Nature of defect

A scrap metal company operated an informal self-billing system with suppliers for many years.

HMRC were aware of the arrangements but refused an input tax claim from the business in respect of four suppliers that deregistered from VAT.

The department upheld their decision on review after rejecting the taxpayer’s request to exercise discretion under VAT Regulations SI 1995/2518 reg 29.

The First-tier Tribunal said the Revenue had not exercised its discretion properly and the taxpayer’s appeal was allowed.

The matter moved to the Upper Tribunal which said HMRC should reconsider the evidence. The judge left open the possibility of a further hearing to have the assessment discharged.

The tribunal at the second hearing said there were two types of failing that could have happened in the taxman’s review: either a process defect (failure to take relevant matters into account or irrelevant matters  wrongly been into account)...