NO REFUND as outside the 4 year time limit

[sunnypea]

I wonder if anyone can advise me, as a company we had several HMRC issues outstanding. The companies ex accountant had failed across all levels, along with the book keeper who went on long term sick due to work related stress when I joined in October 2009.
The issue:
VAT assessments had been paid by the company and HMRC were demanding the returns along with an outstanding amount which the VAT Debt team were trying to collect. There had been a fire in March 2009 in which all the financial records were destroyed. I had the arduous task of reconstructing the financial history. As a percentage of companies were non compliant in providing copy invoices despite making requests in writing, phone and via solicitor, I had to reconstruct vat quarters from copy cheques as they provide 100% of the picture. To cut a long story short and 1 and half years later I was in a position to do a return for the period 06/06. That quarter had been paid on assessment £21,129.00 which I was aware of from the onset as I was able to pick that up from the bank statement as it was a same day payment tagged HMRC VAT. When the actual VAT return was submitted it left a credit of £4762, which VAT have written back to say they have accepted the amount but will not issue a refund or credit as it exceeds the 4 year time period.

The Question:
I was bullied by the debt management team to submit a return. I made them aware from the onset that the amount they were trying to collect was incorrect since the assessment had been paid but the return had not been received. I was never told once that I was out of time. So I wasted £2000.00 of the businesses money when requesting copy cheques from the bank since the cheques had been archived. I also wasted my time in reconstructing the vat quarter since it would have been easier to submit a return in line with the assessment. Every letter I received relating to this matter was relating to an outstanding amount which had to be paid in full or otherwise bailiffs would be visiting the premises. I just feel that the whole procedure is just unjust and there is an opportunity to appeal but I want to know will I be wasting my time again? Also HMRC are requesting another return 03/05 again assessment has been paid, I don’t think there is any point to do it properly. Please can anyone advise me, our current accountant says I would be wasting my time appealing. Any thoughts?

[Marie Stein]

Hi Sunnypea

The accountant is correct in principle in that HMRC won’t repay any overpaid VAT relating to assessments where the company didn’t appeal against the assessment or submit the return within 4 years. That’s the law and every business in the UK is subject to the same rules. But as I’ve explained below, there are some options that you should consider.

What really strikes me about your situation is the timescale involved. You mentioned that the company’s previous accountant had caused all sorts of problems, then there was a fire in 2009 which destroyed various records. However HMRC are looking for returns for 2005/2006. It begs the question – what was going on in the meantime? The company’s directors must have had some idea of the problems caused by the accountant so why has it taken so long to get the returns up to date?

I’m not saying that to criticise as I don’t know all of the facts – it’s simply to underline the reasons for HMRC’s position. This has obviously been a long and difficult time for the company and the poor compliance history explains why HMRC are so intrangigent about demanding outstanding VAT returns

Having said all that, if there are extreme reasons for the delays in submitting returns prior to 2009, then you have to ensure that HMRC are fully aware of the circumstances. I assume that they are already aware of the main events, but it’s important that they know all of the facts as something that seems relatively unimportant to you might actually help to change their viewpoint. And it does seem to me that this is one of those situations where HMRC and the company need to find some sort of closure on this long running saga. Nobody is benefitting from the situation.

There are 2 things that immediately spring to mind.

• First has the company lodged formal appeals against the assessments? I suspect this hasn’t been done because of the 30 day time limit. But HMRC will accept late appeals if there is a reasonable excuse – see here http://www.hmrc.gov.uk/complaints-appeals/how-to-appeal/indirect-tax.htm#2
• Second, about the outstanding returns. What I would suggest is this. I assume that the company has some sort of annual accounts for the years concerned? Even if these have been prepared from re-constructed records I would assume that they have been audited and at least based on bank records from the time. I would prepare the returns as an estimate based on the accounts and explain to HMRC that this is how the returns have been prepared. I assume that they would show a much lower liability than the assessment already paid and in the circumstances HMRC may be willing to accept these figures. If I were representing the company, that’s the approach I would take.

So much of this situation depends on the actual events and it’s difficult to know how to suggest you proceed with such limited knowledge. Where you see a long running situation, the law treats each return and late payment as separate events that have to be dealt with individually, so it’s not enough to say “the company has had financial and personnel problems” over recent years caused by a bad accountant. However I wonder if it might help to request a formal review of the company’s situation which might involve a meeting with a senior member of staff from the Debt Management Unit to see if you can agree on resolving the situation long term.

You refer to the DMU “bullying” you to submit returns and threatening to send the bailiffs around – I really think that you need to try to take some heat out of the situation by trying to reach a solution that both sides can live with and puts a stop to this on-going poor relationship and repeated “bullying”. Bear in mind that HMRC has the power to issue penalties for non-compliance, never mind wind up the company so this is a situation that has to be handled carefully. But they will normally listen to reasonable proposals so it’s worth asking for a proper review of teh case. So make sure you go along with some sensible proposals for dealing with outstanding returns and payments.

Alternatively, if you believe that HMRC have treated the company badly then you can make a formal complaint to HMRC asking for a review of teh case, or complain to the adjudicator or the company’s local MP. I’ve put the link here http://www.hmrc.gov.uk/complaints-appeals/how-to-complain/make-complaint.htm if you want to consider this option. Don’t dismiss this option out of hand as I know from experience asking for reviews of long term cases can help resolve such situations. And getting a third party involved in these situations can really help to resolve long-running situations.

I hope this helps get things resolved. Do consider the options I’ve mentioned above to get this situation under control. If you want any more help, I’d be pleased to advise through my formal consulting service.

Marie

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