At the time of introduction, a new Notice 700/6 (April 2008) was produced to help business 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 nonstatutory clearances is available here’.
The Notice began by contradicting itself in virtually its first paragraph – although we 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 of ours 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 many cases. According to the HMRC guidance reproduced below, businesses should provide the following information in order to obtain a non-statutory clearance:
• 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 (paragraph 3.3 below). 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)
• (so that we can target our resources appropriately) 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. According to HMRC figures, by October 2008, 17,000 written enquiries had been dealt with by the normal services, and only about 150 dealt with as clearances, and in the majority of these, HMRC did not agree with the trader’s interpretation of the correct tax treatment.
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.
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. Having spoken to the HMRC person responsible for policy in this area, it is clear that he has little understanding of business needs.
It is their policy to keep referring business to the written guidance, and then to let them muddle through. It was equally worrying that he considered that the system for non-statutory clearances only provides HMRC’s opinion, and not a binding ruling – making him somewhat at odds with his own Notice 700/6.
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. We do have some sympathy with them here, but not much. With large value transactions, businesses often want some hand-holding, 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. Wouldn’t it be simpler (and quicker) to just answer the question?
Having spoken to some of the staff at Southend who actually deal with written enquires, it is clear that they have some reservations about the current policy, and would prefer to provide a more helpful and comprehensive service to businesses. However, they are unable to do so at present.
In our opinion, a full review of the current policy on written enquiries is needed, and would be welcomed by the taxpayer and HMRC staff alike. This seems unlikely for the time being, so for the majority of taxpayers, the system for making written enquiries will remain frustrating and unhelpful.
Andrew Needham
