VAT Flat Rate error leads to best judgement assessment

In Swiss Dawn Consultants Ltd v HMRC [2021] TC08311, a VAT registered taxpayer misunderstood the workings of the VAT flat rate scheme and calculated VAT on net sales. HMRC had no choice but to make best judgement assessments to recover unpaid VAT.

• Swiss Dawn Consultants Ltd (SDC) operated the VAT Flat Rate Scheme.
• HMRC wrote to SDC to open a check into the VAT returns.
• SDC failed to respond to the check and HMRC wrote again advising they believed additional VAT was due.
• From the correspondence that followed, HMRC found out that SDC had been applying the flat rate percentage to the net rather than gross turnover.
• HMRC issued a Best judgement assessment which was withheld after a Review.
• SDC Appealed to the tribunal.

The FTT dismissed the appeal finding that:

• The burden lay on SDC to establish the correct amount of tax due.
• SDC failed to do so as the Flat Rate Scheme had not been operated correctly:
  • The appropriate percentage had been applied to the net of VAT turnover rather than the gross.
  • Input tax had been claimed.
• The taxpayers stress caused by the experience of dealing with HMRC was not a factor that the FTT could consider.

Useful guides on this topic

Flat rate scheme
What is the VAT Flat Rate Scheme (FRS)? Who can apply? How do you apply? What are the rules? What are the rules for capital expenditure and pre-registration VAT? 

Assessments: Best judgement
What is a 'best judgement' assessment for VAT? When can HMRC raise one? What are your rights of appeal? How do you displace a best judgement assessment?

How to appeal an HMRC decision
Disagree with a HMRC decision? How to appeal, what type of decision can you appeal and what are your different options when you disagree with HMRC? What are the key steps in making an appeal?

External links

Swiss Dawn Consultants Ltd v HMRC [2021] TC08311