Before starting my role at Gerald Edelman, I had worked as a VAT officer for HMRC for almost 30 years. Shortly before I left HMRC, I was involved in a case whereby a decision I made was the subject of a VAT tribunal.
The case involved a trading company and a management company with common directors. The management company provided all the sub-contractors needed for the trading company and then paid them, raising a monthly management fee to the trading company, for their costs and the costs of the sub-contractors. This is a common, perfectly legitimate, way to organise a business.
However, the trading company paid the management company but, the management company, although declaring the VAT due on their management fees, never paid any of the money across to HMRC and went into liquidation within 12 months, owing significant sums to HMRC. The management company had made little to no effort to make a payment, had not stuck to PAYE time to pay agreements, and had not sought any time to pay for their VAT debts.
The input tax that was reclaimed by the trading company, was subsequently disallowed on the basis of the Kittel and Fini decisions, i.e. that the input tax was incurred by fraudulent or abusive ends and the trading company knew or should have known this.
I had agreed, prior to leaving HMRC that I would attend the case as a witness. It was a strange feeling taking part in the proceedings as I was now ‘on the other side’ so had mixed feelings about the outcome.
The tribunal was allocated four days for the hearing, with the appellant calling several witnesses and HMRC only one – me! It was far more formal than I was expecting (except when the judge’s dog appeared behind her and jumped up on the sofa to get comfy) having to refer to the judge as ‘ma’am’ and no phones, food or drink during the process. Both the appellant and respondent’s barrister made opening statements then came witness testimony and we were all sworn in.
I was very nervous but, looking back, I was far better prepared than the appellant in terms of the witness statement, preparation, and then giving my testimony.
When you work for an organisation, like HRMC, there is guided learning in court attendance, plenty of staff who have experience of both writing witness statements and giving testimony as well as sufficient time to consult with the barrister and the solicitor, with no concern about costs. I say this, not because I think it will necessarily give HMRC an advantage in terms of outcomes (HMRC doesn’t always win) but in making the process less stressful and making sure you have confidence in your answers.
Although a formal court proceeding, it’s tax so it’s never going to be that exciting and often relies on small details although there were a few surprises.
The judge’s decision was announced very recently, and it was a win for HMRC. You may wonder why we are writing about this when the business was unsuccessful in its appeal to a tribunal. It is to demonstrate the importance of record-keeping and ensuring that, when you are having difficulties meeting your tax bills, it is in the business’s interest to communicate with HMRC and gain agreement if you are experiencing difficulties and not to rely on taxes due to HMRC as an interest-free loan.
How can the Gerald Edelman VAT team help you?
The VAT team at Gerald Edelman has extensive VAT expertise, within both HMRC (almost 100 years!) and the private sector.
As a VAT Manager, I have first-hand experience of working at HMRC, and a deep understanding of VAT matters, and more importantly the stance that HMRC takes on VAT, cash flow, loans, deadlines, penalties, and other issues.
As a team, we are well placed to advise clients on complex VAT and business issues and how best to approach HMRC to get a helpful outcome. The GE have extensive tribunal experience mainly opposing HMRC and, with this recent win, success on the ‘other side’.
The VAT team are always available to run through and discuss your options and personal requirements. To raise a query, seek advice, or simply learn more about our VAT-related services, click here to contact our VAT team today.Back to top