Christmas is the time for goodwill

Christmas is a time for goodwill to all men according to the carol “I Heard the Bells on Christmas Day” written by Henry Wadsworth Longfellow during the American Civil War ….but not it appears at HMRC where the taxpayer remains fair game.

In a new case, Taylor Pearson (Construction) v HMRC 2019 (UKFTT 691), on 6^th December, HMRC sought to argue that input VAT on fees incurred by the company to remunerate employees was not a deduction against output VAT. HMRC’s remarkable argument was that “the incentivisation of employees did not have a direct link with the purpose of the business”.

The court were unconvinced stating that “it did not consider (HMRC’s) argument to have any merit whatsoever and do not understand why HMRC put it forward”, where the court held in favor of the taxpayer and where HMRC did not appeal the judgement.

Interestingly HMRC are increasingly making applications to the court to strike out a taxpayer’s appeal where they believe a case has no reasonable prospect of success. Martin Redfern, Tax Manager at ASE plc suggests “the case of Taylor Pearson indicates that HMRC have a one-way view on reasonable prospects of success whether it is the Christmas season or otherwise?”

On the other hand, HMRC continue to appear like Scrooge and succeed where the taxpayer is a tax novice and where goodwill to all men can be set aside.

The court in this case stated that they recognised that the taxpayer had made “an honest mistake” but added that tax law “does not provide relief for honest mistakes”.

Martin added “it is little wonder that the tax system is often regarded as being unsatisfactory”. In a world where HMRC believe that they will be able to collect tax return information digitally in a taxpayers personal tax account, Martin wonders if “HMRC will, at some point in time, do away with the need for a tax return such that it will not be possible for the taxpayer to make an honest mistake in future”.

If you are ever unfortunate enough to be in a position of HMRC applying their unique brand of X- mas tidings to your business, please contact ASE for any additional advise.

In case of any questions please contact at Chris.Cummings@ase-global.com 
Tel: +44 (0)161 493 1930