VAT Consultant
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Reasonable excuse – failure to register

8th Nov 2019
VAT Consultant
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We still see a number of instances where a SME has failed to register for VAT on time. The FTT decision in MacDonald provides a fairly typical example.

The taxpayer was an artist, selling original work in the UK, EU, and outside the EU (ROW). He was pleasantly surprised that he became quite successful.

His liability to register for VAT was triggered when the sales declared on his SATRs exceeded the registration threshold. This occurred in the 2010/11, 2011/12, and 2013/14 years. HMRC wrote to him in January 2015 to enquire about his VAT registration status (it does beg the question why they waited so long!).

The taxpayer had changed Accountant in 2010, but neither firm appreciated that sales of art to private persons outside of the EU, although zero-rated, were taxable supplies and therefore had to be taken into account in considering his liability to register for VAT. Worse still, HMRC did not know this either! There was some correspondence over several months before the matter was resolved. The Tribunal held that this part of law was “neither well known, simple or straightforward.” Mr MacDonald’s ignorance of this was held to be a reasonable excuse in the circumstances and meant a partial reduction of the penalty. See the Tribunal’s analysis at para 63 on this point.

Correspondence between HMRC and the taxpayer also confused the concepts of exception from registration and exemption from registration.

    Furthermore, the Tribunal is of the view that HMRC’s use of terminology in this area can easily give rise to confusion to a layman. The term ‘exception’ from registration should be used instead of ‘exemption’ from registration: ‘exception’ connotes that VAT registration is applicable as a matter of law to the fact in question but in particular instances, the registration requirement can be excepted (such as when para 1(3) of Sch 1 to VATA conditions are met).  The use of the term ‘exemption’ in the context of VAT registration has no doubt contributed to the matter being confused with making exempt supplies by a layman such as Mr MacDonald. (para 66)

Further, HMRC appeared to change their mind over whether the taxpayer’s disclosure was ‘prompted’ or ‘unprompted.’

Added to that was the application of the LNLL (Liable, No Longer Liable) concession.

All of which takes me back to the original ‘ignorance of the law is no excuse’ case: “The default was entirely the product of basic ignorance of value added tax law. That cannot be construed as a reasonable excuse. I add only this. Value added tax is surely now well enough established in our daily commerce that anyone, however inexperienced, ought to recognise the need to become acquainted with its basic requirements when embarking upon a career” (Neal v CCE [1988] STC 131, QBD).

The MacDonald case is here:


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