Foneshops Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 13 August 2015 |
| Neutral Citation | [2015] UKFTT 410 (TC) |
| Date | 13 August 2015 |
| Court | First-tier Tribunal (Tax Chamber) |
Judge Barbara Mosedale
Mr M Shakeel, Director, appeared for the Appellant
Mr J Carey, Solicitor, of HMRC Solicitors Office, appeared for the Respondents
Valued added tax – Strike out application – Misdeclaration penalty assessed following strike out of MTIC appeal – Appellant seeking to argue in penalty appeal that there was no connection to fraud and no knowledge or means of knowledge – Whether abuse of process – Yes, except for case that appellant had no actual knowledge – Whether no actual knowledge could be a reasonable excuse – No, as test objective – Other grounds also had no reasonable prospect of success – All grounds of appeal struck out save that appellant entitled to put case that penalty is disproportionate.
[1] The appellant appeals against two decisions:
1) The review decision of HMRC dated 3 September 2014 upholding an HMRC decision dated 27 June 2014 charging the appellant company to a VAT misdeclaration penalty of £3,214,874 in respect of periods 03/06, 04/06 and 05/06 (TC/2014/5334); and
2) The refusal by HMRC to repay £64,985.31 in alleged input tax claimed on alleged expenses incurred in the appellant's business on the grounds that the invoices were invalid and/or supplies did not take place and/or were not paid for and/or input tax had already been repaid and/or claims was out of time (TC/2014/5340).
[2] On 5 December 2014 HMRC applied to strike out what I will refer to as the penalty appeal (TC/2014/5334). The appellant then applied to stay what I will refer to as the expenses appeal (TC/2014/5340) behind the penalty appeal. Both applications came before me on 28 July 2015. As agreed at the hearing, it makes sense to deal with the strike out application first, as if the penalty appeal is struck out, there is nothing behind which to stay the expenses appeal.
[3] The relevant background to the hearing before me was not contentious and I set it out as follows:
[4] The appellant submitted returns for VAT periods 11/05, 03/06, 04/06 and 05/06 in which it reclaimed input tax totalling £25,330,113.58. On 11 June 2009 HMRC denied the appellant the right to recover this input tax. The denial was on the grounds that the input tax was incurred in some 181 transactions which were connected to missing trader intra-community (“MTIC”) fraud and either the appellant knew this or ought to have known this and that therefore under the doctrine explained by the CJEU in Kittel v Belgium; Belgium v Recolta Recycling SPRL ECASECASVAT(Joined Cases C-439/04 and C-440/04) [2008] BVC 559 it was not entitled to recover the input tax.
[5] The appellant appealed this decision and its appeal was given reference TC/2009/11840. I will refer to this as the MTIC appeal. Following a failure to serve its evidence on the due date, on 21 February 2012 the Tribunal issued a direction by Judge Berner that the appellant should serve its witness statements including exhibits not later than 4 May 2012 and that a failure to comply would lead to the proceedings being struck out.
[6] Foneshops did not serve its witness evidence. HMRC applied on 10 May 2012 for the appeal to be struck out. A hearing of that application took place on 27 June 2012. Immediately before the hearing the appellant served its witness statements.
[7] At that hearing, Judge Khan struck out the appeal and that decision was notified to the parties on 29 June 2012. At the same time the appellant was notified of its right to apply for reinstatement.
[8] The appellant applied for reinstatement on 31 July 2012. That application was heard by Judge Berner over two days in 2013 and, on 22 November 2013, it was refused. A full decision was released and its neutral citation number is: [2013] TC 03057.
[9] The appellant applied for permission to appeal that decision. In this Tribunal permission was refused. It was also refused by the Upper Tribunal on 3 March 2014. That therefore was the end of the appellant's MTIC appeal.
[10] On 27 June 2014 HMRC issued a misdeclaration penalty to the company under s 63 Value Added Tax Act 1994 (“VATA”). The letter had as a part of its heading the name of the appellant (although this also appeared in the “address”). Next to the name in the heading it said “company registration number – 04231696”. It is accepted by HMRC that this is not the correct company registration number for the appellant. The document also contained the VAT registration number of the appellant and the correctness of that number is not in dispute.
