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Taxpayer begs tribunal for mercy

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Harry Edebiri did not understand how VAT worked, so he failed to charge output tax and incorrectly reclaimed input tax, resulting in assessments of £20,021. Would his pleas convince the tribunal judges to reduce this bill?

26th Feb 2021
Tax Writer
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In the case of Edebiri vs HMRC (TCO7988), the first tier tribunal (FTT) panel had a good deal of sympathy for the taxpayer, who now faces life-threatening health conditions and whose mental health was exacerbated by the stress of the VAT assessments.

Edebiri was voluntarily registered for VAT by DHL when he worked as a self-employed franchisee courier from 2010.

Although his turnover was below the VAT registration threshold, Edebiri was told that the VAT on his franchise fee and petrol could be claimed back. As a result, he provided DHL with details of his monthly fuel expenditure.

However, Edebiri did not understand how VAT worked. He believed that self-employed individuals could claim VAT back on money they had spent in their business, such as fuel and franchise fees, because he knew DHL claimed that VAT. Crucially, he did not realise that DHL had been using its own information about the income he made from his journeys to include output VAT on his returns.

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Replies (36)

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By Paul Crowley
27th Feb 2021 17:37

So best not to take advice and let the tribunal system put the ignorant in a better position than the careful compliant tax payer.
I despair

Thanks (13)
Replying to Paul Crowley:
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By indomitable
01st Mar 2021 13:58

You've said all I was thinking

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By SXGuy
01st Mar 2021 10:11

Another example of needing an accountant. Didn't understand how vat worked yet didn't occur to him to seek someone who does. Beggers belief.

Thanks (7)
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By hyper10
01st Mar 2021 10:13

For god's sake, he knew how to claim vat back, no problem but didn't seem to want to pay it back.
No doubt wokery played a part.

Thanks (9)
Replying to hyper10:
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By Michaelr205
01st Mar 2021 10:42

hyper10 wrote:

For god's sake, he knew how to claim vat back, no problem but didn't seem to want to pay it back.
No doubt wokery played a part.

He should have known how to submit his VAT return correctly? How about you posting your comment correctly, once instead of five times?

And what do you mean by "Wokery"? Seems a dubious thing to say...

Thanks (3)
Replying to Michaelr205:
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By hyper10
01st Mar 2021 13:05

You see I didn't understand how to post but since you're such a forgiving leftie, you should forgive me.
Maybe you should try objective reason instead of political correctness, this country needs all the money it can get

Thanks (2)
Replying to hyper10:
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By Michaelr205
01st Mar 2021 13:29

hyper10 wrote:

You see I didn't understand how to post but since you're such a forgiving leftie, you should forgive me.
Maybe you should try objective reason instead of political correctness, this country needs all the money it can get

This is how you let yourself down and expose yourself as probably being quite an unsavoury character.
You have no idea of my political inclinations, that is only my business. But it's not just "Lefties" who object to racism.
If you had read and understood the article you will have seen that the FTT did use objective reason and remember this, without "political correctness" you would probably not have the vote and neither would your female relatives.
Full disclosure, big assumption made that you are a man....

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Replying to Michaelr205:
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By hyper10
01st Mar 2021 14:11

You too have let yourself down as I identify a gender neutral and in fact your prejudices against male's are both disturbing and unsavoury.
Also what had race got to do with anything, I merely raised that the outcome could be interpreted as "woke", no mention of colour, you madam are the one who is prejudiced
Big reveal, assumption made you're a lady!

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Replying to hyper10:
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By Michaelr205
01st Mar 2021 14:16

Ha ha ha, you're quite right, I'm of an age where I am still getting used to gender categorisation. Not sure how you can preach to me about my lack of gender awareness and then go on to say "Big reveal, assumption made you're a lady". I do object to the patronising gender description you use.

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By fluffymitten
01st Mar 2021 10:21

I was always of the assumption that ignorance was no defence. Just because no-one tells you something, that doesn't excuse you from looking for the information yourself. I am struggling to understand how someone could honestly believe they could claim VAT back on everything and not pause to wonder about the other boxes on the tax return?

