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.