We have seen an increase in the number of small businesses facing VAT assessments of significant amounts, likely to have a severe impact on the company’s cashflow and financial status, particular in light of the current challenges concerning COVID-19. We have been successful in a number of hardship applications made on behalf of our client, to allow our clients to pay the disputed sums following their appeal in the Tax Tribunal.
What is a hardship application?
Where a company or an individual has received an assessment from HMRC for payment of tax and this is the subject of an appeal to the First Tier Tax Tribunal, HMRC can request that payment of the assessment be made in full prior to the Tribunal hearing the appeal under section 84 of the VAT Act 1994.
It is for the taxpayer to demonstrate that payment of the disputed tax would cause them to suffer financial hardship and each case will be considered on the basis of the facts.
Information requested by HMRC when considering hardship applications
In giving serious consideration to hardship applications and exercising their discretion, HMRC has previously issued guidance on the information they require about a company’s financial affairs.
- An explanation as to why the company would suffer financial hardship if it required to pay the disputed amount before a Tribunal Hearing
- Copy of the most recent annual accounts and management accounts
- Bank account statements for a requested period
- Any loan or overdraft facilities the company has with any bank or financial institution
- Assets and liabilities of the Company
- Budget and cash flow forecast (at least the next six months) to include all income streams, revenue costs and capital expenditure. It should identify the expected funding requirements throughout the year and also the maximum funding available.
- Business premises’ owned or leased by the business
- Investments that are held by the company. This should include stocks, shares and investments in other businesses
- Steps taken by the company to raise funds to pay the assessments
- Any assets subject to a charge by a bank or other financial institution as security against existing borrowings
In the event that all the information is not provided or HMRC are not satisfied that the taxpayer would suffer hardship, HMRC will reject the application.
Where HMRC grants the application, the appeal will proceed to be heard in the Tax Tribunal without the taxpayer being required to pay the disputed sums first.
Case Study: HMRC grants Company’s successful hardship application
To date, we have been successful in making hardship applications on our clients’ behalf.
Recently HMRC requested information from our client to assess its hardship application within 30 days. We work with our clients to obtain and assess the information requested by HMRC to identify any gaps or weaknesses where HMRC may oppose an application for hardship and we carefully prepare witness evidence in support of an application for hardship.
In the event HMRC oppose an application, the Tribunal will consider the same therefore it is important to seek legal advice from the outset and carefully prepare evidence in the required form to achieve a successful outcome.
In this case, in light of the information provided and arguments made that the company would suffer hardship if required to pay the disputed sums before its appeal was determined, HMRC granted the company’s application.
How do I appeal to the Tax Tribunal?
Upon receiving an assessment, if the HMRC internal review procedure has not yielded a satisfactory conclusion, then recourse is available by appealing to the First Tier Tax Tribunal (section 49D, TMA 1970).
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.
Our specialist Tax Solicitors and Barristers have successfully represented taxpayers before the First Tier Tax Tribunal. Our Tax Disputes team will discuss the evidence required, prepare the appeal and manage your case with you advising you throughout.
Expert VAT Appeal Tax Lawyers: Successful hardship applications
If you require 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].
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