A leading accountancy firm has won a VAT case against HMRC because the latter did not keep to their own statutory time limit in imposing a VAT assessment.
A private healthcare provider, had operated since 1997 on a VAT prepayment arrangement for drugs and prostheses. HMRC challenged the validity of this structure – which potentially allowed the company to insure against future VAT rule changes which might have resulted in their being unable to reclaim all their input VAT – and investigated the company’s tax affairs.
The time limit for HMRC to issue a VAT assessment where an error is found is 2 years – or in certain circumstances 3 years – after the VAT period in which the error occurred has ended. In this case, HMRC did not meet the time limit in providing the assessment to the healthcare provider.
The VAT tribunal ruled in favour of the Company, finding that although the substance of the assessment was correct in law, it was invalid thanks to the missed deadline. The case is being greeted by the firm as welcome evidence that HMRC must be seen to abide by its own rules as much as taxpayers.