In Shahid Hussain v HMRC [2026] TC09992, the First Tier Tribunal found that HMRC were unable to produce detailed workings for VAT assessments. Nor could they adequately explain the methodology used to arrive at their figures.
On 6 April 2013, the taxpayer started running a takeaway business as a sole trader.
- The taxpayer's tax returns showed that:
- Turnover was £77,957 in 2013-14.
- Turnover was £65,182 in 2014-15.
- Self-employment ceased on 31 January 2015.
- There was employment income from the taxpayer's company of £1,340 in 2014-15.
- According to the taxpayer, on 1 February 2015, the business was transferred to a limited company. The taxpayer was the sole owner and director of the limited company.
- The takeaway business was subsequently transferred to a company owned by a third party on 31 March 2017.
On 28 July 2016, HMRC issued a notice of inspection letter to the taxpayer advising that they would be visiting the business premises.
- The visit took place on 19 August 2016, but the taxpayer was absent and, over the telephone, declined to allow HMRC to carry out the inspection.
- HMRC noted that the business had a Hungry House terminal, a Just Eat terminal and an open till drawer.
- An environmental certificate on the wall identified the taxpayer as the business owner.
- On 26 January 2017, HMRC issued a Penalty notice for a failure to provide requested documents.
- Between January 2017 and August 2017, HMRC made repeated unsuccessful efforts to obtain information.
- The taxpayer was charged additional penalties.
- On 24 August 2017, HMRC again visited the takeaway premises when the taxpayer was present.
- The taxpayer's explanation of who owned the business was contradictory.
- The Food Hygiene and Food Excellence certificates were in the taxpayer's name.
- On 28 August 2017, the Council confirmed to HMRC that the taxpayer occupied the takeaway premises and had done so since 28 March 2013.
On 31 August 2017, HMRC wrote to the taxpayer explaining the decision to assess for VAT.
- HMRC treated the taxpayer as operating the takeaway as a sole trader from April 2013 until the present.
- HMRC estimated the VAT owed for the period from 6 April 2013 to 31 August 2017 to be £32,579.
- On 31 October 2017, HMRC sent a penalty explanation letter to the taxpayer charging £22,805.
On 5 March 2019, the taxpayer's new agents wrote to HMRC explaining that the taxpayer was only self-employed between 6 April 2013 and 31 January 2015. They requested evidence of why the taxpayer was liable to register for VAT and copies of HMRC's VAT liability workings.
- HMRC did not respond until 26 July 2024.
- HMRC explained that the decision to Register the taxpayer for VAT was based on their visits to the takeaway premises and the taxpayer's Income Tax returns. They were unable to provide the VAT liability workings.
- The taxpayer Appealed to the First Tier Tribunal (FTT).
The FTT found that:
- On the balance of probabilities, the takeaway's turnover did not exceed the VAT registration threshold in any rolling 12-month period.
- The FTT accepted that the 2013-14 and 2014-15 tax returns were the best available evidence of the takeaway's likely turnover.
- Because the registration threshold would not have been exceeded, the FTT considered it unnecessary to determine whether the taxpayer had carried on business as a sole trader during the entire period.
- HMRC could not produce the workings behind the VAT assessments or provide evidence to justify them.
- HMRC said they took the figures from the Income Tax returns, added on Just Eat sales and then applied the retail price index to obtain the estimated turnover for each period.
- They were unable to explain why Just Eat sales should be added on top of the tax return figures. They also could not explain why sales from other delivery platforms had been treated differently.
- HMRC said they took the figures from the Income Tax returns, added on Just Eat sales and then applied the retail price index to obtain the estimated turnover for each period.
The appeal was allowed. The VAT assessments and associated penalties were set aside.
Useful guides on this topic
Appeals: VAT
How do I appeal a VAT penalty? How can I request a Statutory Review? How do I appeal an HMRC decision?
Registering for VAT
When should a business register for and charge VAT? What are the VAT registration thresholds? What penalties might HMRC issue for late notification of registration? When do you need to file a VAT return?
Penalties (VAT)
When do penalties apply for VAT? What penalties are charged and how can they be mitigated?
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