VAT: How to deal with HMRC

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Neil Warren provides tips on dealing with HMRC after Judge Richard Thomas criticised an accountant who was “out of touch with what happens in tax”.

The FTT case involving Daniel Potts (TC07076) was a “routine win” for HMRC. It related to a late VAT registration date and associated penalty. The taxpayer had no chance of escaping either the tax or the penalty, and his appeal was correctly dismissed.

Judge’s comments

The taxpayer’s accountant (Edward Bridge FCA) raised a number of reasons why he felt that both the tax and penalty should be withdrawn, including hardship, blame culture, lack of advice from HMRC about when to register and the taxpayer’s ignorance of the law. All of these arguments were dismissed.

I was interested in Judge Thomas’s comments about Bridge being “out of touch” and that “the world of tax had passed him by” as he had retired many years before and come out of retirement to do a limited number of jobs. The tribunal picked up on Bridge’s use of words from a bygone era such as “District Inspector”, “Inland Revenue” and “Back Duty”.

Dealing with HMRC

The judge’s comments got me thinking about my own approach to dealing with HMRC in the modern world and I came up with five observations:

Always stay calm

A comment in the Potts case was made that Bridge became very frustrated with the HMRC officer. At first, he was “all sweetness and light” and then “something changed, he snapped”. Bridge also commented in a letter to the HMRC officer that she “did not give a damn about Mrs Potts.” We all know that it can be hard work dealing with HMRC in the modern world but calmness is recommended!

Accept that HMRC use standard letters

Most of us would prefer to receive letters from HMRC signed by a named officer with a direct telephone number and a local address. Unfortunately, those days are long gone. The best approach is to look at each standard letter and work out the best way of moving an issue forward.

Keep a written record

I recently dealt with a case where the HMRC officer got completely bogged down with a repayment VAT return submitted by a client and kept saying that “everything is under control”. But the written log I kept of all the delays and conversations with HMRC meant I could put forward a strong case for a 5% repayment supplement to be paid to my client when it was finally sorted out and the overpaid VAT was repaid.

Don’t forget the HMRC manuals

I recently wrote about the important role played by the VAT manuals, which provide more detail than the public notices and are the favoured source of information for HMRC officers. If you have a technical dispute with HMRC, try to support your view with relevant extracts from the manuals as well as quoting from the public VAT notices.

Avoid comments about personality

Bridge referred to the Potts family as a “law-abiding and kind couple” and, according to the judge, made “constant references to the Potts’ virtues.” As a former Customs and Excise officer, I can assure you that such comments are a waste of time: as they say on the popular TV programme Dragons Den “it’s all about the numbers”.

Final thought

The key message from the Potts case is that advisers need to stay in touch or stay out of the tax world. This is not to say we all need to slave away for 50-hours a week plus working weekends, but that a strategy must be in place to keep abreast of latest tax developments and changes as they affect our clients.

To give the final word to Judge Thomas about Bridge: “We suggest that after reflection he should consider, should any contentious issues of this sort arise in relation to any of his clients, whether it would be better to pass them on to someone closer in touch with current practice in that field.”

Finally, looping back to the judge’s comments in the fourth paragraph, do any AccountingWEB members remember what “Back Duty” was all about? It’s a new phrase for me!

About Neil Warren

Neil Warren

Neil Warren is an independent VAT consultant and author who worked for Customs and Excise for 14 years until 1997.

Replies

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By Tornado
28th May 2019 16:07

Back Duty !!!

I could write a book on this process which often involved the unfortunate client providing such information as "how many pints do you drink a week" and the classic "how much do you spend on contraceptives each week".

All of this was required to work out if expenditure exceeded income. This was probably a much more thorough process than MTD will ever be, but these Back Duty Cases could last for years.

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to Tornado
28th May 2019 12:30

My classic one was to do with a builder client was 'why don't all the estimates or quotes turn into invoices'

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28th May 2019 12:06

Looks like the accountant was still working in shillings and pence
sorry, pennies.

