July 07, 2023


Not necessarily, as illustrated by a recent case.

Realreed treated supplies of serviced accommodation as exempt, rather than standard rated, for many years. HMRC carried out multiple VAT visits and accepted the liability, including treating the income as exempt when reworking Realreed’s Partial Exemption calculations.

In 2019 HMRC decided that the income was standard-rated after all, and raised Assessments for several £million. The argument is that the accommodation is more akin to a hotel or boarding house, than rent under an Assured Shorthold Tenancy, and thus subject to VAT. The taxpayer’s Appeal against the liability decision will be heard at a later date.

However, the taxpayer also lodged Judicial Review proceedings, on the basis it was unfair in principle for HMRC to change their position after accepting exemption over the course of multiple visits. The taxpayer argued that it had a “legitimate expectation” that HMRC had accepted exemption as the correct treatment of the income. As a result, HMRC should be “estopped” from raising an Assessment for any past periods.

The Court rejected the JR application. The taxpayer had exempted the supplies since before HMRC first visited, rather than it had ceased charging VAT based upon HMRC advice. Indeed, HMRC had never given any formal assurance, or guidance, that the supplies were exempt. The taxpayer had never asked for any such ruling or guidance.

All that could be said is that HMRC SHOULD have formally reviewed the VAT treatment of the income, given that it was a substantial part - over 80% - of the taxpayer’s total turnover. HMRC could not say they hadn’t realised that most of the income was being treated as exempt, because they had reworked the taxpayer’s partial exemption calculations.

Although some of the detail will come out of the substantive hearing into whether the income was in fact taxable, it looks to me as if the offering evolved over time, initially focussing on relocating executives signing AST’s for a stay of a month or two; to short term stays for tourists visiting London. Neither the taxpayer nor HMRC reviewed the detailed fact pattern to check whether exemption was still correct; the Court’s decision was that this is the taxpayer’s responsibility, and it cannot rely on any failure of HMRC to do the job.

In conclusion, there is a distinction between HMRC giving a formal ruling as to the liability; as opposed to not raising a challenge to what a taxpayer has done. “Misdirection” is not a matter that can be Appealed to the Tax Tribunal, hence the taxpayer in this case having to go through the expensive and uncertain process of Judicial Review.

Finally, many visit confirmation letters or emails contain wording along the lines of “Please note that because the officer will not normally have time to examine every aspect of your business, you should not assume, at the conclusion of the visit, that the accuracy of all of your business records has been checked and approved by the officer.’”


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