Must do better: HMRC messes up VAT case
Must do better
Les Howard scrutinises HMRC’s management of a VAT DIY claim
The Christopher Swales FTT case addresses a number of significant issues. One of these is HMRC’s dreadfully poor case management. Even at the hearing the taxpayer asked the Tribunal to require HMRC to confirm what were the areas of dispute. HMRC confirmed that the only question was whether Note 2(d) was satisfied – whether the construction project was carried out in compliance with the planning permission (para 2 of the decision). Even so, HMRC made representations on other matters, and even suggested a penalty for an inaccurate claim (see para 3).
The substantive issue concerned a DIY builder’s scheme claim that HMRC had rejected. The background legislation is VAT Act 1994, s35, and VAT Regulations 200 & 201. Where the project involves the construction of a dwelling, this is defined by Sch 8, Group 5, Note 2. The FTT decision helpfully quotes this legislation in para 4.
Contact with HMRC started in August 2015 before construction started. Mr Swales wanted to ascertain whether the project should be ‘VAT-free’. This initial approach to HMRC was met with a refusal to give a definitive answer. The taxpayer would have to wait until he had submitted his claim to the National DIY Team before discovering their opinion.
The claim was submitted in January 2017 and was rejected. The original letter of rejection is referred to in paras 39-42. Here the claim is rejected on the basis that the project involved works to an existing building. In subsequent correspondence referred to in paras 53-57, HMRC highlighted a further reason for rejecting the claim, that the dwelling could only be used ancillary to another dwelling, in breach of Note 2(c), not Note 2(d). The confusion grows!
In this case the claimant was a retired architect. In terms of the planning system and the actual construction, he knew his stuff! The Tribunal commented that he was less familiar with VAT!
The Tribunal decision tells in some detail of Mr Swales’ dealings with a number of HMRC staff. It is a moot point whether the deficiencies highlighted are the product of poor HMRC system, or poor staff training. Perhaps both!
The FTT decision goes on to review the correspondence between the claimant and HMRC. This is described in paras 35-62 and highlights a s severe lack of clarity within the Department. In particular, having rejected the claim for one reason, a second Officer intervened at a later date and added a further ground of rejection (as noted above). This effectively created two streams of correspondence about the same building.
The claimant also pursued the case under the Alternative Dispute Resolution (ADR) procedure. The ‘Exit Agreement’ from the ADR indicated that the claimant would seek certain clarifications from Uttlesford District Council, the planning authority. The claimant was reluctant to do this as he considered the detailed matters were not in question. However, he did so, and obtained certain responses. See paras 81 to 82 on this point.
The latter part of the decision is a detailed review of the matters considered in correspondence in relation to the eligibility of the claim as well as the penalty assessment.
In conclusion, the Tribunal raised the question of an award of costs: “It will be apparent from what has gone before that we were not impressed, to put it mildly, by HMRC’s conduct of this case up to the hearing.” Normally in a ‘standard’ appeal each side bears its own costs. However where one party has acted unreasonably it is open for the other party to apply to the Tribunal for costs. It is highly unusual for the Tribunal to raise this matter of its own initiative.
Where you have been in correspondence with HMRC, it is important to keep copies of correspondence, and other documents. Your record will almost invariably be better than HMRC’s!
The Swales decision is here: http://www.bailii.org/uk/cases/UKFTT/TC/2019/TC07116.html
- is a partner in vatadvice. org, a specialist VAT practice based in Cambridgeshire. He has over 30 years’ experience in VAT, including a short spell with HMCE (as it then was). As well as assisting businesses and charities with VAT issues, he lectures on VAT and sits on the Tax Tribunal