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HMRC internal manual

VAT Accounting Manual

Accounting for VAT: payments of VAT claimed on returns: tribunal decision or judgement pending

In cases where the Commissioners have decided that no payment should be made and the hearing of an appeal or other challenge against that decision is pending, there is still an obligation to consider whether a request for an interim payment should be accepted. It may also be the case that the verification process continues throughout the appeal process and in such case the principles in VATAC1570 will also be relevant.

The guidelines given in VATAC1570 in relation to security, legal costs, hardship and balancing the interest of the Commissioners against those of the trader are equally applicable to cases in which litigation has commenced. However, where a decision that no VAT credit arises has been made, the following additional guidance will assist:

  1. As in cases where interim payment is requested before a decision that no VAT credit arises, you can reasonably expect a trader seeking an unsecured interim payment to support his application with a reasoned written statement supported by evidence in a letter, witness statement or other form. The reasoned written statement should address both the grounds for the claim and the amount of the claim, demonstrating why there is a particular need for the identified sum to be paid at that time.
  2. Where an application for an interim payment has been made without a reasoned and supported written statement you should ask the trader to provide one.
  3. You can legitimately attach significant weight to the need to protect the revenue in cases where the claim arises out of an area of trading in which there is widespread fraud, such as MTIC.
  4. You must attach considerable weight to the Commissioners’ obligation to administer the VAT system consistently with the objectives of the Principal VAT Directive. It would be inimical to the principle of VAT neutrality in particular for the Commissioners to pay out sums of money which it subsequently transpires a trader was not entitled to. In making this judgement, you must not make unsupported assumptions as to the likely outcome of the appeal process. However, if you are satisfied that the Commissioners have real prospects of success, you may attach considerable weight to that fact. Further, in MTIC cases, you must attach considerable weight to objectively credible evidence that the trader had the knowledge or means of knowledge of fraud in prior or subsequent transactions.
  5. You must continue to have regard to the effect of withholding the disputed sums from the trader and balance this against the need to protect the revenue. Any unusual delay in the appeal process must be balanced against all other material facts and circumstances and you must have regard to the anticipated date for a decision from the Tribunal or Court judgment.

Policy has not identified any case where it would be appropriate to make a payment in circumstances where a decision to refuse the VAT credit has already been taken. However, you must remain alert to the existence of the power and the possibility of an interim payment being made. Any decision to make such a payment or any request to review a local decision in these circumstances should be reported, through the getting advice route, to the VPOT - VRAP Team with a report and recommendation. It is likely that payment will only be made in exceptional circumstances. Whereas exceptional circumstances may be readily apparent in practice, it is not possible to identify what those exceptional circumstances might be.