HMRC POLICY - 29.06.2016

Taxation through reinterpretation?

Reinterpret. The VATman will occasionally review various supplies that have been accepted as zero-rated or exempt for many years. This normally happens when new staff take over in a branch and try to make a name for themselves by shaking things up with a money making idea. HMRC then considers whether it has been too generous in their interpretation of the law.

Upshot. Taxpayers are then advised that some supplies should be standard-rated rather than exempt or zero-rated, in effect increasing the output tax chargeable across a particular trade sector. Taxpayers will either accept the ruling and charge 20% VAT or may be prepared to take on the costly exercise of going to Tribunal.

Cases. A number of cases have appeared before the VAT tribunals in the last year where HMRC has challenged long-established norms (and its own published guidance in some cases) and, fortunately for the taxpayers, has lost. However, it still tries to impose its views on taxpayers even though it doesn’t have the support of the courts.

Land. In Kati Zombory-Moldovan t/a Craft Carnival (TC4428) , the taxpayer organised craft fairs and sold pitches to stallholders and exhibitors. She treated her fees as an exempt supply of land. HMRC argued that it was a standard-rated package of services but lost at Tribunal.

Health. The most worrying case was probably City Fresh Services Ltd (TC4548) , in which HMRC tried to move the goalposts in relation to the exemption for medical services. It claimed that the exemption applied only if a business was providing care directly to the final patient and that supplies to or by an intermediary organisation would always be standard-rated. Again it lost the case.

For a link to the tribunal cases, visit http://tipsandadvice-vat.co.uk/download (VA 06.09.01).