“Prevailing Practice” prevents HMRC from recovering underpaid tax which has arisen from over claimed reliefs provided that the claims were made through practice prevailing at the time.
The recent case of Boyer Allen Investment Services v HM Revenue & Customs may make the application of prevailing practice more restrictive than previously thought. The ‘prevailing practice’ in question was the tax treatment of contributions to an EBT prior to the case of Dextra.
The tribunal dismissed the company’s appeal on the basis that “to be a practice, it must be something capable of being clearly articulated, and articulated not just by the Revenue, or just by taxpayers’ advisers, but by both, and by both in the same terms”.
The Tribunal also noted that there is a difference between what simply happens in practice and the identification or establishment of a particular practice. A common misunderstanding of the legislation cannot therefore give rise to a “prevailing practice”.
The taxpayer lost because th Tribunal did not believe that advisers would have been able to articulate HM Revenue & Customs’ supposed practice and it was agreed that there was a common misunderstanding of the interpretation of the rules by both HM Revenue and Customs and the tax profession.