I’ve had a couple of conversations with people recently who have received incorrect rulings from their HMRC on VAT issues. I know how frustrating it can be when you are trying to do things correctly only to get an incorrect ruling.
I am always the first person to defend VAT officers because I believe that they genuinely do their best to do a good job with limited training and resources. Like all of us, they can make mistakes and will rectify the situation as quickly as possible.
Doing the spiders’ mating dance!
But I do get concerned when mistakes are preventable and seem to be obvious errors which should have been prevented when reviewed. Those of us who have a professional background are well aware of the strict review systems that exist to avoid errors in practice.
I recall the very first time I prepared a letter during my first week in the accountancy profession, only to receive it back with only the “Dear Sir” and “Yours faithfully” left intact. It looked as though a red spider and a blue spider had performed their mating rituals on the intervening paragraphs! I kept that letter and used it over the years to show to my own staff when I performed similar acts of sabotage on their work – we’ve all been on the receiving end!
So I get very frustrated when errors are made by a Government Department and are so obvious that they should have been picked up before being sent out. For example, telling a business that it has to request permission to make an option to tax a property, when they do not.
Requesting a ruling in good faith…
Now mistakes do happen and sometimes taxpayers don’t help the situation because their letters are incomplete or simply misleading, in which case the VAT Office simply can’t be responsible for giving an incorrect ruling. But I get frustrated when a business has given the right information, at the right time and they still get an incorrect ruling or a misleading ruling.
I suspect that much of the problem is the lack of review process within HMRC. I simply don’t know how often work is reviewed prior to being sent out. And even if it is reviewed, how experienced is the person who is carrying out the review?
VAT is a complex subject and I think it is a matter of concern if fundamental errors such as telling a business that they need permission to opt to tax when they don’t are made. If the person writing the letter and the person carrying out the review have limited experience, it isn’t their fault, so why does this happen?
These situations cause real problems for businesses – not least the management time in dealing with the problem, but the real financial cost waiting for a repayment to be made when the business concerned has acted correctly and in good faith.
The simple fact is that most queries are dealt with by relatively junior officers who have limited knowledge and experience and often don’t fully understand the questions! It’s not their fault – the work should only ever be done by more experienced staff. An officer with a couple of years experience simply can’t appreciate how much their incorrect ruling can effect a struggling business.
Helping yourself get the right answer
Of course the first thing to do is to make sure that you have given them the correct information in the first place and that you have explained things clearly. You should give them the facts and explain why you need a ruling – for example you might need to know the VAT liability of a particular food item which isn’t listed in the VAT Notice on food. In that situation , you need to describe the item and give information about its contents and how it is prepared.
In the case of more complex issues such as those involving legal contracts, explain what is happening and why the transactions are happening in normal everyday language. Bear in mind that some officers may not be familiar with legal terms or even certain commercial terms such as “equity sale” or “reverse premiums” so avoid legalise where possible. Also be sure to provide copies of any legal documents with your initial request.
Finally, make sure that you explain what it is you are requesting a ruling about! I’ve seen some amazing letters sent to VAT offices over the years requesting advice or rulings, such as a one-paragraph letters accompanying a bundle of legal documents asking for a summary of the VAT issues! HMRC won’t provide you with advice in these situations – as with any transaction, you have to bear the cost of professional tax advice. You can only request a ruling on specific issues.
So what do you do when HMRC get it wrong?
If you think that HMRC’s ruling is wrong, in the first instance call the officer who has sent you the ruling and discuss your concerns with that officer. Very often it will be a simple error or misunderstanding and hopefully it can be sorted out very quickly. Be polite and however frustrated you might feel, don’t loose your temper with the person on the other end of the phone! They will be doing their best to help you and even if the error is their fault, it won’t be deliberate.
If this doesn’t work, you may have to lodge a formal appeal against the decision, following the appeals procedure. Bear in mind that formal appeals must be made within 30 days – see the new HMRC Guide on making an appeal for further information. HMRC have also published a factsheet here http://www.hmrc.gov.uk/factsheets/complaints-factsheet.pdf “Complaints and putting things right” which explains what to do in situations where you believe that your business has suffered due to errors made by HMRC. You may be able to claim costs or interest incurred due to their error.
This blog is not about criticising HMRC for making mistakes. My concern is that there should be a proper review process carried out by staff with sufficient knowledge and experience.
If you have to query a ruling, you should NOT be afraid to complain, particularly if you think that you have suffered unnecessary costs or time or disruption to your business as a result of an incorrect ruling. Be polite, be firm and be persistent but stand your ground.