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How to Obtain a VAT Clearance from HMRC

How to Obtain a VAT Clearance from HMRC
Key points

Only use HMRC’s telephone helpline for simple queries

For more complex questions, provide all the background information and get replies in writing

Clearances are not binding on either part, just HMRC’s view.

Written and telephone rulings

A business can telephone the National Advisory Service on 0845 010 9000 to ask for information and guidance from HM Revenue & Customs (HMRC). That is useful for simple matters such as checking a VAT number quoted (incidentally, always state the name and address of the other business as well as the number because the full details can then be confirmed).  

However, requesting advice about a problem of any complexity is usually a waste of time as the HMRC staff is not sufficiently experienced to provide detailed technical advice.  If a business does obtain telephone advice from HMRC the call will be recorded and you will be assigned a reference number.  In the event of future disagreement over what advice was given you can quote the reference number and obtain a transcript of the advice provided.  

Get it in writing! 

To obtain more detailed and binding advice a business will need to write in because it will need to provide all of the facts to HMRC. Any guidance given over the telephone on the basis of an outline query is of limited value. It will probably be based upon what is said in a public notice and it could easily mislead the taxpayer. A business cannot rely on guidance given to it, either by HMRC or by an adviser, unless it has produced a full statement of the facts.

To find the address for written enquiries—which can be by e-mail or by post—click ‘Contact us’ at the top of a page on the website (www.hmrc.gov.uk). Then click VAT which takes you to various alternative methods of contacting HMRC. If a business chooses to send its enquiry by post, please note that all written enquires are now dealt with by a centralised unit in Southend. The current policy on written enquiries is extremely unhelpful, as in most cases the business is just referred to the appropriate VAT Notice and told to work it out itself. 

Non-statutory clearances

In April 2008, HMRC introduced a new system of non-statutory clearances for businesses. At the time of introduction, a new Notice 700/6 was produced to help businesses get used to the new system. It did not start well, as it stated the following:

‘This notice is for non-business customers only. Guidance for business customers seeking non-statutory clearances is available here’.

The Notice began by contradicting itself in virtually its first paragraph—although I feel that this actually set the right tone for the new system!

The new system effectively set up a two-tier service. It is HMRC’s policy to try to encourage a greater use of its Public Notices and website by traders and the public, and most of its written advice simply guides enquirers to the relevant Public Notice. In a lot of cases, this is quite sufficient. Most small businesses and individuals needing clarification of a VAT problem are either unaware of the published guidance, or else cannot find it on HMRC’s (user-unfriendly!) website. As such, a simple reply referring them to the relevant paragraph can be enough to resolve the matter. However, in many cases, a business or its advisers have already read the guidance, and either do not understand it, or cannot apply it to the exact circumstances of the business. Consequently, further clarification is required. To simply be referred back to the same guidance that they did not understand in the first place causes great irritation, and a number of accountancy contacts cannot be bothered to use the service anymore as they can get no useful advice from it.

The higher-tier service is supposed to provide businesses with the service that they need, but is also far from the mark in some cases, although it has improved recently. According to HMRC, in order to obtain a non-statutory clearance, businesses should provide the following information:

?‘a clear explanation of the precise point(s) about which you are unclear of the tax consequences;

?where you have received professional advice in respect of the tax question on which you are seeking a ruling, you must tell us the reason for uncertainty;

?if you or your professional advisers have considered alternative tax treatments, you should give a brief indication of the alternative interpretations considered;

?if the point at issue concerns a transaction which has yet to take place, you should provide a copy of the final draft contract, where appropriate, and full details of the other parties involved to the extent that this is possible;

?where a ruling is sought before contracts are finalised, a ruling may still be given, but will not be binding if a contract is produced later and the relevant facts vary significantly from those disclosed. You should come back to us to review our ruling where the relevant terms of the contract have changed;

?copies of all of the relevant documents, with what you consider to be the relevant areas clearly highlighted (or otherwise drawn attention to);

?an estimate of the money associated with the decision, for example, the annual value of sales of an item, in respect of which you want a ruling on the liability to tax; and

?any transactions (proposed or actual) related to, consequent upon, or forming part of a series with the transaction in respect of which a ruling is sought, whether or not these transactions are certain to take place.’

Unfortunately, even though many businesses write in requesting a clearance, HMRC vet all the applications, resulting in most being rejected and returned to the lower-tier service. 

In fairness to HMRC, when they have responded to a clearance request with a full reply, it has been comprehensive and well written, but it is the large majority of written responses to queries that have caused the most concern. Simply referring enquirers to a Notice they have already read and failed to understand, is not providing the trading public with the service that they require.

Drawbacks

Taxpayers need certainty in their businesses, particularly in their tax affairs at this difficult time for the economy. Currently, HMRC’s written enquiries do not provide that level of certainty or support for businesses. HMRC do not consider that a non-statutory clearance provides a binding ruling or an appealable matter. So, if you are one of the lucky few that do receive a clearance, and you disagree with HMRC’s analysis, you cannot appeal the matter (according to HMRC). However, as HMRC say it’s not binding, you can simply ignore it, although HMRC will apply their interpretation at the next visit, and then you may get an appealable matter—an assessment! This clearly cannot be helpful to businesses.

HMRC also will not supply a ‘rubber stamping’ service. I do have some sympathy with them here, but not much. With large value transactions, businesses often want some handholding, as the VAT amounts can be huge. For example, a business is selling a property, and although it appears to fulfil the criteria for a TOGC, it writes to HMRC to have this confirmed. HMRC will refuse to do so, and write back, sometimes at length, saying why it will not give a reply and, you have guessed it, referring the enquirer back to the appropriate HMRC guidance. 

Charities

HMRC have a specialist office providing advice on charity related taxation issues, both to charities and to businesses and individuals dealing with them. The Charities Helpline is available 8am–6pm, Monday–Friday, except public holidays, on 0845 302 0203.

Practical Tip :

The most important point to make in order to obtain a clearance is to tell HMRC why their guidance is unclear and what point needs clarifying.

Andrew Needham