“Liable not liable concession” reduces VAT penalty

HM Revenue and Customs (‘HMRC’) has successfully won an appeal against their issuing of a VAT assessment and penalties following a taxpayer failing to ensure his business was VAT registered. 

In the case of Timothy Hughes and HMRC, heard at the First-tier Tribunal, Hughes failed to monitor his guest house business’ turnover and, as a result, did not realise that his 12-month turnover at May 2011 had exceeded the VAT registration threshold. Hughes should have registered his businesses for VAT on 1st July 2011 but failed to do so.

Hughes argued that the penalties were harsh as he owed HMRC a total of £11,622 for exceeding the VAT threshold by less than £5,000. The liabilities consisted of an assessment for £9,685 and a penalty of £1,937 (20% of the tax owed).

HMRC applied the “liable not liable concession” which is relevant when a business has failed to register for VAT but their taxable turnover fluctuates above and below the taxable turnover threshold. The concession assumes that the taxpayer would have deregistered for VAT when their taxable turnover dips underneath the threshold.

In Hughes’ case, his taxable turnover exceeded the threshold for the 12-month rolling basis for the period between July 2011 and November 2012. Therefore, HMRC only made an assessment for unpaid VAT during that period. If HMRC did not apply the liable not liable concession they would have assessed for VAT between 1st July 2011, as the dates Hughes should have registered for VAT, to the date HMRC raised the assessment. Therefore, Hughes’ complaint that the assessment was unfair and HMRC were being harsh could not be further from the truth.

Aspire Comment

If your turnover fluctuates around the VAT threshold and you have received a VAT assessment it is important to ask HMRC if they have considered the liable not liable concession as it may reduce your liabilities.

Hughes was lucky that HMRC applied the liable not liable concession on the basis that HMRC guidance VATREG28050 no longer contains any guidance on this matter as it has “been withheld because of exemptions in the Freedom of Information Act 2000”.  

It is important to constantly monitor your taxable turnover so that you do not exceed the VAT threshold. If your business does exceed the VAT threshold (£85,000 for the tax year 2018/19) you must register and start accounting for VAT. If your annual taxable turnover exceeds the £85,000 on April 1st 2019 you must comply with Making Tax Digital. If your business’ turnover is under £85,000 you will only need to comply with Making Tax Digital after your rolling 12-month turnover figure has exceeded £85,000, therefore, this is another reason to check the threshold every month.