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HMRC internal manual

VAT Assessments and Error Correction

Power of assessment: Best judgement: How it is determined by tribunal

Tribunals adopt a two step approach to assessment appeals, looking initially at the question of best judgement and then at the amount of the assessment.

A ruling in the High Court in the case of Mohammed Hafizar Rahman (t/a Khayam Restaurant) CO 2329/97 re-examined the Tribunal’s role in looking at best judgement appeals.

In Rahman, the business appealed against an assessment for under-declared output tax on the grounds that it was not made to best judgement. The tribunal had dismissed the business’s appeal, acknowledging a small reduction to the assessment.

The High Court found no reason to criticise the tribunal’s decision on the best judgement issue but highlighted the following important issues

  • that where a business successfully disputes the amount of an assessment, the assessment may be reduced, but it will rarely fail the best judgement test
  • tribunals should not treat an assessment as invalid merely because they disagree as to how the judgement should have been exercised. A much stronger finding is required for example

    • the assessment has been reached dishonestly, vindictively or capriciously, or
    • the assessment is a spurious estimate or guess in which all elements of judgement are missing, or
    • the assessment is wholly unreasonable.
  • the High Court recognised the practice whereby the tribunal adopts a two step approach, looking initially at the question of best judgement and then at the amount of the assessment. The clear message of the High Court was that the VAT and Duties Tribunal should concern itself more with the amount than best judgement.

Convincing a tribunal that an assessment has been made to best judgement is paramount, see VAEC1431.