Are you fair and reasonable?
You are required to declare that to the best of your knowledge and belief the special method you are proposing “fairly and reasonably represents the extent to which goods and services are used or to be used in making taxable supplies”. A template for making the declaration has been given in HMRC Brief 23/07. See www.hmrc.gov.uk/briefs/vat/brief2307.htm
But what is fair and reasonable? If HMRC approves a method but subsequently decide that the method being used gives excessive input tax recovery they can override the method and retrospectively recalculate the affected VAT returns. Great care therefore needs to be taken by the person signing the declaration to satisfy himself that he is fully aware of the result the proposed method will have on all areas of the business and that it is “fair” to both the business and the Treasury. Call me cautious but I am not sure I would want to sign this. “Fairness” is a matter of opinion.
HMRC expect this to raise £20 million in 2007/08, so they clearly intend to challenge many of the methods proposed. Will the risk of a later challenge mean there will now be fewer applications?
Date: 30th March, 2007
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