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HMRC internal manual

VAT Assessments and Error Correction

VAT assessments: types of assessment: protective assessments: when does HMRC make protective assessments

HMRC makes protective assessments to protect revenue at risk in ongoing litigation where the law is currently against us. Litigation can take years to be resolved, and in the meantime tax may not have been accounted for on returns, or may have been repaid if a claim has been made.

A court decision does not constitute ‘fresh evidence of facts’ and the time limits for assessing are not extended because litigation is ongoing. By making a protective assessment HMRC avoids the risk that these amounts may be lost, even if HMRC successfully appeals.

When do you need to issue a protective assessment?

You will need to consider a protective assessment when HMRC is contesting a court judgment. Where a judgment is declaratory, you may need to do so for businesses not directly involved in the case. A declaratory judgment is a decision of a higher court (that is, above the First-tier Tribunal). This may be the Upper Tribunal, the Court of Appeal or, in Scotland, the Court of Session; decisions of these courts are binding, not just on the parties in that litigation, but on all other parties where the facts are the same.

Where we contest the decision of a First-tier tribunal you will not normally need to make protective assessments for businesses not directly involved in the case.

So, you may need to make and notify a protective assessment

  • where there has been a declaratory judgment against HMRC; and
  • HMRC is (or is considering) appealing that decision; and
  • you have a case where the facts are the same as those in the judgment.

Who might you raise protective assessments against?

You will need to consider assessing businesses in any of the following categories

  • Litigants – those directly involved in the case.
  • Followers – those with an appeal stood behind the case.
  • Non-litigants – those not involved in the case at all but where the same facts apply.

How do I make and notify a protective assessment?

A protective assessment is a normal assessment which can be made and notified under Sections 73(1), 73(2) and 80(4A) of VATA 1994. It is important that the correct assessing provision is identified.

You should follow the guidance for issuing assessments, see VAEC8600.

Remember to set the appeals indicator so that the assessment is not enforced.