A recent VAT appeal First‑tier Tribunal decision, Holiday Booking Management Ltd v HMRC [2026] UKFTT 587 (TC), highlights an increasingly important risk area if you’re a VAT‑registered business: HMRC reducing or denying VAT repayment claims following a pre‑repayment credibility check, while arguing that the decision is not appealable.
The Tribunal refused HMRC’s attempt to strike out the appeal at an early stage, confirming that taxpayers may have arguable appeal rights, even where HMRC characterises its action as a non‑appealable “VAT credit adjustment”.
Partner and VAT specialist, Mark Ellis, highlights the key details of Holiday Booking Management Ltd.’s tribunal and what the decision means if you’re a VAT‑registered business. He also shares practical guidance on the importance of defensive preparation when you’re submitting VAT repayment returns, and what you can do to manage both cash‑flow and dispute‑cost risk.
Background: HMRC VAT repayment challenges, VAT repayment claims, and credibility checks.
Most VAT repayment returns are processed automatically by HMRC. However, your return could be selected for manual review if it’s:
- the first return on which you claim a refund from HMRC
- a return that shows a refund that is significantly larger than usual.
In these cases, HMRC commonly undertakes a pre‑repayment credibility check, during which payment may be withheld while HMRC requests supporting information.
How long can HMRC delay a VAT repayment?
These checks can last months and in some cases years; so it’s important your business is prepared to respond quickly and clearly. Where HMRC remains unsatisfied, it may reduce the repayment claim, potentially to nil, without issuing a formal VAT assessment.
What happened: Holiday Booking Management Ltd v HMRC decision
Holiday Booking Management Ltd submitted its first VAT return, covering a six‑month period, claiming a repayment of approximately £197,000. HMRC selected the return for a pre‑repayment credibility check.
After a prolonged inquiry, HMRC concluded that most of the claim related to transactions they said were not properly attributable to the company. HMRC therefore reduced the repayment to around £10,000 and issued a decision letter:
HMRC issued a decision letter:
- stating the revised repayment figure,
- offering a statutory review, and
- offering a right of appeal to the Tribunal.
Can you appeal an HMRC VAT repayment decision?
The company appealed on the basis that the reduction was out of time if it constituted an assessment under VAT law.
HMRC responded by arguing that:
- the decision was merely an adjustment to a VAT credit under section 25(3) VATA 1994
- it was not an assessment under section 73
- therefore, it was not subject to VAT assessment time limits and should not be appealable in the way the taxpayer claimed.
HMRC applied to strike out the appeal entirely.
Tribunal decision: HMRC strike out application refused
The First‑tier Tribunal refused HMRC’s application to strike out the appeal. While the Tribunal did not decide the substantive VAT dispute, it held that:
- HMRC had expressly offered a right of appeal, which undermined its argument that the decision was non‑appealable
- Section 25(3) VATA defines what a VAT credit is but does not provide a clear procedural framework for making final adjustments
- There is no statutory definition of “assessment” in VAT legislation
- Existing case law relied upon by HMRC, concerning delays to VAT repayments, does not clearly establish that a final denial of a repayment is immune from appeal.
As a result, the Tribunal confirmed that the taxpayer had an arguable case that the decision should fall within the usual statutory framework, including time limits. The appeal will therefore proceed to a full hearing at the Tribunal.
Why this matters for VAT‑registered businesses
Although the Tribunal decision is only a preliminary one, it highlights a systemic risk in VAT repayment claims as follows:
- HMRC may reduce or deny a repayment following a credibility check
- HMRC may then argue that the taxpayer has limited or no appeal rights because no formal assessment has been issued
- taxpayers may be forced into costly procedural disputes before the substantive VAT position is even considered.
Practical recommendations for businesses submitting their VAT return
1. Pre‑empt HMRC’s enquiries on large repayment claims
You should assume a pre‑repayment credibility check is likely.if you’re VAT repayment claim is:
- the first one you’ve claimed from HMRC
- significantly higher than historical returns
To mitigate this risk, HMRC allows you to submit supporting information before or at the time the VAT return is filed using its online repayment evidence form.
Preparing this form in advance allows you to identify potential weaknesses which can be corrected before filing your VAT return form such as:
- missing or invalid VAT invoices
- unclear group or trading structures
- supplies attributed to the wrong legal entity.
2. Treat VAT repayment claims as high‑risk filings
If your VAT return shows a large or unexpected refund, you should apply the same level of internal review you use for any other high‑risk VAT positions. This includes:
- clear audit trails
- reconciliations to accounting records
- documented explanations for unusual movements.
The cost of additional preparation is often significantly lower than the cost of a prolonged HMRC enquiry.
3. Consider professional fees protection
Even if your technical position is strong, disputes over VAT repayments can be complex, drawn‑out and expensive. If you regularly submit VAT returns claiming VAT refunds from HMRC, consider professional fees protection insurance which can cover the costs of specialist VAT advice during HMRC enquiries, reviews and appeals. If you’re a tax compliance client of PKF, we offer a fee protection service which you can speak to your advisor about.
This can be an effective way to manage your financial exposure if HMRC challenges a significant repayment.
Key takeaways
- You may still be able to appeal reductions to VAT repayments following credibility checks, even where HMRC says otherwise.
- HMRC’s characterisation of a decision as a “credit adjustment” is not necessarily determinative.
- If you have large or unusual VAT repayments, make sure you prepare proactively and defensively.
- It’s essential you have a plan for managing dispute‑cost risk as part of your VAT compliance strategy.
If you would like advice on preparing or defending a VAT repayment claim, or on managing HMRC enquiries and appeals, please contact Mark Ellis or your usual PKF Littlejohn VAT adviser.
