Save content
Have you found this content useful? Use the button above to save it to your profile.

Making VAT adjustments - a salutary tale.

23rd May 2014
Save content
Have you found this content useful? Use the button above to save it to your profile.

I have seen some indication of HMRC rejecting both routine and unusual VAT adjustments.

A recent Tribunal case illustrates the problem. A firm of Solicitors, Leigh Day, undertook work for a number of South African citizens, funded by the LSC (Legal Services Commission). The claim relating to certain land rights was pursued against the claimants' employer.

The Place of Supply rules provided that the services were outside the scope of UK VAT. Unfortunately, the Solicitors accounted for over £400,000 of output tax in relation to the payments received from the LSC. Following a HMRC inspection, during which the transactions were explicitly discussed, HMRC wrote, advising an adjustment to the next VAT Return.

You would think HMRC would honour their own explicit written guidance!  Within a few months, HMRC issued an assessment denying the recovery of the overpaid output tax! They argued that the firm was out-of-time to make such an adjustment.

Strangely, the formal Notice of Assessment denying the repayment was not issued to the Solicitors, but to their Accountants. Thus, HMRC failed to fulfill their own requirement to issue an assessment to the taxpayer. Perhaps justice was served after all!

The Tribunal decision makes interesting reading. Like a short novel, the conclusion is kept secret until the final page!

http://www.bailii.org/uk/cases/UKFTT/TC/2014/TC03554.html

Two comments:

1. businesses should seek VAT advice on transactions that are out of the ordinary.

2. HMRC may be quite happy to keep money incorrectly paid to them as VAT.

Tags:

You might also be interested in

Replies (1)

Please login or register to join the discussion.

avatar
By david5541
04th Jul 2014 13:36

public sector customers

does one have to charge vat to courts, the foriegn office and embassies?

Thanks (0)