What in statutory terms are formal "decisions" by HMRC ( VAT office)?

What in statutory terms are formal "decisions"...

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I have submitted VAT Returns for over 12 months for a client, using in my view the correct rate for the relevant trade category.  HMRC, upon an inspection of the records, have notified the client orally that the "wrong" trade category has been applied, and followed this up with letters to the client and to myself.  I have responded that I consider that the trade category used by myself is correct ( unsurprisingly, this produces a lower flat rate than that asserted by HMRC).   They have written again to myself, maintaining their stance, and I have responded maintaining my stance.   I have now received a further letter stating condescendingly that they have already told me what rate to apply to the next Return due ( quarter to 31/12/2012).   

 The HMRC letters are written by the lady who inspected the records - the writing style is in my view informal ( "you should use xx% for the Return to 31/12/2012" ; or similar).   The KEY POINT is this : I have read that where HMRC issue a formal "decision", then one can either submit a formal appeal or request a review ( and of course follow this up later with an appeal if the review does not result in HMRC withdrawing their "decision").    The correspondence received does not have the hallmarks of a formal "decision" : my view is thus that unless and until HMRC issue a formal decision, then my client is not obliged to do anything more, and can happily accept MY view of the correct trade category, and authorise my submitting VAT Returns based on the lower rate which I assert is correct.  In this respect, I am certain that any VAT Returns which she submits should be what SHE believes to be correct ( NOT what HMRC tell her is correct - I opine that it would indeed be an offence for her to submit a Return which is based upon a percentage rate which SHE believes to be incorrect, albeit this would show a higher VAT payment due).  For completeness, and I hesitate to introduce this aspect into the question as it does not affect the central issue, this is a case where the trade does NOT fit into any specific trade sector, such that the "other businesses not elsewhere shown"( I paraphrase of course) sector is appropriate.  As the esteemed Neil Warren emphasises, one does NOT apply the "nearest fit" principle so if there is not exact "fit" then the "other businesses not elsewhere shown" MUST be applied.  The VAT guidance booklet, in a section of "Frequently asked questions", asserts that one should use a particular trade sector, even though self-evidently that guidance is palpably incorrect : indeed HMRC have referred me to that guidance booklet, to support their view in the case of my client as referred to above.

To return to the central issue, WHAT CONSTITUTES A FORMAL DECISION by HMRC ?   A Helpline suggests to me that I should write to HMRC to ask whether one or more of the ( in my view) informal HMRC letters should be regarded as a formal decision : a response of "yes" ( or "no, but THIS letter is now the formal decsion") would enable the matter to be formally reviewed, and then appealed if necessary : the DOWNSIDE to that approach would however be that we would lose the advantage of being able to submit Returns, for the time being and potentially for years to come, based on the lower rate which I consider is correct ( albeit HMRC could assert later, in my firm belief wholly improperly for the reason explained above, that such submissions could result in HMRC claiming underpayments - if of course a trader uses a rate with good reason, then HMRC cannot seek "underpayments" - and potentially penalties too).

My albeit rather "high-risk" intended strategy is to "sit tight" as HMRC have not stated that their views constitute a formal decision, but of course I look forward to receiving contrary views from respondents to this rather lengthy ( of necessity) question.   

     

Replies (28)

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By Malcolm McFarlin
16th Jan 2013 08:54

Seek a review

I think you are indeed taking a high risk.  You do have an appealable decision since HMRC have written to you in respect of the appropriate percentage to be used under the scheme.  The danger of ignoring the HMRC decision is that you leave your client open to a subsequent assessment.  You should seek an independent review since that will flush out the matter as to whether you are dealing with an officer acting on a frolic of her own.

The Tribunal's jurisdiction is fairly limited with these decisions since the tribunal must NOT allow the appeal unless it considers that HMRC could not reasonably have been satisfied that there were grounds for the decision.

Malcolm McFarlin

www.mandrtaxadvisers.com

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By The VAT Doctor
16th Jan 2013 09:26

Risky

I agree with Malcolm.  This may all get very messy for you and the client.

I would ask for a reconsideration by another officer, but you need to give good reasons why their decision is wrong.  Another potential approach, if you think you have a good case, is to arrange to meet or talk with the officer as often correspondence can get heated.

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By Roland195
16th Jan 2013 13:03

Playing with fire

If I were you, I would treat the opinion given as a formal decision by HMRC and react accordingly. I would also consider notifying your PI firm if you have not already done so especially if you pursue this course.