What a dummy!

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to memyself-eye
29th May 2019 10:44

Maybe Mr Potts was on LSD!

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to memyself-eye
29th May 2019 10:51

Shillings and pence - you were right first time.

And the fee would have been billed in Guineas.

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to leon0001
29th May 2019 12:37

Nothing wrong with Guinness.

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to memyself-eye
29th May 2019 12:35

You were right first time. pounds, shillings and pence. Or LSD.

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to memyself-eye
30th May 2019 14:24

Pennies? Nah, farthings, and groats.

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to memyself-eye
30th May 2019 14:24

Pennies? Nah, farthings, and groats.

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28th May 2019 18:50

Those were the days.... when you could actually talk to an HMRC inspector and agree that they would not waste HMRC's resources and money sending someone round to a client's business premises to collect outstanding VAT that had already been paid.

I remember my dad, when he owned the business, attending a Christmas event at HMRC. HMRC offices in Woking, HMRC's inspectors and my dad - all gone now.
Question... do you hanker for the 'good old days' of accounting? What do you miss, if anything?

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to Jennifer Adams
29th May 2019 10:14

There are one of two indicators that let you know when you know you have'' made it''...

1. when you get invited to HMRC Xmas party
2. you have your own in house doctor to save the staff time of taking the morning off to go visit their own GP

That's great your dad got invited there. The closest I got to Woking tax office benefits was when the security guard let me park in the carpark for 10 minutes when I delivered a parcel.

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to Jennifer Adams
29th May 2019 10:58

Yes, I remember Woking tax office while I was just a junior accountant. The tax inspectors knows the rules and tax by heart. They were very helpful.
Good old days. Gone.

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to Jennifer Adams
30th May 2019 15:24

Those were the days, when the tax collector arrived on his horse accompanied by fifty horseman armed to the teeth, bloody Normans.

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to Jennifer Adams
30th May 2019 15:24

Those were the days, when the tax collector arrived on his horse accompanied by fifty horseman armed to the teeth, bloody Normans.

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29th May 2019 10:22

I used to pop round to see the local district inspector to sort out queries re clients. When he retired from HMRC he came to join our firm.
Person to sensible person dealings are far more practical, cost saving and definitely frustration saving. Same issue with banks and lack of managers with authority to make decisions.

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29th May 2019 10:30

I miss the Tax Enquiry Centre in town. The staff knew me and were very helpful in sorting out problems there and then, as opposed to weeks of circular correspondence and head/wall collisions.

Well, perhaps not so much the trips with clients to the Headmaster's Office in pursuit of 'back duty'. Though they were quite fun in a challenging sort of way.

When they demolished it for retirement homes, the nuclear shelter underneath was fascinating. It was for the files, not the staff of course.

Things were generally a lot more cordial back then. But that's all gone the way of last winter's snow.

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29th May 2019 10:43

"Back" means past years, being years which are closed and "duty" means tax, so a back duty enquiry was an enquiry into past years' tax liabilities. I believe they simply check returns these days but the final outcome is about the same!

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29th May 2019 10:44

"Back duty" - lovely sepia-tinted phrase from the era of real people. Like the Inspector at Finchley who wrote me a condolences letter on the death of an elderly client. Or the District Inspector at Norwood who answered a routine call about PAYE because the phones were busy that day. It turned out he was not only the District Inspector but also a qualified accountant and barrister.

All gone. It must be progress......mustn't it......?

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By Tornado
29th May 2019 10:49

"Those were the days.... when you could actually talk to an HMRC inspector"

"I used to pop round to see the local district inspector to sort out queries re clients"

"Well, perhaps not so much the trips with clients to the Headmaster's Office in pursuit of 'back duty'. Though they were quite fun in a challenging sort of way"

All of this is just the way it was. Professionals working with Professionals to a common goal of ensuring that taxpayers paid the correct amount of tax.

The District Inspector knew more about tax than you did but was fair and helpful.

