Businesses often have areas of uncertainty and write to HMRC to clarify the position; mostly, HMRC just refers the business to their published guidance. This policy is mostly unhelpful to businesses as they will have already read HMRC guidance but are still uncertain as to how it applies to their particular circumstances.
When a business manages to convince HMRC that they should provide a proper response to their query, HMRC sometimes provides a ‘non-statutory clearance’, where a business can demonstrate genuine uncertainty or inadequate guidance.
Even when a business obtains a non-statutory clearance, HMRC states that it is only its opinion and is not binding on any party. If the business considers the advice to be wrong, it can simply ignore it, but worryingly, HMRC does not consider itself to be bound by it either. If HMRC visits a business and considers the guidance given in the clearance to be wrong, it can impose its own interpretation of the law and assess the business for any VAT it considers due, even when the business has abided by the guidance in the clearance.
In theory, there is a ‘statement of practice’ where HMRC will abide by a previous ruling and only apply a new interpretation from a current date, but they often ignore this, and trying to enforce the statement of practice is very difficult.
In summary, in my view the non-statutory clearance procedure is not worth the paper it’s written on, and businesses cannot rely on it to provide certainty.
Formal Agreements
Where there is a tax dispute between HMRC and the taxpayer, the parties can come to a formal agreement to resolve the matter. This could occur where the matter has been dealt with through the ‘alternative dispute resolution’ procedure, or where an agreement has been reached without it being formally decided by a tribunal.
In one case, HMRC reached an agreement with a taxpayer and then had second thoughts and tried to go back on the deal. As a result, HMRC issued an assessment, and the taxpayer appealed to the Tribunal (HMRC v Southern Cross Employment Agency Ltd [2015] UKUT 122 (TCC)). The taxpayer won at the First-tier Tribunal, but HMRC appealed the matter further to the Upper Tribunal. The taxpayer was once again successful.
HMRC argued that the legislation precluded it from entering into an agreement with the taxpayer in the particular circumstance of the case. It also considered that the agreement reached was ultra vires and therefore void; and finally, it disputed that it had ever actually reached a ‘compromise agreement’. However, both tribunals completely rejected all three of HMRC’s arguments.
This case has serious implications for HMRC and how it interacts with taxpayers. How could HMRC think it was right to reach a formal agreement with a taxpayer and then renege on it? Having done that, they not only forced the matter to a tribunal hearing but then appealed that decision and forced the taxpayer into prolonged uncertainty and a further costly tribunal hearing.
This is unfortunately quite typical of HMRC’s attitude to taxpayers. Even when it comes to an agreement with a taxpayer, it does not seem to consider itself bound by it and is prepared to act in a high-handed and unfair manner.
However, this case shows that if a taxpayer is prepared to stand its ground, it will have the support of the courts. Hopefully, HMRC will take note of this decision and stand by its agreements in future.
Practical Tip
It can be difficult to get an agreement with HMRC and even then, it may not stand by it. However, if a business is prepared to stand up to HMRC, it should get the backing of the courts.