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HMRC suffers DIY tribunal defeat hat-trick

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5th Oct 2015
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To misquote Oscar Wilde, to lose one case in the first tier tribunal about penalties issued against claimants seeking a VAT refund under the DIY Housebuilders Scheme could be considered ‘unfortunate’. To lose three cases, as HMRC has done in the last couple of months, could be seen as ‘careless’.

In fact, ‘carelessness’ was the key word because the courts dismissed HMRC’s view that the taxpayers had made careless errors in completing their DIY paperwork and decided that they did not deserve a penalty. All three appeals were allowed.

The irony in the case of CJ Palau and RC Laughlan (TC4251) was that the taxpayers had under claimed VAT by £1,500 by using the scheme rather than registering for VAT as they should have done.

This was because their intention was to sell the new dwellings they had constructed (zero-rated sales) so they would have been able to claim input tax on professional fees (e.g. surveyors and architects) if they had registered. The DIY scheme only allows a claim on materials and builder services and is only relevant when a self-build person intends to live in the dwelling when it has been completed (i.e. non-business intentions).

The taxpayers ticked the box on the DIY form to confirm their intention to sell – so were not hiding anything. As the court commented, this produced “the logical absurdity that the appellants accuracy in the completion of a form designed to check eligibility under the scheme gives rise to a penalty for inaccuracy.”

MM and DA Howells (TC4589) was described by the court as “a case which should never have got to the tribunal”. There was no evidence that the Howells had submitted an incorrect DIY claim.

The issue was that they were unable to confirm that the barn they had converted into a house had not been lived in for the last 10 years. The 10-year rule is a condition of the scheme for residential conversions. HMRC rejected a claim for £25,403 but added salt into the wound by issuing a 15% careless behaviour penalty.

The third case of Simon Coates (TC4628) also had a twist to the tale. The taxpayer used the services of an accountant to ensure the claim had the benefit of professional expertise. But HMRC still penalised Coates for what the court described as an “administrative error” in relation to over claims on eight invoices.

The ATT (Association of Taxation Technicians) VAT Technical Committee has been very active on the issue of DIY scheme penalties and had a meeting with HMRC before the cases were heard.

Chairman Stephen Taylor said: “Most DIY claimants are dealing with VAT for the first time in their lives and cannot be expected to get things right. The rules and procedures for the scheme are not easy and we feel it is wrong for HMRC to apply unnecessary penalties in such cases.” A change in HMRC policy will hopefully now take place.

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By The VAT Doctor
05th Oct 2015 10:45

Bullies

Yet another example of HMRC bullying taxpayers. 

The next time my tax code is wrong in their favour, can I levy a penalty against HMRC?

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By dmmarler
05th Oct 2015 11:33

Excellent result!

It is good to know that Stephen Taylor and his team are trying to work with HMRC on this area of VAT.  Hopefully there will be more sense out of this than some of the other 'consultations' which have taken place in the past! 

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