Tag Archives: VAT-ruling

VAT: How to use HMRC advice and information

By   8 August 2023

HMRC have updated information (on 30 June 2023) on how to use its guidance. This includes when a taxpayer can rely on information and/or advice provided by HMRC. This is the first update since the original publication in March 2009.

The document covers; how to check the advice and information given give applies to a business, what a taxpayer can expect from HMRC, and what to do if you think you have incorrect information.

This covers enquiries made via:

  • letters
  • telephone calls
  • pages on gov.uk
  • webchat
  • posts on social media

HMRC publishes information and guidance that can address common issues, but this does not always provide a definitive answer in every situation. If this is the case, a business can:

Reliance on incorrect information

HMRC says:

You may be able to rely on incorrect advice and information from HMRC, if it’s both:

  • reasonable for you to expect this
  • very unfair for HMRC to act in a different way from the advice and information given.”

HMRC will take a number of things into account when considering this. In some cases, there may be a strong reason for HMRC to act in a different way from the advice and information given.

Where relevant, HMRC will generally consider whether:

  • you told HMRC about all the relevant facts
  • HMRC’s advice and information was clear and certain
  • you already relied on the advice and information and would be worse off if HMRC did not act in line with it

Once it is clear HMRC’s advice and/or information was incorrect, a taxpayer must make sure to use the correct advice and information going forward.

Right of appeal

There is no general right of appeal against the advice and information HMRC provides, except where rights of appeal are set out in statute.

NB: It is always worth considering the HMRC Charter which sets out what a taxpayer can expect from HMRC and what HMRC expects from a taxpayer.

That is all well and good, but I have written about this: VAT – Do as HMRC say…. and if you do… they may still penalise you!

 

Oops! – Top Ten VAT howlers

By   2 November 2021

I am often asked what the most frequent VAT errors made by a business are. I usually reply along the lines of “a general poor understanding of VAT, considering the tax too late or just plain missing a VAT issue”.  While this is unquestionably true, a little further thought results in this top ten list of VAT horrors:

  1. Not considering that HMRC may be wrong. There is a general assumption that HMRC know what they are doing. While this is true in most cases, the complexity and fast moving nature of the tax can often catch an inspector out. Added to this is the fact that in most cases inspectors refer to HMRC guidance (which is HMRC’s interpretation of the law) rather to the legislation itself. Reference to the legislation isn’t always straightforward either, as often EC rather than UK domestic legislation is cited to support an analysis. The moral to the story is that tax is complicated for the regulator as well, and no business should feel fearful or reticent about challenging a HMRC decision.
  2. Missing a VAT issue altogether. A lot of errors are as a result of VAT not being considered at all. This is usually in relation to unusual or one-off transactions (particularly land and property or sales of businesses). Not recognising a VAT triggerpoint can result in an unexpected VAT bill, penalties and interest, plus a possible reduction of income of 20% or an added 20% in costs. Of course, one of the basic howlers is not registering at the correct time. Beware the late registration penalty, plus even more stringent penalties if HMRC consider that not registering has been done deliberately.
  3.  Not considering alternative structures. If VAT is looked at early enough, there is very often ways to avoid VAT representing a cost. Even if this is not possible, there may be ways of mitigating a VAT hit.
  4.  Assuming that all transactions with overseas customers are VAT free. There is no “one size fits all” treatment for cross border transactions. There are different rules for goods and services and a vast array of different rules for different services. The increase in trading via the internet has only added to the complexity in this area, and with new technology only likely to increase the rate of new types of supply it is crucial to consider the implications of tax; in the UK and elsewhere.
  5.  Leaving VAT planning to the last minute. VAT is time sensitive and it is not usually possible to plan retrospectively. Once an event has occurred it is normally too late to amend any transactions or structures. VAT shouldn’t wag the commercial dog, but failure to deal with it at the right time may be either a deal-breaker or a costly mistake.
  6.  Getting the option to tax wrong. Opting to tax is one area of VAT where a taxpayer has a choice. This affords the possibility of making the wrong choice, for whatever reasons. Not opting to tax when beneficial, or opting when it is detrimental can hugely impact on the profitability of a project. Not many businesses can carry the cost of, say, not being able to recover VAT on the purchase of a property, or not being able to recover input tax on a big refurbishment. Additionally, seeing expected income being reduced by 20% will usually wipe out any profit in a transaction.
  7.  Not realising a business is partly exempt. For a business, exemption is a VAT cost, not a relief. Apart from the complexity of partial exemption, a partly exempt business will not be permitted to reclaim all of the input tax it incurs and this represents an actual cost. In fact, a business which only makes exempt supplies will not be able to VAT register, so all input tax will be lost. There is a lot of planning that may be employed for partly exempt businesses and not taking advantage of this often creates additional VAT costs.
  8.  Relying on the partial exemption standard method to the business’ disadvantage. A partly exempt business has the opportunity to consider many methods to calculate irrecoverable input tax. The default method, the “standard method” often provides an unfair and costly result. I recommend that any partly exempt business obtains a review of its activities from a specialist. I have been able to save significant amounts for clients simply by agreeing an alternative partial exemption method with HMRC.
  9.  Not taking advantage of the available reliefs. There are a range of reliefs available, if one knows where to look. From Bad Debt Relief, Zero Rating (VAT nirvana!) and certain de minimis limits to charity reliefs and the Flat Rate Scheme, there are a number of easements and simplifications which could save a business money and reduce administrative and time costs.
  10.  Forgetting the impact of the Capital Goods Scheme (CGS). The range of costs covered by this scheme has been expanded recently. Broadly, VAT incurred on certain expenditure is required to be adjusted over a five or ten year period. Failure to recognise this could either result in assessments and penalties, or a position whereby input tax has been under-claimed. The CGS also “passes on” when a TOGC occurs, so extra caution is necessary in these cases.

