VAT Disputes: Build the Evidence Before You Need It

What do the VAT rules say?

When a VAT dispute with HMRC begins, attention naturally turns to the technical position: What do the VAT rules say, and why is our interpretation correct?

But having a strong technical argument is only part of the picture. If the dispute progresses, being able to evidence the facts behind that argument can become just as important.

That is why, when dealing with a material VAT dispute, it can be useful to create an evidence map at an early stage.

What is an evidence map?

An evidence map is essentially a working record that connects the key facts of your case with the evidence available to support them.

Start by asking:

What facts need to be established for our VAT position to succeed?

For each one, identify what will prove it. This might include:

• contracts and agreements;
• invoices and purchase records;
• VAT returns and accounting records;
• bank statements and payment information;
• emails and correspondence;
• system or transaction data; or
• evidence from individuals involved in the transactions.

For example, if the VAT treatment depends upon the nature of a particular supply, don’t simply record what the business says happened. Consider what contemporaneous documentation demonstrates how the transaction actually operated in practice.

Find the gaps early

Once the available evidence has been mapped against the facts, gaps often become much easier to spot.

Perhaps an agreement cannot be located. Maybe historic bank statements need to be obtained. There could be discrepancies between transaction data and the VAT returns originally submitted.

Identifying those issues early gives the business and its advisers an opportunity to address them while information is still relatively accessible.

It can also be helpful to allocate responsibility for each missing item and keep a record of what has been requested and received.

Make sure the numbers tell the same story

Where the taxpayer is putting forward an alternative VAT calculation, that calculation should also be reconciled back to the underlying records.

Can the figures be traced through to the VAT returns? Do they agree with the accounts and transaction data? Can any differences be clearly explained?

A calculation may appear perfectly reasonable in isolation, but inconsistencies with previously submitted returns or accounting records could raise further questions from HMRC.

Don’t leave evidence gathering until the end

One of the risks in a long-running dispute is assuming the supporting documents can simply be gathered later if they are needed.

By then, records may be harder to find, staff involved in the transactions may have left the business and historic data may no longer be readily accessible.

More importantly, if the dispute reaches the First-tier Tribunal, there may not be another opportunity to rebuild the evidential case later.

A recent VAT case provides a useful example.

Massala Exotic Limited and Khosru Miah v HMRC – the importance of getting the evidence right first time

Massala Exotic Limited and Khosru Miah v HMRC [2026] UKUT 00355 (TCC) concerned an Indian restaurant which HMRC believed had underdeclared its takings.

HMRC raised a best-judgment VAT assessment of £280,903 covering VAT periods from September 2013 to September 2019.

It also imposed a deliberate penalty of £176,966.37, representing 63% of the VAT assessed, and issued a personal liability notice to the company’s director, Mr Miah.

The First-tier Tribunal upheld HMRC’s assessment, penalty and personal liability notice.

How had HMRC calculated the VAT?

For earlier periods, HMRC had merchant-acquirer information showing card receipts. Equivalent information was not available for the later periods after June 2016, so HMRC used the last evidenced expected gross-sales figure of £240,780.56 and repeated it for each subsequent quarter up to September 2019. This resulted in the same quarterly VAT assessment of £11,236.43 being applied for approximately three years. The taxpayer argued that this failed to reflect factors including seasonality, changing trading conditions, declining sales and the restaurant’s eventual closure.

However, criticising HMRC’s methodology was not enough. The Upper Tribunal found no arguable error of law in the FTT’s conclusion that HMRC’s assessment had been made to best judgment.

If turnover fell, where is the evidence?

This is where the case becomes particularly relevant for businesses involved in VAT disputes. The taxpayers’ position was that turnover had declined. However, documentary evidence had not been produced before the FTT to demonstrate that decline or show how turnover had varied after 2016.

Had the business been able to produce a stronger evidential picture, relevant records might have included:

• merchant-acquirer and bank statements;
• till or EPOS reports;
• online delivery platform records;
• evidence of closures or reduced opening hours;
• staffing records demonstrating reduced trading capacity;
• pricing or menu changes;
• management accounts and forecasts; and
• an alternative period-by-period turnover calculation.

The important point is that saying “HMRC’s estimate doesn’t reflect what actually happened” is very different from being able to demonstrate, with evidence, what actually happened.

You may only get one proper opportunity to produce the evidence. The case also illustrates the danger of trying to fill evidential gaps after the FTT has reached its decision.

Mr Miah subsequently sought to introduce additional material, including bank statements and a witness statement concerning the card-machine arrangements.

The Upper Tribunal refused to admit the fresh evidence.  The taxpayers had already been made aware during the FTT proceedings that documentary and witness evidence was lacking. There had been an opportunity to provide that material at the appropriate stage.

The position regarding the bank statements was particularly instructive. Replacement statements could potentially have been obtained from the bank. If relevant documents were held by HMRC, steps could have been taken before the FTT to seek their disclosure.

Those opportunities had not been pursued in time.

An appeal to the Upper Tribunal is generally concerned with whether the FTT made an error of law. It is not ordinarily an opportunity to rerun the factual case with better evidence after discovering why the original case failed.

That makes the practical lesson particularly important: Treat the FTT as the point at which your factual case needs to be properly evidenced. Don’t assume there will be an opportunity to fill the gaps later.

What should you take from the case?

Before a VAT dispute reaches a hearing, work through the factual case systematically.

Ask:

What does the Tribunal need to accept for our argument to succeed?

Then, for every important factual proposition, ask:

What document, data or witness proves it?

If the argument is that turnover declined, quantify the decline and produce records supporting it. If transactions recorded through a particular card machine belonged to another business, establish the merchant arrangements, follow the money through the bank accounts and demonstrate the accounting treatment.

If HMRC’s calculation is said to be wrong, don’t stop at identifying weaknesses in HMRC’s methodology. Where possible, produce a credible, evidence-backed alternative calculation.

A technical argument or carefully drafted submission cannot necessarily compensate for missing factual evidence.

Good evidence management isn’t just for tribunal cases

Of course, most VAT disputes will not necessarily end up before a tribunal.

But that does not make early evidence gathering any less valuable.

Organising the evidence from the beginning can help businesses and their advisers:

• understand the strengths and weaknesses of their position;
• identify missing information before it becomes difficult to obtain;
• respond more effectively to HMRC;
• challenge HMRC calculations with evidence rather than assertions; and
• potentially resolve a dispute before tribunal proceedings become necessary.

The practical takeaway

When a significant VAT dispute begins, don’t wait to see how far HMRC takes it before thinking about evidence.

• Establish the facts you need to prove.
• Identify the evidence supporting each one.
• Find the gaps.
• Make sure the numbers reconcile.
• And do it early.

The decision in Massala Exotic Limited and Khosru Miah v HMRC is a useful reminder of why this matters.

When it comes to an HMRC VAT dispute, knowing your VAT position is important. But being able to prove the facts supporting that position at the right time can be just as important.

Next Steps

If you are wanting support with VAT rules then please contact ETC Tax.