The Flat Rate Scheme has holes in it you could drive a bus through (if indeed it is a bus depending on the number of seats etc). Personally, I rarely get a client's business to fit in the listed trade sectors and use "Other" more often than not.

 

 

 

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By shaun king
16th Jan 2013 13:16

The letter written by the officer is on behalf of the Commissioners of HMRC and as such is a formal decision which as Malcolm points out is appealable. If we were to assume that all correspondence from HMRC was 'informal' unless we were instructed otherwise the tax system would fall under a pile of correspondence and hearings over whether a decision was informal or formal.

If the decision is on HMRC letterheaded paper and signed by an office on behalf of the Commissioners it is formal.

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By Malcolm McFarlin
17th Jan 2013 10:05

The legislation

Here goes - under the VAT Regulations 1995, statutory instrument 1995/2518 section 55(B) 3 'The Commissioners may refuse to authorise a person if they consider it is necessary for the protection of the revenue that he is not authorised'

The officer is using this statutory power to force a change in the FRS percentage being used by your client. I wouldn't try to 'Google' this section of the law as you may not find it since even the internet is not always up to date when it comes to HMRC legislation! You will need a copy of the Act and Regulations.

 

Malcolm McFarlin

www.mandrtaxadvisers.com

 

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By Roland195
17th Jan 2013 15:36

PI

I do not doubt your initial advice was both professional & competent and certainly did not mean to suggest otherwise however your proposed course of action seems especially risky (which you acknowlege yourself) therefore it seems sensible to make your PI providers aware of this.

I am also not suggesting that you simply roll over and accept what HMRC have decided. 

 

 

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By SimonLever
21st Jan 2013 16:06

It seems to me as if you are using this thread to try and justify a delay in (possibly) changing the VAT rate used by your client.

As you quote in your original post..." I should write to HMRC to ask whether one or more of the ( in my view) informal HMRC letters should be regarded as a formal decision : a response of "yes" ( or "no, but THIS letter is now the formal decsion") would enable the matter to be formally reviewed, and then appealed if necessary : the DOWNSIDE to that approach would however be that we would lose the advantage of being able to submit Returns, for the time being and potentially for years to come, based on the lower rate which I consider is correct ( albeit HMRC could assert later, in my firm belief wholly improperly for the reason explained above, that such submissions could result in HMRC claiming underpayments - if of course a trader uses a rate with good reason, then HMRC cannot seek "underpayments" - and potentially penalties too)."

If you want a formal decision then ask for one or appeal the letter you have received which if it is not a formal decision will be advised to you.

In the mean time you are causing your client uncertainty due to wanting to prove you are correct and this could cause them to be taken to task for you wanting to prove a point.

Who is paying for your time to sort this out. If it is the client then you appear to be costing them money to prove how clever you are. If it is you on your own time then I would have thought that this month you had better things to do with your time!

 

 

 

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By Malcolm McFarlin
22nd Jan 2013 20:00

More legislation

Under the VAT Act 1994 S26B(9) Regulation (b)

Regulations under this section-

'may make such incidental, supplemental, consequential or transitional provision as the Commissioners think fit, including provision disapplying or applying with modifications any provision contained in or made under this Act'.

I would think the officer is applying his or her power under this section of the Act which relates to the FRS.

Malcolm McFarlin

www.mandrtaxadvisers.com

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By spidersong
23rd Jan 2013 09:55

O.K. Lets see what we can do...

The legislative basis is probably more a deductive than an explicit statement, there seems to be no legislative definition of a formal decision. However there is legislative provision of what a formal decision should include, and therefore we can assume anything without the legislative 'hallmarks' of a formal decision is therefore not a formal decision. (So we don't know what it is, but we know what it isn't!)

Anyway S83 of the VAT Act defines those matters which can be appealed; 83 (fza) includes a "decision by the commissioners...(ii) as to the appropriate percentage or percentages [of Section 26B]". 26B is the enabling basis of regulations 55A to 55V the Flat Rate Scheme.

So we know it's an appealable matter, when a decision is given.

S83A says the following (my highlights) "(1) HMRC must offer a person (P) a review of a decision that has been notified to P if an appeal lies under section 83 in respect of the decision"

It then goes on to say that "(2) The offer of the review must be made by notice given to P at the same time as the decision is notified to P."

So since legislation says the matter lies under the aegis of S83 an offer of a review must be included with the notification of a decision. If you have not received an offer of a review then you have not formally received a decision. It may be the case that a decision has been made but it doesn't appear to have been notified properly.

