9 July 2018

Unclear VAT clearances

We all know that VAT can sometimes be confusing. We are here to provide clarity.

We all know that VAT can sometimes be confusing.  Issues arise because the rules and law can be interpreted in slightly different ways.  HMRC can challenge procedures resulting in costs being incurred through needing to explain the rationale behind business decisions.

In our recent communications with HMRC they have highlighted a change in their position and policy on written enquiries.  In the past HMRC's clearance team regularly provided clarification and confirmation on areas or procedures that were unclear or open to misinterpretation.  HMRC also issued regular updates and new bulletins.

This provided taxpayers with up-to-date information and some comfort that they were accounting for VAT in a manner that was acceptable to HMRC.  This ultimately reduced the risk of challenge or historic VAT liabilities.

In a recent exchange of communications we were informed by HMRC that they no longer provide a confirmation service.  To obtain HMRC's view or opinion on a transaction or procedure we need to identify an area of uncertainty or difference between legislation and published guidance.  They have indicated that they are not able to provide bespoke advice.

In practice, when we have highlighted areas of uncertainty, HMRC have been reluctant to provide a definitive ruling or opinion.  Indeed in some cases HMRC have been almost unwilling to provide any clarification or advice.  It appears that HMRC do not want to give incorrect advice and feel that in a lot of cases it is difficult for them to be 100% correct.

HMRC say they will confirm inconsistencies in VAT guidance and will highlight situations where the law may not have been interpreted correctly or fully.

For VAT, HMRC is adopting a style they apply to other taxes.  It is for the taxpayer to understand and apply VAT rules correctly.  If they get it wrong or HMRC disagree with their interpretation they could be exposed to penalties or interest charges.  It is important that evidence is retained to support decisions on VAT liability and procedure.  This evidence could help to remove or reduce penalties and interest charges where HMRC challenges are upheld.

VAT guidance can often be out of date or inconsistent with law and practice; consequently there are grey areas within VAT.  This along with the subtle change in HMRC's stance on enquiries has resulted, in our opinion, for an increased requirement for taxpayers to have tax insurance.  This insurance could cover the costs incurred in defending or challenging an HMRC investigation or ruling on VAT and other taxes.

The VAT team at Scott Moncrieff have a wealth of experience across a broad spectrum of sectors and they are always available to discuss and confirm VAT liabilities and procedures.  Our Tax team can provide details of tax insurance policies and would be happy to discuss these arrangements with you in more detail.

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