HMRC inconsistently enforcing its rules on VAT-exempt disability aid products
20. We understand that Mrs A initially raised her concerns in 2013. She asked HMRC to address what she considered to be examples of her business competitors on an online marketplace breaking VAT rules. She tells us that she was, and continues to be, concerned that the marketplace in question did not allow for a fair or consistent application of the rules in its pricing. She also remains of the belief that her competitors are breaching the rules, and HMRC is unfairly singling out her business by enforcing the rules upon her but not her competitors.
21. As we have explained to Mrs A in our correspondence with her, we cannot investigate HMRC’s actions which pertain to other businesses that are not party to this complaint. We can only consider if it appropriately considered and responded to the concerns she brought to its attention.
22. In its responses to Mrs A, HMRC thanked her for the information she had provided. It confirmed to her that it had reviewed this information and decided on the best course of action to take, but it could not share any further details about what that action entailed.
23. We understand that Mrs A continues to find this frustrating. She sees this as HMRC failing to inconsistently apply its rules to the benefit of her competitors. We understand it does not appear to her that HMRC took appropriate action to address a perceived unfairness against her business.
24. We can see that in its explanations to Mrs A in 2014, it referred her to Section 18 of the Commissioners for Revenue and Customs Act 2005. This says that ‘[…HMRC] may not disclose information which is held by [it] in connection with […its] function[s]’, before going on to list a series of exceptions to this rule. HMRC explained to Mrs A that it did not consider any of those exceptions, which includes ‘disclosures […] for the purposes of a criminal investigation or criminal proceedings’, to apply in the circumstances. It therefore applied this legislation to explain to Mrs A that it could not provide any further details on what it had done with the information she provided about other businesses. In providing this response, it acknowledged that this might make it appear that no action is being taken, even if it is in fact dealing with the matter appropriately.
25. Our Principles of Good Administration (‘our Principles’) set out an expectation for organisations to be ‘open and accountable’. This means that organisations ‘[…] should be transparent and information should be handled as openly as the law allows’, whilst also ‘[…] handl[ing] and process[ing] information properly and appropriately in line with the law […and] respect[ing] the privacy of personal and confidential information.’
26. We consider that the extent to which HMRC engaged with Mrs A on the information she provided to it, whilst explaining the limitations to which it could so is, in line with the above. This means we cannot see any indications of service failure in this part of Mrs A’s complaint, and we will take no further action on it.
27. We understand why Mrs A would remain dissatisfied with the information that HMRC was able to provide in the circumstances. We hope that our explanation is helpful to her.
HMRC lack of clarity and inconsistent advice after compliance inspection in 2024
28. We understand that after the above events, Mrs A sought advice elsewhere and understood that she could list products for sale with the VAT-exclusive price on her online marketplace business.
29. HMRC carried out a VAT compliance inspection of her business in May 2024. After this, it discussed its findings on the telephone and by email, explaining she would need to mark her pricing as inclusive of VAT. It confirmed this advice in a follow-up letter in late June 2024. It explained to her that if a customer is buying an eligible item, they would need to submit a declaration confirming this, upon receipt of which Mrs A could then zero rate the sale.
30. After HMRC informed Mrs A the outcome of the compliance check, she reported further examples of what she believed to be her competitors breaching these rules that it had compelled her to follow. We understand that she considered this to be unfair as she was unable to compete, and this was severely impacting her business. We are very sorry to hear this.
31. HMRC acknowledged her correspondence in late September 2024. It clarified that whilst it was correct that prices had to be marked as inclusive of VAT, this did not mean that HMRC was necessarily telling her to increase her prices.
32. Mrs A believes that this is inconsistent with the advice that she received in June. We understand that this would be frustrating. We have reviewed the relevant guidance to consider if HMRC provided correct information to Mrs A.
