Neil Warren explains why a publican was not obliged to produce certain VAT records to a visiting HMRC officer.
It is unusual for a first tier tribunal (FTT) case to be heard about the obligation of a business to produce VAT records, but this was the issue in the case of The Barty Party Co Ltd (TC06116).
The publican was in hot water with HMRC for failing to produce the books and records requested by a visiting HMRC officer in an information notice dated 10 November 2016. But the FTT supported the taxpayer and said that the notice had a “fundamental flaw.” It pulled the plug on HMRC and allowed the landlord’s appeal against the notice and associated penalty.
It is unlikely that the company director and landlord, a Mr Barton, and HMRC’s visiting officer, Mrs Deane, will be on each other’s Christmas card lists. There seems to have been some animosity after her initial visit on 12 July 2016, which led to an initial information notice being issued on 21 July, subsequently withdrawn by HMRC because of an administrative error, and reissued on 10 November.
Mr Barton referred to the notice as an “aggressive and bullying act” and felt that the deadline date of 14 December to produce the requested information was unreasonable because it coincided with the pub’s busy Christmas trading period.
Drinks price list
The main problem with the notice seemed to be the request for a drinks price list, which the taxpayer said he did not hold because all prices were pre-programmed into the till. Mrs Deane needed a full price list to carry out a weighted mark-up exercise for her chosen period of April 2016 in order to test the credibility of the company’s output tax declaration.
HMRC has the power to request information that is “reasonably required for the purpose of checking the taxpayer’s tax position”, (FA 2008, Sch 36). The key factor that persuaded the judge was that although the legislation gives HMRC the power to request information for the previous six years, their power of assessment is restricted to four years (VATA 1994 s 77). He felt that the onus was on HMRC to explain why information was required for the extra two years and because the officer had failed to do this, the notice was invalid and had a “fundamental flaw.”
Why did the officer ask for information covering the period 1 February 2012 to 30 November 2012 (as well as the other periods) when she had no power of assessment for these months, ie because the notice was issued in November 2016? This is strange, and it is worth challenging similar requests that HMRC officers make of your clients.
HMRC has the power to go back up to 20 years in the case of fraud, but in the Barty Party case there was no indication of deliberate errors being made. There was also another anomaly; an earlier visiting HMRC officer had apparently already reviewed the records up to 30 April 2012.
Overall, this was not a good day out of the office for HMRC. They also had to withdraw a £300 penalty issued on 21 December 2016, which was imposed when Mr Barton failed to provide the information requested in the flawed information notice.
About Neil Warren
Neil Warren is an independent VAT consultant and author who worked for Customs and Excise for 14 years until 1997.