Following the defeat of a tribunal appeal against HMRC's assessment of VAT on toasted sandwiches by Subway franchises, similar outfits have received letters letter from HMRC warning them about the need to charge VAT on toasted products.
In an Any Answers discussion, exceljockey reported that HMRC had accused a client of not charging VAT correctly on their sandwiches and advised them to recalculate VAT.
"Do we go to HMRC with our tails between our legs or seek legal advice?" exceljockey pondered.
VAT consultant and AccountingWEB blogger leshoward answered that these letters, known as "Ken Clarke letters" have been distributed by HMRC since 2008, and so were unlikely to have been the result of the tribunal decision.
However, he added, there is a legal question as to whether the HMRC can threaten an assessment based on low VAT rates.
"HMRC are entitled to raise an assessment when a VAT return is incomplete or incorrect. Since it's neither incomplete or incorrect, but rather the VAT percentage is low, it doesn't constitute an incomplete pr incorrect return," he said.
His advice was to seek legal opinion, rather than complying immediately with HMRC. This advice was echoed by member alwaysreading.
But Tamara Habberley, a consultant with The Vat People, suggested that the letter might have been prompted by the recent tribunal.
"HMRC tend to follow up a supposed success or a change in view of the VAT treatment of certain supplies on their part by targeting businesses in the same sector irrespective of whether the facts fit or not," she said.