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Aria Technology – No specific form required for notification of assessment of VAT

11 March 2020.

In Aria Technology Ltd v HMRC [2020] EWCA Civ 182, the Court of Appeal confirmed that there is no particular form or formality required for an assessment under section 73(1), Value Added Tax Act 1994 (VATA) and an assessment can be contained in more than one document as long as the minimum requirements are set out in a clear and unambiguous way.

Background

Aria Technology Ltd (the appellant) is a computer components retailer and wholesaler.

In its VAT return for the VAT accounting period 07/06, the appellant claimed input tax for purchases which, after setting off output tax, left a repayment due to the appellant of £445,156.98.

By letter dated 6 October 2008, HMRC informed the appellant of its decision to deny input tax of £758,770.69, on the grounds of missing trader fraud which the appellant knew of, or ought to have known of, and informed the appellant of its right to appeal against HMRC's decision within 30 days. The letter also stated that: "A further letter showing the corrected amount of VAT now due in respect of 07/06 is enclosed". This second letter, dated 7 October 2008, amended the appellant's return for the VAT period 07/06 to show input tax in the sum of £754,545.66 and net tax due to HMRC of £313,613.71. The letter also notified the appellant of its right to appeal against HMRC's decision within 30 days.

The appellant appealed.

At both the First-tier Tribunal and the Upper Tribunal, among other challenges, the appellant unsuccessfully argued that this 'correction' did not have the force of an assessment under section 73(1), VATA.

The Court of Appeal granted the appellant permission to appeal on this point only.

Court of Appeal judgment

The appeal was dismissed.

The Court accepted, as a general proposition, the appellant's argument that there are three stages to a VAT assessment:

(1) a decision to assess;

(2) the assessment itself; and

(3) notification of that assessment.

The Court noted, however, that there is normally no distinction in substance between these three stages.

In finding against, the appellant, the Court confirmed that:

(1) there is no statutory definition of 'assessment' in VATA; it is the legal act of the Commissioners determining the amount of VAT due;

(2) there is no particular formality required by statue, or regulation;

(3) the use of any particular form makes no difference; a notification of assessment can be contained in one or more letters; and

(4) whether an assessment has been made is determined by objective analysis; how would the document be understood by the reasonable reader?

The Court commented that an assessment would be made if the relevant document(s) contained, in unambiguous and reasonably clear terms, the 'minimum requirements, being the name of the taxpayer, the amount of tax due, the reason for the assessment and the period of time to which it relates.

The Court held, on an objective analysis, that the two letters HMRC sent to the appellant constituted an assessment of the VAT due for the purposes of section 73(1), VATA and were not simply a correction of the appellant's VAT return. The Court noted that it would have been preferable if the letters had been headed 'Notice of Assessment', but nothing turned on that because it was the substance, not the form, which mattered.

Comment

This decision confirms that in deciding whether an assessment has been made an objective test must be applied and there is no particular form, or formality required, in order for there to be a valid assessment for the purposes of section 73(1), VATA.

Whilst the outcome on the facts of the instant case is perhaps not surprising, that an assessment can be contained in more than one document (as long as the minimum requirements are set out in a clear and unambiguous way), and it will be left to the courts to determine how the document(s) would be understood by the reasonable reader, is likely to generate considerable uncertainty and lead to future disputes. It would be preferable if, rather than relying on a 'substance' argument, HMRC heeded the advice of the Court of Appeal and simply headed all assessments as 'Notice of Assessment'.

The judgment can be viewed here.