Is HMRC the Best Place to Get VAT Advice?

Is HMRC the Best Place to Get VAT Advice?

Do you think HMRC is the best place to get advice on VAT? HMRC is the government department tasked with making sure VAT registered businesses account for VAT correctly. You would, perhaps, expect HMRC to know the correct VAT treatment of a supply.

In a recent First-tier Tribunal decision, one of the points used by HMRC to refute the appeal was, as the First-tier Tribunal pointed out, wrong. The matter in dispute was whether the input tax on the costs of refurbishing a restaurant and bars in a sports club was fully recoverable, as the taxpayer argued. Or was the input tax only partly recoverable, as HMRC claimed?

The appellant argued the costs were directly attributable to the supplies made from the restaurant and bars. As sales from the bars and restaurants bore VAT, the input tax on the costs was fully recoverable according to the appellant. The appellant was partly exempt because its income from membership subscriptions was exempt from VAT.

HMRC said the costs were not directly attributable to either the appellant’s taxable or exempt supplies, meaning the appellant would only be able to recover some of the VAT on the costs. In support of this argument, HMRC said there was a link between the costs, and both the taxable and exempt supplies the appellant made.

The exempt supplies cited by HMRC were the membership subscriptions and the hire of the bars and restaurants to members.

The bars and restaurants could only be let to members and there was no option to hire them without catering. This meant the letting of the bars and restaurant were part of a supply of catering. The First-tier Tribunal reminded HMRC that catering in the UK is standard-rated.

Did HMRC know before the hearing that the lettings also required catering to be provided? Is it possible that, in being focussed on proving it was right, HMRC overlooked the fact? Did HMRC fail, on this occasion, to look for the correct answer – no matter what it was – rather than the one that suited its argument. Had HMRC pre-judged the issue and let this affect its approach to the case?

Whatever the answers to those questions, HMRC made a mistake and the First-tier Tribunal allowed the appellant’s appeal.

Sometimes HMRC gets it wrong. The problem is that when HMRC do make a mistake, the cost to the taxpayer of getting it put right can be quite high. And that cost may be in more than money – the worry, hassle, etc. all take their toll. Maybe there needs to be a penalty regime that applies to HMRC, just like the one that applies to taxpayers?

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