HMRC failure to honour incorrect guidance about credit card services overturned on judicial review

Wed 05 Dec 2018

Why this case is important

HMRC usually vigorously defend claims to legitimate expectation based on incorrect HMRC guidance, particularly where the sums involved are significant. Despite that, this case demonstrates that even those taxpayers with access to expert advice can succeed in applying legitimate expectation to the application of clear HMRC guidance.

Vacation rentals UK Ltd (“VRUK”, formerly Hoseasons Group Ltd) has succeeded at the Upper Tribunal (UT) in the judicial review of HMRC’s refusal to allow VRUK to follow incorrect guidance on the VAT treatment of credit card handling services. VRUK claimed that it had a legitimate expectation that it could rely on HMRC’s guidance and so the assessment to VAT of £330k on credit card handling services, previously treated as exempt, should not stand.

For a further discussion of the implications of this case for your right to rely on legitimate expectation, or any other indirect tax matters, please get in touch with a member of the Mazars indirect tax team.

Background

The dispute between VRUK and HMRC, about handling fees for processing credit card transactions when acting as booking agent between customer and property owner arose for periods from June 2007 to September 2009.

That matter was finally settled by the CJEU in 2016 in the case of NEC (CJEU case C-130/15) with fees such as those that had been charged by VRUK being determined as taxable. During the period relevant for VRUK, however,  HMRC’s published guidance in Business Brief 18/06 indicated that the fees were exempt.

VRUK’s contention was that it was entitled to follow that guidance and had a legitimate expectation that HMRC should accept that practice.

HMRC contended that its guidance in Brief 18/06 following the Bookit case was not sufficiently clear for a legitimate expectation to arise, and in any case Hoseasons’ circumstances did not precisely match those of Bookit. The UT considered HMRC’s view of the contrast between Hoseasons’ and Bookit’s processes did not differentiate them for the purpose of applying Brief 18/06.  The UT felt that Hoseasons’ case was in any event supported by the Brief accepting VAT exempt treatment for the pattern of transactions similar to those in SEC.

The UT also considered the Brief was clear enough for legitimate expectation to be effective and there was no public interest defence for HMRC to resile from its contents. In the UT’s view, the fact that Hoseasons would have had access to expert professional advice did not deflect from the fact that they had a legitimate expectation in applying HMRC’s guidance.