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I have a friend who used to be self employed, but is now in full time employment. this was about 4 years ago, and he never bothered to de-register for VAT.

Now HMRC (via a collections agency) are on his back for payment of an ESTIMATED VAT bill (around £800) He has not been trading and has not submitted returns in this time, so in reality owes nothing (and has told them as such)

So my question is in UK law, is it actually LEGAL (for any company or government body) to enforce collection of an estimated bill (which is based on pure guess-work)?

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    Minor nitpick: HMRC aren't a company -- they are the government. Laws surrounding the collection of unpaid taxes owed to the government are likely different from laws surrounding unpaid private commercial invoices. I would rephrase as "Is it legal for the government to enforce collection of an estimated tax bill?"
    – Chris W. Rea
    Commented Dec 16, 2013 at 17:22
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    I'm pretty sure its similar to the US. In the US, if you don't submit a return - the IRS will make up one on your behalf. In order to prove them wrong first thing you have to do is to submit the return. Your friend knows that in reality he owes nothing, but how would the government know? They know that he owed last year. They will assume that this year is no different and he's just hiding. As long as he hasn't submitted a return - yes, it is definitely legal for the government to collect estimated taxes.
    – littleadv
    Commented Dec 17, 2013 at 5:22
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    @Steve2000 his entire comment starts the "in the US,..." The IRS does this all the time. If you fail to file one year and they have partial information, they will estimate what you owe but their estimates are not to the benefit of the individual.
    – mhoran_psprep
    Commented Dec 17, 2013 at 12:24
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    During the 4 years what correspondence took place between the taxpayer and the HMRC? In the US there would be attempts to rectify the situation before it reached this stage.
    – mhoran_psprep
    Commented Dec 17, 2013 at 16:55
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    It does impact the essence of the question. If they sent the taxpayer multiple notices and tried to work it out, but the taxpayer ignored them then it isn't the same as getting a collection notice without warning. The estimate is considered correct if the taxpayer ignored the taxing authority.
    – mhoran_psprep
    Commented Dec 17, 2013 at 17:28

2 Answers 2

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The HMRC guide on how to appeal against an HMRC decision regarding indirect tax (which includes VAT) suggests that the answer is yes, it is legal:

The tribunal will not usually hear your appeal unless the tax due as a result of the decision you disagree with has been paid.

In other words, you must pay up before you can have your appeal dealt with -- unless you show that it would cause you hardship:

But if you believe that paying the amount you wish to appeal against would cause you hardship you can ask HMRC not to collect the payment due until the appeal has been considered by the tribunal.

The general point is that HMRC will attempt to collect what they believe to be the accurate amount. It's your responsibility to keep them updated, to challenge their numbers if you think they've made a mistake, and if that doesn't work, to go through the review and appeal procedure.

In the case of VAT, the legal underpinning for using an estimated amount comes from the Value Added Tax Act 1994, where Section 73 ("Failure to make returns etc.") states:

(1) Where a person has failed to make any returns required under this Act ... or to keep any documents and afford the facilities necessary to verify such returns or where it appears to the Commissioners that such returns are incomplete or incorrect, they may assess the amount of VAT due from him to the best of their judgement and notify it to him.

and:

(9) Where an amount has been assessed and notified to any person under subsection (1) ... above it shall, subject to the provisions of this Act as to appeals, be deemed to be an amount of VAT due from him and may be recovered accordingly, unless, or except to the extent that, the assessment has subsequently been withdrawn or reduced.

My non-expert interpretation of this is that HMRC may assess the amount of tax due as they see fit, whether that's based directly on documents received, or is an estimate; and that assessment is the amount that is due (unless later amended). In other words, it doesn't matter whether their figures are estimates or not; unless you can demonstrate otherwise, you owe what they say that you owe.

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never bothered to de-register for VAT

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On the HMRC (gov.uk) website it says:

"You must submit a VAT Return even if you have no VAT to pay or reclaim".

More details found here: https://www.gov.uk/vat-returns

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