Telephone confirmation from Revenue

Introduction

This case dealt with a situation where the taxpayer relied on the advice over the telephone received from Revenue; and the reliance that the taxpayer could place on that advice where it subsequently transpired that the advice was incorrect.

The Facts

Corkteck carried on a business as a wholesale supplier of beverages in the UK and the European Union. Corkteck was run by its director, Parul Malde.

Mr Malde was given an oral assurance over the telephone on 17 March 2005 by an agent of HMRC's telephone National Advice Service (“NAS”) as to the proper invoicing arrangements for VAT purposes in respect of shipments of Red Bull drinks to a trader in Poland. Mr Malde gave evidence of that telephone conversation. The other party to that conversation no longer works for HMRC and was not called to give evidence. The court had available to it short notes made by the HMRC employee during or immediately after the conversation. It was also known from HMRC's telephone records that the conversation could not have lasted more than about 7 minutes, and was probably somewhat less than that.

At this point, it is worth looking in more detail at the problem discussed with HMRC.

One of the suppliers to Corkteck was a company called Sintra SA, which was based in Belize (i.e. outside the EU) and which had a European office in Poland. Sintra approached Corkteck in early 2005 to ask if Corkteck could sell cans of Red Bull soft drinks to Sintra (invoicing Sintra for them), but deliver them to Sintra's own customer in Poland, Konto. Mr Malde was aware that there was a problem in relation to the VAT position regarding the proposed transaction, which differed from the type of transaction which he was familiar with, involving sale of goods by Corkteck to VAT registered traders in other EU countries.

Mr Malde called the NAS. According to Mr Malde's witness statement, he said that he had a customer who was non-EU with no EU VAT number who was requesting him to supply it with goods to be delivered direct to its client within the EU. He asked if he could use the VAT number of the delivery address of the final client to zero rate the export sale. According to Mr Malde, the HMRC employee made a short check and told him that he could invoice his client, the non-EU company, if he used on the delivery note the address and VAT number of where the goods were delivered.

The Notes made on computer by the HMRC employee during or immediately after the conversation read as follows:

“Caller wanted to know about the supply of goods to an EC member state and the VAT liability of the supply. Advised caller as per public notice 725 that they would be able to zero rate the supply providing that the conditions in section 3 are met.”

In the course of a VAT inspection in September 2006, HMRC came to appreciate the nature of the supplies to Sintra which Corkteck had been undertaking, by means of deliveries to Konto, and indicated that they disagreed with Corkteck's VAT treatment of its supplies of Red Bull to Sintra. By letter dated 7 December 2006 HMRC served Corkteck with an intended Notice of Assessment in respect of those supplies.

The Issue

Whether advice received from HMRC over the telephone, even if that advice can be confirmed as that which was actually received, could be relied upon.

The Decision

The High Court found against the taxpayer.

The level of detail given by the taxpayer in seeking a ruling from HMRC over the telephone was examined.

1. he did not give HMRC “the full details of the specific transaction” on which he sought the Defendant's ruling
2. he did not indicate to HMRC that he was calling precisely because in his own view of Notice 725 there was a problem in the application of the VAT rules in relation to the transaction which Corkteck wished to enter into;
3. he did not indicate to HMRC the ruling which he sought, nor did he make it plain that such a ruling was sought on “a fully considered” basis; and
4. he did not indicate to HMRC the use to which he proposed to put the information which he was asking for.

The following quote from the case is helpful in understanding the reasoning behind the decision:

“ there is no written request for a tax ruling, then in anything other than very exceptional circumstances a tax official will not have been put on proper notice of the desire of the taxpayer to have a fully considered ruling on the point at issue and will not have been put on proper notice of the importance and significance of the ruling which he is being asked to provide.”

The final nail was hammered by the Judge when he said that even if he accepted Mr Malde's account of his conversation with HMRC, he did not consider that it was reasonable for Mr Malde and Corkteck to rely upon what HMRC said in that conversation as the foundation for their treatment of the supplies to Sintra as zero rated.

This is a critical statement in the case. There is no mention of whether an answer to a more routine question would be treated differently. So in reading this case, one would urge caution where anyone is contacting the Revenue Authorities over the telephone with a query.

The judgment is available online at http://www.bailii.org/ew/cases/EWHC/Admin/2009/785.html.