Great expectations
If you ask HMRC for advice on a tax matter, surely you should be able to rely on the answer – but it isn’t that simple. For years, HMRC would do the decent thing, but only on their terms – if a tax officer, in possession of the full facts, gave an unequivocal ruling in writing which turned out to be wrong, HMRC would only apply the correct law from when they told the trader – they wouldn’t ask for back tax. This was only a concession: if HMRC decided it didn’t apply, it was hard to appeal.
Then a High Court judge suggested that EU law gave traders the right to force HMRC to stand by their answers – a legal argument called ‘the protection of legitimate expectations’ would prevent the authorities going back on what a trader could reasonably regard as a promise. The judge reckoned this could be used in the First-Tier Tax Tribunal (FTT), and many recent appeals have included it.
Now HMRC have established that only the Upper Tribunal can hear this kind of appeal, and the hurdle the taxpayer has to clear is very high – HMRC’s behaviour has to be so unreasonable as to constitute an ‘abuse of power’. In the case, a man had gone to a tax office to ask how to recover VAT on pre-trading expenses. He was given a telephone to ring the Advice Line, and – according to him, because there were no records – received misleading advice, leading him to register from the wrong date and lose the right to reclaim some VAT. The FTT accepted his version of events and held that he had a ‘legitimate expectation’, but HMRC overturned the decision on appeal and established that the FTT cannot consider this argument.
If you are not sure how to treat something for VAT, we can advise you – and we can suggest how to get a ruling from HMRC.