A “hostile” and “abusive” HMRC has lost a first-tier tribunal appeal after repeated blunders in handling a company’s VAT liability troubles.
Hospital telecommunications services ltd. supplied services to hospital trusts. As the company began to buckle under the weight of severe late payments by these public bodies, the company’s managing director Michael Wilkinson took over the handling of VAT affairs in early 2010.
Wilkinson acknowledged he was a non-expert, but noted he only assumed the responsibility for the company’s VAT affairs when the person originally responsible for this matter in the appellant had given up in despair.
Wilkinson enquired with HMRC whether the company could transition to a cash accounting basis for dealing with its VAT liability. Cash accounting would mean that the company would only need to meet its VAT liability when its sales invoices had been paid; significantly alleviating the business’s late payment worries.
HMRC informed him, incorrectly, that he could not go on to the cash accounting basis for accounting for VAT. No explanation was offered as to why. Wilkinson remarked to the FTT that, “he had never encountered, in a 40-year career in the same industry, quite such abuse and hostility”.
In a Kafkaesque twist, years later, after numerous defaults, Wilkinson was told by HMRC, without a hint of irony, that, “most of the problems were of his making and that he should have gone over to cash accounting in the first place”.
The company implemented time-to-pay arrangements to settle its liability, but HMRC repeatedly messed it up. The judge’s report describes an occasion “when HMRC wrongly took, by direct debit, both the instalment payment under the Time to Pay arrangement and the total debt at the same time”, and “there was another occasion when HMRC’s failure to take a direct debit payment that it could and should have taken led to a further allegation by HMRC of the appellant breaching the Time to Pay conditions”.
Compounding this was HMRC’s apparent lack of concern in helping Wilkinson. Wilkinson’s counsel told the tribunal that she could not locate any occasion when any VAT officer had sought to help the appellant by suggesting that the appellant might make bad debt relief claims. “Rather than make such claims, the appellant had certainly in one case been driven to commence legal action to recover a substantial debt from a Hospital Trust, which resulted in the appellant losing the client and a considerable level of turnover,” wrote the judge.
Writing in his decision, the judge said, “The combination of the severe late payments by clients; the refusal by HMRC to allow the appellant to go on to the cash accounting basis of account for VAT when the appellant was entitled to change its basis for accounting for VAT in that way; the failure to suggest that the appellant should consider making bad debt claims, as well as other individual errors on the part of HMRC lead to the clear picture that this sorry story is one in which the appellant plainly has a reasonable excuse for the late payment of VAT.”
In a final, comical twist, it may now be the case that HMRC owes the appellant money. “[W]ere the appellant now to make bad debt claims for VAT purposes, and furthermore were HMRC ready to consider any such claims that might strictly be out of time, it might well follow that the true position is that HMRC owes the appellant repayments”.