Is electronic filing of VAT returns obligatory?

A number of these cases have been published recently. There is an important distinction between the first group of businesses required to make submissions on-line from 1 April 2010 (those with a turnover of more than £100,000) (known as tranche 1 businesses) and all other businesses that were required to submit electronic returns (with effect from 1 April 2012), known as tranche 2 businesses.

The first was a lead case for a number of tranche 2 taxpayers. The appeal was made by a business called Le Bistingo Ltd and related to the standard letter issued by HM Revenue & Customs in February 2012 informing taxpayers of the required compulsory on-line submission of VAT returns. HMRC’s contention was that the letter itself was not an appealable decision. The tribunal accepted that the letter was not an appealable decision. Unless the issue was the application of the liquidator’s or religious grounds exemption, the only way to generate an appealable matter in these circumstances is to not submit or pay the return on time and be issued a penalty which is an appealable matter. The appeal was dismissed.

In another tranche 2 case Mr & Mrs Blackburn traded as Cornish Moorland Honey. To recover VAT on costs they voluntarily registered for VAT. It was the Blackburn’s contention that their religious beliefs forbade them from using computers (and televisions and mobile phones) or asking a person to use a computer on their behalf. Therefore they should be exempted from electronic submissions of VAT returns. Mr & Mrs Blackburn indicated that if the Tribunal agreed with HMRC then they would de-register for VAT. The Tribunal noted that right to recover input tax was a fundamental right under European law. Mr & Mrs Blackburn were members of the Seventh-day Adventist church. Whilst the fundamental beliefs of this church are not incompatible with the use of electronic communications, it was the Blackburn’s belief that to be righteous (as their church said they must) they had to act with their own consciousness, which for them was a shunning of electronic media.

The VAT regulations on electronic submission allows for exemption for members of religious orders whose beliefs are incompatible with the use of electronic communications. As this was not the case here. HMRC contended that the exemption could not apply. Whilst the Tribunal agreed with HMRC, it was also necessary to, consider the application of the Human Rights Act. The Tribunal ruled that the nature of the personally held convictions of the Blackburn’s was a direct result of their interpretation of the Seventh-day Adventist Church’s beliefs. As such HMRC’s rejection of the exemption was in contradiction of the Blackburn’s rights under the Human Rights Act,and the Blackburn’s appeal was allowed.

The lengthiest case related to four tranche 1 taxpayers whose objection to making electronic payments was their opinion that this is inherently unsecure. The Tribunal ruled that the legislation did not guarantee risk-free methods of payment.  Nor did it require the taxpayer to commit their banking details to the internet. As a result the appeal was dismissed.

Other appellants grounds for contesting the obligation to make electronic returns were a mix of computer illiteracy, disability, remoteness of location, costs and type of business. The Tribunal concluded that, by applying the Human Rights Act, the obligations imposed by HMRC failed to make exemptions for elderly, disabled or remotely located persons and as such were unlawful. Therefore the appellants did not have to make electronic submissions of VAT returns.

One fact to come out of this case was that HMRC offers telephone filing to taxpayers who have contacted the National Advice Service and mentioned that they are disabled and/or over 60. This service has deliberately not been publicized and involves HMRC calling the tax payer at a pre-determined time. The taxpayer confirms the VAT return figures to a HMRC officer, who inputs them into a computer then submits the VAT return.