Yorkshire-based Independent Tax recently came to the aid of a small amateur cricket club facing a David and Goliath-stye battle with HMRC that could have left it financially crippled and facing closure.

Westow Cricket Club makes just a few hundred pounds of profit each year from members’ subs and the sale of refreshments at matches, but was landed with a penalty of more than £20,000 for inadvertently issuing an incorrect VAT certificate, despite the fact that it had sought advice from HMRC before doing do. Thankfully, at a recent Upper Tribunal hearing, the  case against the club was dropped, much to the relief of the unpaid volunteers who run it.

The case related to the development of the club’s new pavilion, which is also used for other community events in the village of Westow in Ryedale, North Yorkshire. When volunteers approached HMRC to ask if Westow Cricket Club’s status as a Community Amateur Sports Club (CASC) meant that it was able to issue a zero-rated VAT certificate to help it meet construction costs, HMRC responded by saying that the new pavilion appeared to qualify for zero rating.

Based on this advice, the club raised enough funding to cover the cost of the project by applying for grants and collecting donations, and construction work on the new pavilion began. However, soon after HMRC opened an enquiry into the club and issued a penalty of £20,937, which was the amount of VAT that should have been charged. It appeared that the club had been caught out by HMRC’s advice, which would only have applied if it was a registered charity, although this had not been made clear.

At a First Tier Tribunal hearing, the club appealed against the penalty on the grounds that it had a ‘reasonable excuse’ because of the misleading advice it had been given. However, HMRC contested that a letter sent to the club was not ‘definitive’ and should not have been relied upon. Although the Tribunal criticised HMRC for its ‘unhelpful’ advice, the decision initially went against the club.

With the help of Michael Firth, Counsel of Gray’s Inn Tax Chambers, the club appealed against the decision at an Upper Tribunal hearing, again on the grounds that they had a ‘reasonable excuse’ but also on the grounds that the penalty ‘infringed on human rights for proportionality’. On this occasion, the club was successful in its appeal and the tribunal found that it had a reasonable excuse for incorrectly issuing the zero-rate VAT certificate.

Gary Brothers, Managing Partner of Independent Tax, said: “We’re delighted to have played our part in scoring a really fantastic result for this tiny village cricket club. The volunteers who run the club faced the wrath of HMRC’s investigative arm for issuing an incorrect VAT certificate, even though they had cleared it first by contacting a HMRC helpline for advice and being told it was OK to issue it. You really couldn’t make it up! Since then, there have been four hearings, all involving barristers at goodness knows what cost! Ultimately, we won the case after losing at the first stage of the appeal.”

Gary added: “This is clearly an area of principle for HMRC. The amount of penalty involved would have been far outstripped by the costs that have been incurred in defending this appeal. As a result of the club’s success at the Upper Tribunal, HMRC will be required to stump up the costs incurred by the club throughout these proceedings. It has evidently been an expensive case for HMRC to take such a principled view of, and significant amounts of taxpayers’ money will have been used to fund this ultimately unsuccessful defence.”