Ambiguity of HMRC letters to change VAT periods staggers the Tribunal
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Friday, 10 October 2008
In a recent VAT Tribunal case, we lodged an appeal on behalf
of our client, PTE Plc t/a ‘Physique’ (MAN/08/0265 – VTD 20,722),
against the imposition of a default surcharge of nearly £20k for the submission
of a late return for the period 11/07. We were successful in the appeal, and
the penalty was removed on the grounds that the company had a ‘reasonable
excuse’ for sending in the return late.
The background to the case was that in early 2007, PTE had a
number of staff changes in its accounts department and reorganised its business.
By early October, it became apparent that it would not be able to complete its
11/07 VAT return by the due date. The company sent a fax to HMRC on 11 October
2007 explaining the situation, and stressing that it wanted its current return
period changed to a December end, and that all future returns would end
December, March etc as it was not able to complete the return on time due to the
pressure of work.
On 2 November, HMRC replied saying ‘This has now been
approved and your VAT returns will now end on the last days of…’. Not
unreasonably, the client considered this to be agreement to the change,
particularly as it had made it clear that it needed the change in the current
period in order to get the return in on time. The company did not take much
notice of the rest of the letter, which said: ‘Before this change becomes
effective you may receive a VAT return under the old arrangements. If this
happens you must complete the return and send it to …’.
Doing this, of course, would have completely negated any
benefit from changing the VAT return stagger.
The client received the 11/07 return as usual, and a
one-month return for December 2007. It naturally threw away the November return,
and assumed that the December return was for 4 months. It filled it in, and
sent it on time for what it thought was a four-month period. HMRC replied ‘oh
no, we want two returns and the November one was late so we will impose a
penalty for a late return’.
Similarly ambiguous wording was responsible for two Tribunal
appeals in 1995 and 2001, which HMRC also lost. The Tribunal Chairman expressed
concern that, despite this, HMRC had still not changed the wording of these
letters, and the meaning was still unclear.
Quoting, the Chairman said:
‘We do not see why it should be the duty of a taxpayer
to make inquiries as to the meaning of a letter which the Commissioners have
written, just in case there should be some hidden ambiguity in it. The
Commissioners should be taken to mean what they say; it is, in our judgment,
up to them to say what they mean’
Not surprisingly, in this case, the client’s appeal was
There are two main points to take from this case. Firstly,
if you do ask for a change of VAT stagger, you should always complete any
outstanding returns, even if the authorisation letter seems to make it clear
that the change is current rather than from a date in the future. Secondly, if
HMRC continues to produce ambiguous letters with unclear meaning, you may have a
reasonable excuse for your mistake and avoid a penalty.
It must be hoped that HMRC will now take the Tribunal’s
advice on board and change the wording of these letters, so that their meaning
is clear and these misunderstandings do not happen again in the future.
About the Author
Andrew Needham is a Director of VAT Specialists Limited,
headed by Chartered Tax Adviser Andrew Needham who has a degree in Law from UCNW
Bangor and is a specialist in indirect taxes. Andrew has over 20 years
experience in VAT having spent 7 years in HM Customs & Excise, firstly as a VAT
inspector, then as a departmental trainer, and finally in a headquarters policy
unit dealing with the introduction of the EU single market.
VAT Specialists Limited, 31 Bisham Park, Runcorn, Cheshire WA7 1XH - T)01928
571207 F) 01928 571202 Mob ) 07810 433 926
(E) Andrew Needham BA CTA
(T) 01928 571207
(F) 01928 571202
(M) 07810 433 926
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Article Published/Sorted/Amended on Scopulus 2008-11-03 19:21:53 in Tax Articles