In some circumstances a builder who constructs a building must zero-rate the supply for VAT purposes if the customer certifies that the building is to be used for a qualifying purpose. Understandably, the law provides for penalties to be imposed if such a certificate is given when it shouldn’t have been. However, there is no penalty if the person giving the certificate can show that there was a ‘reasonable excuse’ for the giving of the incorrect certificate.
That was the background to the Upper Tribunal decision in Greenisland Football Club [2018] UKUT 440 (TCC). Construction of a building had been zero-rated on the strength of the club’s certificate. HMRC had contended not only that the certificate should not have been given but that the Club should be charged a penalty for giving it.
At the First-tier Tribunal (FTT), the club had won on both counts: the FTT held not only that the certificate was correctly given, but that even if it hadn’t been, there was a reasonable excuse for giving it.
HMRC appealed to the Upper Tribunal. The Upper Tribunal agreed that the FTT had misdirected itself on the main point: the construction did not qualify for zero-rating and the certificate should not have been given. However, they accepted that the Club did have a reasonable excuse for having given the certificate. In coming to that conclusion, they applied the touchstone identified in the Clean Car Company case [1991] VATTR 834:
‘Was what the taxpayer did a reasonable thing for a responsible trader conscious of and intending to comply with his obligations regarding tax, but having the experience and other relevant attributes of the taxpayer and placed in the situation that the taxpayer found himself at the relevant time, a reasonable thing to do?’
The Upper Tribunal, like the FTT, concluded that the answer was yes, so that no penalty was due.
The FTT had accepted the evidence of the responsible person at the club (whom they considered to be a ‘totally credible witness’) that having consulted HMRC’s guidance set out at VAT Notice 708 he had also checked the position with his professional advisers, who had confirmed his view that a certificate was appropriate. That was, in the view of both tribunals, as much as he could reasonably be expected to do. They rejected HMRC’s contention that a reasonable taxpayer could in addition to these steps be expected to check the position with HMRC by way of a non-statutory clearance before issuing a zero-rating certificate.
Notably, HMRC’s skeleton argument asserted that it could ‘expect a reasonable conscientious taxpayer, undertaking a one-off high value project such as this to construe the legislation, to seek professional advice and/or request advice from HMRC, not merely rely on guidance.’ (emphasis added)
But by the time the case was heard by the Upper Tribunal, HMRC had changed its mind and argued that a reasonable conscientious taxpayer should in any event have sought advice from HMRC. One wonders, really, if HMRC itself has worked out exactly what it expects of taxpayers.
But wait a moment: it is surely simpler than this? The FTT, with the benefit of careful examination of the facts and the law, and having had the matter painstakingly explained to it by HMRC’s expert representative, had concluded that the certificate was validly given. Okay, the FTT’s decision was wrong, but here’s the point: if the FTT, with considerably greater expertise than the average taxpayer, nonetheless contrived to arrive at the wrong answer, how can it possibly be unreasonable for the club to have done so? How can it be right for HMRC ever to argue that there is no reasonable excuse for a taxpayer’s error in interpreting tax law when that same error is subsequently replicated by an appeal body?
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Greenisland and reasonable excuse
In some circumstances a builder who constructs a building must zero-rate the supply for VAT purposes if the customer certifies that the building is to be used for a qualifying purpose. Understandably, the law provides for penalties to be imposed if such a certificate is given when it shouldn’t have been. However, there is no penalty if the person giving the certificate can show that there was a ‘reasonable excuse’ for the giving of the incorrect certificate.
That was the background to the Upper Tribunal decision in Greenisland Football Club [2018] UKUT 440 (TCC). Construction of a building had been zero-rated on the strength of the club’s certificate. HMRC had contended not only that the certificate should not have been given but that the Club should be charged a penalty for giving it.
At the First-tier Tribunal (FTT), the club had won on both counts: the FTT held not only that the certificate was correctly given, but that even if it hadn’t been, there was a reasonable excuse for giving it.
HMRC appealed to the Upper Tribunal. The Upper Tribunal agreed that the FTT had misdirected itself on the main point: the construction did not qualify for zero-rating and the certificate should not have been given. However, they accepted that the Club did have a reasonable excuse for having given the certificate. In coming to that conclusion, they applied the touchstone identified in the Clean Car Company case [1991] VATTR 834:
‘Was what the taxpayer did a reasonable thing for a responsible trader conscious of and intending to comply with his obligations regarding tax, but having the experience and other relevant attributes of the taxpayer and placed in the situation that the taxpayer found himself at the relevant time, a reasonable thing to do?’
The Upper Tribunal, like the FTT, concluded that the answer was yes, so that no penalty was due.
The FTT had accepted the evidence of the responsible person at the club (whom they considered to be a ‘totally credible witness’) that having consulted HMRC’s guidance set out at VAT Notice 708 he had also checked the position with his professional advisers, who had confirmed his view that a certificate was appropriate. That was, in the view of both tribunals, as much as he could reasonably be expected to do. They rejected HMRC’s contention that a reasonable taxpayer could in addition to these steps be expected to check the position with HMRC by way of a non-statutory clearance before issuing a zero-rating certificate.
Notably, HMRC’s skeleton argument asserted that it could ‘expect a reasonable conscientious taxpayer, undertaking a one-off high value project such as this to construe the legislation, to seek professional advice and/or request advice from HMRC, not merely rely on guidance.’ (emphasis added)
But by the time the case was heard by the Upper Tribunal, HMRC had changed its mind and argued that a reasonable conscientious taxpayer should in any event have sought advice from HMRC. One wonders, really, if HMRC itself has worked out exactly what it expects of taxpayers.
But wait a moment: it is surely simpler than this? The FTT, with the benefit of careful examination of the facts and the law, and having had the matter painstakingly explained to it by HMRC’s expert representative, had concluded that the certificate was validly given. Okay, the FTT’s decision was wrong, but here’s the point: if the FTT, with considerably greater expertise than the average taxpayer, nonetheless contrived to arrive at the wrong answer, how can it possibly be unreasonable for the club to have done so? How can it be right for HMRC ever to argue that there is no reasonable excuse for a taxpayer’s error in interpreting tax law when that same error is subsequently replicated by an appeal body?
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