Infinity Distribution Ltd (In Administration) v HM Revenue & Customs

A VAT tribunal decision allowing an appeal against denial of input-tax credit does not constitute a civil judgment for payment. It requires the credit to be brought into the trader’s VAT account. The Commissioners may adjust incorrect VAT returns under regulation 35 of the Value Added Tax Regulations 1995. An assessment under section 73 of the Value Added Tax Act 1994 remains deemed to be VAT due unless withdrawn, reduced or successfully challenged. Lodging an appeal does not suspend that liability. The hardship procedure in section 84(3) is jurisdictional and permits an appeal to proceed without prior payment or deposit; it does not extinguish or suspend the assessed liability. Accordingly, assessed VAT and penalties may be set off against a VAT credit while the relevant appeals remain pending.

The claimant, a wholesale mobile-telephone distributor in administration, challenged HMRC’s treatment of VAT input and output tax, assessments and a mis-declaration penalty. One VAT appeal was allowed after HMRC failed to comply with an unless order, requiring a credit of approximately £12.95 million. HMRC adjusted the claimant’s VAT accounts and paid the resulting balance after making set-offs for other assessed liabilities.

The court determined whether the tribunal decision created an immediately payable debt, whether HMRC could adjust the relevant returns, and whether assessed VAT and penalties could be set off while appeals and hardship applications remained pending.

1. The claim failed. The tribunal’s decision allowing the input-tax appeal did not give judgment for a sum payable within a specified period. It required HMRC to bring the excluded input tax into the claimant’s VAT account. HMRC had done so (paras [37]-[38]).
2. VAT operates through a running account. Returns establish the net balance for each accounting period. Regulation 35 of the Value Added Tax Regulations 1995 permits HMRC to require correction of errors in the accounts or returns. Where the resulting balance is due from the trader, HMRC may assess it under section 73(1) of the Value Added Tax Act 1994. Where the balance is due from HMRC, the account and returns are adjusted and the balance is paid without an assessment (paras [40]-[47]).
3. Section 84(3) is a jurisdictional provision. An appeal against an assessment cannot be entertained unless the assessed amount is paid or deposited, or hardship is established and HMRC or the tribunal permits the appeal to proceed. A hardship application does not remove the liability to pay the amount which HMRC has determined to be payable (paras [58]-[60]).
4. Section 73(9) means that an assessment stands as the amount of VAT due, whether or not it is ultimately correct, until it is withdrawn, reduced or set aside on appeal. The lodging of an appeal does not suspend the assessment or its enforceability. The authorities, including Customs and Excise Commissioners v Holvey, HM Commissioners of Customs & Excise v Cozens, Re D & D Marketing (UK) Limited and Re Anglo-German Breweries Limited, supported that construction (paras [61]-[70]).
5. Because the assessed sums remained amounts which the claimant was liable to pay, HMRC could set them off against the VAT credit under section 81(3). The court therefore found for HMRC on all issues (paras [71]-[72]).

Not stated in the judgment. This was a first-instance trial of issues ordered by Chief Master Winegarten.