Complete Electrical Services (NW) Limited v The Commissioners for HMRC

This is an appeal by Complete Electrical Services (NW) Limited (CESNW) against the decision of HMRC to issue a notice of VAT assessment dated 31 October 2019 under s 73(1) Value Added Tax Act 1994 (VATA 1994) in respect of periods 10/15 to 01/19 inclusive in an amount of £46,674, amended on 28 September 2022 to £46,791 (the VAT Assessment).

The form of the hearing was V (video) and all parties attended remotely via Microsoft Teams. We were referred to a hearing bundle of 227 pages, which included the notice of appeal of CESNW and the Respondents’ statement of case. We heard witness evidence from Winnet Chamapiwa, VAT compliance caseworker at HMRC.

Prior notice of the hearing had been published on the gov.uk website, with information about how representatives of the media or members of the public could apply to join the hearing remotely in order to observe the proceedings. As such, the hearing was held in public.

At the hearing, Mr Mohammed explained that he was appearing on behalf of CESNW in place of Mr Fielding of JML Accountancy Services Ltd, CESNW’s accountant and Mr Mohammed’s colleague. Mr Fielding’s absence was explained with reference to the illness of his brother and his own poor health. Mr Mohammed explained that he was new to the firm, had had sight of the bundle, and had discussed it with Mr Fielding ahead of the hearing, but made an oral application that the hearing be postponed so that he could familiarise himself more fully with the matter.

Ms Abulode responded that the hearing had already been postponed four times and that HMRC would like to proceed.

The Tribunal decided, in the interest of fairness and justice, to proceed with the hearing and avoid any further delay. Given the four previous postponements, there was no guarantee that any future hearing would proceed as planned. All parties had been duly notified of the hearing and had sight of the hearing bundle, and the Tribunal was confident that all parties were able to participate fully in the proceedings.

Mr Mohammed faced some technical difficulties from around 11.25am, having participated in the hearing until that time.  Following an attempt to resolve those issues and a short break, Ms Abulode confirmed that she had no further submissions to make beyond those set out in the Respondents’ statement of case.

As Mr Mohammed did not re-join the hearing after the short break, the online hearing was brought to a close at 11.45am, and the Tribunal issued directions instructing CESNW to provide, in writing and by 18 August 2025, any final submissions for consideration by the Tribunal in determining the appeal (the Directions).  The Directions noted that, if no further submissions were received by that deadline, the Tribunal would proceed to determine the appeal considering the documentation, evidence and submissions received and heard to date.

On 18 August 2025, Mr Fielding sent the Tribunal correspondence attaching further documentation demonstrating workings regarding the VAT Assessments “as directed” as follows:

The Tribunal has received and considered the correspondence submitted by Mr Fielding on behalf of CESNW. Although Mr Fielding says that the workings are attached “as directed,” the Directions following the hearing instructed CESNW to make final submissions. The correspondence attaches documentation which extends significantly beyond the scope of the final submissions CESNW was directed to provide and instead amounts to new evidence.

In accordance with the Tribunal’s overriding objective to deal with the hearing fairly and justly, the Tribunal has decided not to admit this new evidence, which was not included in the hearing bundle and was not provided to all parties for review and consideration either at or ahead of the hearing, which had already been postponed many times.

In accordance with the Directions, the Tribunal has therefore proceeded to determine the appeal considering the documentation, evidence and submissions received and heard as at the date of the hearing.

Under s 73(1) VATA 1994, HMRC may assess the amount of VAT due from a taxpayer to the best of their judgment and notify it to that taxpayer where VAT returns have not been made, documents necessary to verify such VAT returns have not been kept, or where it appears to HMRC that such VAT returns are incomplete or incorrect.

The phrase “to the best of their judgment” was considered by the High Court in Van Boeckel v Customs & Excise Commissioners [1981] STC 290 which set out the following principles: that HMRC should not be required to do the work of the taxpayer; HMRC must perform their function honestly and above board; HMRC should fairly consider all the material before them and on that material come to a decision which is reasonable and not arbitrary; and there must be some material before HMRC on which the judgment can be based.

The basic principles have been refined in subsequent cases, and three further principles were put forward in CA McCourtie LON/92/191: that the facts should be objectively gathered and intelligently interpreted; the calculations should be arithmetically sound; and any sampling technique should be representative.

The time limit for an assessment under s 73 VATA 1994 is up to four years under s 77(1) VATA 1994.

The issue before this Tribunal is whether HMRC’s decision to issue the VAT Assessment was correct.

HMRC must show that the VAT Assessment was raised correctly and to the best of their judgment. If they do this, the burden of proof shifts to CESNW to demonstrate, on the balance of probabilities, that the VAT Assessment was incorrect.

In this case, the VAT Assessment was raised following a VAT compliance check and a visit by HMRC to Mr Fielding’s office in August 2019, which uncovered inaccuracies in CESNW’s VAT returns for the period from February 2016 to October 2018.

