Adspec Ltd and Another
| Jurisdiction | UK Non-devolved |
| Judgment Date | 15 August 2022 |
| Neutral Citation | [2022] UKFTT 285 (TC) |
| Year | 2022 |
| Court | First Tier Tribunal (Tax Chamber) |
[2022] UKFTT 285 (TC)
Tribunal Judge Jennifer Dean, Tribunal Member Mohammed Farooq
First-Tier Tribunal (Tax Chamber)
Corporation tax – VAT – Assessments based on third party data – Penalty for failure to register for VAT – Penalty for inaccuracies in returns – Personal liability notices – Appeal dismissed – VATA 1994, s. 73(1), FA 1998, Sch. 18, para. 32, 41, FA 2007, Sch. 24, FA 2008, Sch. 41.
In Adspec Ltd & Anor [2022] TC 08567, the First-tier Tribunal (FTT) dismissed a company’s appeal against various VAT and corporation tax assessments and associated penalties and dismissed the company director’s appeal against personal liability notices (PLNs) making him personally liable for the company’s penalties.
One of the appellants (Adspec Ltd) sold imported electronic tablets and accessories on e-commerce platforms. The other appellant (Mr Hussain) was the sole director of the company.
Based on data from a third party HMRC determined that the quantity of imported goods was significantly higher than shown on the company VAT returns. Using figures from a third party showing e-commerce sales HMRC concluded that the company had understated its sales. As the company failed to provide information and documentation to enable a detailed review of the business HMRC raised VAT assessments using best and reasonable judgment from information held in respect of the VAT due on the apparent understated sales. The apparent omissions identified by the VAT review were then used to form the basis of revised corporation tax assessments.
HMRC also charged various penalties on the company for deliberate inaccuracies and a failure to register for VAT. As HMRC considered that the failures were directly attributable to Mr Hussain, they issued PLNs making him personally responsible for paying the company’s penalties.
The FTT found that:
- HMRC made a discovery and the discovery assessments were validly raised, and the appellants had not provided evidence to displace the assessments;
- the figures in respect of corporation tax were to be amended in accordance with a revised computation provided by HMRC to take into account a further deduction for cost of sales;
- the VAT assessments were made to best judgment;
- the appellant had not demonstrated that the amended effective date of VAT registration was incorrect; and
- HMRC had discharged the burden of demonstrating that the PLNs and penalty assessments were validly raised and that they had fully considered the actions of the appellant that may have reduced the level of penalties charged and applied those reductions accordingly.
The appeals were accordingly dismissed.
HMRC were able to use third party data to demonstrate that the company had understated its e-commerce sales, and from this data they could raise both VAT and corporation tax assessments.
Comment by Meg Wilson, Lead Technical Writer, Croner-i Ltd.
Mr Zahur, Altman, Smith & Co Chartered Accountants and Registered Auditors appeared for the appellant
Ms C. Cowan, litigator of HM Revenue and Customs' Solicitor's Office appeared for HMRC
[1] These are appeals against the following –
- Corporation Tax (CT) assessments issued to Adspec Ltd (the Company) for the accounting periods ended (APE) 3 March 2014 and APE 31 March 2014 – TC/2017/02816.
- A Closure Notice issued to Adspec Ltd for CT for the APE 31 March 2015 – TC/2017/02816
- A Penalty assessment issued to Adspec Ltd for the APE 3 March 2014, APE 31 March 2014 and APE 31 March 2015 – TC/2017/02816.
- VAT assessments issued to Adspec Ltd for the period from 4 March 2013 to 31 December 2013 and from 1 January 2014 to 31 December 2015 inclusive – TC/2017/02817.
- A Penalty assessment issued to Adspec Ltd for the period from 4 March 2013 to 31 December 2013 for failing to register for VAT from the appropriate registration date – TC/2017/02817
- A Penalty assessment issued to Adspec Ltd for the VAT periods from 1 January 2014 to 31 December 2015 for submitting inaccurate VAT Returns to HMRC – TC/2017/02817
- 7 A Personal Liability Notice (PLN) issued to Mr Adil Hussain for the CT Penalty of Adspec Ltd– TC/2017/05136.
- 8 A PLN issued to Mr Adil Hussain for the VAT Penalty of Adspec Ltd– TC/2017/05138.
- 9 A PLN issued to Mr Adil Hussain for the VAT failure to register penalty – TC/2017/05138.
[2] The amounts under appeal are set out in the Appendix to this Decision.
