The hunt for the VATman
Big business is trading blows with Customs. By Roger Trapp
Wednesday 10 July 1996
Customs & Excise is understandably keen to play down the significance of a recent series of reversals that have reportedly put pre-election tax cuts in jeopardy. But the number of cases either decided or in the pipeline reinforces the view that there is an open season on those responsible for collecting value-added tax. Alan Bucket, a VAT partner at accountants Binder Hamlyn and national chairman of the VAT Practitioners Group, recently urged business not to take rulings from Customs "lying down".
Dario Garcia, head of the VAT litigation group at the accountants Ernst & Young, says the reasons for the clash are partly historical. In general, clients try to stay away from litigation, but in VAT - in contrast to direct tax - litigation forms a central part of business. And this is because the rules can be seen to encourage it.
While Inland Revenue cases go to legally untrained commissioners, those involving VAT go to tribunals, where those sitting are lawyers. In addition, the successful VAT litigant receives costs - something that happens in direct tax cases only if the Revenue has been considered to be trivial or vexatious (ie. never). Moreover, the costs are awarded in principle from the point when the notice of appeal is made. Not only does this encourage appeals, but it also hardens attitudes since it is more difficult to produce a compromise once the process has been set in motion.
Finally, VAT tribunal cases have always been reported, with the result that the issues are well known and the process is much more transparent.
Although recent months have seen a spate of cases, the antagonism between the two sides originated in 1989, when Customs was once more losing significant amounts of revenue. To redress the balance, the Government introduced what Mr Garcia, himself a former solicitor with Customs, calls "a draconian penalty regime". Under this system, penalties were imposed as a matter of course and it was up to individuals or organisations to appeal against them. Such was the feeling of unfairness that many organisations appealed - and often succeeded. The result was to bring the law into disrepute, says Mr Garcia.
The problems could presumably have been dealt with at an early stage through negotiation. But many VAT experts believe that the background of Customs officials - who are not professionally trained like their colleagues in the Revenue and have often spent time in ports seeking out drug smugglers immediately before being transferred - does not equip them for making deals.
"Customs are much more like tax police," says Mr Garcia. "When people say: 'I've got them knocking on my door, is that bad news?' I say, the bad news is when they kick the door down. Knocking is a result."
Now that successive rises in the VAT rate have increased the tax's share of the revenue cake, the stakes are higher for both sides. As the furore earlier this year over the pounds 6bn shortfall in last year's VAT revenues shows, there is a widespread feeling that Customs is under great pressure to raise as much money as it can. At the same time, the rise in the VAT rate, combined with increasing competition, has squeezed companies' margins - with the result that they are more inclined to contest rulings.
Given companies' recent success rate that inclination can only have increased. The only problem is that the involvement of EU law has made matters more complicated - though even here the litigant is protected, because European law cannot make him or her any worse off than under English law. On the other hand, Customs can be brought to book under EU law.
The issue came to a head earlier this year, when Customs lost a landmark case that could create a pounds 5bn bonanza for retailers that had been offering interest-free credit deals. With that case tied up in an appeal, one could have expected a bit of quiet. Not a bit of it. Only last week, accountants Grant Thornton noted that Customs had cracked down on one VAT loophole - where companies supply heating free of VAT where it would otherwise be subject to the 8 per cent rate.
Geoff Edwards, a VAT expert at accountants Grant Thornton, suggests that the anti-avoidance legislation placed before Parliament last month had been rushed through because of serious concerns about the loophole's effect on the nation's finances. But he dismissed the idea that tax avoidance was responsible for the VAT shortfall.
"The problem of VAT leakage is more fundamental than businesses 'avoiding' the tax," he says, detecting a trend towards non-compliance caused by a lack of frontiers in the EU.
Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk
Buying property overseas? Check out these hotspots
Bargain Hunter: Exclusive discount on a SmartGlider - a self-balancing electric scooter
My Tinder date asked for a refund when I declined a second meet up
10 tips for taking out a personal loan
Number of parents moving to their desired school catchment area is increasing, according to Santander research
- 1 Huawei Mate S and Huawei Watch: new products take on iPhone 6 Plus and Apple Watch
- 2 More than 11,000 Icelanders offer to house Syrian refugees to help European crisis
- 3 If these extraordinarily powerful images of a dead Syrian child washed up on a beach don’t change Europe’s attitude to refugees, what will?
- 4 Senior British politicians tell David Cameron: When dead children are being washed up on beaches, it's time to act
- 5 Make your voice heard: Sign The Independent's petition to welcome refugees
Climate change: 2015 will be the hottest year on record 'by a mile', experts say
Senior British politicians tell David Cameron: When dead children are being washed up on beaches, it's time to act
Jeremy Corbyn calls Osama bin Laden's killing a 'tragedy' - but was it taken out of context?
If these extraordinarily powerful images of a dead Syrian child washed up on a beach don’t change Europe’s attitude to refugees, what will?
If you're not already angry about the refugee crisis, here's a history lesson to remind you why you really should be
Theresa May says migrants should be banned from entering the UK unless they have jobs lined up
iJobs Money & Business
£14000 - £16000 per annum: Recruitment Genius: This company was established in...
£20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...
£20000 - £25000 per annum + competitive: SThree: SThree are a global FTSE 250 ...
Voluntary and unpaid, reasonable expenses reimbursable: Reach Volunteering: St...
