VATman hit for inability to say ‘yes, you’re right’

HMRC’s refusal to simply say “yes, you’re right” even when it believes company-owners to be correct on VAT matters is causing "unnecessary uncertainty."

Not having a dedicated helpline for VAT does not help either, nor does the length of time that disputes between HMRC and companies about VAT treatment tend to last.

It is also “arguable” whether discussing technical VAT issues solely in writing with HMRC slows the process, says the ATT, which has made all these pointers to a Treasury Committee.

In reply to the committee’s VAT Inquiry, the association says the main issue is that firms just want to account for VAT properly amid fear of a HMRC penalty or challenge if they cannot.

“Businesses simply want to ‘get it right’ but are left frustrated by HMRC,” said the ATT’s Stephen Taylor.

“The opportunities for businesses to obtain binding rulings on VAT from HMRC are very limited, especially considering HMRC’s refusal to simply say ‘yes, you’re right’ when they receive an enquiry from a business which sets out the full facts and reaches the correct VAT outcome.”

Ominously, the benefits which HMRC says Making Tax Digital is going to deliver around reducing the 'tax gap' from VAT are ‘doubtful’ in Taylor’s calculations.

He points out that HMRC estimates the tax gap for 2016-17 at nine per cent of the estimated net VAT total theoretical liability in 2016-17, indicating a sum of some £12billion.

“It is not possible to conclude that Making Tax Digital, due to start in April 2019, will reduce VAT errors without better information about the common errors found”, the ATT said.

“Our recent member survey found that a total of 74 per cent of respondents to the survey thought that Making Tax Digital for VAT was a further reason for small businesses to want to remain below the VAT threshold because most respondents thought it would increase the administrative burdens on business.”

Due to shortly hold oral evidence sessions, the VAT inquiry’s focus includes Brexit, HMRC policies, and business-owners’ experience of VAT, such as disputes about it with HMRC.

The ATT said: “With some disagreements, there is no possibility of compromise and the outcome must be a straight binary choice between HMRC’s view and the taxpayer’s opinion.

“For example, it was not possible to compromise when deciding if a Jaffa Cake was a cake or chocolate biscuit, and due to the nature of VAT, disagreements about the categorisation of products are common.Disputes like this often take a long time to resolve because both parties want a binding legal judgement.”