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HMRC – BAD LOSERS?

Mrs Jennings built a log cabin. Well not actually with her own bare hands; she used a builder but because he could not fund the purchase of some of the materials, Mrs Jennings bought these herself. A log cabin is a dwelling for VAT. Accordingly Mrs Jennings qualified as a “DIY housebuilder” for VAT purposes which entitled her to claim back the VAT on the cost of the materials.

At least it normally would have done so, but in Mrs Jennings case the planning permission said that she could not occupy the cabin during February and that the cabin could only be used for holiday accommodation.

The VAT legislation on holiday accommodation is a little odd. If a developer builds and sells such a building, he has to charge VAT. If a customer buys land and asks a builder to construct the building on it, the builder does not have to charge VAT as his work is zero-rated. It seems that the other 40 people who built log cabins alongside Mrs Jennings, like her, bought the site and instructed a builder to create the cabin but that, unlike Mrs Jennings, they used builders who could afford to finance the cost. Accordingly they paid no VAT on their building work, including the cost of the materials included therein. Mrs Jennings asked HMRC for the VAT back on her purchase of materials. “No”, said HMRC, “the DIY Housebuilder scheme aims to put you in the same position as a developer not as in the same position as your neighbours who engaged builders – even though that is what Mrs Jennings in fact did in addition to buying the building materials – and a developer could not zero-rate his sale of a cabin”.

Mrs Jennings felt aggrieved and went to the Appeals Tribunal – or to be precise, sent Mr Jennings along to argue the case on her behalf. The Tribunal held that Mrs Jennings was entitled to have her VAT refunded. They did so in 2009 and I had assumed that, elated with their victory, Mr and Mrs Jennings have lived happily ever after in traditional fairy story manner.

But sadly this is not a fairy story; it is the real world. When Mrs Jennings sought to claim the fruits of her victory, HMRC demanded that she produce a VAT invoice to support the VAT reclaimed. Mrs Jennings produced a document on the supplier’s letter-heading, which bore its VAT number, confirmed that they would deliver the logs, and set out the price and the VAT. It started, “statement for the payments we have received … and to confirm the outstanding balance that will be required”.

“Sorry”, said HMRC, “You have achieved merely a pyrrhic victory; we don’t have to repay your £15,712 VAT because that is not an invoice. The law is perfectly clear; no invoice, no repayment”.

Back went Mr & Mrs Jennings to the Appeals Tribunal. The Tribunal judge listened to the arguments on both sides, and sent everyone away while they considered the position. He then looked up the word “invoice” in his dictionary, which defined it as “a statement identifying a supply of goods or services, the amount payment for them and the time when payment is to be made”.

But that is precisely what the document that Mrs Jennings holds does, said the Tribunal. Therefore it is an invoice. Therefore Mrs Jennings is entitled to her VAT.

Can Mr and Mrs Jennings now live happily ever after? I hope so. But I’m not too sure. The Tribunal said that the document is an invoice, not that it is a VAT invoice. If HMRC were so mean as to force Mr and Mrs Jennings back to the Tribunal again, they could feel “third time lucky” and have another go at holding onto Mrs Jennings’ money.

After all, it is at least five years since HMRC publicly set out their mission as being to collect the right tax at the right time, so perhaps it no longer holds good. Indeed I have just keyed “mission statement” into HMRC’s search engine and the result page gives no indication whatsoever that it is any longer anywhere on HMRC’s website.

Many people feel that the current mission statements seems to be “to collect all the money that we can, without worrying too much about what is legally due, and to hang on as long as possible to anything that might belong to someone else”. I’m sure that is not right though – well, reasonably sure!

ROBERT MAAS