Day In a Page
The terraces of this two-bedroom penthouse apartment offer panoramic views that stretch over fifty miles from the cliffs of Beachy Head.
In the heart of the coastal village of Mumbles and moments from the pier, this five-bedroom Victorian terrace is set over three floors and retains many original features.
In a sandbanks location, moments from the beach, this three-bedroom apartment has a large open-plan living area and a south-west facing balcony.
This four-bedroom home has an annexe accessed from the side of the house, with potential for improvement and conversion subject to the necessary permissions.
In the heart of the hamlet of Wardley, this five-bedroom period home offers countryside views and a stylish interior, with original features and open fireplaces.
Offering countryside views and landscaped gardens, this three-bedroom Grade II-listed lodge has a spacious conservatory and a large cellar that could serve as a workshop.
Set in approximately 1.5 acres, this four-bedroom home comes with a second, detached property that's currently used as an annexe.
In the hamlet of Newchurch, this former parish church is now a four-bedroom home complete with clock tower and eyrie.
Offering scenic views from a large balcony and sun terrace, this four-bedroom home has a wraparound garden and a heated swimming pool.
Offering views across the Humber and East Yorkshire Wolds from a glass panelled balcony, this four-bedroom barn-style home befits a life of leisure.
This four-bedroom home offers versatile accommodation with annexe potential; features include a hot tub, sauna and Norwegian BBQ hut.
Well-located for schools, colleges and the town centre, this contemporary thatched cottage offers flexible living space with six bedrooms.
Built in 1907, this four-bedroom Edwardian period home has been refurbished by the current owners, retaining many original period features.
Surrounded by landscaped gardens, this five-bedroom home offers living space across three floors.
This lovely country home in Burnham Market is currently run as a popular holiday cottage, with five en suite bedrooms and colourful gardens.
This three-bedroom 17th-century former village bakery is just a few miles from the East Sussex coast.
Set on a landscaped plot, this light and airy four-bedroom home comes with a log burner in the lounge, a fitted kitchen and an open-plan ground-floor layout.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Built on a former chapel site, this impressive four-bedroom home boasts balconies, stunning views and contemporary modern living.
This three-bedroom house is situated in a quiet mews and set over three floors. Features include glazed staircases and high ceilings.
A period townhouse set over four floors, this five-bedroom home was built in the 18th Century and retains many original features.
With five bedrooms, this spacious home offers beautiful gardens and modern interiors - set within the popular market town of Bingley.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
In the pretty market town of Bungay, this grade II-listed Mill House is arranged over four floors, offering four bedrooms and three reception areas.
This first-floor flat comes with two bedrooms, an impressive open-plan reception room and two lovely roof terraces.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Moored at Taggs Island and reached via a pretty garden, this two-bedroom houseboat has a vaulted reception room and skylit garden studio - currently a beauty salon.
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
A contemporary house spread over three storeys, this three-bedroom detached home has large sliding doors that open out to the River Quaggy.
Moored in Chelsea's Cheyne Walk, this houseboat offers two double bedrooms and a teak deck that's ideal for al-fresco dining.
This former village bakery, dating back to the 17th century, is now a three-bedroom detached home just a few miles from the East Sussex coast.
On the picturesque Isle of Man, this four-bedroom character home has a ground-floor shop that's currently run as a newsagents and a flat that would make an ideal holiday let.
In a new collection of flats, this first-floor two-bedroom apartment offers ample entertaining space and a prime view of Furze Green from a private balcony.
This three-bedroom stone-built cottage currently trades as the village store with a restaurant in the annexe and family accommodation on the upper floors.
Previously two semi-detached properties, this five-bedroom home is spread over three floors with a large breakfast kitchen, orangery, office and gym on the second floor.
This five-bedroom home enjoys countryside views over the Blyth estuary to Southwold, offering flexible living space with a ground-floor annexe - ideal for use as a holiday let.
Close to the market town of Eye, this four-bedroom detached home offers a double-height living room which takes the place of the original, 19th-century, chapel nave.
Dating back to the 19th century, this four-bedroom home needs modernising. Spanning three storeys, the red-brick house has a fireplace, a small terrace and a cellar.
Just outside of Cambridge, this single-storey home offers three double bedrooms, a living room with vaulted timber ceiling and ladder steps that lead to a mezzanine study area.
This six-bedroom Georgian home is on three floors with open fireplaces, a two oven Aga, an annexe, and cottage gardens with outbuildings and a car barn.
A former coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, an attached office, kennels and an outbuilding that's currently used as a gym.
Located beside an impressive Victorian viaduct, this four-bedroom home has an open-plan living area that is glazed on two sides, with skylights and high ceilings.
A former furniture workshop, this three-bedroom home has high ceilings and painted brick walls, in a village setting only fifteen miles from the coast.
This five-bedroom stone townhouse features a pine staircase and an Inglenuk fireplace, double doors from the lounge give access to an enclosed courtyard.
This five-bedroom, detached home blends traditional and modern design; the sleek kitchen features a gas hob and oven set within an exposed chimney breast.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B or countryside retreat, subject to change of use permissions.
This Grade II-listed three-bedroom home is situated on a private road, just a short walk from the sandy beaches of Frinton-on-Sea.
Less than five miles from Malmesbury, this four-bedroom cottage comes with equestrian facilities and gardens that extend to approximately three acres.