Potential pitfalls when dealing with HMRC.
In the last year or so HMRC have been writing to accountants to say they have identified some of their clients which may need to review their tax returns. HMRC’s letter says, ‘this letter does not constitute any type of formal enquiry or compliance check’ and asks you to contact them to see which of your clients are affected.
These “nudges” have been used for some time but the practice seems to be widening. One member refers to tax relief on property finance costs and HMRC have also recently used the same approach where rollover relief is claimed on residential properties which are apparently not eligible. In this latter case the letter quite reasonably states “sometimes HMRC’s investigations can be quickly addressed and resolved" but as it is an informal process the client may not be insured under the tax investigation insurance policy.
Moore Farms v HMRC
A recent First-tier Tribunal case is interesting, not so much for the subject matter of the claim itself but for the way it was determined.
Moore Farms were removed from the Agricultural Flat Rate VAT scheme in 2013 on the grounds that the scheme was too financially advantageous. They did not appeal against the ruling at the time, partly because they were advised by the officer dealing with the case that a number of farmers had been removed in similar circumstances and in any event HMRC would soon be ending the flat rate scheme.
Three years later, the case of Shields & Sons v HMRC came before the CJEU and was decided in the taxpayer’s favour. Accordingly, in 2018, Moore Farms applied for permission to lodge a late appeal against the cancellation of their AFR certificate.
The appeal was turned down by the Tribunal. Part of the reason for the decision was that there was no evidence that the advice about the ending of the scheme had actually been given (and indeed the officer in question would probably not have been in a position to give that advice). It was not mentioned in HMRC’s notes but clearly both the taxpayer and his agent believed that the point was covered in the conversation and included within the agent’s notes.
The Tribunal Judge concluded “I am left with two contemporaneous notes of the conversation. I must put them together to reveal the full extent of what was said…on the balance of probabilities I am satisfied that the telephone conversation on 15 July 2013 included a detailed discussion about Mr Amos’ role in investigating businesses using AFRS with a view to exclude businesses that were not eligible. Mr Amos stated that approximately 30 businesses had been excluded from AFRS. However, he did not state that the AFRS was ending.”
So the moral of the story is that even if one has a contemporary note of a telephone conversation, where it is of fundamental importance to the consequential course of action it would make sense for it to be agreed in writing prior to any timing deadlines.*The views expressed are the author’s and not ICAEW’s.