VAT & Strike Out Thresholds
A recent First-tier Tribunal decision offers a useful reminder of the procedural rules governing VAT appeals, and in particular the circumstances in which HMRC can seek to have an appeal struck out before it reaches a full hearing.
In British Institute of Technology Ltd v HMRC, the company had claimed input VAT on a building. HMRC disallowed the claim on the basis that the property had been purchased by the company's shareholder in a personal capacity rather than by the company itself. HMRC then issued a VAT assessment and a dishonesty penalty, and when the company appealed, applied to have that appeal struck out.
HMRC advanced two arguments. First, that the appeal constituted an abuse of process, because an earlier appeal relating to the same underlying transaction had already been struck out following a procedural failure. Second, that the appeal had no reasonable prospect of success on its merits.
The Tribunal rejected both. On the abuse of process point, the key distinction was that the current appeal concerned a new and separate assessment, not the same decision that had been the subject of the earlier proceedings. The company had also satisfied the procedural requirements for this appeal by making a successful hardship application, which had not been the case previously. A prior procedural failure in a different appeal does not, of itself, prevent a properly constituted new appeal from being heard.
On the question of reasonable prospect of success, the Tribunal confirmed that the bar for striking out an appeal on this basis is a high one. It is not sufficient for HMRC to demonstrate that their own case is strong. They must show that the appellant's case is essentially unarguable. Where there are genuine factual disputes - as there were here, including questions around invoicing and assessment time limits - those matters require a full hearing with evidence and cross-examination, not summary disposal.
The Tribunal was particularly firm on the dishonesty penalty. HMRC's evidence in support of that allegation was not properly before the Tribunal at the strike-out stage, and the Tribunal made clear that a finding of dishonesty is a serious matter that will almost always require a full evidential hearing before it can properly be determined.
The case will now proceed to a substantive hearing. For advisers, the decision reinforces that strike-out applications face a high threshold, and that procedural history alone will not bar a client from pursuing a fresh, properly constituted appeal.
