Angus Nicolson recently represented a client at a VAT Tribunal. The following is an anonymised account of what happened.
The agent told the taxpayer that they should have been registered for VAT much earlier; and they, the agents, had failed to notice this when preparing the previous accounts and tax return.
A registration application was then submitted, backdated to the correct date, but some 26 months late.
The agent applied for the FRS scheme at a rate of 8.5%.
The client was helped to issue a VAT only invoice to his sole customer, so loss of VAT was not an issue.
A Late Registration Penalty was duly issued and a standard inquiry letter was issued, to find reasons for the late registration. The inquiry form was returned with the agents amending the FRS rate from 9.5% to 14.5% (apparently) on the basis that the taxpayer was in the CIS scheme.
An increased Late Registration Penalty was the immediate result. And it was blindingly obvious that this would be the inevitable outcome.
Before the inquiry letter was replied to by the agents, the first VAT Return had already been submitted using a FRS of 14.5%.
The agents appealed the penalty, candidly admitting their culpability in the Late Registration.
It was at this point that we were engaged to urgently advise our new client.
A VAT Tribunal needs some planning
We supported the appeal as a holding mechanism to allow us time to establish the facts.
It quickly emerged that, although the taxpayer worked inside the CIS scheme – primarily for the administrative benefit of the contractor – he was actually employed in repairing construction vehicles for the contractor.
We then submitted an error correction 652 form on the basis of an 8.5% rate, which resulted in a control visit. The control visit gave the same result as the extant appeal, but we requested a review of the decision. The review came out a week ago and backed our position over that of HMRC.
At the VAT Tribunal, HMRC withdrew from everything other than the Late Registration Penalty, handing me victory. In turn the Penalty was dramatically reduced by virtue of the FRS reducing from 14.5% to 8.5%.
As I was there, I decided to try reducing the Late Registration Penalty. But that’s subject to a written decision which will follow later.
All in all, a very satisfying outcome.
The client is due a VAT refund which will be over 25% of his gross annual income; but on which income tax will be due.
This series of events worked due to the very specific facts in this case; and due to our certainty over the position. We made sure that the taxpayer had fully understood the risks involved and that he understood what was happening and why.
If you need this kind of creative resolution to your tax problems, then contact Angus straight away.