Let's get this straight

We start the new year with an interesting update on an ongoing VAT dispute with the Align group, who supply Invisalign clear aligners.  The Align group has historically treated these as VAT-exempt under group 7 of schedule 9 of the Value Added Tax Act 1994, on the basis that they are “dental prosthesis”.

This was challenged by HMRC in June 23, as it did not believe Align provided orthodontic services, which was key to these aligners being eligible for the exemption. HMRC then followed up with VAT assessments for historic periods covering August 22 to May 23.

Whilst Align started accounting for VAT on the supplies of aligners from September 23, it also began proceedings to challenge this, which included a statutory review of the VAT assessments. When the review was subsequently upheld in HMRC’s favour, Align appealed to the First Tier Tribunal (“FTT”).  This appeal was due to be heard this month however, before this could happen, HMRC wrote to Align, withdrawing the assessments but also stating that “this is not a concession that the decisions were wrong in law”. 

This is where it gets interesting.  HMRC wrote to the FTT, to advise that they had withdrawn the assessments which were being appealed. This resulted in the FTT writing to Align, to advise that the case would be struck out.  Align followed this up with HMRC, to confirm if this meant that they accepted that Align’s treatment of the aligners was legally correct, to which HMRC maintained they had not made any legal concessions.  Align subsequently requested the FTT hearing continue, to determine if HMRC, in reaching the settlement, had not only withdrawn the assessment but also confirmed a decision on the aligners’ VAT liability.

The FTT concluded that although the assessments had been withdrawn, the appeal should be heard to resolve the issues of Align’s liability moving forward.

Were HMRC hoping that Align would be thankful for the assessments being withdrawn and continue to pay going forward?  Were HMRC hoping that by not taking it to tribunal they could avoid setting precedent for others following the Align case?  One thing is for sure HMRC’s behaviour shows that taxpayers should consider the implications of any settlements, or concessions made by HMRC and what this means for them in both the long and short term.  It’ll also be interesting to see if the tribunal comments on this behaviour when they hear the case…