 years max (20 years if fraud or criminal conduct)
o    No time limits for “Books of prime entry” requests

A Court decision does not reset of the 1-year new evidence clock, on the basis that if HMRC are concerned they could raise a “protective assessment”

If no evidence of carelessness/deliberate, you can resist penalties.

The appeal process is as follows:

1. You are entitled to a review by independent office <30 days & HMRC to complete review <45 days
2. Review decision can be appealed to either FTT or UT <30 days
3. When applying to the courts, the courts need details of the appellant & representative details, details of case,
4. Note requirement for tax to be paid before Appeal court (but not on a Review) unless potential hardship application and interest is due date on settlement
5. The FTT court categories court cases before UT – default paper (not hearing), basic, standard or complex (tend to go straight to UT)

I advise to get legal representation if need be. OR consider potential agreement prior to hearing. And if the case goes that far and you know you are losing, you have potential to withdraw and avoid further costs.

Also note the courts do not reimburse costs unless if party HRMC acted unreasonable (rare for HMRC to pay) hence weigh costs vs benefit before appeal.