Wednesday, February 04, 2009



Mr Burke started in business in 1989. In April 2002 the government introduced the VAT flat rate scheme. On 18 October 2004 he had a VAT visit. The visiting officer, Ms Jones, did not advise Mr Burke of the flat rate scheme. In December 2007 Mr Burke found out about the scheme. He had several telephone conversations with HMRC’s National Contact Centre and applied to join the scheme. He asked for his application to be backdated to the start of the scheme. He felt that Ms Jones should have told him about the scheme when she visited in 2004.

HMRC refused to backdate his application. They said that the scheme had been extensively advertised and it was Mr Burke’s “responsibility” to make himself aware of the information that might be relevant to his business.

Be that as it may, the relevant law (Reg 55B of the VAT regulations) states that HMRC can allow someone to use the scheme “with effect from (a) the beginning of his next prescribed accounting period … or (b) such earlier or later date as may be agreed between him and the Commissioners”.

I am under the impression that when parliament decides to give HMRC a power they are not simply trying to increase the size of the legislation; they expect them to use that power, at least occasionally.

The Customs Notice 733 says, “When considering [a retrospective] start date we will consider all the facts including the timing of your application and your compliance record [Mr Burke’s compliance record was exemplary, by the way]. We will not normally allow you to go back and use the scheme for periods for which you have already calculated your VAT”. But their internal guidance tells their staff, “The policy is to refuse retrospection where the business has already calculated its VAT using a different method. There must be exceptional circumstances where the policy previously described should be set aside”.

There’s nothing like honesty. Let’s tell the public that we are helpful and reasonable people, but when it comes to the crunch always say “No”! And how about that exceptional circumstance. HMRC’s counsel told the tribunal that as far as he was aware none at all had ever arisen in the 8¾ years since 1 April 2002. So “not normally” apparently means “never” in HMRC language, not “only occasionally” as I suspect most people outside HMRC would interpret it.

Happily the tribunal felt that, “There is a clear expectation from the VAT Guidance that the Scheme should be promoted. Paragraph 55 [of the 2004 version of] Notice 733 identifies as an exceptional circumstance where the business has been misdirected (by omission or commission) by an officer of HMRC. In our view this must include the failure by Ms Jones to alert the Appellant to the benefits of the scheme”.

It decided that HMRC had acted unreasonably and that Mr Burke’s application should be backdated by three years (bearing in mind the three-year cap). It also commented that, “We suspect that many businessmen do not read the various leaflets that are sent to them with their return”. How refreshing to come across a tribunal with knowledge of the practicalities of real life! If only HMRC could be similarly realistic. But that smacks of “crying for the moon”. My own guess is that they are likely to appeal this decision to the High Court!

Robert Maas