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HMRC internal manual

VAT Assessments and Error Correction

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HM Revenue & Customs
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Protective assessments: The legal implications

Occasionally a business may challenge HMRC on the grounds that protective assessments fail the best judgement, criteria. See VAEC1400

Any such challenges should be refuted.

The decision to assess does not ignore the legal position found by a court. Where the Upper Tribunal or higher Court has ruled against HMRC you will normally follow that court’s view of the law. In some instances however, we will be advised by Counsel that the court decision is wrong in law, and that HMRC are likely to succeed on appeal.

Based on this advice, HMRC may then seek leave to appeal at which point you may decide to issue protective assessments. It is not necessary to wait till the leave to appeal has been granted.

In discussing ‘best judgement’, Carnwath J said:

‘… the tribunal 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, that the assessment has been reached “dishonestly or vindictively or capriciously”; or is a 2spurious estimate or guess in which all elements of judgement are missing”; or is “wholly unreasonable”. [Ref: Rahman C02329/97]’

Applying the above rationale HMRC consider that protective assessments will not fail to satisfy best judgement criteria.

Additionally, in the case of Courts plc v C&E (Court of Appeal EWCA Civ 1527) the court determined that an assessment which is made in order to protect HMRC’s position in the event of a subsequent appeal being decided in their favour, is nonetheless an assessment, and when notified, creates a debt.

The fact that debt recovery action is suspended does not alter the fact that an assessment has been made.

If a business continues to argue that protective assessment is not to best judgement you should reject such arguments. Remind the business that the assessment will only be enforced if HMRC are successful with their appeal.

If a business insists on appealing against the protective assessment on best judgement grounds, advise the business that HMRC will apply to have the appeal stood over until the disputed decision has been resolved in the courts.

If a stand over cannot be obtained and the court decides that the assessment is invalid on best judgement grounds, contact Central Policy, TAA Team, for further advice. See VAEC0150. In such circumstances we may wish to appeal against the decision until the lead case is decided.