The David vs Goliath story of our client Shields & Sons vs HMRC
Last year Malone Accounting won a landmark case against HM Revenue & Customs (HMRC) in the Shields & Sons vs HMRC VAT after helping them go all the way to the Court of Justice of the European Union (CJEU).
The case began over 5 years ago back in June 2012. We had originally appealed the case on the grounds that it was unfair. In our opinion HMRC had applied an arbitrary decision that Shields & Sons had benefited more from the AFRS scheme than they would have been able to claim back under the traditional VAT accrual scheme that everyone is more familiar with.
We lost the first tier Tribunal but appealed that and when it got to a second tier Tribunal, the judge took a view that because this is an EU wide scheme, they would need to consult their EU counterparts.
Eventually, after a lengthy process lasting a few years, we got a hearing with the CJEU and it was ruled that Shields & Sons Partnership (SSP), which was withdrawn from HMRC’s Agricultural Flat-Rate Scheme (AFRS) back in 2012, should have its agricultural flat-rate certificate reinstated and back-dated to 2012.
The court further ruled, in the case Shields & Sons Partnership v HMRC C-262/16, that SSP could retrospectively issue 4% flat-rate addition invoices to VAT-registered customers. HMRC was instructed to cover the costs of the appeal.
HMRC removed SSP from the scheme after declaring the farm was substantially better off within it, which it said did not comply with its VAT notice. The CJEU ruled this as an insufficient reason to remove a farm from the scheme.
Mr Justice Nugee said there was “no dispute that Shields should be awarded their costs.” He added that HMRC should lay down “exhaustively all the cases in which a member state may exclude a farmer from the common flat-rate scheme for farmers.”
The case has attracted attention and become a talking point in the industry, commenting in Taxation Magazine, Julie Butler FCA of Butler & Co:
“This was victory for Shields & Son because it followed the rules, applied them correctly and went to tribunal to ensure that the correct result was achieved”.
Our client and family had travelled a long road to reach this outcome, after what should have been a routine VAT examination. It had been an unjust decision to remove our client from the AFRS and that the ruling was a fantastic result.
With the assistance of our legal team Croner Taxwise and Pump Court Tax Chambers in London, we persisted all the way to The Luxembourg Court. Our client will be subject to a substantial refund which they should have received had HMRC not unlawfully removed them from the AFRS.
This will not make amends for the stress and hardship caused but it’s a great victory and shows that in the end, the small man can win with the right advice, even against powerful opposition.
I can honestly say I will never be involved in another case like it. There were so many twists and turns but to finally win the case for our clients was a tremendous result and one of my proudest achievements in business. It is exactly why I became an accountant to try and help our clients and their businesses and this victory has had a fantastic impact for our clients so I’m delighted to have played a part in that.
Key takeaways for us from this case are:
1. HMRC are not always correct in their judgements/assessments and if you think it is unfair you should ALWAYS appeal their decision.
2. Make sure you complete the correct form to appeal their decision; some people think a letter of appeal will suffice but this is incorrect, it must be appealed officially using the HMRC appeal form.
3. Be persistent when you think you have a good case; don’t take their initial judgement as you have a right of appeal.