Andrew
| Jurisdiction | UK Non-devolved |
| Judgment Date | 29 April 2016 |
| Neutral Citation | [2016] UKFTT 295 (TC) |
| Date | 29 April 2016 |
| Court | First-tier Tribunal (Tax Chamber) |
Judge Peter Kempster, Mrs Beverley Tanner
Mr Hugh Roberts appeared for the Appellant
Ms Joanna Vicary of counsel, instructed by the General Counsel and Solicitor to HM Revenue & Customs, appeared for the Respondents
Value added tax – Penalty – Personal liability notice – Finance Act 2007 (“FA 2007”), Sch. 24, para. 19 – Jurisdiction of tribunal – Whether liable – Amount of penalty.
[1] The Appellant (“Mr Andrew”) appeals against a personal liability notice issued by the Respondents (“HMRC”) pursuant to para 19 Sch 24 Finance Act 2007 on 5 February 2015 in the amount of £281,805 (“the PLN”).
[2] We make the following findings of fact, most of which are uncontroversial.
[3] Mr Andrew was a sub-postmaster in Staunton, Gloucestershire. On 21 August 2013 a company was incorporated under the name Intel Communications Limited (“the Company”). The Company subsequently changed its name to Staunton Communications Ltd. Mr Andrew was the sole director and shareholder of the Company from incorporation to dissolution.
[4] On 21 August 2013 Mr Andrew, as director of the Company, filed Form VAT1 applying for the Company to be registered for VAT, describing the business activity as “telecommunications consultancy activities” and giving estimated turnover in the first twelve months as £80,000. The Company was registered for VAT with effect from 1 September 2013.
[5] The Company's VAT returns for VAT quarters 10/13 and 01/14 were Nil returns. On 27 June 2014 the Company submitted its VAT return for period 04/14, which declared sales of £2,444,870 and purchases of £2,439,877, with reported input tax of £487,975.50. All the returns were completed by Mr Andrew.
[6] In July 2014 HMRC visited the Company's premises and interviewed Mr Andrew.
1) Mr Andrew stated that the Company's sales were of “airtime minutes” and had been carried out by an individual known to him as “James”. Mr Andrew was not sure of James' surname, although he thought it might be Gilmore. James was now uncontactable.
2) Mr Andrew was unable to produce any contracts or agreements to demonstrate that the Company either owned or rented the hardware necessary (namely a “switch”) to deal in airtime minutes; nor any “call data records” to demonstrate that supplies had actually been made.
3) Mr Andrew produced four sales invoices issued by the Company to TP Telecom at a Leicester address stating sales of airtime minutes between 11 February 2014 and 11 March 2014 for approximately $4m (£2.4m). Mr Andrew was unable to provide any bank statements to show payments having been received for the supplies.
4) Mr Andrew produced a spreadsheet listing purchases from MC Aerials and Satellites Ltd (“MC Aerials”) at a Newark address. Mr Andrew confirmed he did not have any purchase invoices from MC Aerials.
[7] Following the visit the Company was deregistered for the purposes of VAT with effect from 21 July 2014.
[8] A further interview took place on 9 September 2014.
1) Mr Andrew stated that he had initially met James by chance at a pub in Leicester. He had then arranged to meet him for a second time at a pub in Gloucester. Following the second meeting Mr Andrew had incorporated the Company for the purpose of commencing a business trading in airtime minutes. James had told him he would “make good money”.
2) HMRC showed Mr Andrew copies of his own passport, council tax bill and a copy of the Company's VAT certificate which had been supplied to HMRC by TP Telecom. Mr Andrew explained that James had asked him to forward these documents directly to TP Telecom and that he had done so.
3) Mr Andrew stated that he was unable to supply HMRC with any bank statements to show payments having been received for the supplies; he denied carrying out any trading himself on behalf of the Company; he denied sending emails on behalf of the Company; and he stated he had completed the VAT returns on the basis of figures sent to him by James via email.
[9] On 17 September 2014 Mr Andrew filed an application (Form DS01) at Companies House to strike the Company off the register.
[10] On 10 November 2014 HMRC raised an assessment in the amount of £487,975 plus interest against the Company. This effectively disallowed the input tax in relation to the declared purchases from MC Aerials, resulting in an under-declaration of VAT in the assessed sum.
[11] On 18 December 2014 HMRC charged the Company a penalty in the amount of £281,805 for a deliberate inaccuracy in its 04/14 VAT return (“the Company Penalty”) pursuant to para 1 Sch 24 FA 2007. The calculation of the penalty reflected a reduction for explanations provided and information given.
[12] The Company was dissolved on 13 January 2015.
