Wednesday, August 04, 2010



Here is another batch of cases where it intrigues me that HMRC felt it worth the damage to their reputation to take the cases before the Tribunal.

Cameron v HMRC

HMRC can require a person to deliver an income tax return to them (TMA 1970, s 8). Once a taxpayer has submitted his return he can amend it within the following 12 months (TMA 1970, s 9ZA). A person who makes a gift aid payment can elect to treat the gift as made in the previous tax year but must do so on or before the date that he delivers his return under s 8 (ITA 2007, s 426(6)). Mr Cameron sold his business. He made a substantial charitable gift in January 2009. He submitted his tax return (due by 31 January 2009) in September 2008 and when he made the charitable gift he amended his return to claim to carry back the gift.

“Too late”, said HMRC, “if only you had not been so prompt and diligent in submitting your return …”. “But”, said Mr Cameron, “if I have amended my “return under s 8”, I have surely not delivered it until I deliver the amendment”. Unfortunately the Tribunal agreed with HMRC. It commented though, “This is a case where commonsense and fairness appear to be on the taxpayer’s side. If I were permitted to use only those concepts as my guides I would find for the taxpayer”; and later “I accept that the purpose of s 98 is to encourage charitable donations. Is the literal interpretation of “his return … under section 8” … at odds with that purpose … That interpretation does not prevent the encouragement of charitable giving; rather it merely indicates … the conditions under which such encouragement is given. Is the result of such a literal interpretation absurdity or inconsistency? … It is true that the result … is that … delay in the delivery of returns may to some extent thereby be encouraged, but that is not an absurdity in the sense of a result wholly inconsistent with the aim of encouraging charitable giving. It is in the circumstances an odd stipulation and one for which no clear policy may be evident, but that is not the same as absurdity or repugnance”.

A victory for the public. Mr Cameron cannot get tax relief for his charitable donation to the extent that it exceeds his 2006/07 income. That will teach him to make big donations. He should have realised that us taxpayers (through our elected representatives) only pretend to want to encourage charitable donations. Curiously Dave Hartnett has complained on a number of occasions that some firms of accountants save up their clients’ tax returns and deliver them all on 31 January. That causes huge difficulties for HMRC, which encourages accountants to spread the submission of returns through the tax year. So if HMRC want accountants to spread the delivery of returns why take a case to establish that that is a dangerous thing to do and it is far safer to hoard them up until the 31 January just in case a carry back seems sensible? I wish I knew!

Wessex Continental Travel Co Ltd v HMRC

Wessex registered for VAT in 1988. In December 2007 it applied to deregister and was told by HMRC that it couldn’t as its turnover was above the registration threshold. It asked for a reconsideration and HMRC eventually accepted that the turnover was below the registration limit and deregistered the company in May 2008. The company asked for the deregistration to be backdated to 1995. It said that it had a VAT visit in 1995 and the VAT Officer should have told it that, as it had to use the tour operators’ margin scheme (TOMS), its turnover was its margin not the gross fees received and it was mistaken in believing that it was required to be registered for VAT. Not surprisingly HMRC refused to do so and have to repay 13 years’ tax.

Fair enough? Well, HMRC argument was that the case was “wholly misconceived as it is ultimately a trader’s responsibility to make himself aware of his business entitlements and liabilities … There is no obligation on the Commissioners to invite application for deregistration from taxable persons trading below the deregistration limit … It is not within the remit of the [VAT] assurance officer … to offer individual tax planning advice”. The Tribunal agreed. It also commented that HMRC “do not have a duty to advise as to the benefits between two valid options” (i.e. to register voluntarily even though turnover is below the registration limit or not to register).

So why do I think HMRC should not have taken this case? Well firstly TOMS is very complicated. Furthermore the method of calculation of the tax is prescribed by HMRC. Accordingly it is highly unlikely that at the 1995 visit the Officer looked very closely at the calculation.

It is one thing for HMRC not to give “tax planning advice”. But that does not seem to be what has happened. What seems to have happened is that the company got a statutory calculation wrong and the VAT Officer did not point this out to them. It may well be of course that because of the complexity of TOMS, the Officer did not understand the calculation required. But if so, Customs & Excise had the necessary expertise available and the Officer chose not to call on it. In such circumstances it does not seem reasonable for HMRC to wash their hands of their own mistake and say that it is up to the taxpayer, not them, to get it right.

Secondly, “Your Charter” (or the HMRC Charter as most of us call it) says, “What you can expect from us: … Help and support you to get things right”. I find it hard to square this with what seems to have happened with Wessex.

Chamberlain v HMRC

Ms Chamberlain is a solicitor. Her practice relates largely to asylum and illegal immigration cases. As such the normal place of residence of all of her clients was outside the UK and therefore outside the scope of UK VAT. Unfortunately her accountant prepared VAT returns which treated the fees as VAT inclusive amounts. There were four VAT returns and the VAT shown on them, plus surcharges came to £28,560. HMRC issued a statutory demand to Ms Chamberlain for this sum and when it was not paid issued a bankruptcy petition. Ms Chamberlain sought to have the bankruptcy order annulled. Although HMRC accepted that no VAT was exigible on the fees, they said that that was irrelevant; the VAT returns themselves created a debt due to HMRC and, even if it was not one that parliament has envisaged, HMRC were surely entitled to their pound of flesh.

Fortunately the High Court disagreed. It said that there was never any debt due to HMRC and, if there was no debt, the bankruptcy order should not have been made and would be set aside.

So why should HMRC struggle to bankrupt a professional person who they knew the legislation had not intended to tax? I wish I knew.