Treasures of Brazil Ltd – FTT – HMRC Email Impact on VAT Registration

• Case Overview: The dispute involved Treasures of Brazil Ltd, a trader nearing the VAT registration threshold, and whether they had a legitimate expectation not to account for VAT based on HMRC’s email instructions while their registration was pending.
• Timeline and Communication:
  • September 2022: The taxpayer anticipated meeting the VAT registration threshold soon.
  • 21 September 2022: The taxpayer’s accountant applied for voluntary VAT registration, requesting an effective date of 1 October 2022. HMRC responded, instructing not to charge VAT until registration confirmation.
  • 28 December 2022: The taxpayer received the VAT registration confirmation, effective from 1 October 2022.
  • 7 February 2023: The VAT return for period 12/22 was submitted without accounting for VAT on sales but seeking input tax credit.
  • 23 May 2023: HMRC assessed the period, leading to the taxpayer’s appeal.
• Legitimate Expectation: The FTT examined whether the taxpayer had a legitimate expectation based on HMRC’s instruction email, which advised not to charge VAT until registration was confirmed. The FTT concluded that the email created a clear and unambiguous expectation.
• FTT’s Findings:
  • The taxpayer followed all necessary procedures for VAT registration and provided all relevant information.
  • The instruction email from HMRC was given voluntarily and contradicted HMRC’s general guidance, leading the taxpayer to believe they should not collect VAT pending registration.
• Conclusion: The FTT ruled that HMRC’s conduct was outrageously unfair as it instructed the taxpayer not to collect VAT and then assessed them for it. The legitimate expectation created by HMRC’s instruction meant that HMRC was not legally entitled to raise the assessment, and the taxpayer’s appeal was allowed.

Source KPMG