UK FTT upholds levy of penalties despite out of time VAT assessments

Maxxim Residential Design Ltd (Appellant) appealed against HMRC’s “best judgement’ assessments and the penalties levied for the VAT periods from March 2013 to June 2014.

UK FTT found that while the assessments were raised in accordance with HMRC’s best judgement, the assessments for the periods March 2013, June 2013 and September 2013 were out of time.

One of the questions before the FTT was whether the penalties issued in assessments are valid even though the VAT assessments are out of time.

The FTT found that even though some of the VAT assessments were out of time, the penalties issued for all the return periods were valid.

As per UK FTT, this was due to the wording of Schedule 24 Finance Act 2007 which, in the context of determining the “potential lost revenue” used to calculate the penalty due, refers to amounts “due or payable” rather than amounts due and payable. The FTT relied on the analysis set out in the earlier case of Albany Fish Bar Ltd v HMRC [2021] UKFTT 221 (TC) to interpret the phrase “due or payable” and considered that there was a liability to VAT in the earlier periods, which meant that VAT was due. The fact that the tax was not actually payable because HMRC was out of time to assess did not matter.

Key takeaway

The outcome that penalties can still apply, even though the assessments for the underlying VAT are out of time, may come across as a surprise for taxpayers negotiating time limitation and penalty assessments with HMRC.