H.M.R.C.’s Unfair Tax Grab

Unfair Tax Grab – Elsewhere, I have mentioned that HMRC treated our company, Chard (1964) Limited, unfairly, and heavy handedly. As I have mentioned it, I will give a brief outline here of the case:

HMRC Unfair Tax Grab for £114.000 Payment for VAT on Import of Exempt Gold Coins

In early October 2013, we received a C18 demand from Kay Akpinarlioglu, a Higher Officer in CITEX Operations of HMRC in Blackburn, Lancashire. This demanded that we pay H. M. Customs and Revenue over £114,000; or which more than £113,000 related to import VAT on exempt investment gold.

This was because three different import agents we use had submitted incorrect documents relating to seven different imports over a period of time. Two of these were for silver coins, which are subject to VAT, and import VAT on these was about £1,300; all of which we would have been able to reclaim on our next VAT return, so there would have been no loss to HMRC except for the temporary interest free loan we would have been making to them for an average of two months, a negligible amount. The remaining amount £113,000+ related to five other imports.

The letter stated that we would be able to reclaim the amount on our next quarterly return, subject to the usual rules. We rather stupidly believed her, and made the payment immediately, rather than to to resist and fight the demand. As it had arrive just after the start of a new VAT quarter, we knew we would have to wait four months until we got the refund. We did have the money in our account, but we had also started our major refurbishment work on our new office and showroom, in which we have invested the best part of £1 million, so we were concerned about the negative effect on our cash flow.

When we submitted our VAT return in January 2014, we were already anticipating the large repayment due to us to trigger a VAT inspection (taxmen don’t like giving money back). This duly happened, and we soon received the bad news that we could not reclaim the £113,000+ because it related to input VAT on exempt items. The nightmare began.

Some time after this, we identified that HMRC got their facts wrong on one of the five alleged gold import errors, and that our entry had been entirely accurate, so we advised HMRC of this, and after an unreasonable delay, we eventually got back the £16,000+ relating to that import.

This left more than £97,000 which HMRC had legally (?) coerced (suckered) us into paying, only to be told we could not have it back.

We requested a review of Akpinarlioglu’s original decision, only to be told she would not review it, as the 30 days time limit had passed, and we found ourselves in a kind of Catch 22 type situation.

I started weeks of work reading HMRC’s labyrinthine website, and we ended up employing a specialist VAT accountant, costing us thousands of pounds, who advised us, and started a complaint on our behalf. We also agreed to use arbitration, and were prepared to go to a VAT tribunal, and even higher if necessary. This resulted in a ruling that the original decision (by Akpinarlioglu) was wrong, and we would be reimbursed.

We eventually got our money back on 4th November 2014, once again after an unreasonable delay. So far we have not been offered or received any interest or compensation.

In parallel with the VAT accountants work, we also wrote to various Members of Parliament, including the two constituency M.P.s, for one home constituency, and the one where our business is located, the Prime Minister, Chancellor, Vince Cable. We worked with the Federation of Small Businesses (F.S.B.) to try to get media attention via a press release. The best response was from the Blackpool North M.P., but the replay he received from HMRC was largely irrelevant waffle, which failed to answer the questions asked. The main thrust of our letter was to try to get some senior person at HMRC to take a quick look at the situation, sort it our, and rectify it, and do so sooner rather than later.

While we were, and are, delighted to get our money back, I personally suffered a great amount of stress during the period of the affair, and I still feel appalled that HMRC can arbitrarily and unfairly pick on a victim, unfairly demand money, refuse to return it, and hang onto it unless or until forced to repay it. This is not right.

If you ever suffer from insomnia, try reading and understanding the HMRC website. It is littered with incomprehensible TLAs and FLAs (Three and Four Letter Acronyms). Most HMRC personnel probably know what they stand for and mean, but the lay reader is obliged to keek stopping to try to find what they stand for and mean. A glossary does exist someone in the bowels of the HMRC website, but try finding it!

I also re-read the HMRC Charter (Your Charter). I noticed one surprising omission, that nowhere does it state the HMRC will be fair, or act fairly. I believe this serious omission should be rectified as soon as possible, so that victims should not have to suffer as we did, and could expect fair treatment. In the last few days, I referred back to “Your Charter”, and noticed that while is states that HMRC expect you to be honest with them, it fails to make the reciprocal promise. Once again, I believe this is something  which should urgently by added toh the Charter.

Residual VAT

We received more bad news from the VAT inspector mentioned above. Because our outputs (sales) include both (VAT) taxable goods and exempt ones, we are apparently classed by HMRC as partially exempt. We know this is slightly illogical and ungrammatical, but that appears normal for HMRC. Because of this, any input VAT which we incur which can not be attributed directly to either taxable or exempt goods, gets classed as “Residual VAT”. Under the “Standard Method” e can only reclaim this in the proportion of our taxable sales. As about 90% of our sales are of exempt goods, we can therefore only get back about 10% of this residual VAT. Normally this does not affect us, as the amounts involved are below a threshold limit (from memory £7,500 per annum). Because of the substantial refurbishment costs of our new premises (about £600,000), our input tax is about £120,000; and we were looking at losing over £100,000 when we moved our business to the new premises.

AS we are entitled to, we have applied for a “Special Method”, but this was refused because “it was not easy enough to calculate or audit”. As a result, we took the decision to move only the taxable part of our business into the new premises, and leave the exempt part at our old place (we own both). The HMRC Residual VAT team have agreed that the standard method is not fair to us, can can withhold permission to use any special method at their discretion. It is incurring us extra costs, loss of efficiency, lost sales, reduced security, and other problems, but I am determined that we should not get ripped off yet again by HMRC.

We are working on improved integrated stock, sales, and customer databases, which would help, as a bonus side effect, us do the analysis more efficiently, and support a new request for a special method, and hopefully we will eventually be granted one. At the worst, we could retain the split working for 10 years, at which time, we could re-combine them without penalty.

It is not good that any business should have to spend more resources trying to protect itself from unfair tax, than it expends in running the productive part of its business. Most politicians do not understand this, probably because most of them have never run a business or even had a real job.

At times over the last two years, I have felt like selling up, closing down, and moving to Monaco or the Cayman Islands, and setting up a new business there.

Our company collects or pays about £300,000 per annum in various taxes. We are obliged to do this as an unpaid tax collector. Unlike employed tax officials, if we make a mistake we are punished heavily for it; if tax officials make mistakes, they seem to deny it, and are never penalised for it.

The Residual VAT team who came to see us seemed like nice people, but when I was complaining about losing a proportion of the residual VAT, they said that we were privileged to be able to sell exempt goods. I disagree with them, it is our customers, and other consumers and investors who are “privileged” (in fact they have a legal right) to buy investment gold and foreign exchange without paying VAT. There is no logical argument for denying a business from reclaiming VAT on its legitimate business expenses, even if it sells only exempt goods, because otherwise it becomes an indirect tax to consumers on exempt goods. This part of VAT treatment should also be rectified, although because it would mainly effect banks and other big financial entities, would probably not be very popular, and will probably never happen.