Beware of Verbal Tax Advice

Newsletter issue - November 2009.

Tax is complex! It is not always clear which particular tax, or what rate of tax applies to a transaction. The Taxman realises that businesses often have tax questions that need urgent answers, so he has set up a range of telephone helplines that each deal with specific areas of tax, such as VAT or the construction industry scheme.

Unfortunately these telephone helplines do not always give the correct answer. You may rely on a verbal assurance from a telephone helpline, but later get inspected by a Tax Officer who takes a different view of the situation and raises a penalty for the incorrect tax treatment. This does happen, and two recent cases have shown it is the taxpayer that suffers where there is a disagreement between the helpline advice and the Tax Inspector.

Case 1: In the first case Corkteck Ltd exported soft drinks to Poland through a third party: Sintra SA. The VAT helpline told Corkteck that the exported drinks would be zero-rated for VAT. However, the VAT Inspector decided the drinks should have been standard rated as Sintra SA was not registered for VAT within the EU.

Case2: In the second case Acrylux Ltd hired out a private residential property for various functions, some of which lasted several days. The VAT helpline told Acrylux that the hire of the property would be exempt from VAT as it was not a commercial property. However, the VAT inspector said the hire of the property was similar to short-term holiday lettings or hotel accommodation and VAT should be charged at the standard rate.

In both cases the taxpayer could not prove exactly what facts had been presented to the helpline, or exactly what the helpline had given as its advice. If the advice had been requested in writing the outcome for the taxpayer may have been different. If you have a tax question, please ask us before reaching for the HMRC helplines. If you act on advice that later proves to be incorrect, you could pay a high penalty!