Life often throws unexpected financial challenges our way, and fulfilling tax obligations can become increasingly burdensome during difficult times. Fortunately, the UK tax authority, HM Revenue & Customs (HMRC), provides a mechanism for individuals and businesses to seek relief when facing financial hardship.
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 cash flow 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 clients, to allow our clients to pay the disputed sums following their appeal in the Tax Tribunal.
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.
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 make an application and 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.
Types of Taxes Eligible for HMRC Hardship Applications
Individuals who find themselves unable to meet their income tax payments due to financial hardship can apply for relief through an HMRC hardship application.
Value Added Tax (VAT)
Businesses and individuals who are struggling with VAT payments can request hardship assistance, especially when a financial crisis affects their ability to pay.
Companies experiencing financial hardship can apply for relief from Corporation Tax obligations through an HMRC hardship application.
Construction Industry Scheme (CIS) Tax
Individuals and businesses engaged in the construction industry can seek assistance with CIS tax payments if they are facing financial difficulties.
National Insurance Contributions (NICs)
Employers or individuals struggling with NICs payments can apply for relief based on financial hardship.
Why a Hardship Application is Needed?
A hardship application is crucial in situations where individuals or businesses find themselves in financial distress that prevents them from meeting their tax obligations. Several factors can contribute to the need for a hardship application:
- Unexpected Life Events: Life is unpredictable. Illness, disability, or a sudden medical emergency can lead to significant healthcare costs or loss of income. In such cases, individuals may find it challenging to allocate funds for tax payments.
- Economic Downturn: Economic downturns, recessions, or market disruptions can affect the financial stability of both individuals and businesses. Reduced income, job loss, or a decline in business revenue may make it difficult to meet tax commitments.
- Natural Disasters: Events like floods, earthquakes, fires, or other natural disasters can cause extensive property damage and financial losses. Individuals and businesses dealing with recovery may require financial relief to fulfill their tax responsibilities.
- Business Struggles: Businesses facing financial difficulties, declining profits, or insolvency may find it impossible to pay corporate taxes and VAT. HMRC recognises that providing a path for these businesses to recover is essential for economic stability.
- Unforeseen Expenses: Unforeseen expenses, such as legal fees, necessary repairs, or the cost of resolving disputes, can drain financial resources. These expenses may affect one’s ability to meet tax obligations.
- Temporary Financial Hardship: Temporary financial hardship can also warrant a hardship application. For instance, individuals awaiting a delayed payment, compensation, or insurance claim may need temporary relief from tax payments until their financial situation stabilises.
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.
How to Make an HMRC Hardship Application
Applying for hardship relief from HMRC is a lifeline for individuals and businesses struggling to meet their tax obligations during challenging times. Whether it’s income tax, VAT, corporation tax, CIS tax, or NICs, you have options to seek assistance. By carefully following the steps outlined in this guide and providing all required documentation, you can increase the likelihood of a successful hardship application.
Making an HMRC hardship application involves several crucial steps, and it is essential to follow these procedures accurately for a successful application:
Step 1: Determine Eligibility
Before you begin the application process, you must ascertain that you meet the eligibility criteria for seeking hardship relief. Typically, HMRC considers applications from individuals, self-employed individuals, and businesses who are facing financial difficulties that prevent them from fulfilling their tax obligations.
Step 2: Gather Necessary Documents
Collect all relevant documentation to support your application. This may include financial statements, proof of income, evidence of hardship (e.g., medical bills, economic downturn impacts), and any correspondence with HMRC regarding your tax obligations.
Step 3: Complete the Application Form
Visit the HMRC website and locate the specific hardship application form for your type of tax obligation. Fill out the form meticulously, providing detailed information about your financial situation, the reasons for your hardship, and the specific tax liabilities you are seeking relief from.
Step 4: Submit Your Application
Once your application form is complete, submit it to the HMRC. The address for submission may vary based on your tax type, so ensure you use the correct address provided by HMRC. It is essential to include single-sided, unstapled copies of your supporting documents with your application.
Step 5: Await HMRC Review
After you’ve submitted your application, HMRC will review your case to determine whether you qualify for hardship relief. This review process may take some time, and you may be required to provide additional information or clarification if necessary.
Who can apply for an HMRC Hardship Application?
Individuals, self-employed individuals, and businesses facing financial difficulties related to tax obligations are eligible to apply for hardship relief.
What are the reasons that justify applying for hardship?
Valid reasons include financial distress due to unexpected circumstances such as illness, natural disasters, economic downturns, or other exceptional situations.
Must I pay the full tax amount before applying for hardship?
Normally, you are required to pay the tax amount claimed by HMRC before appealing. However, exceptions are made for financial hardship cases.
Are penalties, surcharges, or interest payable before an appeal?
No, you do not need to pay penalties, surcharges, or interest before initiating an appeal.
How do I request a deferral of payment due to financial hardship?
Contact HMRC to request a deferral before your appeal can proceed to the Tribunal.
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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