We have a Ltd client who registered voluntarily for VAT last year without taking advice, and put the chosen date of registration as 2007. Therefore all sales from then now need VAT accounting for. He didn't realise the implications of this and having to account for VAT from then til now will make the company insolvent, no other option.
We have written to the EDR team who have come back today refusing to amend the EDR to last year (which is when he started charging VAT on sales), citing VAT Act 1994 Sch 1 paras 5,6,9,10, they can only amend an EDR if HMRC made an error, or if information comes to light indicating a liability to be registered on an earlier date.
While I accept this, I understand that they do have powers of discretion to amend EDRs in other circumstances.
Paragraphs 9 & 10 of Schedule 1 to the VAT act 1994 states “they shall, if he so requests, register him with effect from the day on which the request is made or from such earlier date as may be agreed between them and him.” I read this to mean you have the choice to make the EDR either 17th September 2010 (the date the application was made) or the earlier date specified on the registration form. I read this as a free choice and I do not see any provision for specifically not amending the EDR as requested.
We are now going to the review process; if this also fails is it worth appealing to the tribunal? It just seems crazy that refusing to amend the EDR will cause my client to fold their company (its just not economically viable to do anything else), yet allowing it will mean HMRC will get their VAT money from the date they would have been registered from. We all know that HMRC are not the most logical of creatures at times.
Any advice would be appreciated.
Link to VAt act: http://www.uk-value-added-tax-act-1994.co.uk/s-9#sdiv1
Related resources
Replies (6)
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VAT Registration Date
The main problem is that the taxpayer chose the date of registration. This is the 'such earlier date.' The fact that later information/advice indicated that this was not the best choice cannot change the fact that the taxpayer did choose that date. I am inclined to HMRC's view that the date cannot be changed. The question is whether there is law to allow either part to change the EDR retrospectively.
I am not sure that the Tribunal would reach a different decision. The Tribunal is governed by the same VAT Law.
It may be that the best route would be to ask HMRC to exercise their discretion in this case. If you can demonstrate that the business would, indeed, be closed, and that no VAT would be recovered, that might help.
EDR
It's not really the lack of a provision stopping them changing the EDR, it's the lack of a provision allowing them to.
9 & 10 say you're free to agree an earlier EDR between you, it says they can register him from the agreed date and so they have. The important part is 'register' here, HMRC have registered him and agreed an EDR, if they change the EDR they're not registering him anymore, they're altering an existing registration, and the only time the law specifies that they can alter the EDR of an exisiting registration is when it should be earlier through a liability to register. It basically tells them when an EDR can be when they register someone, but doesn't say that 'once registered someone can change their mind'.
So what they have to look at is the customer's been registered properly according to the law, so now they need to look at whether the customer can deregister and re-register with a new EDR, unfortunately a voluntary dereg can only take place from a current or future date.
Relevant cases to look at would include P S Bruce LON/93/2930, where the trader completed the form incorrectly and wasn't allowed to change the EDR to the 'proper' date. Although Daniels and Stevenson (t/a Homeforce) VTD17948 decided that the partnership had made such significant errors whilst completing the VAT 1 that the registration should be reviewed, but there have been many many more that decidied that the EDR must remain, and in most cases the appeal was based on the contention that the trader should be deregistered, rather than the trader should remian registered but with a new EDR.
So their position has been tested and ratfied at tribunal on numerous occasions and on one they were told to review their decision but it wasn't actually directly overturned, so in those terms you're unlikely to have much success.
Obviously try every route, and a tribunal may be worthwhile if you can demonstrate that the client was confused by the VAT 1. My other advice is possibly for them to get their MP on their side, it shouldn't have an effect on HMRCs view of the law, but that doesn't mean that it wont.
Sorry, but I'm afraid you're in for a difficult fight though!
Thanks both for your responses. I'm well aware it's not going to be easy.
I've set it out in no uncertain terms that if the current EDR remains they will get no money and the company will fold, but that if they would change it, they will of course get their money from the sensible EDR and everything will proceed as normal.
I have a couple of anecdotal references from accountants who have seen an EDR discretionally amended, so there is some hope; the letter sent today is simply appealing to their discretion and sense of logic (!) as I'm well aware they have no obligation to amend.
HMRC internal guidance v1-28 vol 1 page 92 of 292
I found these words in the above publication (as downloaded August 2005):
8.7 Change of EDR to a later date
You may receive requests from registered traders to amend their EDR to a later date than that already allocated when they realise that they need nothave registered when they did.
In limited circumstances we may permit a retrospective change to the EDR ifthere has been a genuine error in completing the VAT 1 by the person registering. Section 33 details the circumstances and procedures to follow.
Otherwise refuse requests of this nature. VAT Act 1994, Schedule 1,paragraphs 5 & 6 and paragraphs 9 & 10 of the do not allow an EDR to be varied after a trader is registered. When the trader applied for registration he had the opportunity to negotiate his EDR then and the legislation does not allow this date to be changed retrospectively. Also, the trader should have charged VAT from his EDR and any change to the EDR will present difficulties with accounting procedures and may lead to the possibility of unjust enrichment.
Thank you!
DMG that's fabulous, thank you.
I've downloaded the document you mention; it appears my client fulfils all the criteria, with no exception that I can see.
Fingers crossed!!
Similar VAT registration
Hi Monsoon,
Interested how it unfolded.
Similar case error in registration and meets criteria under section 33.
Any tips.