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No advice – no chance !

17th Jan 2022
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The Flying Spur Ltd FTT decision makes sobering reading.  I have tried to read between the lines and unpick the back story. Quite frankly, had the taxpayer received clear advice as to the VAT position of its activities at an early stage, all the stress would have been unnecessary.

The company operated an OFFSTED-registered children’s home in Great Yarmouth, Norfolk. Immediately, I would presume its supplies were exempt from VAT. I would need some convincing otherwise. So, it was not eligible to register for VAT nor to reclaim any input tax.

However, the Director, a Mr Rapley, had been advised by HMRC, on their helpline, that the company’s supplies were taxable, not exempt. He therefore proceeded to register the company for VAT, which took effect from 1 November 2013. The company also applied to join the Annual Accounting scheme.

Some 18 months later, HMRC wrote advising that the company was not entitled to be registered for VAT and so cancelled its registration in September 2015. In the mean time the company had submitted no VAT Returns, nor made any payments to HMRC.  Presumably, HMRC issued 'central' assessments in the absence of Returns. At a later date (March 2019) the company received correspondence from HMRC informing it of an impending winding up petition for around £88,000. One wonders whether that triggered the appeal to the Tax Tribunal, which was made in May 2019. It is a known fact that a number of appeal are triggered by HMRC enforcement action.

It is not clear whether that amount was ever paid. The company’s Accounts to 31 December 2020 indicate that the property it operates from is owned by the Director. Perhaps the Director was able to retain the property.

The decision also refers to letters of complaint to the Adjudicator’s Office and to the Government Ombudsman, as well as reference to a letter to the Director’s MP. None of these are routes to challenge a decision in relation to the VAT liability of services provided.

Back to the misunderstanding issue. The FTT Decision contains an extract from HMRC guidance at VATGPB8240, the Government bodies manual. This indicates that supplies in relation to childcare are non-business supplies. But that refers to supplies made BY local authorities, not supplies made TO local authorities. It is not clear at what stage the taxpayer found this guidance. Para 4 of the decision references this guidance and reflects the taxpayer’s confusion.

So, moving to the grounds of appeal.

  1. The appeal was made late, so the taxpayer had to apply for permission to appeal late.
  2. The taxpayer had submitted no Returns, so would not be allowed to appeal.
  3. The taxpayer owed money to HMRC, so would not be able to appeal without HMRC having accepted an application for hardship.
  4. And the Tribunal concluded rapidly that the taxpayer’s supplies were entirely exempt from VAT.

Sorry to sound pessimistic, but I would have advised the taxpayer, ‘Don’t waste your time. You will lose!’

If you do want to read the Flying Spur Ltd decision, here it is: www.bailii.org/uk/cases/UKFTT/TC/2022/TC08360.pdf

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