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Where Taxpayers and Advisers Meet

DIY Claim - VAT Charged in Error.

PAJ1
Posts:6
Joined:Thu Mar 17, 2011 12:50 pm
DIY Claim - VAT Charged in Error.

Postby PAJ1 » Thu Mar 17, 2011 3:12 pm

Hi All,

We have an ongoing dispute with HMRC regarding the refund of VAT that was charged in error by contractors employed on a conversion project (under the DIY scheme and VAT Notice 719) where the VAT should have been charged at the reduced rate of 5%. We are aware that the law does not allow HMRC to make a refund of VAT charged in error and that this has been upheld by the Tribunals in a number of cases.

We do however feel that our situation is slightly different in that our project was commenced before the change of rate in May 2001 and before the 3-year capping rule was implemented at a similar time. Given that we had registered and commenced our project on the basis of the information provided that was current at the time, it is a matter of common sense that they should have notified us of the impending changes.

We are particularly vexed because they obviously knew about the forthcoming changes at the time when we registered and therefore could have easily forewarned us with little effort. We note that in the recent case v Julian Frost, HMRC relied on the fact that they had put a sticker on the front of the VAT 719 Notice to forewarn the applicant of information that was out of date. The amount of loss suffered as a consequence is wholly disproportionate to the cost that would have been incurred by HMRC in notifying us.

We are also perturbed by the fact that the information in the VAT 719 Notice was ambiguous and misleading – this document has since been withdrawn and replaced with the dedicated guidance for conversion projects and which provides clearer and better information. In our opinion, the scheme at the time wasn’t fit for its intended purpose and denied us our rights to legitimate expectation.

The matter is currently with the adjudicator’s office and despite having asked HMRC to reconsider its position, they seems likely to side with HMRC – they appear reluctant to criticise written material (as opposed to verbal information) for being misleading.

We are also aware of the no estoppel against the Crown principle and hence haven’t attempted to take matters legal, however we are at a loss as to why HMRC won’t consider an ex gratia payment or exercise their discretion under their care and management powers to refund the VAT. Our project was affected firstly by a structural collapse and then by a flood and hence became unduly prolonged.

Any assistance will be gratefully received. If anybody wishes to respond privately, my e-mail is jefferson@jpaul39.orangehome.co.uk

Many Thanks.

les35
Posts:635
Joined:Wed Aug 06, 2008 3:09 pm

Re: DIY Claim - VAT Charged in Error.

Postby les35 » Fri Apr 01, 2011 6:42 pm

In my experience, Customs apply the D-I-Y rules quite strictly. All claims are dealt with by the same team, so they have some experience, which is helpful. However, they do check that claims meet all the conditions. I don't recall doing a claim without it being challenged in some way.
You will be aware of their arguments, that you should have taken steps to make yourself aware of the law, and changes that might occur along the way. A purely legal route, such as going to Tribunal, is likely, therefore, not to be successful.
If the adjudicator does find against you, then do consider going to the Parliamentary Ombudsman.
Les Howard
(Nene Business Services Ltd)

PAJ1
Posts:6
Joined:Thu Mar 17, 2011 12:50 pm

Re: DIY Claim - VAT Charged in Error.

Postby PAJ1 » Tue Apr 05, 2011 9:33 am

Hi Les,

Thank you kindly for the time taken to reply. Your assistance is much appreciated.

The Adjudicator has indeed found as expected, although there are a few areas that we need to go back to her on, before proceeding with the Parliamentary Ombudsman.

HMRC's argument is as you state, however no such instruction was actually contained within the VAT 719 Notice whereby claimants were advised to monitor the scheme for ongoing changes. Given that HMRC contend that projects were not registered at the outset (albeit contrary to our belief and supported in numerous tribunal cases), we feel that the Notice/Claim Pack should have outlined the apparent onus that was with the claimants to check for such changes. Not to do so was tantamount to maladministration and placed claimants in a vulnerable situation, especially given the substantial changes to the scheme that were introduced shortly after and which HMRC would have known were pending at the time of issue.

One of the factors that they appear to have given significant weight to in their ruling, was that we undertook a commercial based project whereby we were made aware of a reduced rating. They seem to consider that we should have therefore known that a reduced rate similarly applied to our DIY project, but fail to see the impact of Paragraph 3.5 of the 1996 VAT Notice 719 which expressly stated that “…The key condition is that you must not be doing this for a business reason…”, therefore creating a clear distinction for between commercial projects and those under the DIY Refund Scheme. The sole reference to the VAT Notice 708 (within the 1996 VAT Notice 719) stated that it was primarily intended for commercial builders and developers. To us, there is no such link and even if there were it would be tenuous in the least and no substitute for a properly administered scheme.

