5. Mr K complains that HM Revenue & Customs (HMRC) failed to respond to his daughter’s accountant’s requests for exception to VAT registration in May 2021 and again in October 2021 when the accountant chased it up.
6. Mr K says as a result of HMRC not responding to the letter, Miss R delayed registering for VAT as HMRC did not provide her with its decision. She says this resulted in backdated VAT.
7. In coming to us, Mr K would like HMRC to reimburse the VAT payment of £17,499.45.
8. Miss R is the sole director of a company providing psychotherapy services. During the Covid-19 pandemic, Miss R saw a rise in demand for her service. By May 2021 she was concerned that if things continued the way they were she would reach the Value Added Tax (VAT) threshold, which at that time was £85,000.
9. VAT is a tax added to most products and services sold by VAT-registered businesses. Businesses have to register for VAT if their VAT taxable turnover is more than £85,000 (now £90,000). The VAT businesses pay is usually the difference between any VAT they have paid to other businesses, and the VAT they have charged their customers.
10. In May 2021, her accountant wrote a letter to HMRC who explained the circumstances and that the increase in turnover was thought to be a temporary thing. They asked for Miss R’s business to be considered for an exception to register for VAT.
11. HMRC did not respond to the letter, so the accountant wrote again in October 2021.
12. Having not heard back from HMRC, and demand still increasing, Miss R registered for VAT in June 2022. HMRC confirmed the registration in July 2022 and backdated the VAT to June 2021. HMRC asked the company to pay £17,499.45 VAT.
13. The company had not been charging for VAT from its clients (by increasing its prices) as it had not heard back from HMRC about whether it was considered an exception. Miss R did not want to raise her prices because she was concerned that if she did, some of her clients would not be able to afford ongoing treatment.
14. Mr K (who is also the company secretary) complained to HMRC in February 2023. The complaint was that HMRC’s lack of response to the accountant’s letter prevented Miss R from making an informed decision about registering for VAT sooner.
15. HMRC mistakenly took the complaint as a request for an exception to VAT and in March 2023 it sent out a questionnaire about VAT asking for further information.
16. Shortly after, Mr K wrote back to HMRC to clarify the complaint and that the complaint was about HMRC’s failure to respond to the exception request in 2021. Mr R complained that it was not an appeal against an exception decision, as Miss R had already submitted VAT returns so would no longer qualify for an exception.
17. Mr R raised the issue with his MP who contacted HMRC on his behalf. HMRC responded to say that it had sent the appeal to the relevant team to consider and that Miss R should raise a separate complaint about poor service.
18. Eventually, and at tier two of its complaint process, HMRC responded to re-iterate what it had set out in an earlier letter (that Miss R should have increased her prices to account for VAT having not heard back from HMRC).
19. Mr K took his complaint to the Adjudicator’s Office (AO) who provided its response in June 2025.
20. The AO found that HMRC did not have evidence of receiving the accountant’s first letter. The second letter of October 2021 was received but not passed onto the correct team until October 2022 and then did not process it until six months later. However, as Miss R registered for VAT in June 2022, the request for exception was superseded.
21. The AO partly upheld the complaint on the basis of HMRC’s complaint handling delays, for not acknowledging how its failure to respond to her exception request impacted on Miss R’s decision. Also, for treating the complaint about HMRC’s failure to respond to the exception request as a further request for exception, for that, it recommended HMRC pay Miss R £150.
22. The AO said that the absence of any response between June 2021 and June 2022, left the company without clear guidance, thinking they might get an exception. The AO explained that if HMRC had responded sooner with its decision on whether it would refuse the exception, the company would have registered sooner and started charging its clients VAT sooner.
23. The AO also outlined HMRC’s position, which was the company could have covered the potential VAT charges by adding 20% to their prices and sending out separate VAT invoices later.
24. The AO added that regardless of HMRC’s lack of response, it is the company’s responsibility to ensure it had all the necessary information to them to make their decision which would have included making further contact with HMRC. The AO found that the company made no further attempts to contact HMRC from November 2021 to when it registered in June 2022.
27. Before we decide if we should conduct a detailed investigation of a complaint, we look at whether there are signs the event(s) complained about had a negative effect which the organisation has not put right. Having done so, we cannot say the events complained about had the negative impact Mr K claimed.
HMRC’s failure to respond to the request for exception
28. Mr K told us that his and Miss R’s complaint is not about tax calculations or the date that she should have registered for VAT. The complaint is about HMRC failing to deal with her enquiry which if it answered at the time would not have led to backdated VAT.
