In Shaun David Corrigan v HMRC2, in allowing the taxpayer’s appeal, the First-tier Tribunal (FTT) found that HMRC’s enquiry into a repayment claim had lasted only a day and therefore only a day could be left out of account of the 30 day period HMRC was entitled to in order to authorise the claim.
The taxpayer appealed against HMRC’s decision to refuse to pay a VAT repayment supplement which is a form of compensation payable in certain circumstances when HMRC does not authorise payment of a legitimate claim to repayment within 30 days of the receipt of a VAT return. Section 79(3) and (4), Value Added Tax Act 1994 (VATA 1994), provides that time taken for HMRC’s enquiries can be left out of account for this purpose.
The taxpayer submitted his quarterly VAT returns and submitted a VAT return for the period 1 March 2013 to 31 May 2013 (03/13) and claimed a credit of £26,016.96 (the 05/13 Return). This was received by HMRC on 30 June 2013.
Within HMRC there exists a Repayment Supplement Team and a system of automated credibility checks is applied by computer to all repayment returns and those “failed” by the computer are investigated further to ascertain whether or not all the conditions contained in section 79 VATA 1994 have been met and to decide whether a repayment supplement is appropriate.
The matter was passed to HMRC’s office in Glasgow, where an officer decided to instigate a check of the taxpayer’s VAT records for the purpose of checking the 05/13 Return. HMRC had telephoned and written to the taxpayer on 16 July 2013, informing him that it intended to visit his premises on 30 July 2013.
HMRC was subsequently satisfied that the bulk of the VAT repayment claim could be made, however detailed reasons were given in a letter dated 5 August 2013 relating to kitchen appliances and a carpet supplied to some of the taxpayer’s customers for the adjustment to the claim from £26,016.96 to £24,522.74. The letter indicated that the taxpayer was entitled to a VAT credit of £24,522.74 for the 05/13 period and that the amount would be credited to his account. The VAT repayment was released on 8 August 2013. Following further correspondence from the taxpayer, HMRC agreed that the balance of the claim originally disallowed (£1,494.22), could be reinstated.
Subsequently, the taxpayer made a claim to repayment supplement on 16 April 2014 in relation to the 05/13 Return. This claim was denied by HMRC on 27 June 2014. HMRC indicated that the total time to authorise the first part payment of £24,522.74 from the date of receipt of the VAT return on 30 June 2013 to the date of authorisation of the repayment on 8 August 2013, was 40 days but that the time between when the taxpayer was contacted about the inquiry on 16 July 2013 “to the date that we were satisfied that the claim could be authorised” on 2 August 2013 (18 days) should be omitted, so that the net delay on HMRC’s calculation was only 22 days. In relation to the amount of £1,494.22 which was reinstated, HMRC accepted that repayment supplement was due and paid this.
The taxpayer appealed HMRC’s decision to refuse to pay the repayment supplement.
The substantive issue before the FTT was whether the period from 16 July 2013 to 30 July 2013 (reduced by a “4 day allowance” which HMRC argued was sanctioned by “internal guidance”, but the validity of which did not need to be determined in this instance), should be left out of account in calculating the 30 day period for the purposes of section 79(2) VATA 1994. It was agreed that the 30 day period began on 30 June 2013 and that the relevant period ended either on 5 or 8 August 2013.
The FTT considered whether HMRC’s telephone call and letter dated 16 July 2013 amounted to an inquiry into the 05/13 Return. If they did, the “stop clock” period would start on this date.
The FTT referred to the decision of the FTT in Marlico Limited v HMRC3, where the judge had indicated that the 30 day exclusion period for HMRC to make reasonable enquiries “begins on the date when the Commissioners first consider it necessary to make an inquiry”. The FTT said that it agreed with the judge’s analysis that the legislation refers to a specific inquiry, being the “reasonable inquiry relating to the requisite return” and requires HMRC to have identified more than a general need for information. The FTT said that HMRC needs to have formulated a specific question which needed to be answered by the taxpayer concerned.
In the view of the FTT, HMRC’s letter of 16 July 2013, identified only a general need for information and simply indicated that HMRC was to visit the taxpayer’s premises on 30 July 2013. If there had been a list of records attached to that letter then the FTT considered the terms of such a list might be capable of being construed as formulating a specific question but there was no such list. The FTT therefore concluded that the inquiry had begun and ended on 30 July 2013, the day of the visit to the taxpayer’s premises, and that no specific questions had been raised by that date. Accordingly, only one day should be left out of account in calculating the 30 day period and therefore the delay in the VAT repayment exceeded 30 days and HMRC was liable to pay the VAT repayment supplement.
The approach of the FTT in this case is consistent with the FTT’s decision in Marlico and provides further guidance on how the FTT will approach any similar issue where HMRC assert that an inquiry sufficient to stop the 30 day clock has been commenced. Taxpayers should consider the nature of the inquiry carefully if HMRC resist repayment claims on this basis. A general indication that HMRC wishes to check records relating to the relevant return and visit the taxpayer’s premises will not necessarily suffice to stop the 30 day period running for the purposes of a VAT repayment supplement claim under section 79 VATA 1994.
A copy of the FTT’s decision is available to view here.