Relying on (wrong) HMRC advice is OK

A self-employed radio presenter was subject to a business tax investigation.  The taxman disallowed her claims for expenditure on “premises” and also on “wardrobe” (i.e. clothing).  On appeal to the Tax Tribunal her claim for expenditure on clothing was allowed: even though the Tax Tribunal said that, in law, she should not be entitled to a deduction.

Ms Louise Stones claimed that she had bought the specific articles of clothing for outside broadcasts – where she was expected to have a “star”-like appearance.  The First Tier Tax Tribunal agreed (Stone v HMRC, 2012, UKFTT 110) with HMRC that such expenditure was not allowed as it was not “incurred wholly and exclusively for the purpose of the trade”.   However, Mrs Stones had given evidence at the Tribunal hearing that she had previously had a number of meetings with tax officers who had advised her verbally that this type of wardrobe costs expenditure was allowed.   The judge stated that the wrong advice given by the tax officer “amounted to a misdirection” and that the taxpayer “was entitled to rely” on that advice; even though it was wrong.  Therefore, the Tribunal allowed her a deduction for those costs.  They disallowed the deduction of the premises costs on the simple grounds that she had not kept any receipts: even though HMRC had previously advised her to do so.

What does this mean for me?
If you are completing your accounts, tax computations, or tax returns, and in doing so are relying on the advice which you have been given from HM Revenue & Customs, whether by telephone, at a meeting, or in any of their published information, or their website: then it would be good practice to keep a note of this with your general tax papers.   If you then suffer a tax enquiry, you should be able to prove on challenge that you have been acting on the basis of HMRC advice.  If that advice turns out to be wrong then, in that instance, not only should you avoid a tax geared penalty on the grounds that you have not been careless; but even if the expenditure etc is not allowable you may be entitled to a deduction, if you have claimed it on the basis of HMRC advice.

Do I need specialist help with my tax appeal?
The taxman uses specialist ‘Appeals’ teams to lead its cases at Tribunal.  Lynam Tax Dispute Experts have decades of experience in handling contentious tax appeals and can assist taxpayers and their accountants with the process; in order to achieve the optimum results.
*If you need help with a difficult tax dispute or a contentious tax appeal call Paul Lynam now for a confidential and no obligation discussion on: 0845 643 9997

or Andrew Nutbrown on:  07718 778710