TC09663 - [2025] UKFTT 01250 (TC)

The Appellant appeals against a Determination, in the varied sum of £88,503.70, for the 2017-18 tax year. Regulation 80 provides that where it appears to HMRC that there may be tax payable by an employer, which has not been paid, HMRC may determine the amount of tax to the best of their judgment. The Determination is then treated as if it was an assessment for the purpose of identifying appeal rights. This formulation is comparable with the requirement in the VAT legislation (in the context of an assessment) that HMRC must assess liability “to the best of their judgment”.

The meaning of the phrase “to the best of their judgment” has been the subject of much adjudication and consideration. The starting point to the sphere of litigation that has arisen are the principles enunciated in Van Boeckel, where the classic test was laid down by Woolf J (as he then was), at p. 292, as follows:

“…What the words 'best of their judgment' envisage, in my view, is that the Commissioners will fairly consider all material placed before them and, on that material, come to a decision which is one which is reasonable and not arbitrary as to the amount of tax which is due. As long as there is some material on which the Commissioners can reasonably act then they are not required to carry out investigations which may or may not result in further material being placed before them.” 

He added this, at p 296:

“If they do make investigations then they have got to take into account material disclosed by those investigations.”

As set out in Van Boeckel, there are various underlying principles which must be observed in order for HMRC to arrive at a best judgment assessment. The Commissioners are required to consider all material placed before them and come to a decision which is ‘reasonable’. The threshold for making a best judgment assessment is, therefore, a low one. The correct test is whether there has been an “honest and genuine attempt” to make a reasoned assessment: Pegasus Birds (2), at [22] (per Carnwath LJ). This does not translate to meaning that whether an assessment could be said to be “wholly unreasonable” is irrelevant to determining that question: see Pegasus Birds (2), at [77] (per Chadwick LJ). HMRC only need to consider the information before them in a fair way, and come to a decision which is reasonable (and not arbitrary) as to the amount of tax due.

Where the taxpayer seeks to challenge the assessment as a whole on ‘best of their judgment’ grounds, it is essential that the grounds are clearly and fully stated before the hearing begins. We are satisfied, having considered the Notice of Appeal and the Grounds of Appeal, that the Appellant did not seek to challenge whether the Determination was made to best judgment. The Appellant further did not seek to vary its Grounds of Appeal prior to the date of the hearing, despite being invited to do so.

We find that HMRC satisfied the obligation in reg. 80(2) to determine the amount of tax due to the best of their judgment. We further find that it was clear from the educational due diligence meeting in 2020 that HMRC had considered that the Agency legislation applied; which was some time before the Determination was issued in 2022 (following various exchanges of correspondence between the parties).