Tax is a complicated issue. It isn’t always clear which rate or type of tax is applicable to a particular transaction. The Tax Office understands that businesses frequently have tax questions and require answers urgently, so it has set up a range of helplines for tax advice, each of which is a related to a specific area of tax like VAT or Income Tax.

However, the tax advice that businesses receive from these helplines is not always precise. You may rely on verbal tax advice from a helpline advisor, but later get inspected by a Tax Officer who takes a different view of the situation and raises a penalty for the incorrect tax treatment. This certainly is possible, and two recent cases show that it is the business who loses out when there is a discrepancy between the tax advice given by the helpline and the Tax Inspector’s decision.

Case 1: In case one, a soft drinks company exported products to Poland via a third party company. The advice from the VAT helpline was that the exported drinks would be zero rated for VAT. However, the VAT Inspector ruled that the standard rate of VAT applied to the drinks as the third party company was not registered for VAT within the EU.

Case 2: In case two, a company hired a privately-owned residential property out for various functions, some of which lasted several days. The advice from the VAT helpline was that VAT would not apply to the hire of the premises as it was not a commercial property. But the VAT Inspector ruled that the hire of the property was similar to a short-term holiday let or hotel booking so VAT should have been charged at the standard rate.

In both of these cases, the business was unable to prove exactly what facts had been given to the helpline, or the exact details of the tax advice the helpline had given them. If they had requested that the tax advice be confirmed in writing, the Tax Inspector would have taken this into consideration.

If you have a tax question, contact a professional tax accountant before reaching for the HMRC helplines. If you act on incorrect tax advice from one of these lines, it could prove expensive for your business!

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