When Can You Trust the Taxman’s ‘help’?

When Can You Trust the Taxman’s ‘help’?
Tax is seldom black and white. Tax planning often involves exploiting loopholes in the law. However, it may be important for taxpayers (or their advisers) to know in advance how HM Revenue & Customs (HMRC) would treat particular transactions. Perhaps unsurprisingly, HMRC will not help with your tax planning! However, it may be possible to obtain HMRC’s agreement to the tax treatment of specific transactions. This can save a lot of worry. It could also save you a lot of tax!


Be careful!


Care is needed when asking HMRC for advice. In a recent tax case, the Court held that HMRC’s advice cannot always be relied on. This was very bad news for the taxpayer, because the tax at stake was over £300,000!


In that case (Corkteck Ltd v HM Revenue & Customs [2009] EWHC 785), the taxpayer telephoned HMRC’s National Advice Service (NAS) about proper VAT invoicing arrangements in respect of shipments of ‘Red Bull’ drinks to a trader in Poland. However, the taxpayer’s version of the telephone discussion (he did not make any written notes of it) differed from the NAS representative’s short written note of the conversation.


The taxpayer’s VAT procedures in respect of the transactions were allegedly based on the advice given by the NAS representative. This treatment was considered to be incorrect following a later VAT inspection, resulting in a potentially substantial liability. The taxpayer tried to get the VAT liability quashed before the High Court.


The taxpayer lost. The Court preferred HMRC’s written version of events to the taxpayer’s recollection of them. However, the Court also held that even if the taxpayer’s account of the conversation had been accepted, HMRC’s advice could not be relied upon!


The Court considered that the NAS was only a source of “general advice”, not “binding rulings” on the proper tax treatment of particular transactions.


Be certain!


So where does this leave taxpayers and advisers who need certainty on the tax treatment of particular transactions? Clearly, relying on verbal guidance or opinions from HMRC is not a good idea, whether the issue is VAT or other taxes. And even if you make a written note of the verbal guidance, it may not be enough. The best thing to do is:


·         Ask HMRC for a ruling or guidance in writing;

·         Put “all your cards face up on the table” by giving full details of the transaction;

·         Explain why you are uncertain about the tax implications;

·         Point out exactly how HMRC’s guidance or opinion will be used; and

·         Ask HMRC to respond in writing. 


What kind of ruling?


HMRC must give certain rulings by law. Other rulings are given at HMRC’s discretion. It is important to know how and when to apply. Fortunately, there is a good deal of information publicly available:


HMRC’s general guidance on “Clearances and approvals”: (http://www.hmrc.gov.uk/cap/)


‘Code of Practice 10’ tells you about the different ways that HMRC will give you information or advice: (http://www.hmrc.gov.uk/pdfs/cop10.htm)


A special HMRC clearance service for businesses: http://www.hmrc.gov.uk/cap/links-dec07.htm; and


A special inheritance tax clearance service for businesses: http://www.hmrc.gov.uk/cap/clearanceiht.htm


Mark McLaughlin