There has been an increase in the number of cases where HMRC officers are not following their own procedures and are not consulting internal expertise to ensure the accuracy of their actions. This may be due to the shrinkage of the department, significant redundancies and the loss of expertise, but whatever the reason, it is important to seek the advice of a professional in the event that HMRC contact you or your client.
It also follows on from the general trend of HMRC being under far more scrutiny at the tribunals on direct taxes, where it has been found their behaviour has been unreasonable.
Below are recent examples of such cases;
Incompetence on a grand scale
In Gekko, HMRC discovered the appellant had made an error correction in an earlier VAT return to account for £5,200 output tax (which the Tribunal later found to actually be £4,880). Despite the fact that the VAT officer agreed at the outset that the disclosure of the error was unprompted and the penalty was nil, the officer then changed her mind and insisted that the correction was prompted and charged a 15% penalty.
The Tribunal were particularly critical of HMRC (the respondents) declaring this was “incompetence on a grand scale”.
The decision begins by stating that, “it is a great deal longer than we would ordinarily write in a case involving such small amounts: this is because there are a number of disturbing features about the way the case has been conducted by the respondents”.
The VAT and penalties were cancelled and costs were awarded to the taxpayers.
The next case, Barty Party, involved an information notice issued by the VAT officer that requested information for periods outside the normal four year assessment period. The Tribunal found that HMRC not providing a specific reason why information was required for those periods was a sufficiently fundamental flaw to render the whole information notice invalid.
The Tribunal also felt it necessary to provide clarity on what information is statutory and what information in non-statutory for HMRC’s benefit.
The final case involved two ice skating rinks (The Ice Rink Company Ltd and PI (Milton Keynes) Ltd). They both correctly treated the hire of children’s ice skates as zero rated supplies.
The sequence of events started in 2012 when the officer visited an unconnected ice rink in Brixton. After taking policy advice, he approved zero-rating of the hire of skates. Oddly, he reversed that decision in writing a year later. The reason for this change of mind was apparently because he had referred to HMRC’s revised guidance to its staff in connection with CPP (Card Protection Plan), a leading single/multiple supply ECJ (European Court of Justice) case, which had been heard years before in 1999.
Without consulting his policy team, the officer sent identical copies of his written decision to the two businesses in this case. He simply cut and pasted the original letter, leaving in references to the future conduct of the Brixton ice rink. In addition, the officer confessed that the figures in his assessments, for £641,601 and £43,547 were wrong because he had failed to examine the business records. There were further criticisms as the officer had also threatened to charge penalties. The Tribunal found that this was not the action of a reasonable VAT officer.
Links to these cases can be found here: