VAT case – good result

I was contacted by an old friend of mine a few weeks ago who I used to work with when I was a young accountant in practice working for a local firm of Chartered Accountants before I got my own practicing certificate.  He’s quite a bit older than I and now earns his living letting out holiday cottages on his land next to his home not terribly far from where I live.  As a former accountant himself he’s pretty au fait with how things work and his turnover from letting income has been nudging the the registration barrier for several years, albeit it that some of that income is not taxable income for VAT purposes. For instance letting income from a residential dwelling which was part of his main house and not advertised as holiday lets, and off season letting over a certain period in length.  Until September 2003 the revenues interpretation of letting income for lets of 29 days and over allowed letting revenue from the 29th day onwards to be treated as exempt but in publication 709/3 September 2003 revision the revenue changed it’s interpetation bringing this income in their view into scope.  My friend was unaware of this interpretation change, and this was a change which only just, but significantly for him took him above the registration threshold.  He should have registered for VAT in December 2005 although he could have, had he realised his liability to notify, have made a request for exception at that time on the basis that his income would fall below the threshold again within twelve months as indeed proved to be the case as the months unfolded.  In the event he was over the registration threshold for just four rolling months and on the sixth month qualified for de-registration.  About six weeks ago he received an enquiry from HMRC asking for monthly turnover details going back six years.  Having been out of practice for a number of years he didn’t have the confidence to deal with this himself and so he contacted me to help him with the enquiry.

On being asked to represent him I gathered all of the facts, laid them out with concise narrative as to why this had occured, specifically refering to the change of interpretation in September 2003 and pointing out that had this interpretation not changed my client would not have been over the registration limit.  I did not challenge the change of interpretation, and conceeded that my client should have notified them and claimed exeption.  I then asked the revenue to consider retrospective exception.  To their credit, within two weeks HMRC have now granted exception and the enquiry is closed.  I think this is a good result for both the revenue in the way they have chosen to deal with this and for my client who was literally terrified and mortified to learn that he had made a mistake and that on the back of a collapse in the holiday letting market in his area he could be liable for tax, penalties and interest.