Council Directive 2008/9/EC – VAT Refund claims
Article 4 of this Directive says it shall not apply to “amounts of VAT which, according to the legislation of the Member State of refund, have been incorrectly invoiced.” When submitting Refund Directive Claims to a Tax Authority, the claimant is supposed to ensure that only VAT that is eligible for a refund is claimed. Tax Authorities can impose penalties for claims that include invoices where VAT was charged incorrectly.
However, some suppliers are unaware of the VAT rules and refuse to issue credit notes for Art 44 services where the reverse charge in Art 196 can apply. Or some claimants do not give themselves enough time to consider if VAT should have been charged and to get credit notes if required. One approach adopted by some claimants is to submit a claim for all VAT incurred and then use the Tax Authority rejection letter as evidence that the VAT was charged incorrectly and a credit note should be issued. In some circumstances where a supplier is adamant that his treatment is correct or where there is not enough time to have the discussion this may appear to be a sensible option. It also appears to be an option that some Tax Authorities have sympathy with.
Tax Authorities can impose penalties for claims that include invoices where VAT was charged incorrectly.
However, a taxpayer making such a claim to HMRC recently received a letter saying that the claim was inaccurate because it included some invoices where the reverse charge in Art 196 should apply. The supplier disagreed and refused to invoice without VAT. The claimant considered he had no option but to include these invoices in his claim. However, HMRC considers that the claim was inaccurate and that the taxpayer could be liable to a penalty under Schedule 24 of the Finance Act 2007.
To enable HMRC to assess the appropriate penalty, they have asked the claimant:
- What was done to make sure the claim was correct?
- If the claimant was not sure about the correct tax treatment, what advice was available and what advice was sought and from whom?
- If the claimant did seek advice, what advice did the claimant receive and was this advice followed? If the advice was not followed, please explain why?
- Did the claimant check HMRC guidance notes on the issue? If not, please explain why?
This appears to be a toughening up of HMRC’s position and makes it even more important that taxpayers seek expert guidance before submitting Refund Directive claims.