We can only sympathise with the appellant in a recent tax case. They were seeking to get clearance for seed enterprise investment relief (SEIS) - which is aimed at start-up companies and comes with 50 per cent tax relief - for their investors. They accidentally selected a form seeking clearance for the Enterprise Investment Scheme (EIS), offering only 30 per cent relief.
HMRC authorised the company to issue EIS relief certificates to its investors. Neither side noticed the error until the firm sought clearance for further SEIS investment, and was refused because it had made a prior EIS claim. At this point the company realised its error.
It seems a simple mistake, and you’d hope an apology and adjustment to the correct relief would follow. However, although it was agreed the investors would have qualified for either scheme had the appropriate form been submitted, HMRC ruled this couldn’t be amended. The taxpayer appealed to the Tax Tribunal where it became clear there’s no provision in the legislation to correct such a simple error. Once EIS relief was granted, there was no way to unwind things lawfully or ignore the claim in relation to any future SEIS claim.
It’s of concern that HMRC would not concede that an innocent error had been made - even though the Tribunal accepted the taxpayer had abundant evidence on the intention to claim the more generous SEIS.
In a similar VAT case, a taxpayer failed to notify HMRC he’d taken his son into partnership with him. He continued to complete returns and pay VAT, but when he advised HMRC more than twelve months later, they fined him £582 for failure to notify – even though there was no loss to HMRC.
This is in contrast to another case where an application was wrongly filed for treaty clearance (for ten per cent withholding tax on interest/royalties) instead of the zero tax rate interest and royalties directive. Here HMRC agreed to accept the forms were intended for the interest and royalties directive and confirmed a zero rate. Was this a difference in legislation or a difference in attitude?
It’s a sad reflection of the state of tax law that trivial mistakes can result in substantial loss of money, and that there’s no provision to overturn an unintended consequence of law which is patently unfair. It seems some elements at HMRC sometimes forget that their job is to collect the correct tax, not the most tax possible.
If you would like to discuss any of the issues raised further, please get in touch with Mike Down or your usual RSM contact.