VRM9300 - Verifying a claim: evidence in historic claims

‘Historic claims’ refers to those made before the introduction of the four-year time limit, for example ‘Fleming’ claims where the time limit for making a claim extended beyond the period that customers were required to keep business records and so these were less likely to have remained available.

Standard of Proof where records are unavailable

Where detailed records are unavailable it does not mean there is a lower standard of proof for a claim. The civil standard of proof (on a balance of probabilities) remains.

The Supreme Court cited this passage from Lothian NHS [2015] UKUT 264 with approval:

23. … In all cases the standard of proof remains the balance of probabilities: that applies equally to historic claims for unrecovered input tax. There is no rule of law or procedure restricting the exercise of the right of recovery in such cases; proof by means of estimates, assumptions and extrapolations was open to it as it is in all cases. The problem for the appellant was that the tribunal was not satisfied that the material placed before it was of sufficient value to enable any reliable conclusions to be drawn, whether by way of estimation, assumption, extrapolation or otherwise…

The taxpayer’s estimates, assumptions and extrapolations must be sufficiently robust.

HMRC and the tribunal must have regard to the evidence that is available, and each claim must be considered on its individual merits.

However, HMRC is not obliged to accept a figure simply because some input tax is due or because it is the claimant’s ‘best guess’ based on the material available. The claimant must first establish that their method of valuing their claim is reasonable and provide an identifiable repayable amount.

NHS Lothian [2022] UKSC 28

In NHS Lothian the board wanted to claim unrecovered Input Tax incurred for the business activities of its science laboratories. It had calculated a percentage for 2006-07 and applied this unchanged to the period 1974-1997. HMRC rejected the claim because the board were unable to establish that their method of valuing the claim was reasonable and could not prove an identifiable repayable amount. The Supreme Court agreed with HMRC that the standard of proof had not been met in the circumstances.

The Supreme Court confirmed that:

  1. Taxpayers must either provide specified documents showing the amount of Input Tax incurred or devise a credible alternative method which allows that amount to be estimated with reasonable certainty.
  2. The right to deduct Input Tax is not separate from the obligation to quantify a claim. It is not enough for a claimant to prove they have incurred ‘some’ Input Tax without being able to identify an amount.
  3. It is not the Tribunal’s role to function as a ‘forensic accountant’ to calculate a figure.
  4. The principle of effectiveness did not require courts or tribunals to set aside their ordinary procedural rules.

In this context ‘specified documents’ means either VAT invoices or material that HMRC considers would be acceptable alternative evidence. See also VRM5100.

Although NHS Lothian involved a Regulation 29 claim, HMRC’s view is the general principles laid out by the Supreme Court will also apply to Section 80 claims.