Dominion World Limited v The Commissioners for HMRC

12 September 2024

[2024] UKFTT 828 (TC)

First-tier Tribunal

A small business was assessed extra VAT by HMRC. They appealed, arguing HMRC made mistakes and acted unfairly. While HMRC did make some errors, the judge decided these were honest mistakes and the final amount of extra VAT was fair. The business lost the appeal.

Key Facts

•Dominion World Limited (Dominion) appealed a VAT assessment for periods 07/14 to 01/16, initially totaling £9,082, later revised to £5,387.10.
•Dominion, an internet cafe, registered for VAT voluntarily in June 2014 and deregistered in November 2016.
•Dominion's VAT returns declared no sales but reclaimed input tax. HMRC's investigation revealed under-declared sales.
•An ADR process resulted in a revised assessment, further amended due to subsequent calculation errors by HMRC.
•The appeal challenged the assessment's validity and amount, citing arbitrary actions, incorrect commission calculations, improper disallowance of input tax (including petrol), and HMRC's alleged negligence.

Legal Principles

Assessments under VATA 1994, s 73 must be made to the best of HMRC's judgment.

Value Added Tax Act 1994 (VATA 1994), s 73

The 'best of judgment' test requires honesty, bona fide action, some material basis for the judgment, and a reasonable, non-arbitrary decision; exhaustive investigations are not required.

Van Boeckel v C&E Comrs [1981] STC 290

An assessment isn't invalid simply due to disagreement on judgment exercise; stronger findings like dishonesty, vindictiveness, capriciousness, or wholly unreasonable assessments are needed (akin to Wednesbury principles).

Rahman t/a Khayam Restaurant v C&E Comrs [1998] STC 826

HMRC's task under s 73(1) is an estimate to the best judgment; a substantial margin of error is allowed; exhaustive investigations aren't required.

Queenspice v HMRC [2010] UKUT 111 (TCC)

An assessment error doesn't automatically invalidate it; the question is whether the mistake is consistent with an honest attempt at a reasoned assessment.

Rahman (t/a Khayam Restaurant) v C&E Comrs (No 2) [2003] STC 150

In a 'best judgment' appeal, the tribunal considers whether to set aside the assessment or amend the amount to a fair figure.

C&E Comrs v Pegasus Birds Ltd [2004] All ER (D) 465 (Jul)

Outcomes

Appeal dismissed.

The Tribunal found HMRC's assessment was made to the best of its judgment, based on available material; while errors occurred, they were genuine mistakes consistent with an honest attempt at a reasoned assessment, and the final amount was deemed fair.

Dominion World Limited v The Commissioners for HMRC

Key Facts

Legal Principles

Outcomes

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