De-registration: What do you do if HMRC cancels your VAT number?

HM Revenue and Customs (HMRC) have actively sought to clamp down on tax fraud and increasingly more businesses in a variety of sectors (away from the traditional MTIC cases involving alcohol or mobile phones) are subject to HMRC decisions de-registering a VAT number. It is vital that any company deal with tax issues as soon as they occur to prevent their appeal from being time-barred (and such decisions are usually subject to a strict 30 day time limit).

Our London Tax Solicitors and Barristers have vast experience of tax laws and first hand commercial, litigation and advocacy experience . We have a proven track record of successfully contesting disputed tax assessments and penalties with HMRC. The tax authorities have lost many cases that are appealed through negotiation, internal review or through the Tax Tribunal.

HMRC have cancelled my VAT registration

De-registration of a VAT number can lead to serious consequences for a company, especially one where taxable supplies are being made and are contemplated. For example, a company without a VAT number would be unlikely to secure future lucrative contracts, would not be able to issue tax invoices charging VAT or showing a VAT registration number, and would not be able to claim back input tax from taxable supplies and as such would be consequently subject to a hefty assessment. It is therefore crucial to take specialist advice early and appeal the decision in good time. There are a number of avenues a company can take in appealing such a decision from the Commissioners.

In what circumstances do HMRC de-register VAT numbers?

HMRC can exercise it powers under paragraph 13 of Schedule 1 of the VAT Act 1994 to cancel a VAT registration. The two main reasons are when HMRC conclude after an investigation that a company is either no longer making taxable supplies or a Commissioner believes that the company has been registered with the principal aim of the registration is to facilitate a fraud on the VAT system.

On what basis do HMRC allege that connections to fraud can lead to de-registration of a VAT number?

The UK VAT Act 1994 is governed by the EU Principal VAT Directive (Dir. 2006/112), the directive requires UK VAT legislation to be interpreted in conformity with it. Case law such as Kittel (C-439/04) and Mecsek (C-273/11) establishes the principle that community law cannot be relied on for fraudulent ends and the right to input tax recovery can be denied in circumstances where a transaction chain is connected with VAT fraud and the trader is found to have the requisite level of knowledge.

Therefore, we have seen cases where HMRC cancel a VAT registration where the Commissioners conclude that a trader is using its VAT registration for fraudulent purposes (or will do so in the future).

Can a company get its VAT number re-instated?

The answer is, it depends on the facts of each individual case. For example, in cases where fraud is alleged, the onus is on HMRC to establish that fraudulent activyt has occured or that the company is part of a chain of fraudulent transactions and that the trader knew- or ought to have known- about the fraud. Fraud is a serious accusation to level and HMRC should be put to the proof on this at the outset. Normally, such decision letters from HMRC do not go into detail. Deregistration would ordinarily be a step taken after months of investigation by HMRC into a company’s affairs.

In other cases, HMRC seek to import a wider interpretation to Community law than what the judges intended at the time. For example, Kittel refers to taxable goods, however, we have seen cases where HMRC attempt to expand the meaning of Kittel to include taxable supplies. It is not known at this stage how a Tribunal would interpret such a wide importation given by HMRC.

Can a company seek judicial review of a decision to cancel a VAT registration?

Again, the answer depends on the facts of the case. Generally it can be argued that cancelling the VAT number of a business that makes taxable supplies can be disproportionate. Arguments could be made that such a disproportionate action is incompatible with rights under the European Convention on Human Rights, contrary to section 6(1) of the Human Rights Act 1998.

Is there a time limit to bring a judicial review claim?

Yes. A judicial review claim must be made promptly and in any event no later than 3 months after the grounds to make the claim arose (CPR 54.5(1)). Note that this date cannot be extended by agreement between parties.

Therefore, if you believe that you may have a claim against HMRC for judicial review, then you should seek legal advice promptly.

How do I appeal a HMRC decision?

If a taxpayer disagrees with HMRC regarding a VAT de-registration decision, there is a 2-stage process for a taxpayer to dispute a HMRC decision:

Stage 1: give notice of appeal to HMRC. A taxpayer can appeal in writing within 30 days of HMRC’s notice of their decision. HMRC will confirm their first decision, amend their decision or agree with the taxpayer’s assessment.

Stage 2: if the taxpayer’s position cannot be agreed with HMRC in stage 1 then a taxpayer can avail themselves of two further options:

i. HMRC can offer an internal review of the disputed decision (or the taxpayer can request this procedure at any time). The review is an entirely internal procedure completed not by the original HMRC decision maker but by a different HMRC officer.

ii. A taxpayer can appeal to the First Tier Tax Tribunal if the taxpayer cannot agree their position following the review. The independent tribunal will make a determination on the case. A further appeal is permitted if a taxpayer does not agree with the decision.

What is a Notice of Appeal to HMRC?

If you disagree with HMRC’s deicison to de-register a VAT number, then you should first send notice to appeal the decision to HMRC. If HMRC makes a tax decision against you, you can contact HM Revenue and Customs (HMRC) or professional advice should be sought.

The first recourse of a taxpayer wishing to dispute a decision of HMRC is to examine the decision letter sent by HMRC which will contain instructions on how to appeal the decision made. Notice to appeal the tax decision must be made in writing by the taxpayer (or their legal representative) to HMRC by completing the appeal form attached to HMRC’s penalty letter or by following the instructions on the letter.

