CF Booth Ltd v R & C Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 09 August 2022 |
| Neutral Citation | [2022] UKUT 217 (TCC) |
| Year | 2022 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2022] UKUT 217 (TCC)
Mrs Justice Bacon and Judge Guy Brannan
Upper Tribunal (Tax and Chancery Chamber)
Procedure – Value Added Tax – Appeal against penalties under FA 2007, Sch. 24 for deliberate inaccuracy in returns – Application by HMRC to strike out parts of appeal for abuse of process – 2017 FTT decision that appellant knew that its transactions connected to fraudulent evasion – 2020 FTT decision striking-out parts of the penalty appeal – Whether appeal an abuse of process – Application of Art 6 European Convention on Human Rights – Whether issue not raised before FTT suitable for determination even though permission to appeal granted – Mullarkey v Broad applied – Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273), r. 8.
In C F Booth Ltd v R & C Commrs [2022] BTC 526, the Upper Tribunal (UT) upheld the decision of the First-tier Tribunal in C F Booth Ltd [2020] TC 07541 granting an application made by HMRC to strike out parts of the taxpayer’s appeal against deliberate inaccuracy penalties.
In C F Booth Ltd [2017] TC 06208 (the 2017 decision), the FTT had found that C F Booth Ltd (the appellant) knew or should have known that a number of its transactions were connected to the fraudulent evasion of VAT. This decision was not appealed.
Following the decision, HMRC issued penalties under FA 2007, Sch. 24 on the basis that the appellant’s VAT returns for the relevant periods contained deliberate inaccuracies.
The appellant appealed against the penalties. While it accepted that its VAT returns contained inaccuracies it submitted that they were not deliberate nor careless and it denied knowing about the frauds by other parties, instead submitting that it had completed its returns with reasonable care. It also submitted that the penalty should not exceed the amount based on careless conduct, should be reduced for disclosure and should be suspended. While not officially a ground of appeal the appellant also referred to arguments seeking a reduction in respect of special circumstances and also in relation to the proportionality of the penalty.
HMRC applied to strike out the appellant’s grounds of appeal in all respects other than whether there should be further reduction for the quality of disclosure. This was on the basis that it had no reasonable prospect of success, either as an abuse of process as it was re-litigation of matters already decided against it in the 2017 decision or on the basis that it was unarguable. In C F Booth Ltd [2020] TC 07541 (the 2020 decision), the FTT struck out parts of the appellant’s appeal on the basis that it constituted an abuse of process. The FTT further expressed the view that, regardless of its decision in relation to abuse of process, the appellant’s grounds of appeal did not have a realistic prospect of success.
The appellant appealed against the FTT’s 2020 decision to the UT, which dismissed its appeal. The UT was satisfied that in the FTT’s 2020 decision it did not make an error when it reached the conclusion that the appellant had submitted returns containing deliberate inaccuracies. The UT was also satisfied that the appellant had received a fair trial, and that the powers of the FTT under the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273), r. 8 and their exercise in this case did not infringe Article 6 of the European Convention on Human Rights (ECHR). Applying Mullarkey v Broad [2009] EWCA Civ 2, the appellant could not raise the issue that the 2017 decision had been based on hearsay evidence and therefore inadmissible in criminal proceedings (which the penalty appeal was deemed to be for the purposes of Article 6 ECHR), even though permission to appeal on the point had been granted, as it had not been raised in the FTT. Other newly raised arguments were also dismissed.
To the extent that the appellant’s arguments in relation to proportionality and/or special circumstances went to the amount of liability rather than the incidence of liability, the appellant’s appeal was not struck out; but the appeal could only proceed on the footing that deliberate inaccuracy was the basis for the penalty.
This decision confirms that the taxpayer cannot now argue that errors in VAT returns were not deliberate inaccuracies, however it may still be able to get the nearly £1.5m inaccuracy penalties reduced on the basis of a further reduction for disclosure, or a reduction for proportionality or special circumstances.
Comment by Meg Wilson, Lead Technical Writer at Croner-i.
Conrad McDonnell, of counsel, instructed by Mark Pownall FCA appeared for the appellant
Howard Watkinson and Joshua Carey, of counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs appeared for the respondents
[1] This is an appeal against the decision of the First-tier Tribunal (“FTT”) (Judge Christopher McNall), reported at [2020] TC 07541, granting an application made by the Respondents (“HMRC”) to strike out parts of the Appellant's appeal against a penalty assessment made on 4 May 2018 under Schedule 24 Finance Act 2007 (“FA 2007”) in respect of VAT periods 10/12–09/13 and 02/14 (“the penalty assessment”).