By letter dated 4 September 2019, HMRC explained that they had compared sales income banked to declared sales on VAT returns and identified some transactions which were not supported by evidence or did not appear to be valid business expenses. As a result, HMRC found an under-declaration of output tax and an overclaim of input tax. They calculated a rate of under-declaration of 16.1% and applied that to periods not covered by reconciled bank statements. They identified an overclaim of 7.8% for the period ending January 2019 and informed CESNW that they would apply the rate of input tax disallowed to previous periods dating back to 31 October 2015. A schedule of assessments was included in this letter, and CESNW was given time to respond.

In the VAT assessment letter of 31 October 2019, HMRC raised and notified the VAT Assessment, noting that no additional information had been received from CESNW.

Mr Fielding disputed the VAT Assessment, and between November 2019 and September 2022, further investigations were conducted, and HMRC’s officers met Mr Fielding and one of the directors of CESNW. Significant delays were experienced because of the Covid-19 pandemic.

During May 2022, Mr Fielding noted that he disagreed with basing the VAT Assessment recalculations on a small sample of months rather than quarters.

On 25 May 2022, HMRC visited Mr Fielding’s office and checked input tax invoices and expenses for the VAT quarter ending 07/17. HMRC then also worked the full quarter periods for periods ending 10/17; 01/18; and 07/18 and agreed this would be a fairer and more reasonable sample and distribution on which to base the extrapolation of the remaining periods.

On 26 May 2022, HMRC contacted Mr Fielding with their workings and asked for further information, and on 4 July 2022, Mr Fielding emailed HMRC with output tax calculations and bank statements.

On 28 September 2022, HMRC wrote to CESNW with the results of their workings.

In respect of under-declared output tax, HMRC informed CESNW that additional documentation provided had been reviewed for the 10/15 and 01/16 periods, leading to an adjustment of the best judgment assessment for 01/19. This, together with a review of bank statements, led to a decreased assessment of £27,700.90 in the periods 10/15 to 01/19.

In respect of the over-claimed input tax, HMRC informed CESNW that the VAT Assessment had been based on a best judgment extrapolation with a sample size of a single period and that an attempt had been made to verify a wider sample of periods to test Mr Fielding’s claim that there was actually an under-claim of input tax. However, HMRC record that there was insufficient evidence held in comparison to the input tax claimed in the periods checked. The result of the new workings was an increased best judgment assessment of £50,886 for periods 10/15 to 01/19.

The VAT Assessment was increased by £117 in respect of periods 10/18 and 01/19 to £46,791 and the additional amount was notified to CESNW. Adjusted assessments in respect of earlier periods were not notified as they fell outside of the time limits found in s 77(1) VATA 1994.

On 21 October 2022, CESNW appealed to this Tribunal. In CESNW’s notice of appeal, CESNW stated that their desired outcome would be a repayment of the amount due under the counterclaim and correction of HMRC records reflecting input tax not allowed, and their grounds were that the input tax claim was not allowed under reg 29 VAT Regulations 1995 and that they applied for the input tax to be considered under app 2 of HMRC’s statement of practice. They promised working papers within 14 days, but the hearing bundle contained no further correspondence.

During the hearing, we heard witness evidence from Winnet Chamapiwa, VAT compliance caseworker at HMRC. While she was not responsible for raising the VAT Assessment, her witness evidence detailed the steps taken by HMRC officers who undertook investigations and did raise the assessment, including by reviewing the available business expenses and invoices for five VAT periods and identifying input claims supported by valid evidence and by checking bank statements for February 2016 to October 2018 and comparing declared output tax on submitted VAT returns. Officer Chamapiwa’s evidence was that a rules-based approach had been taken and a representative sample used to extrapolate over the missing periods.

We acknowledge that Mr Fielding did dispute the VAT Assessment on behalf of CESNW and that he requested that it be based on quarters rather than a small sample of months as noted at [23] above. Further information had been provided to HMRC as noted at [25] and that had been considered as set out at [27] and [28] resulting in the adjusted assessment noted at [29].

Having considered with care the documents, evidence and submissions made to us, we find that HMRC’s decision to issue the VAT Assessments for the periods 10/15 to 01/19 inclusive was correct. Following the VAT compliance check in August 2019, inaccuracies were uncovered, and HMRC were entitled to make a best judgment assessment in accordance with s 73(1) VATA. We find that the VAT Assessment was made to the best of HMRC’s judgment, considering information provided by CESNW, using an appropriate methodology and the information available at the time.

Neither during the hearing nor in any written submissions after the hearing did CESNW present their grounds of appeal in more detail than described at [30] above, nor did CESNW provide any evidence to the Tribunal to demonstrate that the VAT Assessment was incorrect.

We find that CESNW has not met the burden of proving, on the balance of probabilities, that the VAT Assessment was incorrect.

The Tribunal has therefore decided that the appeal should be DISMISSED.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.