In Treasures of Brazil Limited v HMRC [2024] TC09325, the First Tier Tribunal (FTT) found that a company had a legitimate expectation that it wasn't required to collect VAT while HMRC processed its VAT registration.
Treasures of Brazil Limited (TOBL) sold jewellery and bags.
- In September 2022, TOBL’s director, Ms Brambila, considered that the VAT registration threshold would be met in the relatively near future.
- Ms Brambila instructed her accountant, Ms McCormick, to apply for Voluntary VAT registration.
- The VAT registration application was submitted on 21 September 2022 and requested an effective registration date of 1 October 2022.
- An e-mail response from HMRC was received on the same day. This:
- Confirmed that the VAT application had been received.
- Stated: “You should wait until your VAT registration is confirmed before you get any software [or] charge customers for VAT”.
- Ms McCormick advised Ms Brambila that TOBL should only start collecting VAT once VAT registration was confirmed.
- HMRC was chased for updates throughout October and November 2022.
- VAT registration was finally confirmed with effect from 1 October 2022 in a letter dated 10 October 2022.
- HMRC’s systems indicated that the letter was issued on 17 December 2022.
- TOBL did not receive the letter until 28 December 2022 and immediately started charging VAT on sales.
- TOBL submitted a VAT return for December 2022, reporting only input VAT of £4,502.
- This return declared no VAT on sales on the basis that Ms Brambila considered it unfair that TOBL would be penalised for HMRC’s poor communication which resulted in TOBL not charging VAT on its sales for the period.
- HMRC raised a Best judgment assessment, adjusting the output VAT figure for the period to £15,257 and the input VAT figure to £6,512.
- TOBL Appealed to the First Tier Tribunal (FTT).
The FTT found that:
- TOBL had a legitimate expectation that it was not required to collect any VAT (or sums on account of VAT) pending registration.
- The company had put all its cards face up on the table: it had provided the information it was expected to provide.
- The e-mail provided by HMRC amounted to a clear, unambiguous and unqualified instruction not to collect VAT or any sums ‘for VAT’.
- HMRC’s assessment was conspicuously unfair.
- TOBL had not added VAT to the prices charged to customers as a direct result of an express instruction from HMRC.
- The assessment effectively required TOBL to fund the VAT from its resources, contrary to the normal role a trader plays in the administration of VAT.
The appeal was allowed.
Useful guides on this topic
Registering for VAT
When should a business register for and charge VAT? What are the VAT registration thresholds? What penalties might HMRC issue for late notification of registration? When do you need to file a VAT return?
Is voluntary VAT registration worthwhile?
When can a business voluntarily register for VAT? When would it be beneficial to voluntarily register?
Assessments: Best judgment & time limits
What is a 'best judgment' assessment for VAT? When can HMRC raise one? What are your rights of appeal? How do you displace a best judgment assessment? What are the time limits for a VAT assessment?
VAT thresholds
Certain thresholds must be reached for either the registration or deregistration of VAT.
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