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fact that they had put a sticker on the front of the VAT 719 Notice to forewarn the applicant of information that was out of date.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by the fact that the information in the VAT 719 Notice was ambiguous and misleading – this document has since been withdrawn and replaced with the dedicated guidance for conversion projects and which provides clearer and better information.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.