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When can a response to a non-statutory clearance application be relied upon?

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Carol Hallam - Menzies Accountant

Carol Hallam – VAT Specialist

The recent Westow Cricket Club First-tier Tribunal (FTT) case highlighted the issue with HMRC’s current stance on providing clearance for VAT treatments.

HMRC gave their stock response that clearance is not required as the matter is clear from guidance, but they then went on to give an informal opinion. 

Westow Cricket Club and the Zero-Rating Certificate

Westow Cricket Club sought a ruling from HMRC, as to whether the Club qualified to be charged the zero-rate VAT when building a new pavilion. The Club had to decide whether it was entitled to issue a Zero- Rating Certificate, a topic which has been subject to numerous tribunal cases. The HMRC letter would not express a definitive view or provide a clear ruling on the position.  Instead the officer referred the taxpayer to the relevant guidance but also stated that:

“Providing the new pavilion meets the conditions set out, and it appears to do so, the construction work will be zero-rated for VAT purposes.”

HMRC’s verdict

Westow Cricket Club relied upon the officer’s statement and issued the certificate. Following a review of the VAT records, HMRC issued the Club with a penalty for incorrectly issuing the certificate, without a reasonable excuse for doing so. The penalty is equivalent to the VAT which should have been charged. 

The FTT accepted that the Club had genuinely believed they were entitled to issue the certificate, but held that reliance on the HMRC officer’s incorrect statement was not a reasonable excuse on the basis:

  • The HMRC officer did not intend to provide a definitive response and referred to guidance; and
  • The certificate completed by the Club explicitly detailed the requirement for the zero-rate of VAT to apply, which could not be misinterpreted.

As a result the penalty was upheld.  The Tribunal panel on the case was critical of HMRC and suggested the current policy for clearance applications be reviewed. An extract from their comments is below:

“We have also indicated our unease with the Respondents apparent policy of saying on the one hand that they could not provide definitive answers to queries, but then at the same time expressing a view. We trust that the Respondent will take note of our concerns and if this is a matter of policy revisit that policy in light of the comments that we have made in this decision.”

It is matter of frustration for taxpayers that they are unable to obtain certainty from HMRC on the VAT treatment of matters which are not covered by general guidance. It is a matter of even greater concern, that they are not able to rely on comments within HMRC communications to show that they have taken reasonable care in applying complex VAT regulations.

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