Successful £88,000 VAT Assessment Reduction Achieved in HMRC Dispute

Tom Chee, Tax and Investigations Forensic Consultant, led a dispute, supported by Chris Russell, Tax Director, both from our Liverpool office. Together, they helped a client reduce a VAT assessment from £90,000 to just £2,000 in a case with HMRC.

Case overview

The client in question approached the Liverpool office, on a recommendation, as their current agent had advised them to simply pay the VAT assessment and that the likelihood of success following appeal was slim. The case related to a VAT repayment for a high value car that the client hires out to insurance companies when high net worth individuals are involved in car accidents.

During the HMRC investigation, they stated a management charge between our client and their second company, an insurance provider, should have had VAT charged. With the second business being an insurance company(exempt for VAT purposes) which  would not be eligible to reclaim any VAT.

Successful £88,000 VAT Assessment Reduction Achieved in HMRC Dispute

Handling the dispute

The investigations team spent over a year in discussions with HMRC, following the appeals processes with little movement in HMRC’s viewpoint. Further ‘independent reviews’ from HMRC led to the same outcome, regardless of the evidence provided.

Our team argued that the vehicle was simply one car in a fleet of over 100 cars held for hire, previous VAT claims on these vehicles had all passed checks and been accepted by HMRC, this one was no different. However due to HMRC’s intransigence, the Officer in question was unwilling to change his decision as a lease document provided by the original agent stated the car was not to be sub-let. This had no relevance to the underlying fact the car was used as a hire vehicle.

The management charge fell into a grey area of HMRC legislation whereby we argued it was simply a disbursement of costs, one company was the payroll provider for the whole group, whilst HMRC stood firm on their stance that it was a supply of staff and as such should have VAT charged.

After many months of correspondence, they had no option but to apply to Tribunal for both cases as well as subsequent Alternative Dispute Resolution (ADR). This was conducted with two members of Xeinadin staff, our client, three HMRC members, and two mediators.

The ADR meeting started at 10am and lasted until 5:30pm, arguments for and against were made by both sides with enough evidence provided to prove the car was let on a commercial basis and not available for personal use and the appeal on this element was accepted.

The disbursement of staff issue made up the majority of the days debate, given there was little evidence for either side to prove one way or another. In the end the team pushed HMRC to agree that should the appeal continue to Tribunal they could not be confident their decision would be upheld given the distinct lack of evidence provided. When reviewing the hard facts of the case, it was clear our client’s intention was not to avoid VAT and their behaviour had been exemplary thus far, to penalise them with £60,000 output VAT would seriously jeopardise their business moving forward.

After long negotiations, HMRC accepted both appeals with a small caveat that formal agreements between companies need to be put in place in the future, which have since been finalised and agreed.

Why this matters

The original £90,000 assessment could have caused severe financial problems for the client. For Xeinadin, this win shows our innovation, dedication and expertise.

Moreover it shows that whilst HMRC have significant power over SME businesses in these cases, and we as advisers will not be deterred from questioning HMRC’s logic and reasoning.

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