Elbrook (Cash and Carry) Ltd – Payment of VAT Assessment Would Cause Hardship

Arguments are inevitable between taxpayers and HMRC over interpretations of key phrases in the legislation. These often revolve around penalties, appeals and what constitutes ‘reasonable’. In a recent case, the Revenue lost on the grounds that the taxpayer would have suffered ‘hardship’ if required to pay a VAT assessment before appealing it (as according to VATA 1994, s.84 one of the conditions for appealing is that the tax must be paid).

The taxpayer had won the case at the First-Tier Tribunal, and the Upper Tribunal noted that it could only overturn the finding in that case if they had made an error in law.

The Upper Tribunal noted that the test had to consider not just the ability to pay, but “the capacity to pay without financial hardship”. It was felt the possibility of obtaining new finance should be ignored in the circumstances (which seems to go against standard HMRC practice in cases regarding difficulty paying). It was only if other sources were likely to become available they should be considered. The judge agreed with the First-Tier Tribunal that approaching their bankers would not have been suitable as it could have caused further financial difficulties through the bank becoming concerned.

Overall, the judge agreed with the conclusions of the First-Tier Tribunal, even though the decision could perhaps have been worded better. The case highlights that it can be worth challenging HMRC interpretation. They are Civil Servants, not the judiciary, so there are independent arbiters of the rules!

Please contact us if you have any concerns about HMRC practices. We have extensive experience in such matters. Often HMRC are right, but not always. They will only be kept to high standards by rigorous, independent review. This is in the best interests of everyone, including HMRC.

Out of Time Appeal Allowed – C Davison v HMRC

A recent case concerned an application for an appeal relating to years that would normally be outside of the appeal window.

Background and Facts

The taxpayer’s returns for 1997/98 and 1998/99 were amended by HMRC after she had left the UK to live in Spain.  HMRC were informed of her departure (after the enquiries were raised) but continued attempting to contact the taxpayer at her old address for the next three years.

Assessments were also raised by HMRC for 2000/01 and 2001/02, and having located Mrs Davison’s details in Spain were able to deduct funds from her Spanish bank account.  In 2008, she telephoned HMRC receiving confirmation that the tax due on the assessments for those two years had been incorrectly raised and that the tax was not due.

Mrs Davison therefore asked for a refund of the tax, however HMRC said this was not possible as tax was still due on the earlier assessments for the years 1997/98 and 1998/99. This was the first she had heard of the earlier year assessments as they had not been sent to her in Spain.

The representative for HMRC indicated that if she wanted a repayment they would seek payment for the tax due and she might lose the case. As a result, she believed that by not pursuing the matter further it would be resolved (as suggested by HMRC).  This was confirmed by HMRC’s internal notes, which stated they “now consider this case closed”.

She applied for a repayment in 2012 having returned to the UK but this was refused by HMRC because of the outstanding 1997/98 and 1998/99 liabilities.

She therefore sought to appeal the assessments which HMRC claimed were now out of time.

Decision

In making its decision the Tribunal noted that HMRC could have confirmed the assessments for 1997/98 and 1998/99 were still due at any point from 2001 until 2011 but had not done so.

Mrs Davison was reasonable in her belief that the assessments had been vacated, and therefore would have had no reason to think she needed to appeal.

The application for the right to appeal out of time was allowed.

The case shows the importance of taxpayers asserting their rights and challenging HMRC’s occasionally draconian application of the rules on appeals.  It is worth remembering that out of time appeals can be sought in suitable circumstances.

Is it Un-Phair? – HMRC entitled to Claim Costs

A recent case has again highlighted the recurring issue with taxation; the Devil is in the Detail.

In the recent case of Phair, the taxpayer appealed to the First Tier Tribunal to argue (broadly) that a complex Capital Accumulation Plan (CAP) should not be liable to UK income tax because at the time he received distributions under the plan he was not resident in the UK. The issues and arguments were complex, but the taxpayer lost because (to simplify) the units awarded to him under the CAP were UK source income to be treated as ‘employment related securities.’ As he was resident when the units were awarded, then they remained within the scope of UK tax.

So far so bad for the taxpayer! What made it worse was that his tax agent failed to take into account all the issues related to the Appeal process. Hence, when sent an official Notice of Appeal pack they did not make a formal application to ‘opt out’ of the legal costs regime associated with the hearing.

Thus, whilst the Tribunal expressed sympathy for the fact Mr Phair was ‘horrified of his potential liability for HMRC’s costs,’ nevertheless HMRC were fully entitled to claim them.

The case shows, once again the importance of addressing technical detail, especially as current HMRC attitudes appear to be relatively unsympathetic, or to use the jargon ‘to have a reasonable excuse’ requires Death, Disease or Disaster.