[3] On 13 January 2022 HMRC applied for permission to lodge a supplementary statement. In short, the HMRC officer who was responsible for the corporation tax aspects of the case, Mr Frost, has since making his statement retired from HMRC. The additional statement from Mr Brooks covers his review of the case and additional evidence sent in by the Appellant since Mr Frost's retirement. Mr Brooks assessed all documents available to Mr Frost and independently reached his own conclusion.
[4] We allowed HMRC's application. In our view there was no prejudice to the Appellant; to the contrary Mr Brooks was available for cross-examination by the Appellant in relation to the corporation tax elements under appeal where Mr Frost was not.
[5] The second matter related to Mr Brooks' review of the case and his identification of potential additional liabilities which were seemingly overlooked by Mr Frost, namely a charge to tax under s455 CTA 2010. HMRC, fairly in our view, indicated they were content to proceed only on the amounts assessed by Mr Frost and Mr Davies although they noted the that the Tribunal has power to increase, as well as decrease, any amounts assessed.
[6] We took the view that given the late stage of proceedings at which the additional charge to tax was identified, we would proceed only on the basis of the figures assessed to ensure the Appellant was not prejudiced by an inability to challenge the potential additional liabilities on limited notice.
[7] Adspec Ltd sells electronic tablets and accessories imported from China on the internet via Amazon and eBay. Mr Adil Hussain is the sole director of the Company. The corporation tax return for Adspec Ltd for the APE 31 March 2015 was received by HMRC on 31 December 2015.
[8] A VAT enquiry was opened into the Company by letter dated 8 January 2016. An enquiry was opened into the CT Return on 2 February 2016 which was run in parallel with the VAT enquiry.
[9] Corporation tax assessments were issued to Adspec Ltd on 10 August 2016 for the APEs 3 March 2014 and 31 March 2014 under Section 41Schedule 18 Finance Act 1998. A Closure Notice was issued to Adspec Ltd on 10 August 2016 for corporation tax for the APE 31 March 2015 under section 32Schedule 18 Finance Act 1998. A penalty assessment was raised on Adspec Ltd on 10 October 2016 for the APEs 3 March 2014, 31 March 2014 and 31 March 2015 under Schedule 24 Finance Act 2007.
[10] HMRC raised these assessments on the basis that data had been made available to them showing the level of imports made by the Company and by Mr Adil Hussain as a director of Adspec Ltd. HMRC analysed the data and determined that the quantity of imported goods was significantly higher than shown on the Company VAT returns. Using figures from a 3rd party showing e-commerce sales HMRC concluded that there was a significant level of understated sales during the period reviewed.
[11] HMRC requested the Company to provide information and documentation to enable a detailed review of the business to take place. To date these documents have still not been provided.
[12] In view of the lack of co-operation and complete lack of business records provided, HMRC raised VAT assessments using best and reasonable judgement from information held in respect of the VAT due on the apparent understated sales.
[13] The apparent omissions identified by the VAT review were used to form the basis of the revised corporation tax assessments.
[14] HMRC submitted that as an officer of the Company, Mr Hussain was directly responsible for omitting from the Company accounts a significant volume of purchases that were far in excess of those recorded. Mr Hussain similarly failed to record the income arising from the associated sales within the Company accounts. Coupled with the general lack of co-operation with the enquiry, HMRC contended that they were correct to charge various penalties on the Company for deliberate inaccuracies arising. Furthermore, HMRC contended that as the failures are directly attributable to Mr Hussain, the penalties arising are due to be paid by him by way of PLNs.
[15] An independent statutory review of the CT assessments and Closure Notice was carried out and a review conclusion letter was issued on 28 February 2017. The Review Officer identified some computational errors in the assessments raised and concluded that the assessments for APE 31 March 2014, 31 March 2015 and associated penalty assessments should be varied with the amounts due for APE 3 March 2014 and 31 March 2014 being increased.
[16] VAT assessments were raised on Adspec Ltd under section 73(1) of VATA 1994 for the period from 4 March 2013 to 31 December 2013 and from 1 January 2014 to 31 December 2015 inclusive. A penalty assessment was raised on Adspec Ltd for the period from 4 March 2013 to 31 December 2013 under Schedule 41 Finance Act 2008 for failing to register for VAT from the appropriate registration date. The Effective Date of Registration (EDR) for VAT purposes was amended to 4 March 2013 from 1 January 2014.
[17] A penalty assessment was raised on Adspec Ltd for the VAT periods from 1 January 2014 to 31 December 2015 under Schedule 24 Finance Act 2007 for submitting inaccurate VAT Returns to HMRC.
[18] The Appellant notified an appeal to HMRC against the VAT assessment and penalties by letter dated 4 November 2016 and the Appellant requested an independent statutory review of the decisions. Due to an oversight HMRC did not carry out the review...
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