HMRC Tax Assessments: Why HMRC Does Not Always Get It Right

HMRC Tax Assessments: Why HMRC Does Not Always Get It Right

An HMRC assessment may follow years of investigation and arrive with pages of calculations and legal references. That does not make it correct. We have seen assessments built on assumptions about transactions, incomplete evidence and calculations that fail to reflect the commercial reality of a business.

For a taxpayer facing a substantial bill, the distinction matters. An assessment may affect cash flow, threaten a business or expose directors to further action. Before accepting HMRC’s figure, it is worth establishing whether the law and the evidence actually support it.

Where assessments can go wrong

An investigating officer might look at bank credits and treat them all as taxable receipts. Yet some could be loans, internal transfers, repayments or amounts already included in the accounts. Even where undeclared income exists, an assessment can be overstated if associated expenditure is overlooked or transactions are counted twice.

Errors are not confined to arithmetic. HMRC may misunderstand how a business operates, draw an adverse inference from missing paperwork or rely on one explanation without properly testing the alternatives. In other cases the dispute concerns the legislation, not the transactions themselves.

None of this means that every assessment is flawed. It means that the starting point should be an independent examination of what HMRC has actually proved, rather than the assumption that a lengthy investigation must have produced the right answer.

HMRC has powers, but those powers have limits

Different taxes have different assessment rules. For VAT, section 73 of the Value Added Tax Act 1994 can permit an assessment to the best of HMRC’s judgment. This is not a licence to select an arbitrary figure: the officer must make a genuine and reasonable attempt to estimate the tax due on the information available.

For direct taxes, a discovery assessment under section 29 of the Taxes Management Act 1970 can raise separate issues about whether the statutory conditions have been met. Assessment time limits and the circumstances in which longer periods apply also warrant scrutiny.

The proper grounds of challenge depend on the tax, the decision and the evidence. A strong challenge is precise about those matters; it does not simply insist that HMRC has been unfair.

Further information about VAT assessments can be found on our VAT Disputes page.

Understanding how an HMRC case has developed

CTM brings over 30 years’ experience in HMRC investigations and tax litigation, including experience gained within HMRC itself. That perspective can be valuable when examining how an officer formed a view, what was investigated and which explanations may have received too little attention.

An early allegation may shape the whole enquiry. Effective representation requires separating what the records show from what HMRC has inferred, then assessing whether the inference is justified.

Information about HMRC enquiries can be found on our HMRC Tax Investigations page.

Not every dispute needs a tribunal judgment

Sometimes the right course is to negotiate. Sometimes HMRC’s calculations can be corrected through further evidence or representations. In other cases the legal or factual disagreement is fundamental and an appeal is necessary.

CTM has handled cases in which HMRC withdrew its position shortly before the scheduled tribunal hearing after receiving the defence case. Those withdrawals are not judicial findings, but they illustrate an important point: thorough preparation can influence the outcome before a judge is asked to decide it.

A taxpayer should not settle merely because the investigation has become exhausting. Equally, litigation should never be pursued for its own sake. The advice must take account of the merits, the evidence, the costs and the commercial consequences.

The value of experienced tribunal representation

Understanding the legislation and spotting a possible weakness in HMRC’s assessment is only the beginning. A persuasive written argument is of little value if the evidence cannot support it or the representative cannot defend it when questioned. The real test often comes when a witness gives an unexpected answer, an HMRC officer is cross-examined or a judge asks a question that changes the emphasis of the hearing.

That is why CTM prepares cases for the hearing, not merely for filing. Witness statements must reflect what witnesses genuinely know, and preparation must equip them to give clear, truthful evidence under questioning. Every significant document needs to be understood in context. Years of tribunal experience help us judge how an argument may stand up in practice, challenge HMRC’s evidence robustly but fairly, and adapt submissions as the hearing develops.

Research and drafting tools can help organise material and develop written submissions. They cannot, by themselves, provide the experience, judgment and accountability needed to conduct a contested hearing. CTM manages the dispute from the evidence and written case through to representation before the Tax Tribunal.

Further information can be found on our Appeals to the Tax Tribunal page.

Appeal deadlines: do not leave it too late

For many tax decisions the normal appeal period is 30 days, but the route varies. Some direct-tax appeals must first be made to HMRC; many indirect-tax decisions carry different review and tribunal procedures. A late appeal may require permission, which should not be assumed.

If HMRC has issued an assessment, establish the precise decision, the applicable appeal rights and the deadline immediately. Continuing correspondence or gathering records does not necessarily protect the right of appeal.

In a dispute with HMRC? Experience matters.

An HMRC assessment is not the final word simply because HMRC has issued it. CTM advises businesses, individuals and company directors on VAT, Corporation Tax, Income Tax, discovery assessments, penalties and tribunal appeals.

We know how HMRC operates. We know how to challenge its decisions.