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