[2] The penalty assessment was issued on the basis that the Appellant's VAT returns for the periods in question contained deliberate inaccuracies. For the periods 03/13–09/13 and 02/14 the penalty amount is £1,369,082, and for the periods 10/12–03/13 the penalty amount is £75,731.
[3] The background to the penalty assessment was that, in an earlier decision of the FTT released on 8 November 2017 and reported at [2017] TC 06208 (the “2017 Decision”), following a hearing which took place over the course of 13 days in June and July 2017 (the “2017 Hearing”), the FTT found that the Appellant knew or should have known that a number of its transactions were connected to the fraudulent evasion of VAT.
[4] On 2 November 2018 the Appellant appealed against the penalty assessment.
[5] On 3 December 2018 HMRC applied to strike out parts of the Appellant's appeal against the penalty assessment on the basis that it had no reasonable prospect of success, either as an abuse of process or on the basis that it was unarguable (“the Application”).
[6] Following a hearing on 20 November 2019 (the “2019 Hearing”) the FTT gave its decision on the strike out application on 17 January 2020 (the “2020 Decision”) striking out parts of the Appellant's appeal on the basis that it constituted an abuse of process. The FTT further expressed the view that, regardless of its decision in relation to abuse of process, the Appellant's Grounds of Appeal did not have a realistic prospect of success. It is against the 2020 Decision that the Appellant now appeals, with the permission of this Tribunal.
[7] We affirm the 2020 Decision and dismiss this appeal.
[8] First, in 2014 HMRC assessed the Appellant to output VAT after refusing its zero-rating of eight sales of metal to Metaux Groupe Belge (“MGB”) in monthly VAT periods 10/12–03/13. The assessment was based on inadequate evidence of export, and a conclusion that the Appellant could not rely on the defence set out in R (oao Teleos plc ) v C & E Commrs (Case C-409/04) [2008] BVC 705.1 Additionally, HMRC contended that the sales were part of a tax fraud committed by MGB, of which the Appellant knew or should have known, and which the Appellant had not taken every reasonable step in its power to prevent its own participation in (referring to Mecsek-Gabona Kft v Nemzeti Adó- és Vámhivatal Dél-dunántúli Regionális Adó Főigazgatósága (Case C-273/11) [2012] BVC 640).
[9] Secondly, in 2015 HMRC denied the Appellant the right to deduct £2,607,776 of input VAT claimed on 655 transactions, in which the Appellant purchased scrap metal in monthly VAT periods 03/13–09/13 and 02/14, on the basis that the transactions were connected with the fraudulent evasion of VAT, and the Appellant either knew or should have known of that connection (referring to Kittel v Belgium; Belgium v Recolta Recycling SPRL (Joined Cases C-439/04 and C-440/04) [2008] BVC 559).
[10] The Appellant appealed against those decisions to the FTT (Judge Brooks and Ms Hunter). The hearing before the FTT lasted 13 days, in which the FTT heard evidence from 12 HMRC witnesses and 7 witnesses for the Appellant. The documentary evidence comprised 23 lever arch files.
[11] The 2017 Decision, released on 8 November 2017, was lengthy and detailed, running to 90 pages and comprising over 300 paragraphs. The FTT concluded that:
- it was more likely than not that the Appellant knew that the eight MGB zero-rated transactions were connected with the fraudulent evasion of VAT,
- In relation to the 655 input tax transactions, transactions in the supply chains leading up to them were part of an orchestrated scheme to defraud the HMRC, and the Appellant knew that its transactions were connected with the fraudulent evasion of VAT.
[12] The Appellant did not appeal the 2017 Decision.
[13] On 4 May 2018 HMRC notified the Appellant of a penalty in the sum of £1,444,813.71 under Schedule 24 FA 2007 for VAT periods 10/12–09/13 and 02/14. The Penalty Explanation letter stated that HMRC considered that the Appellant's VAT returns for those periods were deliberately inaccurate because, referring to the 2017 Decision:
- the Appellant must have known that the returns that recorded the MGB transactions were wrong, and
- the Appellant had claimed input tax credits which it knew to be false as a result of artificially contrived transactions which were connected to fraudulent tax losses.
[14] The Appellant appealed the penalty to the FTT. The Appellant accepted that pursuant to the 2017 Decision there was an inaccuracy in its VAT returns for each VAT period in question. The Appellant's Grounds of Appeal before the FTT were...
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