We are also disappointed with the lack of data provided by HMRC under the FOIA in relation to the scheme changes (May 2001) and the review that resulted with the new VAT431C. The information within the January 1996 VAT Notice 719 is far removed from the information that is now provided in this replacement document VAT431C. Anybody reading or taking notice of the former and relying upon its contents at ‘face value’ could not possibly extract the information that is now openly provided within the new format – it simply wasn’t there.

In addition to the points previously raised, the opportunity for HMRC to alter policy is constrained by the legal duty to be fair together with other constraints that the law imposes. Any change of policy (which may otherwise be legally unexceptionable) can be considered unfair by reason of a prior action, or inaction. For HMRC to do anything other than as indicated (i.e. within the VAT 719 Notice January 1996 as issued to us), would be to act so unfairly as to perpetrate an abuse of power. This is applicable because HMRC established a policy/scheme distinctly and substantially affecting a specific group (i.e. self-builders and converters) who in the circumstances were in reason entitled to rely on the continuance of that policy/scheme and ordinarily HMRC should have consulted or at least given notice before effecting any change - the secondary case of procedural expectation. As such our right to legitimate expectation has been denied.

Sorry if the foregoing is long winded but any further help will be equally well received!

Thanks.

Generix
Posts:2532
Joined:Wed Aug 06, 2008 3:41 pm

Re: DIY Claim - VAT Charged in Error.

Postby Generix » Tue Apr 05, 2011 9:38 am

How much at stake?
Do you adore to transfer your artistic and inventive qualities to renovate a part type? Perhaps your friends who tour your sanctuary head remarks about want they could levy you to change their premises.

section 44
Posts:4467
Joined:Thu Oct 30, 2008 12:47 pm

Re: DIY Claim - VAT Charged in Error.

Postby section 44 » Tue Apr 05, 2011 11:26 am

Isn't the point that the contractor has simply overcharged you?

What does your contract (including any incorporated standard terms and conditions) say? If it provides that you pay an amount in respect of VAT then you have overpaid/been overcharged as per your agreement and are entitled to a refund.

section 44
Posts:4467
Joined:Thu Oct 30, 2008 12:47 pm

Re: DIY Claim - VAT Charged in Error.

Postby section 44 » Tue Apr 05, 2011 11:27 am

...to add, that is a contractual dispute with the contractor.

PAJ1
Posts:6
Joined:Thu Mar 17, 2011 12:50 pm

Re: DIY Claim - VAT Charged in Error.

Postby PAJ1 » Tue Apr 05, 2011 9:21 pm

Thank you for the replies.

The 3-year ruling came into being shortly after we had registered for the scheme and hence it wasn't referred to in the VAT 719 Notice. Our project became prolonged, and a significant number of the invoices fell outside of the 3-year period - indeed for those invoices occurring after May 2001, each and every contractor had charged VAT incorrectly at the full rate. The amount in question is quite a few thousand but it is also the principle of the thing especially given the onus that is put on the claimant.

PAJ1
Posts:6
Joined:Thu Mar 17, 2011 12:50 pm

Re: DIY Claim - VAT Charged in Error.

Postby PAJ1 » Tue Apr 05, 2011 9:42 pm

Sorry - should have also mentioned that half the invoices would be staute barred due to the limitation period involved.

Generix
Posts:2532
Joined:Wed Aug 06, 2008 3:41 pm

Re: DIY Claim - VAT Charged in Error.

Postby Generix » Wed Apr 06, 2011 8:54 am

Yes - statute barred for the suppliers to recover from HMRC, however commercially they have still charged VAT in error - so they should refund you and it will be a P/L hit to them.

Can't remember how long you can go back to a supplier if they over charge you, I seem to remember a legal person once telling me standard commercial terms are usually 7 years...
Do you adore to transfer your artistic and inventive qualities to renovate a part type? Perhaps your friends who tour your sanctuary head remarks about want they could levy you to change their premises.

section 44
Posts:4467
Joined:Thu Oct 30, 2008 12:47 pm

Re: DIY Claim - VAT Charged in Error.

Postby section 44 » Wed Apr 06, 2011 9:48 am

Under statute its 6 years for a contract claim (12 years if a deed).


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