So my suggestion would be that if you really are set on using the current percentage and want to argue the point (I don't know why I put that in as clearly you do), that you submit the return as you see fit whilst writing to inform HMRC that you have included the 'appropriate' percentage, as you do not agree with their reasoning in correspondence, and have not been issued with a formal notice requiring the alternative percentage, using the reasoning above. I will admit however that I would probably be treating the original letter as notification of their decision, whilst pointing out that they haven't properly complied with their legislative burdens.

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By Chris Smail
23rd Jan 2013 10:06

Hang on Basil

Malcolm is a well respected contributor on this forum with a history of knowing his tax law. You are a first time poster (?) asking for justification of a position.

I know of no ethical or statutory obligation for HMRC to always quote the detail of the legislation being relied upon in the first instance. As far as I am aware HMRC always believe that are working within the powers given to them by the various taxes acts, that is what they do for a living! They do not always state their authorities until asked and often when we ask we discover that their internal guidance (which is what most of the front line people rely upon) does not fully reflect  the legislation.

Your helpline seems to have given you the right answer. You want to know if HMRC consider that they have given you a formal decision? Then ask them!

I can see that several posters on this thread are perhaps a little more stressed then usual!

Happy Tax Returns everyone.

Chris Smail

www.langer.co.uk

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By SimonLever
23rd Jan 2013 11:35

Thank you for your tirade

Well Basil (real name hidden for some reason) I would like ot thank you for your tirade.

It is clear that your dilema is which tax rate to use. After a visit you have been asked to use a different rate of VAT on the flat rate scheme than the one you think should be used. You do not want to use the advised rate as it is detremental to your client.

You feel that unless you have a "FORMAL" decision from HMRC you can continue to use the "better" (original) rate for your client.

What you are quibliling about is what is a formal decision.

A simple Google search would have lead you to the HMRC fact sheet "HM Revenue & Customs decisions– what to do if you disagree".

In this fact sheet it clearly states - "When we make a decision you can appeal against, we will write and tell you. We will also explain how we arrived at the decision and tell you about your appeal rights."

Therefore if the letter you recived tells you you can appeal then it is a formal decision. If it does not then it is not a formal decision.

Simplz

The link to the factsheet is here

What I was trying to get over to you is that despite being given good advice by respected posters you were pushing the point and your posts were aggressive. If you want help then that surely is not the way to proceed.

It is now up to you, having been pointed in the right direction, to advise your client what you consider the best way forward is.

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By Chris Smail
24th Jan 2013 02:33

Yes will I am with spidersongs last sentence

And thank you Spidersong for doing the chapter and verse bit as concerns S83.

I would anticipate the HMRC probably think that they have given you a decision , whilst failing to properly complied with their legislative burdens. However with out asking them, or possibly employing a clairvoyant, it remains impossible to know what they think they have done.

I do however agree with you that HMRC have not formally said 'This is a decision and this is how you appeal'. If it were a my own return I would follow your 'high risk' strategy, if only for the pure fun of it, however is your client happy with this approach?

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By User deleted
28th Jan 2013 15:43

The answer is Sybil - sorry, Simple

FA2008 s124, esp subs (11).

It would be normal to expect the Officer to offer a Review having made her decision (in fact, as menitoned above, it is a requirement, but I don't think that changes the fact that the Officer has made a decision in the context of s124. I therefore agree with the very first response on the thread (and indeed those that followed).

The fact that proper procedure may not have been followed (in that a Review was not offered) in notifying you of the decision, makes it, IMO, a high-risk approach to disregard it. As others have said, you need to advise your client accordingly, and find out if they're willing to accept that risk. It is not your decision to make.

I suggest that you follow the advice of those above, who have proved themselves over and over to know what they're talking about, rather than arguing for argument's sake (and so potentially jeopardising your client's position and making a discussion between you and your PI insurers more likely).

 

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By mwngiol
28th Jan 2013 16:46

Do the petty boogie :)

"whether that has been despite my intentionally confrontational( albeit fully justified) writing style or despite it ( I suspect the former) I shall never know"

When your opening sentence is a petty criticism of somebody else's spelling/grammar then you need to be especially careful in the rest of your post not to open yourself up to the same level of pedantry.

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By Chris Smail
28th Jan 2013 17:36

This sentence

" I will admit however that I would probably be treating the original letter as notification of their decision, whilst pointing out that they haven't properly complied with their legislative burdens."

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Replying to Ruddles:
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By User deleted
28th Jan 2013 18:51

Writing style

fawltybasil2575 wrote:

 If I could ask you to kindly try to express your views in less antagonistic style, if you are good enough to contribute to future debate on this site in which I participate, then this would be much appreciated.