In contrast to today where the game seems to be to 'get away with it if you can'

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29th May 2019 10:50

To answer the basis question "What was 'Back Duty'", it was the name the old Inland Revenue gave to all enquiries into under-reported income. "Duty" of course was tax, and the "back" meant that it was due for earlier years. Most back duty enquiries related to undeclared bank interest and were settled quickly by TOHGs (Tax Officers (Higher Grade)) rather than by Inspectors.

There was a series of forms in the '8' series which payers of interest had to send to the tax office when they credited interest over a certain amount to any depositor. The most common version was 8(CB), the form used by clearing banks. On receipt, the bank's tax office passed the form to the tax office dealing with the depositor's home address and they in turn wrote to the depositor asking for his tax or employment details, and if he replied they passed the form on to the depositor's tax office who would then check his tax returns to make sure he'd declared the interest correctly.

A lot could go wrong in this lengthy process, and I suspect only a small minority of the notifications were ever acted upon. But back in the 1970s, if you were unlucky enough to be subject to one of these and ended having to pay a back duty settlement of £40, it was a lot of money and it hurt.

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29th May 2019 10:59

One of the things which often went wrong was where the bank branch confused one or more customers with the same initial and surname. The Revenue would then chase one for tax on accounts which were nothing to do with him.
But they were much more likely to apologise (and blame the dreadfully sloppy bank) in those days.

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By Ammie
to leon0001
29th May 2019 11:09

I had a mistaken identity case exactly as you describe many years ago which gave my sensitive client the scare of his life to the point he felt as if capital punishment was his destiny.

The "Inland Revenue", as it was called then, realised their error and apologised, little condolence for my client.

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30th May 2019 10:26

I used to work in a bank in the 60s, and doing 8CBs was a job no-one wanted to do, as it was so boring. The task was therefore generally delegated to junior members of staff, which is why there were so many errors, particularly with those unfortunate customers who had common names or multiple accounts.

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29th May 2019 10:51

I never heard of Back Duty is! That makes feel young.

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29th May 2019 10:56

I think that case is quite sad actually.

Clearly the accountant is past their prime, but doesn't realise it and is still "dabbling" beyond their ability.

I hope to fully retire before I get old. Or something.

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By Ammie
29th May 2019 11:04

In some cases, and certainly with appeals, a big stumbling block are the initial generic letters and getting past them and to actual sensible consideration of the matter in hand.

I find it often takes two or three attempts to get progression.

I too remember "Back Duty" cases. I think much of this type of work hasn't changed a huge amount, just the descriptive wording and the channelling of the procedure. Got worse, if you ask me, but then I often feel that is some cases, particularly where the client is looking to gain, there are early barriers to wear you down in the hope you go away! Maybe it's just me and I am getting old and easily irritated by unecessary delays when I need to get on!!

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29th May 2019 11:05

Good old fashioned investigation "back duty"
they looked at lifestyle to assess what income might be

Actually did an enquiry

Then we got a computer and self assessment, a tax gap deficit and deliberate defaulters naughty step instead of collecting the tax due.

oh and money laundering "if we know about it that's enough"

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29th May 2019 11:07

Believe it or not, I miss the days when we could pop down to the local tax office and get a receipt for a hand-delivered tax return. With so many returns having to be filed by post now, due to the many exclusions that have been created, at least we would not have the hassle of having to appeal against incorrect penalties and upset clients.

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29th May 2019 11:11

The thing I really miss from the days prior to self assessment was the system of submitting information to the Revenue, responding to their queries (if any) and getting it agreed. This meant that a given year could be closed.
Anything known to be unusual or contentious could be discussed prior to submitting any figures..
And ringing up your local tax office and being able to speak with a competent tax officer, who you had dealt with before and who was responsible for a particular portfolio of taxpayers and was therefore familiar with their business.