33. HMRC’s guidance on ‘Reliefs from VAT for disabled and older people (VAT Notice 701/7)’ says that ‘you, the supplier, are responsible for making sure that your customer meets all the conditions for zero rating’, and ‘you should take reasonable steps to check that your customer is eligible to receive your goods or services at the zero rate.’ It advises that to do this:
‘[…] you should get a written declaration from each customer confirming that the person is entitled to VAT relief. This should hold enough information to demonstrate that a customer fulfils all the criteria for eligibility. HMRC cannot say whether a person is chronically sick or disabled.’
34. We can see that the above is consistent with the explanation Mrs A received after HMRC’s inspection. Mrs A has told us that the online marketplace that she trades on does not do enough to ensure that she can do business within these rules, and she thinks HMRC should be doing more about this. As the above sets out, it is the responsibility of the supplier, in this case Mrs A, to ensure that they are complying with the rules.
35. Furthermore, HMRC’s guidance in its ‘Compliance Handbook’ on ‘How to do a compliance check: explaining your findings and seeking agreement’ tells us how HMRC should share the outcome of its checks:
‘It is important that you present and explain your findings in a way that the person understands. Give them the opportunity to ask you any questions they may have and allow them sufficient time to seek advice if they need to. Where the person asks for a clearer or more detailed explanation, wherever possible you should give this to them promptly. This approach will
• bring out issues that need resolving at the earliest time possible • avoid misunderstandings that lead to delay and possibly costs to the person • avoid reviews and appeals.
In straightforward cases it may be possible to explain your findings over the telephone but for all other cases this will be impractical and you should present your findings to the person, or their authorised agent, in writing.’
36. In this case, we can see that HMRC correctly explained the steps that Mrs A must take to ensure her business is compliant with VAT rules. It did so by engaging with her on this on several occasions by telephone, email, and letter. After it appeared to HMRC that Mrs A had understood she must increase her prices, it explained that was not necessarily the case. On this point, we understand that pricing is entirely a business decision. HMRC’s role in this case is simply to ensure that VAT is correctly accounted for, and exempt sales are properly recorded.
37. This means that we are satisfied that HMRC’s actions and explanations were in line with the guidance quoted above, and we cannot see any inconsistencies in those explanations. We understand that she strongly believes that she is being unfairly singled out, as it appears to her that other businesses are disregarding the rules.
38. As we have set out above, HMRC has correctly explained to her why it cannot give specific updates on what action, if any, it has taken against other businesses following her reports. We also cannot criticise HMRC for correctly applying VAT rules to her circumstances.
39. We therefore do not find any indications of service failure in the concerns about HMRC that we have been asked to consider.
AO
40. We understand that Mrs A believes that she was misled by the AO. She understood from her discussions with the AO that it considered that she had a strong case, and she was due compensation.
41. We carefully listened to the AO’s conversations with Mrs A.
42. In the conversations, the AO explained its role and what it would be able to consider if it found that HMRC had got something wrong. It explained that it would be able to look at whether HMRC provided contradictory advice, and if so, why the advice changed and if there was any misadvice. It explained that if it found there had been misadvice and it had caused Mrs A to lose income, the AO could consider recommending that HMRC compensates for that. Further to this, it explained that it could also recommend compensation for non-financial loss, such as the mental health impact that she described.
43. Overall, these recordings evidence the AO empathised with Mrs A and explained, hypothetically, how it might be able to put things right if it found failings. We have not heard that the AO led Mrs A to believe that it would uphold her case or make significant recommendations, only what options might be available if it did.
44. We can therefore see that the AO explained to Mrs A what she could expect from it and reasonably managed her expectations, in line with its customer service expectation of ‘explain[ing] how [it] will handle your complaint’. We have therefore found no indications of maladministration in how the AO communicated with Mrs A about her complaint.
45. Taking all the above into consideration, we will not be taking any further action on Mrs A’s concerns about HMRC and the AO. We know that this has been a stressful and frustrating experience for her, and we hope that our explanation is helpful.