A takeaway owner was assessed for £32,579 of VAT and £22,805 in penalties. Nine years later, the Tribunal cancelled both.

The case is being written up as a story about HMRC losing its paperwork. That is part of it. But the reason the appeal actually succeeded is more useful than that, and if you are facing an assessment of your own, it is the part you need to understand.

What Happened

Mr Hussain ran a takeaway in Dumbarton. HMRC visited in August 2016, saw Just Eat and Hungry House terminals and an open till drawer, and was refused an inspection. A year of unanswered letters and calls followed. A second visit in August 2017 was also refused.

In August 2017, HMRC gave up waiting and assessed him on the information it had. It decided he had been running the takeaway since April 2013, should have been VAT registered, and owed £32,579. Penalties of £22,805 followed two months later.

In March 2019, his new accountants asked HMRC a simple question: please show us how you arrived at that figure.

HMRC answered in July 2024. It said it did not have the workings.

How HMRC Built the Figure

At the hearing, HMRC explained the method. It had taken the turnover from Mr Hussain's income tax returns, added his Just Eat sales on top, applied an inflation uplift to bring the figures forward, and then applied a flat rate percentage for catering.

Two problems surfaced. HMRC could not explain why the Just Eat sales had been added to the tax return figures rather than treated as already included in them. And it could not explain why sales through other delivery platforms appeared to have been handled differently.

Mr Hussain's accountant said the Just Eat income was in the returns all along.

What the Tribunal Decided

The Tribunal found that the takeaway's turnover had been below the VAT registration threshold throughout.

Its reasoning was practical. The income tax returns only covered two years, but they were the only contemporaneous record of the business's turnover that existed. HMRC had never once queried them, and had nothing to set against them. So the Tribunal treated them as the best evidence available.

The numbers show how close it was. Turnover of £77,957 in 2013/14, against a registration threshold that year of £79,000. Then £65,182 in 2014/15, against a threshold of £81,000.

The appeal was allowed, and the assessment and penalties were set aside.

If HMRC cannot produce its workings, is the VAT assessment automatically invalid?

No, and this is the point most of the coverage is missing.

The Tribunal was explicit that an HMRC assessment starts out presumed to be valid. Losing the workings did not make it void. What it did was weaken HMRC's position badly, and once there was credible evidence on the other side pointing below the threshold, HMRC had nothing left to counter it with.

The practical consequence matters. A business with no records of its own does not win this case, however much HMRC has mislaid. The taxpayer's own paperwork did the work here.

It is also worth knowing what the Tribunal did not decide. Much of the hearing was spent arguing about whether Mr Hussain had genuinely transferred the business to a company in 2015. The Tribunal never had to answer it, because the turnover was below the threshold either way. Had the case turned on that question, the evidence was thin and it would probably have gone the other way.

Two Points on Strategy

Should I challenge the VAT registration decision or the assessment itself?

The appeal here was against HMRC's decision to register him for VAT, not against the assessment. HMRC accepted that if the registration decision fell, the VAT and the penalties fell with it.

That was a smart choice. It reduced the case to one question the taxpayer could actually answer with the documents he had, namely whether his turnover crossed the threshold. Arguing about whether HMRC's calculation was reasonable would have been much harder ground. Where there is a real question over whether you should have been registered at all, going after the registration decision is often the shorter route.

Does HMRC's four-year time limit for VAT assessments always apply?

Not always, and this catches people out.

HMRC assessed here going back to April 2013, well beyond the usual four years. That does not mean HMRC was accusing him of anything deliberate. A much longer window opens where VAT has been lost because someone failed to tell HMRC they should have registered. Failure to notify is enough on its own.

So a long look-back period is not, by itself, a sign that HMRC thinks you acted dishonestly.

What to Take From It

  • Ask for the workings, in writing, straight away. That single request in March 2019 is what eventually exposed HMRC's position. Keep the correspondence and chase it.
  • Take the calculation apart step by step. This case was won on one unexplained addition and one inconsistency, not on a general complaint that the figure was too high. Where HMRC applies a mark-up or an uplift, ask for the arithmetic behind each stage separately.
  • Check whether HMRC ever queried your other tax returns. The Tribunal put real weight on the fact that it had not. If HMRC is building a VAT case out of figures it has never challenged, that is worth pressing.
  • Keep your records. Returns filed in 2014 decided this case in 2026.
  • Treat it as persuasive, not decisive. This is a First-tier Tribunal decision and it turns heavily on its own facts.

If HMRC Has Assessed Your Business

Most assessments are correct and get paid. Some do not survive being examined properly, and the only way to know which you have is to ask the questions that test them.

We act for businesses and their accountants on VAT enquiries, registration disputes and assessments, including cases where HMRC has estimated turnover from limited information. We review how an assessment was built and whether it was made in time, decide the strongest route to challenge it, and handle the correspondence, reviews and appeals.

If you have had an assessment, or a request for records that looks like the start of one, it is far easier to improve the position early than late.