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Do not rely upon HMRC VAT inspections to prove good compliance

11 October 2023

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A recent High Court VAT decision indicated that businesses cannot rely upon historic HMRC VAT enquiries or inspections as a green light that everything is ok.

It is often wrongly assumed that a HMRC enquiry, whether performed remotely by email or face-to-face, where no assessment is issued or ruling given, can be relied upon to demonstrate that the VAT returns submitted were accurate.  In this case, a business, Realreed Ltd had five HMRC VAT enquiries in 22 years, but HMRC failed to notice that some of the income that was declared as VAT exempt residential rent, should have been standard rated, accommodation akin to a hotel/serviced accommodation.  

The business claimed that these HMRC inspections created a “legitimate expectation” that the returns were accurate, and this income was VAT exempt.   The High Court after examining HMRC case-workers reports/notes and correspondence disagreed, noting that HMRC had made no formal decision or opinion as to the VAT liability.  The Court indicated that the business could not rely upon such visits and that the responsibility to determine the correct VAT treatment and to submit accurate returns rested with the business.

James Cowper Kreston offers a comprehensive VAT review service, which provides reassurance to businesses that the VAT liability of their sales income is accurate, and the VAT recovery of costs and expenses is correct.  

For further information please contact the Indirect Tax team.