Is a taxpayer protected from a penalty when they’ve taken professional tax advice? Two recent VAT cases have highlighted the Courts’ attitudes on this matter. Here’s all you need to know:
What happened in the cases?
Each party issued a certificate to claim a particular VAT relief. And HMRC issued both parties with a penalty for incorrectly issuing a certificate.
The first taxpayer, Westow Cricket Club, hadn’t sought any specific tax advice, but they asked HMRC to give their confirmation. HMRC gave a non-definitive answer, saying that although it appeared that a certificate could be given here, the taxpayer should refer to HMRC’s published guidance.
The second taxpayer, Marlow Rowing Club, got significant professional advice on whether they could issue a certificate. At the time, the area was being litigated, and that litigation would need to succeed for Marlow to issue the certificate. The accountants suggested Marlow should consider seeking HMRC’s view on the matter, but Marlow chose to proceed based on the advice they’d already received.
What did the Courts decide?
In Westow, the First Tier Tribunal (FTT) said that the relief wasn’t available. It was found that the taxpayer didn’t have a reasonable excuse to proceed as it was clear HMRC hadn’t definitively advised them. However, the Court did criticise HMRC for leaving taxpayers in “no man’s land” by expressing a view, while at the same time saying this wasn’t a definitive response.
However, in Marlow, the Upper Tax Tribunal (UTT) decided Marlow had acted reasonably by seeking advice on an unclear matter and relying on it. The UTT also said there was no need for Marlow to seek HMRC’s opinion, because there was no clarity to be gained by doing so.
So, what does this mean for you?
The cases demonstrate the importance the Courts place on whether a taxpayer has acted reasonably in choosing whether to take professional advice. And they show how this can impact your ability to counter what could be substantial penalties should the underlying position in law be unclear.
In our view, it’s become increasingly difficult to get a definitive view from HMRC on the underlying VAT position surrounding a complex transaction. Rightly or wrongly, these decisions advertise the fact it remains increasingly important to seek advice to support your filing position.