Thanks (9)
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By Andrew Coombs
01st Mar 2021 10:35

So based on this someone can claim a bbl, max out furlough, reclaim vat claim ignorance and get away with repaying a fraction of what is due. The system is all wrong.

Thanks (4)
Replying to Andrew Coombs:
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By Michaelr205
01st Mar 2021 10:40

No, none of that.
Because of VAT Section 29 alternative evidence for proof of expenditure can be used. Simple, it's VAT legislation. I suspect it is something well used.

Thanks (1)
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By norstar
01st Mar 2021 10:37

That is unbelievable. It's feeling increasingly like we are having to do our job with one hand tied behind our backs. Where is the motivation for a taxpayer to seek advice? Since when is ignorance an excuse for breaking the law? The guy "doesn't understand" basic VAT rules but is able to convert a property?!

I don't understand HMRC's enthusiasm for sidelining accountants and enabling taxpayers in the way they do. The above is what you get if you do that.

Thanks (7)
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By RogerMT
01st Mar 2021 10:47

"FTT". One assumes HMRC will appeal?

Thanks (1)
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By Yorick
01st Mar 2021 10:55

Hope springs eternal and I hope one day Britain will abolish this regressive EU tax called VAT which people are beginning to think is as natural as the air we breath which it is NOT, and go back to the old Sales Tax.
But that's a pious hope. VAT is alas here to stay for a long time yet. VAT is a trap for free-lancers, especially the less sophisticated among them and/or those who are not too hot in maths and those who are a little vague about principles of honesty. The income threshold is dangerous for one thing because when someone exceeds the threshold they are VAT liable for the entire year, bettet to be VAT registered from the start; yet the temptation for a start up window cleaner for example to be VAT exempt and have a competitive edge over other window cleaners down the street is a strong and perilous one. As business picks up, it is easy to forget the VAT threshold. A demand for VAT payment is running up with interest on it to boot. Here is one thing which tax authorities all over Europe could do to save a lot of pain: be prompt in calling one man and a dog business to order which have exceeded the threshold. I know cases where tax authorities have sprung VAT tax assessments on dozy freelancers going three years back. Why does it take them so long to see something wrong?
It is important that free-lancers understand that tax authorities tend to be less open to negotiation and argument about VAT than is the case with income tax assessment. Effectively VAT payments to business are regarded by the state as already the state's money, the business receiving VAT payments effectively being seen as a tax collecting agency for the state. In that case VAT evasion or non-payment is regarded as embezzlement.
I think the case cited here is a typical one of someone wanting to believe what logic would tell him makes no sense. How can one claim back from the state for payments made but not submit payments received? I think this person didnt want to pursue that logic and preferred to believe that VAT was a sort of permanent pro-entreprenneur bonus. No such luck mate.
Two lessons to be learned in my opinion: stress to clients (and friends and any freelancer really!) that the state regards the VAT payment in your settled bills as its money, pure and simple (also urge clients to set up a separate VAT bank account). Secondly, will HMRC PLEASE get their skates on in cases of apparent VAT in arrears or non-payment or non-declaration and not spring VAT demands after several years but immediately a discrepancy is seen? It saves stress and time for everyone.

Thanks (3)
Replying to Yorick:
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By flightdeck
01st Mar 2021 12:03

Good post.

Can you explain a bit more about why you would have a separate VAT bank account and how this would work alongside your normal account?

Thanks (1)
Replying to flightdeck:
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By fluffymitten
01st Mar 2021 12:18

I too have a separate account for VAT (I actually call it my HMRC account). For every invoice paid the VAT element is put into this account and I don't touch it. I then do my VAT return and, a day before the DD is collected, I move the amount to be paid out of that VAT account and into my current account. The input VAT I claim, which is minimal, ends up contributing towards other charges owed to HMRC over the course of the year.

Thanks (2)
Replying to flightdeck:
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By SimonP
01st Mar 2021 21:51

Same as operating a clients' account. Simples!

