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HMRC internal manual

Admin Law Manual

What this means in practice: Example 1 - Underdeclared VAT case, incomplete facts

A company has a customer to which it makes charges for a share of office administration costs. The company does not regard itself as making any supplies in return for the payments received and so does not account for VAT on the charges. During a VAT compliance event, the company asks if this treatment is correct. They give the officer their view of the facts, but do not disclose that there is a written contract with the customer. The officer confirms in writing his agreement that no supplies are being made and that the charges are not taxable. During the next visit, a new officer reviews the charges and asks to see the contract covering these charges. This makes it clear that supplies are being made, and that the charges are therefore taxable at the standard rate.

In this case, although the company receives clear, unambiguous and unqualified advice, it does not provide the first officer with all of the relevant facts. Therefore, HMRC cannot regard itself as bound by the incorrect advice and an assessment is issued to recover the tax underdeclared.