HM Revenue and Customs v Burke

An appeal tribunal reviewing a refusal of retrospective entry to the VAT Flat-Rate Scheme must apply the statutory test and must not substitute its own assessment for that of HMRC. The tribunal may allow an appeal only where HMRC could not reasonably have been satisfied that grounds existed for the refusal. HMRC may adopt a policy that retrospective entry will normally be refused where VAT liability has already been calculated under the ordinary scheme. A compliance officer’s failure to mention the Flat-Rate Scheme is not misdirection by omission where the officer was under no duty to raise it and the trader had received other publicity about the scheme.

HMRC appealed against a decision of the VAT and Duties Tribunal concerning David Burke’s application for retrospective entry into the VAT Flat-Rate Scheme from 2002. The Tribunal considered that HMRC had acted unreasonably by refusing to backdate entry to a date three years before the last period for which VAT had been paid under the ordinary system.

The central issues were the scope of the Tribunal’s statutory appellate jurisdiction, the reasonableness of HMRC’s policy on retrospective entry, and whether a compliance officer’s failure to mention the scheme during a 2004 inspection amounted to misdirection by omission.

1. Appeal allowed. The Tribunal could allow the appeal only if it considered that HMRC could not reasonably have been satisfied that there were grounds for refusing retrospective entry. That was, in substance, a supervisory jurisdiction. The Tribunal was required to review the decision actually taken and had no jurisdiction to substitute its own assessment of the facts.
2. HMRC’s decision fell within the wide discretion conferred by section 26B(8) of the Value Added Tax Act 1994 and regulation 55B of the VAT Regulations 1995. The policy that retrospective entry would normally be refused where the trader had already calculated VAT under the ordinary system was rational and consistent with the scheme’s purpose of simplifying future accounting. The fact that the trader would have paid less VAT under the scheme was not, without more, an exceptional circumstance.
3. The decision letters showed that HMRC had considered the October 2004 compliance visit and the other matters advanced by Mr Burke. It was reasonable for HMRC to conclude that visiting officers could not be expected to cover every aspect of VAT and were not responsible for offering tax-planning advice.
4. Although the internal guidance in force in 2004 would have supported an officer raising the scheme with Mr Burke, it imposed no duty to do so. In view of the scheme’s publicity and Mr Burke’s other opportunities to learn of it, the officer’s omission was not misdirection. The Tribunal therefore had no proper basis for identifying an exceptional circumstance requiring retrospective entry.
5. The judge did not determine HMRC’s alternative submission that, even if the Tribunal had been entitled to allow the appeal, it could not substitute its own decision for HMRC’s. That issue was unnecessary to the result.

• High Court (Chancery Division): appeal from the VAT and Duties Tribunal allowed.
• VAT and Duties Tribunal: on 24 November 2008, allowed Mr Burke’s appeal and directed retrospective entry into the Flat-Rate Scheme from a date three years before the last relevant accounting period.