It is essential to appeal promptly within 30 days and seek early specialist advice because a late response can be fatal to any appeal. Members of our legal team have first-hand experience and working knowledge of the internal workings of HMRC. As specialist London Tax Disputes Solicitors, we have the competency and experience to unblock negotiations with HMRC.

More detailed guidance on HMRC Penalty Appeals can be found: here.

Should I use HMRC Internal Review?

The HMRC internal review process can be used by a taxpayer when appealing a HMRC decision. If the stage 1 appeal to HMRC after the penalty notice is issued is unsuccessful then either the taxpayer or HMRC can request an internal review of the decision.

The review is a statutory process conducted by a different tax officer from the first reviewer and is seen as a useful tool in providing a fresh set of eyes on the interpretation of facts. Not on whether the decision was “fair” or for a technical dispute- but on determining whether the decision was made in line with HMRC guidelines.

There are a number of advantages in utilising the internal review procedure. The internal review process is conducted within strict time periods, allowing the taxpayer to gain control of the timing of the case and resolution may be achieved faster than using the Tax Tribunal option. Moreover, previously published official statistics shows that 49% of internal reviews have resulted in HMRC penalties being annulled or amended. This demonstrates that HMRC is prone to making errors when issuing a penalty notice.

HMRC’s internal review process is subject to a number of formalities and strict time limits, it is important to seek legal representation as soon as possible. If the taxpayer neither accepts the review process nor notifies the appeal to the Tax Tribunal, the tax dispute is considered settled under section 54 TMA 1970 in line with HMRC’s view of the matter. Therefore, it is important to seek legal representation early to help navigate the internal review process because after missing this response deadline, it is impossible to resile from the settlement according to section 54(2) TMA 1970 (unless the Tax Tribunal allows late notification of the appeal).

If after the completion of internal review process the tax issue is still in dispute then recourse is also available by appealing to the First Tier Tax Tribunal (section 49D, TMA 1970) or by considering alternative dispute resolution (ADR).

More detailed guidance on HMRC Internal Review Advice can be found: here.

How do I appeal to the Tax Tribunal?

The Tax Tribunals can be used by a taxpayer when appealing a HMRC decision. If the appeal to HMRC after the penalty notice is issued is unsuccessful and the HMRC  internal review procedure has not yielded a satisfactory conclusions then recourse is available by appealing to the First Tier Tax Tribunal (section 49D, TMA 1970). It is not permissible to appeal to the Tax Tribunal during the course of the internal review.

The procedural rules governing the First Tier Tribunal are found in the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273). The Tax Tribunal is completely independent of HMRC and is governed by an overriding objective to deal with cases fairly and justly (rule 2, First Tier Tribunal Rules (FTR 2009)). The Tribunal will consider the evidence of both parties, equally whilst the judge heavily relies on previous case law.

Commencing proceedings at the First Tier Tax Tribunal is subject to statutory time limits. It is recommended that legal advice is sought as soon as you become involved in a HMRC dispute to prevent a situation where a potential claim becomes time-barred.

The First Tier Tax Tribunal will then give a direction allocating the case to one of four categories, which all have different procedures:

  1. Default Paper cases:  ordinarily involve uncomplicated issues where the facts are simple and there is little dispute as to the law. The First Tier Tax Tribunal will determine the issue without a hearing (unless either party has requested one).
  2. Basic cases: typically include standard tax penalties and covers both direct and indirect taxes and includes VAT “migration appeals” as well as all “reasonable excuse” appeals. These cases are generally disposed of at a hearing and involve a minimal exchange of documents prior to the hearing.
  3. Standard cases: the cases that can be diposed of in one day, in an area of uncomplicated law, with one witness providing uncontested evidence, are assigned to the Standard track.
  4. Complex cases: cases are assigned here if it satisfies one of the conditions in rule 23(4), FTR 2009. The procedural Tax Tribunal rules are the same save for a special costs regime applying for Complex cases.

The First Tier Tax Tribunal is in essence a fact-finding court, therefore it is imperative to prepare the optimum set of facts in advance and this usually requires the most extensive preparation. We are well-versed in the Hearing procedure itself and presenting our clients’ cases to the Tax Tribunal. We consider the preparatory stage an essential part of the Hearing process and extensively complete the best factual picture from which the First Tier Tax Tribunal will draw its inferences.

Our specialist Tax Solicitors and Barristers have successfully represented taxpayers before the First Tier Tax Tribunal. Our Tax Disputes team will typically:

  • advise you for a long period of time prior to the hearing;
  • discuss the evidence required;
  • prepare the appeal in detail; and
  • rehearse your case with you.

Contact our VAT De-registration Appeal Lawyers now

If you need HMRC Tax Disputes advice, we are available to aid you at every stage of the HMRC appeals process. Members of our legal team have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the HMRC internal review process and in front of the Tax Tribunal. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect including developing a strategy.

We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [email protected].

Want legal advice from Tax Solicitors on your case?

Our simple enquiry form goes immediately to our tax litigators in Middle Temple, London. Call us on +442071830529 from 9am-6pm.

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