 If I could ask you to kindly try to express your views in less arrogant style, if you are good enough to contribute to future debate on this site in which most have participated for considerably longer than a week or so, then this would be much appreciated.

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By cparker87
28th Jan 2013 18:58

Don't you have tax returns to do?

As I sit taking a break from my tax returns I sincerely regret having read this whole thread.

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Replying to Ruddles:
Red Leader
By Red Leader
28th Jan 2013 19:58

WELL!

I have never been so insulted! I don't have to come here to be insulted, I can go elsewhere. BOOM BOOM.

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By ShirleyM
28th Jan 2013 20:23

A fate worse than death ... my curiosity is aroused now

(1) @ BKD.  If you would kindly read my last post more carefully, you will find that your advice ( disregarding your condescending and well-known writing style). (my emphasis)

Rather an odd comment for a new member to make! 

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By tomtrainer
28th Jan 2013 20:47

Inter-personal skills

BKD, mwingiol and Chris Smail. Three of the best AWeb contributors fallen out with in one go. Wow!

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By mwngiol
28th Jan 2013 22:40

Wow indeed!

As flattered as I am to be mentioned in such company and in such terms, I must point out that I'm not even a good contributor, let alone one of the best! But I thank you all the same :)

And Mr Fawlty, I think the heading of my post was indicative of a certain lightheartedness of my own. I apologise if my petty boogie caused offence.

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By spidersong
29th Jan 2013 09:43

I know I shouldn't but...

fawltybasil2575 wrote:
 

Overall, after being very disappointed with the initial responses to my question, it is now clear that spidersong, Mr. Lever and your goodself are all acknowledging that my views have been 100 percent valid from the outset 

 and so the validity of your viewpoint has

Quote:

persuaded me that I should adopt a different approach

I'm not sure that when I've become convinced that I'm 100% right I'd immediately change my mind too, but that is your prerogative.

Quote:

whether that has been despite my intentionally confrontational( albeit fully justified) writing style or despite it ( I suspect the former) I shall never know.

Ah, I understand (apart from the tautology) your confrontational style is fully justified, but others should

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express your views in less antagonistic style

That seems perfectly fair, quite understandable really.

By the way, will you let us in on the secrets of this different approach which will force the issue sooner, I assume it's not going to be asking HMRC if they think they've made a decision, or asking them to confirm their decision, is it?

Also

Quote:

I  ultimately achieved majority support of my views in this thread

if you read the responses I think you'll find little support for your main view, you have agreement that HMRC have not complied with their statutory duties in communicating their decision, but you seem to be the only person on the thread content to disregard what everyone else views as the fact that HMRC have nonetheless made a decision.

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By User deleted
30th Jan 2013 07:19

Even more words ...

... and even less said.

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By paulwakefield1
31st Jan 2013 07:24

Time for me to settle down in my armchair

with a cup of tea and enjoy watching the "Who is going to have the last word" war.  :-)

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By ShirleyM
31st Jan 2013 08:13

@Basil

BKD is my friend, and so are all the other regular contributers on AWeb. We help each other.

I thought (given your name) that you would have a sense of humour. Sadly, your humour is the sort that gets it's laughs from trying to belittle other people.

Anyway, the sky is brightening, I've finished the tax returns, and I've got a day off to enjoy the milder weather :)

(I am sure you will have some proof from somewhere that I have said something that is wrong and will berate me for it at great length in typical lecture fashion!)

Have fun :)

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By User deleted
31st Jan 2013 12:08

Unacceptable?

At least 5 people would seem to think otherwise. Make that 6.

But I suppose we should be grateful for small mercies - at least with the brevity of your last post we were spared the usual incoherent drivel.

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By Manchester_man
05th Feb 2013 22:41

Yawn
@Basil Faulty

All I can say is I'm glad I don't have to live with you or indeed work with you!!! Talk about argumentative!!!

Also, please, please for the sake of every reader of your posts; don't simply use 30 words where 5 will suffice! I understand you do this in an attempt to appear 'intelligent' and/or 'powerful' but it makes for tired eyes to say the least! (With the greatest of respect)

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By Manchester_man
11th Feb 2013 19:18

Considering...
... The PM's I've received regarding my above post, I can happily conclude that the only person who is embarrassing themselves here is indeed yourself.

Sadly, I fear it's fellow practitioners such as yourself who continue to feed into the (mostly inaccurate) theory that all accountants are boring and dull.

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