Thanks (0)
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By Yorick
01st Mar 2021 10:55

Hope springs eternal and I hope one day Britain will abolish this regressive EU tax called VAT which people are beginning to think is as natural as the air we breath which it is NOT, and go back to the old Sales Tax.
But that's a pious hope. VAT is alas here to stay for a long time yet. VAT is a trap for free-lancers, especially the less sophisticated among them and/or those who are not too hot in maths and those who are a little vague about principles of honesty. The income threshold is dangerous for one thing because when someone exceeds the threshold they are VAT liable for the entire year, bettet to be VAT registered from the start; yet the temptation for a start up window cleaner for example to be VAT exempt and have a competitive edge over other window cleaners down the street is a strong and perilous one. As business picks up, it is easy to forget the VAT threshold. A demand for VAT payment is running up with interest on it to boot. Here is one thing which tax authorities all over Europe could do to save a lot of pain: be prompt in calling one man and a dog business to order which have exceeded the threshold. I know cases where tax authorities have sprung VAT tax assessments on dozy freelancers going three years back. Why does it take them so long to see something wrong?
It is important that free-lancers understand that tax authorities tend to be less open to negotiation and argument about VAT than is the case with income tax assessment. Effectively VAT payments to business are regarded by the state as already the state's money, the business receiving VAT payments effectively being seen as a tax collecting agency for the state. In that case VAT evasion or non-payment is regarded as embezzlement.
I think the case cited here is a typical one of someone wanting to believe what logic would tell him makes no sense. How can one claim back from the state for payments made but not submit payments received? I think this person didnt want to pursue that logic and preferred to believe that VAT was a sort of permanent pro-entreprenneur bonus. No such luck mate.
Two lessons to be learned in my opinion: stress to clients (and friends and any freelancer really!) that the state regards the VAT payment in your settled bills as its money, pure and simple (also urge clients to set up a separate VAT bank account). Secondly, will HMRC PLEASE get their skates on in cases of apparent VAT in arrears or non-payment or non-declaration and not spring VAT demands after several years but immediately a discrepancy is seen? It saves stress and time for everyone.

Thanks (0)
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By mcfinance
01st Mar 2021 10:56

For those that take the responsibility to either learn the rules or engage professionals, this is irritating. I find it difficult to accept the ignorance claim, how can someone cherry pick elements of the VAT return that coincidently are to their favour and deem the unpaid VAT due to an inability to understand?
If they have taken the effort to understand the input, then they should be accountable for making the effort to understand the output side too.
Understandably if the tax payer is seriously ill there should be consideration, but an 83% reduction?
Rewarding poor decisions this way just sends out the wrong signals and makes a mockery of those trying hard to do what's right.

Thanks (6)
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By [email protected]
01st Mar 2021 11:58

Presumably he completed his own self-employed tax returns as well. Not mentioned in the judgement.

Thanks (3)
Replying to [email protected]:
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By BryanS1958
01st Mar 2021 12:40

I did wonder the same, if he had an accountant you would have thought they would have noticed that every time there was a VAT reclaim, which would be unusual in a courier/driving instructor business.

It appears ignorance of the law is an excuse.

Thanks (2)
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By flightdeck
01st Mar 2021 11:58

Could be genuine. You know the little leaflets you get inside your prescription medicine telling you all about it (mostly all the possible side effects) ? Well they have to be written assuming the reading compression of the average 8 year old ...

.

Thanks (1)
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By richards1
01st Mar 2021 13:07

To all you accountants out there a question, does this judgment create case law to guide future judgments?

Thanks (0)
Replying to richards1:
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By Dib
01st Mar 2021 13:27

I'm not an accountant but, yes, it does create case law. Of course it does, it is a case!

What it does not do is create a binding precedent. FTT decisions don't.

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blue sheep
By Nigel Henshaw
01st Mar 2021 13:39

Whilst I agree that it is ridiculous they should allow the appeal there are a number of other troubling aspects to this.

Firstly why were DHL preparing and submitting his VAT returns for him? And if they were providing this professional service why did they not explain it to him as any other accountant would have done?

