Badly worded VAT registration form did not stop assessment

In KSM Henryk Zeman SP Z.o.o. v HMRC [2021] UKUT 0182 a Polish company was caught out by a badly worded VAT registration form and HMRC rejected its registration. It should, in fact, have been registered and HMRC later raised a VAT assessment. Did it have a legitimate expectation to expect fairness?

• KSM belonged in Poland for VAT purposes. It entered into a contract with Energoinstal SA, another company based in Poland to install a boiler in the UK for a UK business customer. Energoinstal was not registered for VAT in the UK.
• KSM Registered for VAT, it thought that Energoinstal was VAT registered and the end customer was based in the UK.
• As a result, HMRC refused KSM’s VAT registration on the basis that: “When such land-related supplies are being made in the UK to VAT registered business customers, it is the customer who is deemed to be making the supply in the UK and who accounts for any VAT due under the Reverse-Charge procedure.
• Following an abortive attempt to reclaim input VAT KSM applied again to be registered, this time declaring that Energoinstal did not belong in the UK.
• HMRC allowed registration this time, and after some correspondence HMRC assessed KSM to VAT in relation to the supplies it had made to Energoinstal.
• KSM appealed against the assessment to the FTT. It claimed that as HMRC had been wrong to fail to register it for VAT and it had a legitimate expectation not to be assessed for VAT.

On appeal to the FTT, the tribunal found that KSM should have been VAT registered and it had no jurisdiction to consider whether it had a legitimate expectation to have been registered initially and might thus avoid the assessment.

KSM Appealed to the UT.

The UT found that:

• KSM was supplying the construction of the boiler in the UK for an amount exceeding the VAT threshold. Such a supply is not exempt. Thus, without more KSM would be liable to VAT on that supply.
• If Energoinstal had belonged in the UK and been registered, KSM would not have been liable to VAT on the supply of the boiler because the supply would have been treated as made by Energoinstal to itself.
• But, as Energoinstal belonged outside the UK and was not registered, VAT was payable by KSM and KSM should have been VAT registered in the UK.
• When HMRC replied to KSM rejecting its application to register it explained clearly its reasons for rejecting the application and invited KSM to provide further information if it did not agree with their decision. This KSM declined to do.

The UT decided that KSM’s failure to provide HMRC with the full details of its contract denied it any claim for legitimate expectation.

The UT then went on to conclude that the FTT did in fact have jurisdiction to determine the question of legitimate expectation, it said, “We see strong reasons for thinking that it would be artificial and unworkable to exclude a defence based on the public law principle of legitimate expectation from the tribunal’s appellate jurisdiction.”

Useful guides on this topic

VAT Registration
When should a business register for and charge VAT? What are the VAT registration limits and VAT rules after Brexit? What penalties might HMRC issue for late notification of registration?

VAT Appeals
How do I appeal an HMRC decision?  How do I appeal a penalty?  How can I request a Statutory Review? The process of making a VAT appeal largely follows that of direct taxes, however, there are some differences.

VAT Place of Supply
The place of supply (POS) of a service determines whether the supply is within the scope of UK VAT and whether VAT is payable on that supply.

VAT Reverse Charge: Cross Border Services
A UK business may be required to operate the reverse charge on services it receives from abroad.

Importing goods into GB, post-Brexit
The post Brexit transition period ends on 31 December 2020. HMRC has issued guidance for importing goods.

External links

KSM Henryk Zeman SP Z.o.o. v HMRC [2021] UKUT 0182