My client is a company to which an NHS entity has contracted out some services. There was already an HMRC enquiry into the use of locums by same NHS body; this enquiry appears to have been about PAYE, employment status, etc. So when the contract with my client was beginning, the NHS body voluntarily approached HMRC, enclosing a copy of the contract, and asking for the advice of the PAYE inspector so that they could be sure they were getting the tax compliance absolutely right from the start. (NB no particular tax was specified, they wanted everything right.) At that time the contract had not been signed, and the NHS body wanted to get HMRC's view first, so that they could amend the contract if need be. However the inspector said that he needed to see the signed contract before he could give a view on it.
About a year later, HMRC began a PAYE enquiry into my client. This proceeded very slowly. After another two years, when it was nearly concluded, the inspector observed that the company was not VAT-registered, and asked why not. The answer was that it makes exempt supplies of medical care. Another nine months passed, and then HMRC started a VAT enquiry. They wanted a more detailed explanation of why my client's supplies were considered to be exempt. So they got that, and it all went quiet again. Another year had passed by the time HMRC wrote arguing that the client ought to be VAT-registered They considered that my client was making taxable supplies of staff, a view they had formed by reading the contract which had been provided to them over 5 years previously.
Now we're heading to the Tribunal, appealing against the compulsory VAT registration, which of course has been backdated by 5 years. The VAT liability is huge. My question is this: how can we use the enormous HMRC delay against them? I'm not asking for any technical arguments that the client ought to be exempt. For example, is there any precedent for such a long delay being used to prevent the backdating of the registration?