Secondly, this all could have been avoided if HMRC had simply questioned his first repayment claim, lack of resource is no excuse, a simple letter to say "please explain the lack of Output VAT"

Thanks (3)
Replying to NH:
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By ds
02nd Mar 2021 12:25

This was my takeaway too. It was only when he claimed for some building conversion work that the Revenue were triggered to look a bit closer into his tax affairs. I could accept if DHL were handling his VAT affairs exclusively, then he could have pleaded ignorance but then to try it on quite a bit more with a claim for something unrelated to his original work, is taking it far too far. The reduction was far too generous and I wonder as some have mentioned, if wokery was involved here.

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By Mr J Andrews
01st Mar 2021 15:20

''A little learning is a dangerous thing '' ............. Alexander Pope....... The Dunciad

''The quality of mercy is not strained''.................Portia ............Merchant of Venice

''Ignorance of the law is no excuse''.........................Thomas Jefferson

If I were a cynic , I would suggest the FTT panel come up with such novelties in their decisions

Thanks (1)
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By Mr J Andrews
01st Mar 2021 15:20

''A little learning is a dangerous thing '' ............. Alexander Pope....... The Dunciad

''The quality of mercy is not strained''.................Portia ............Merchant of Venice

''Ignorance of the law is no excuse''.........................Thomas Jefferson

If I were a cynic , I would suggest the FTT panel come up with such novelties in their decisions

Thanks (0)
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By AnnAccountant
01st Mar 2021 17:15

When people use the "seriously ill" line to get mitigation, if they don't die within a year, they should either have to take the unmitigated punishment plus 20% penalty, or have their life terminated. That might stop the defence being as overused as it is.

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Replying to AnnAccountant:
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By Michaelr205
01st Mar 2021 18:43

What happens if the Chemotherapy and surgery are successful?

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Replying to AnnAccountant:
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By ds
02nd Mar 2021 12:29

In more serious matters involving possible time at her majesties pleasure, the reason for clemency often given can be looking after elderly relatives at home even though they have many siblings able to do that task in their absence. Hell and Handcart springs to mind.

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By SimonP
01st Mar 2021 21:40

This is the text of the case. https://www.bailii.org/uk/cases/UKFTT/TC/2021/TC07988.pdf

Interestingly, health claims were made by the defendant but no mention is made of any medical evidence, such as letters from health workers. The Tribunal just took him at his word, it would seem, which is very good news for any future defences, I would suggest.

So, DHL registered him for VAT and presumably DHL were also signing his VAT returns and never gave him copies whereupon he could have said "Hey, what's this output VAT stuff?". Hmm!

But he had the required knowledge to complete his own accounts and SA tax returns? So not as ignorant as he makes out.

What stands out is the failure of HMRC to do its job (again).

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By Steve99
01st Mar 2021 23:55

One of the best ones i ever came across was the mother who did the vat return for the daughter, claimed vat back on wages, payments into the bank, basically claimed vat on everything, then said but I thought vat was on everything. Then I had a fencing company only put vat on the wood part of the cost, and ignored the labour part because there's not vat on wages. Basically some traders are not the brightest, its quite scary really..

Thanks (2)
Replying to Steve99:
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By bobsto12
02nd Mar 2021 12:15

My brother in law used to run a pub and obeyed the rules
A lot of the other publicans simply did nothing mostly because they didn't know how and couldn't afford to pay anyone who did. Every now and then they got assessed and negotiated a settlement based a sales they actually banked (ha ha!). Saved a fortune in admin.

Thanks (1)
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By Ash Business Consultants
04th Mar 2021 17:20

Hmm surely the main issue here was the Output VAT that wasn't paid over assessed as £16k but because HMRC disallowed most of his input VAT and increased the amount due to £20k and asked for him to provided bank statement evidence of the input tax but ignored it the FTT set aside most of the assessments of HMRC reducing the VAT amount due but only for the 10 months July 16 - Apr 17.

OK I get that HMRC should play by their own rules and are quite happy to penalise you for not providing accurate information and so they should therefore base their figures on accurate information if they have it and not on assessments.

However I don't see how this is a win for the appellant. Surely HMRC can just use those statements to calculate more accurate VAT demands for the period based on the output VAT that was not charged on his income less the allowable input VAT (less the input VAT he had already previously had refunded by HMRC). Which is surely what they will do unless of course HMRC are not allowed to reissue adjusted VAT assessments?

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