[13] On 5 February 2015 HMRC issued the PLN to Mr Andrew, in the full amount of the Company Penalty. Mr Andrew requested a formal internal review of the decision to issue the PLN and on 1 April 2015 HMRC issued their review, upholding the earlier decision.
[14] On 1 May 2015 Mr Andrew appealed to the Tribunal against the PLN.
[15] Paragraph 1 Sch 24 Finance Act 2007 provides (so far as relevant):
(1) A penalty is payable by a person (P) where–
a) P gives HMRC a document of a kind listed in the Table below, and
b) Conditions 1 and 2 are satisfied.
(2) Condition 1 is that the document contains an inaccuracy which amounts to, or leads to–
a) an understatement of a liability to tax,
b) a false or inflated statement of a loss, or
c) a false or inflated claim to repayment of tax.
(3) Condition 2 is that the inaccuracy was careless (within the meaning of paragraph 3) or deliberate on P's part.
(4) Where a document contains more than one inaccuracy, a penalty is payable for each inaccuracy.
…
The Table includes VAT returns.
[16] Paragraphs 3 to 5 Sch 24 provide (so far as relevant):
(1) For the purposes of a penalty under paragraph 1, inaccuracy in a document given by P to HMRC is–
a) “careless” if the inaccuracy is due to failure by P to take reasonable care,
b) “deliberate but not concealed” if the inaccuracy is deliberate on P's part but P does not make arrangements to conceal it, and
c) “deliberate and concealed” if the inaccuracy is deliberate on P's part and P makes arrangements to conceal it (for example, by submitting false evidence in support of an inaccurate figure).
(2) An inaccuracy in a document given by P to HMRC, which was neither careless nor deliberate on P's part when the document was given, is to be treated as careless if P–
a) discovered the inaccuracy at some later time, and
b) did not take reasonable steps to inform HMRC.
(1) This paragraph sets out the penalty payable under paragraph 1.
(2) … the penalty is–
a) for careless action, 30% of the potential lost revenue,
b) for deliberate but not concealed action, 70% of the potential lost revenue, and
c) for deliberate and concealed action, 100% of the potential lost revenue.
…
(1) “The potential lost revenue” in respect of an inaccuracy in a document (including an inaccuracy attributable to a supply of false information or withholding of information) or a failure to notify an under-assessment is the additional amount due or payable in respect of tax as a result of correcting the inaccuracy or assessment.
(2) The reference in sub-paragraph (1) to the additional amount due or payable includes a reference to–
a) an amount payable to HMRC having been erroneously paid by way of repayment of tax, and
b) an amount which would have been repayable by HMRC had the inaccuracy or assessment not been corrected.
…
[17] Paragraphs 9 & 10 Sch 24 provide (so far as relevant):
(A1) Paragraph 10 provides for reductions in penalties under paragraphs 1, 1A and 2 where a person discloses an inaccuracy, a supply of false information or withholding of information, or a failure to disclose an under-assessment.
(1) A person discloses an inaccuracy, a supply of false information or withholding of information, or a failure to disclose an under-assessment by–
a) telling HMRC about it,
b) giving HMRC reasonable help in quantifying the inaccuracy, the inaccuracy attributable to the supply of false information or withholding of information, or the under-assessment, and
c) allowing HMRC access to records for the purpose of ensuring that the inaccuracy, the inaccuracy attributable to the supply of false information or withholding of information, or the under-assessment is fully corrected.
(2) Disclosure–
a) is “unprompted” if made at a time when the person making it has no reason to believe that HMRC have discovered or are about to discover the inaccuracy, the supply of false information or withholding of information, or the under-assessment, and
b) otherwise, is “prompted”.
(3) In relation to disclosure “quality” includes timing, nature and extent.
(1) If a person who would otherwise be liable to a penalty of a percentage shown in column 1 of the Table (a “standard percentage”) has made a disclosure, HMRC must reduce the standard percentage to one that reflects the quality of the disclosure.
(2) But the standard percentage may not be reduced to a percentage that is below the minimum shown for it–
a) in the case of a prompted disclosure, in column 2 of the Table, and
b) in the case of an unprompted disclosure, in column 3 of the Table.
Standard %
Minimum % for prompted disclosure
Minimum % for unprompted disclosure
30%
15%
0%
45%
22.5%
0%
60%
30%
0%
70%
35%
20%
105%
52.5%
30%
140%
70%
40%
100%
50%
30%
150%
75%
45%
200%
100%
60%.
[18] Paragraph 13 Sch 24 makes provision for assessing the penalties.
[19] Paragraphs 15 to 17 Sch 24 provide (so far as relevant):
(1) A person may appeal against a decision of HMRC that a penalty is payable by the person.
(2) A person may appeal against a decision of HMRC as to the amount of a penalty payable by the...
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