Tax is a complicated issue. It isn’t always clear which rate or type of tax is applicable to a particular transaction. The Tax Office realises that businesses often have questions about their tax that they need to have answered as quickly as possible so it has set up telephone helplines for taxpayers, each dealing with specific areas of tax such as VAT or the Construction Industry Scheme.

Unfortunately, businesses do not always get accurate tax advice from these helplines. You may rely on verbal tax advice from a helpline advisor, only to find later that a Tax Inspector views the situation differently and raises a penalty for the incorrect tax treatment. This certainly is possible, and two recent cases have shown that it is the taxpayer who loses out where there is a difference between the tax advice they received from the helpline and the decision made by the Tax Inspector.

Case 1: In case one, a soft drinks company exported products to Poland through a third party company. The VAT helpline advised the company that the exported drinks would be zero rated for VAT. However, the VAT Inspector decided that a standard rate of VAT should have applied to the drinks as the third party company was not registered for VAT within the EU.

Case 2: In the second case, a company hired out a private residential property for various functions, some of which ran over a number of days. The advice from the VAT helpline was that VAT would not apply to the hire of the premises as it was not a commercial premises. But the VAT Inspector ruled that the hire of the property was similar to short-term holiday lettings or hotel accommodation so the standard rate of VAT applied.

In both cases, the company could not prove exactly what facts had been presented to the helpline, or exactly what the nature of the tax advice given by the helpline had been. If they had written confirmation of the tax advice they had received, then the outcome for the taxpayer could well have been very different.

If you require tax advice for your business, get in touch with a professional tax accountant before reaching for the HMRC helplines. If you act on poor information from a tax advice helpline, it could prove expensive for your business!

Posted in Finance ~ No Comments