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29th May 2019 11:15

Back Duty! Ah those were the days, when I used to cycle around Camden Town as a Back Duty Officer for the Inland Revenue, sitting in local pubs to see what lunchtime catering they might offer (and not be paying tax on), visiting the local markets to look for non-compliant traders and scrolling through numerous planning applications on microfiche at the local council offices then checking to see if the architects were declaring the income. Sadly, the job didn't last long as I was returned to normal duties. Those were the days when there was so much post on hand that casework allocations were abandoned and post was stacked in boxes and dished out to tax officers daily. I saw the light and left soon afterwards.

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29th May 2019 12:05

Back duty was a pre curser to the Accounts Investigation Course.I took that course which took about a year to finish.You first had to pass an accounts preparation course at the end of the first week,then a final exam. you had to get at least 60% based on three papers in the final exam.Fail either of these exams and you were “back squaded “.The course was very good,depending of course on the quality of your tutor. I remember being “invited” to Woking tax office once.It was a bit of a dump.

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29th May 2019 12:43

The problem with the VAT due (not the penalty) is that VAT is not supposed to be a tax on business but in cases of late registration it can be (I'm assuming all clients registered for VAT). Far better just to put VAT numbers on invoices (as we do in the EU) and no money changes hands with registered business. Of course a penalty would still apply to late registration.

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29th May 2019 13:04

Depressing for this old VAT Rat - and possibly Neil as well - to see how practically every comment, just like the accountant's in the case, makes it very apparent that everyone still thinks HMRC is "The Inland Revenue". Fond memories of "inspectors", "back duty", and cosy little negotiated settlements. No wonder the poor old bloke got utterly fogged trying to deal with VAT - a completely different tax and one rarely if ever open to friendly renegotiation of the tax due without material further evidence. And it's worse these days, when the party issuing the bill is likely to be a computer - have you any idea how bloody hard it was, at least up to I retired 3 years ago, to intervene or even issue a properly due correction?
The best I could do even in the 80s and 90s was have a quiet word with the (local of course!) debt enforcers and persuade them that (in one case I'm thinking of) the legal judgement the trader had just obtained against a non-payer of his own made extra time while the Court actioned it a better punt than forced liquidation.
(I also had a distinct Opinion of the very large debtor concerned, who could easily afford to pay but clearly hoped we would remove the bill and the creditor together by going in first. Customs wasn't, and HMRC isn't, there to be used that way.)
I guess the moral is that VAT is NOT "a simple tax" anyone can pick up if they know the other business taxes. Time to "ask a friend" rather than just have a go!

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By Moo
30th May 2019 08:59

Not being in the first flush of youth I still find back duty a useful omnibus term for the multitude of different types of enquiries, investigations and disclosures that HMRC throw at us.

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By ChrisKH
30th May 2019 09:46

I distinctly remember filing VAT Returns by hand; delivering them to Southend VAT office at 11.00 pm on the last day and getting a hand written receipt from security. Those were the days.

And I still call them the 'Inland Revenue'. Unfortunately. Should I retire?!

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to ChrisKH
30th May 2019 12:31

I'm sure the Inland Revenue were bemused by you hand delivering VAT returns to them. Wouldn't those have been the remit of the then separate (based on the way their systems work, some would say still separate) Customs and Excise. :-)

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30th May 2019 11:10

I remember fondly the days that you could pick up the phone and speak to a good old inspector. We knew all the local ones and you could get issues resolved (as could HMRC) with a simple phone call.

When the call centre arrived we still used to phone the inspector to get behind the wall so to speak and they would transfer you to a person who actually could deal with the matter.

Gone are the days........

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31st May 2019 08:52

Extract above
'as he had retired many years before and come out of retirement to do a limited number of jobs. '

How do we know that he could have been preparing loads of accounts,yet another out of date accountant, loads out there, they either invent their own rules or interpret rules as they see fit.

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28th Jun 2019 17:14

Back is just back taxes - tax due from earlier periods. It will always be with us unless and until tax law is clear and everyone pays what is due on time.

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