HMRC Refuse to Pay Interest on DIY Vat Claim

by **IP01** on Fri Oct 07, 2011 11:03 pm

Hi

I constructed a new house two years ago which had an occupancy condition attached. This required someone living within the property to be involved in the operation of a holiday letting business owned by my family. This caused a significant problem in terms of reclaiming the VAT as HMRC contended that the dwelling could not be used seperatly to the letting business and there was therefore a Note 2(c) prohibition. After countless reviews I took the case to a first tier tribunial which found in my favour - they noted that there was no obligation that the dwelling had to be used in any way in connection with the business and therefore there was not a Note 2(c) prohibition.

HMRC paid the VAT due but excluded any interest. When I requested payment of the interest they have concluded that no interest should be paid. HMRC quote section 78(1) of the VAT Act as the reason for not paying the interest.

My understanding of section 78(1) is that interest will be paid when an error occurs by HMRC.

However HMRC note that there is no statutory definition of the word "error" and they have taken it to mean was there any evidence that HMRC made a mistake in handling my claim. They note that during the whole claim and tribunal process local officers involved sought internal HMRC policy team advise before proceeding and overall they have found no evidence of any mistake. They also go on to note that the tribunal process is to enable the parties to develop their arguments and seek to resolve the dispute and that just because the tribunal finds in favour of one party it does not mean there in no merit in the other party's argument.

It is my view that HMRC did make an error in their intial assesmsent of my claim - a view that is clearly backed up by the findings of the tribunal. Prior to the tribunal I was also able to advise HMRC of a very similar case (where the tribunal found in favour of the Appellant) but I was informed that HMRC believed the tribunal had made an error and they had excersized their right not to appeal.

It seeems unfair that HMRC have benefited from the interest over the period of my claim (although this is about the principle and not the money) and I would appreciate anyone's thoughts/advise on this. To proceed means that I'll will more than likely be heading back to another tribunal.

Thanks

Ian

by **Generix** on Mon Oct 10, 2011 9:29 am

How much interest is at stake?

by **IP01** on Sun Oct 16, 2011 7:21 pm

I've not calculated the interest due but I can't imagine it will be more than a few hundred pounds - its really about the principle and not the money.

by **Generix** on Mon Oct 17, 2011 1:07 pm

IP01 wrote:I've not calculated the interest due but I can't imagine it will be more than a few hundred pounds - its really about the principle and not the money.

Unfortunately principle and 'fairness' very often won't help in tribunal... especially now that costs are awarded less frequently under the new system.

Therefore I would just accept that sometimes the taxman will get you, one way or another

by **IP01** on Mon Nov 28, 2011 11:38 pm

Following my letter to HMRC requesting an independant review of my request for interest I'm pleased to advise that in line with the VAT Act and the seperate guidance HMRC have confirmed that interest is due.

It just goes to show that if you are prepared to challenge and put the effort into research / preparation then you can be successful.

by **Generix** on Tue Nov 29, 2011 10:40 am

IP01 wrote:Following my letter to HMRC requesting an independant review of my request for interest I'm pleased to advise that in line with the VAT Act and the seperate guidance HMRC have confirmed that interest is due.

It just goes to show that if you are prepared to challenge and put the effort into research / preparation then you can be successful.

Good job! Very rare such things are cleared up before Trib.