29. Mr K does not accept what HMRC and the AO have said in its responses, which is that Miss R should have increased her prices to account for 20% VAT and separately invoiced her clients when she heard back from HMRC. Mr K considers this to be an ‘absurd’ thing to say. Morally, he says this would not have been the right thing to do to people suffering with their mental health during Covid-19.
30. Mr K also told us he is concerned that AO found fault with HMRC for not responding to the request and the impact of this contributed to the company’s decision to delay registration. But it did not recommend HMRC reimburse Miss R the VAT.
31. We can see in its report, AO explained its remit in terms of Mr K’s request to have HMRC reimburse the VAT payment. AO explained it cannot consider matters which have been considered on appeal by tribunals or issues that courts consider or could consider. The AO was limited to investigating how HMRC handled the complaint about the matter and whether HMRC’s responses to his complaints were reasonable.
32. We have considered the relevant evidence in this case. We looked at the letters the accountant sent to HMRC to request an exception from registering VAT. In the first letter they explained that Miss R would soon be reaching the VAT threshold and was not certain this would be ongoing but thought it would be temporary. The accountant also said that if the company must charge an extra 20% to its clients, some of them are unlikely to be able to continue with their treatment.
33. We know that HMRC did not reply to the accountant’s letters. This was not in line with HMRC’s Customer Charter which says when customers get in touch, they will answer their questions and resolve things first time, or as quickly as possible. This is an indication that something has gone wrong. We see that the AO recommended HMRC pay Miss R £150 to recognise the impact this had on Miss R.
34. Mr K says because of HMRC not responding to the letter, Miss R delayed registering for VAT as HMRC did not provide her with its decision. She says this resulted in backdated VAT.
35. We appreciate and understand the position Miss R took during the Covid-19 pandemic and we recognise this was a difficult period. While we do not wish to take away from these actions, we think that Miss R could have been more proactive when it became clear that demands on her service were not reducing. While we appreciate Miss R was reluctant to raise her prices, by not doing this, she has effectively carried on as if HMRC had agreed to her exception request. There was always a chance HMRC would not have agreed to it.
36. We think that information was available online which would have explained when a person needs to register for VAT and requests for exceptions. Information available from 2021 says:
If you exceeded the VAT threshold in the past 12 months. You must register if, by the end of any month, your total VAT taxable turnover for the last 12 months was over £85,000.
You have to register within 30 days of the end of the month when you went over the threshold. Your effective date of registration is the first day of the second month after you go over the threshold.
You can apply for a registration ‘exception’ if your taxable turnover goes over the threshold temporarily. Write to HMRC with evidence showing why you believe your VAT taxable turnover will not go over the deregistration threshold of £85,000 in the next 12 months.
HMRC will consider your exception and write confirming if you get one. If not, they’ll register you for VAT.
37. Based on this, we cannot link HMRC’s failing in not responding to her request to the reason why there was backdated VAT of over £17,000. This is because Miss R’s accountant had contacted HMRC, so Miss R was aware there may be a need to register for VAT and could have taken steps to account for this. We appreciate this will be disappointing for Mr K and Miss R.
38. We recognise the delays in responding will have led to frustration and annoyance to Mr K and Miss R. HMRC’s complaints and remedy guidance says that its payments for worry and distress are meant to be a token - a way of acknowledging that its mistakes and delays have affected someone badly. They are not akin to damages and payment does not, in any way, amount to an admission of any legal liability. The payments will usually range between £25 and £500, but experience shows that most payments are at the lower end of this range.
39. We see the amount the AO recommended was in line with HMRC’s guidance on providing financial remedies. We are therefore satisfied the payment goes far enough to remedy the impact of HMRC not responding to the letters.
40. Having considered the evidence, we find HMRC did make an error in not responding. While this happened, we do not find that HMRC’s failure to respond to the letters solely led to the backdated VAT. We will therefore take no further action.
41. We are sorry to learn of the difficult circumstances Miss R found herself in. We appreciate she was trying to do the right thing by her customers and her business. We wish her well in the future.
1. We have carefully considered Mr K’s complaint about HMRC. We have decided not to take further action on it because we consider Miss R should and could have chased HMRC up much sooner and could have taken steps to account for VAT while she was waiting to hear back from HMRC.
2. We therefore consider we cannot link HMRC’s failure to respond to her request for exception to register for VAT to the impact she is claiming, which is that HMRC caused the backdated VAT.
3. We believe HMRC worked in line with its complaints and remedy guidance when it provided £150 to acknowledge HMRC’s error in not responding.
4. We acknowledge Miss R was trying to do the best thing for her clients and her business during what was a very difficult and uncertain time. Our findings are not intended to diminish those actions.