In Copthorn Holdings v HMRC [2015] UKFTT 405 (14 August 2015), the FTT remitted the case to HMRC for it to reconsider yet again its policy on the retrospective inclusion of a company into a VAT group.
Copthorn was challenging HMRC’s refusal to exercise its discretion, under VATA 1994 s 43B(4), to concede the retrospective inclusion of two group companies into its VAT group.
The dispute resulted from several errors made by various companies of the Copthorn group, as the result of which the group had suffered a forfeiture of a deduction for input tax in excess of £2 million. The mistakes had been caused by frequent changes of staff and HMRC accepted that the group had never intentionally excluded the two companies from its VAT group. Indeed, Copthorn had mistakenly believed that the companies were part of the group.
In an earlier decision on the same matter ([2013] UKFTT 190), the FTT had found that the matter should be remitted to HMRC for further consideration. This was on the basis that the statutory power conferred on HMRC to backdate the inclusion of companies in a VAT group was a general and open discretion; therefore, it was wrong for HMRC to have publicised a policy (VAT Notice 700/2) that prescribed the only limited circumstances in which it would exercise this power, thus altogether precluding backdating in all other situations. Copthorn now complained that the very minor changes made by HMRC to its official policy had not improved matters.
Agreeing with Copthorn, the FTT decided to remit the matter to HMRC for the following reasons:
The mere inclusion of the word ‘include’, when the whole tenor of the policy remained unchanged, was a ‘somewhat cynical endeavour’ to leave the policy substantially unchanged.
When a retrospective inclusion into a VAT group was designed to validate a group’s pre-existing assumption that a company had been in the group and the filings had been made on that basis, the retrospective inclusion into the group would not necessitate any changes to the earlier VAT returns.
The policy required applicants wishing to backdate their application by more than 30 days to be able to show ‘exceptional circumstances’. However, this type of mistake was common and therefore could not qualify as ‘exceptional’.
No examples of exceptional circumstances were given.
Why it matters: HMRC is in the embarrassing position of having to change its policy on retrospective inclusion in a group yet again. This time, the FTT has suggested that a distinction should be drawn between groups which simply ‘change their minds’ and those which have assumed that a particular company was a member of the group and have made all filings accordingly. Although retrospective inclusion should not apply in the first case, it should apply in the second. The FTT also recommended that HMRC ‘pay some regard to fairness and common sense’!
In Copthorn Holdings v HMRC [2015] UKFTT 405 (14 August 2015), the FTT remitted the case to HMRC for it to reconsider yet again its policy on the retrospective inclusion of a company into a VAT group.
Copthorn was challenging HMRC’s refusal to exercise its discretion, under VATA 1994 s 43B(4), to concede the retrospective inclusion of two group companies into its VAT group.
The dispute resulted from several errors made by various companies of the Copthorn group, as the result of which the group had suffered a forfeiture of a deduction for input tax in excess of £2 million. The mistakes had been caused by frequent changes of staff and HMRC accepted that the group had never intentionally excluded the two companies from its VAT group. Indeed, Copthorn had mistakenly believed that the companies were part of the group.
In an earlier decision on the same matter ([2013] UKFTT 190), the FTT had found that the matter should be remitted to HMRC for further consideration. This was on the basis that the statutory power conferred on HMRC to backdate the inclusion of companies in a VAT group was a general and open discretion; therefore, it was wrong for HMRC to have publicised a policy (VAT Notice 700/2) that prescribed the only limited circumstances in which it would exercise this power, thus altogether precluding backdating in all other situations. Copthorn now complained that the very minor changes made by HMRC to its official policy had not improved matters.
Agreeing with Copthorn, the FTT decided to remit the matter to HMRC for the following reasons:
The mere inclusion of the word ‘include’, when the whole tenor of the policy remained unchanged, was a ‘somewhat cynical endeavour’ to leave the policy substantially unchanged.
When a retrospective inclusion into a VAT group was designed to validate a group’s pre-existing assumption that a company had been in the group and the filings had been made on that basis, the retrospective inclusion into the group would not necessitate any changes to the earlier VAT returns.
The policy required applicants wishing to backdate their application by more than 30 days to be able to show ‘exceptional circumstances’. However, this type of mistake was common and therefore could not qualify as ‘exceptional’.
No examples of exceptional circumstances were given.
Why it matters: HMRC is in the embarrassing position of having to change its policy on retrospective inclusion in a group yet again. This time, the FTT has suggested that a distinction should be drawn between groups which simply ‘change their minds’ and those which have assumed that a particular company was a member of the group and have made all filings accordingly. Although retrospective inclusion should not apply in the first case, it should apply in the second. The FTT also recommended that HMRC ‘pay some regard to fairness and common sense’!
