Abbey Tax secures VAT Tribunal victory against HMRC

    Our client operates a small-scale sailing training venture which consists of two limited companies operating in association with each other. At the time HMRC’s enquiry opened, Co A hired a yacht from a friend and made regular rental payments to cover the friend’s loan repayments on the boat. It used that boat to provide zero-rated passenger transport services to Co B which ran VAT exempt sailing training programmes; these were predominantly, but not exclusively, for disadvantaged children to introduce them to “the sailing experience” as part of educational support programmes. Co B also ran land-based training courses such as engine maintenance etc. Co A is VAT registered as it makes zero-rated supplies of passenger transport services, but Co B is not VAT registered as it has eligible body status for educational exemption purposes.
    For a variety of commercial reasons the yacht was kept separate from the main trading company until part-way through HMRC’s investigation. The client, as a director of both companies, was both the skipper for Co A’s supplies of transport services to Co B as well as the person delivering the training to Co B’s customers.
    Due to Co A’s repayment status, HMRC selected it for verification of the refund claims and, after many months of tortuous questioning decided that the services supplied could not be properly described as zero-rated passenger transport but were instead standard-rated yacht chartering with crew. Despite numerous explanations about the way in which the two businesses were structured, and the commercial reasons for doing it in that manner, HMRC persisted with analysing Co B’s website and drawing spurious conclusions about Co A’s business from that. It was emphasised on several occasions that Co B’s website has nothing whatsoever to do with the nature of the service Co A delivers but this fell on deaf ears.
    Eventually, HMRC issued an assessment and amended unprocessed VAT returns to give effect to their decision that Co A’s income was liable to VAT at 20% rather than qualifying for 0% under Item 4 of Group 8 of Schedule 8 of the VAT Act 1994.
    Although the amount of VAT may not have been significant to many businesses, it would be a make or break decision affecting the viability of this small operation and so, as a matter of principle, Abbey Tax agreed to take the matter to an independent Tribunal.
    The strategy employed by Abbey Tax was to ensure focus was maintained on the facts of the case from Co A’s perspective and the arguments raised by HMRC in its assessment as opposed to any new arguments brought in by HMRC during the appeal process. Emphasis was not only placed on the wording in statute, but elements of HMRC’s own guidance manuals pointed to their decision being misguided. References made by HMRC to Co B’s trading activities were continually rebuffed as being immaterial to the appealable decision.
    On the day of the hearing, HMRC’s representative was repeatedly unable to provide relevant and supportable answers when cross-examined by the Tribunal panel on pertinent points raised by the Abbey Tax consultant. Their case was incoherent and disjointed whereas the Tribunal Chairman expressed thanks for clarity of the delivery of the appellant’s case.
    The Tribunal found in favour of our client and upheld the appeal by confirming that Co A’s services are zero-rated passenger transport.
    The enquiry and tribunal took 18 months to complete and, although the VAT in question was a relatively small amount (c£4,000), the bill would have easily meant that this hard working business would have been forced to close. Most importantly, the professional representation fees for this case were fully covered by the Tax Investigations Insurance which enabled the client to pursue the matter on principle to ensure they paid the right amount of VAT. Due to the complexity of the case, significant time was required to thoroughly argue the matter and take the case to Tribunal. Fees would have easily exceeded £8,000 – a bill that the business simply could not have afforded. Thankfully, the client benefitted from Abbey Tax insurance and the costs of this defence were fully funded. An excellent outcome for the business.
    The client was delighted with the result:
    “My company probably wouldn't exist without the professionalism and tenacity of Mr Burke and his colleagues.
    The case went to Tribunal and on the day Mr Burke just blew away HMRC's case and left them looking incompetent, as he has done throughout his involvement with this case.

    This whole case went on for a very long time, and Mr Burke never failed to be objective and steadfast in his approach.

    I can't thank him or Abbey Tax enough. We badly needed some good news and Mark delivered.”