So, you may ask: “How do I make sure that I avoid these VAT pitfalls?” – And you would be right to ask.

Of course, I would recommend that you engage a VAT specialist to help reduce the exposure to VAT costs!

VAT – How to apply for a non-statutory clearance

By   16 December 2020

One would think that it would be a relatively straightforward matter to write to HMRC to obtain a ruling (non-stat clearance) on a matter. Surely a taxpayer ought to be able to set out the issue, describe the transaction, provide a tax analysis and ask HMRC whether they consider the proposed VAT treatment appropriate. Well, of course, it is not as simple as that (this is VAT after all).

So, what are the issues and what hurdles must be cleared before HMRC engage with a written query?

Checklist

First, there is a checklist which a business must consider and include in a non-stat clearance. Inter alia, this list includes:

  • Information about the transaction(s)
  • The reasons why the business is undertaking the transaction
  • The relevant facts about the transaction, set out chronologically as transaction steps,
  • The answer sought – set out your view of the tax consequences of the transaction
  • Any details that are contingent, eg; on future events or the consent of others
  • Information about commercial background
  • Explain the significance of the tax result in achieving the desired outcome
  • Explain why you chose this form of transaction over another that could achieve the same commercial result, where you have considered alternative forms
  • Information about legal points
  • Outline the specific legislation at issue
  • Why you believe the application of the legislation is open to possible different interpretations, summary of those different interpretations, and why the tax consequences are uncertain, including reference to our published guidance or to case law
  • Any legal advice you have already received, and you are content to disclose
  • Details of how you intend to use the clearance, such as for public documents
  • Information about the disclosure of a tax avoidance scheme that covers all or part of the transaction

Failure to address any items on the checklist usually means no determination will be forthcoming.

An applicant must also set out what HMRC guidance (including internal guidance) legislation, case law and other information has been considered. We find it helpful to reproduce the full checklist (as HMRC advise) and provide a comprehensive response to each point in order to avoid a straightforward refusal to respond.

Genuine uncertainty

One of the main reasons HMRC refuses to provide a non-stat clearance is that it considers that there is no genuine uncertainty; in other words, “go and look at the guidance”. This is very unhelpful after time and effort, and fees cost has gone into the application. The fact that an application is required to set out what guidance etc has been considered, and why it is ambiguous in the relevant circumstances does not seem to carry very much weight. I find it is unhelpful to say, “if it wasn’t uncertain, we wouldn’t be writing to you”! We recommend that a full explanation of the genuine uncertainty is provided to forestall such a HMRC refusal to reply.

Chances

Experience insists that it is difficult to obtain a non-stat clearance which is of any value. Quite often, HMRC will reply saying that their letter is not a non-stat clearance, but then go on to address (at least) some of the issues. This sometimes provides a degree of comfort. An approach that I sometimes adopt is to say, “we believe this to be the correct VAT treatment, and one we will apply to the transaction unless you advise otherwise with reasons”. This sometimes creates a reaction.

HMRC guidance

Details of obtaining a non-stat clearance here.

Address

I find that applications are looked at quicker if they are emailed: nonstatutoryclearanceteam.hmrc@hmrc.gsi.gov.uk. However, there is a 2mb size limit which is often unhelpful. If emailing, an applicant should state that you confirm that you understand and accept the risks involved in using email (otherwise this can cause delays).

Postal address

HM Revenue & Customs, Non-Statutory Clearance Team, S0563. 5th Floor, Saxon House, 1 Causeway Lane, Leicester , LE1 4AA

What HMRC will not rule on

  • Incomplete information
  • When there is no genuine uncertainty
  • When they consider it planning advice, or approval of a planning arrangements
  • HMRC believes that the intention is to avoid tax
  • There is a statutory clearance applicable to the transaction
  • Whether activities constitute a business
  • Whether a transaction represents a Transfer Of a Going Concern (TOGC).

Reliance

Even if a business does obtain a determination, is it possible to rely on it? The answer is no (well, not always). I consider this here.

Summary

It is understandable that a business wants certainty on a transaction, and it ought to be able to rely on HMRC for confirmation of its own analysis, but obtaining such an opinion is fraught with difficulties, frustrations and (genuine) uncertainty. It seems that HMRC will go to lengths to avoid giving a decision, but they are not reticent in penalising a taxpayer once a business has made a decision, applied it, and HMRC subsequently disagree with the VAT analysis.

A wholly unacceptable situation.