[11] The review decision was dated 3 September. It was addressed to Foneshops Ltd, but it did not contain a statement of the company's registration number. It did refer to the matter as the error had been pointed out by Mr Shakeel in correspondence:
I note that the decision letter of 27 June 2014 quoted the wrong Company Registration Number. This was an error for which I can only apologise however (sic) it does not impact on the content of that letter.
[12] The appellant lodged an appeal in time with this Tribunal against the penalty and that is the appeal now before me.
[13] HMRC's application to strike out the penalty appeal was made under rule 8(3)(c) on the grounds that HMRC considered that “there is no reasonable prospect of the appellant's case … succeeding”.
[14] The appellant's notice of appeal was brief. It stated:
I believe (sic) had reasonable excuse.
Unforeseen events which have adversely affected the business.
Circumstances of the case which lead (sic) to any errors.
Compassionate acting on the information provided their (sic) was no way of doing anything different (sic) at the time in question
Did not believe I was doing anything wrong and had never been told otherwise by HMRC.
I don't belive Foneshops have made a misdeclaration
There was no way of doing anything different
[15] The appellant applied successfully to postpone the first hearing on 6 May 2015 that was booked to consider the strike out application. Judge Raghavan directed that the appellant should particularise its grounds of appeal not later than 3 June 2015. The appellant did not do so until 27 July 2015, which was the day before the hearing in front of me. But HMRC took no point on this late compliance and I do not consider it relevant to the issue before me so I do not mention it again.
[16] Having read the appellant's particularised grounds of appeal served the day before the hearing, which ran to some 16 pages, HMRC's position was that virtually all of them amounted to an attempt to re-litigate the MTIC appeal and that the appellant could not do so, and that in the absence of any other grounds of appeal, the appeal should be struck out as lacking any prospect of success.
[17] I have read the grounds of appeal and, subject to a few exceptions mentioned at paragraph 20 below, I agree with HMRC that all of the grounds raise issues that would have been decided in the MTIC appeal had it gone to hearing. Without going through the 16 pages in detail, the alleged grounds can be summarised as making the following claims:
• Trader's experience in the business; effective due diligence; due diligence would not have discovered the fraud; it is not for appellant to police the industry;
• HMRC had earlier repaid claims arising out of transactions with the same suppliers as those in the deals in which tax was denied; HMRC had failed to warn appellant of fraud; the appellant did not foresee its input tax being denied.
• HMRC took a policy decision to deny all traders in the sector their input tax
• Fraud in supply chain was not proved; there was no fraud in supply chains where contra trading alleged.
[18] These 16 pages therefore amplified and explained the very brief grounds of appeal set out in the Notice of Appeal. But in brief summary they amounted to a claim that there was no misdeclaration and/or it had a reasonable excuse for the misdeclaration because there was no fraud in its supply chains, and even if there was, it did not know of it and could not have known of it.
[19] The Notice of Appeal did contain reference to “unforeseen events” and “no way of doing anything different” which were perhaps not obviously related to a claim that there was no knowledge and no means of knowledge. Mr Shakeel explained them as follows. The alleged “unforeseen events” (paragraph 14 above) were HMRC's unanticipated withholding of the input tax the subject of the MTIC appeal. The ground that “There was no way of doing anything different” was explained as meaning that the appellant had done all that it could to verify its trades, and had had a great many repayments of input tax to it paid by HMRC in the past, and so could not have anticipated the refusal to repay. In so far as these grounds were a reiteration of the claim that there was no knowledge or means of knowledge of the fraud in the supply chain, I deal with this below when dealing with the MTIC grounds of appeal. In so far as Mr Shakeel attached importance to the appellant's failure to anticipate HMRC withholding the input tax, that is dealt with simply now. The failure to repay the input tax obviously occurred after the claim was made to recover it: the failure to repay, or any policy decision by HMRC to refuse all claims, did not cause the claim to be made and therefore could not be a reasonable excuse for the misdeclaration being made. But in so far as it was a claim that the appellant's failure to anticipate HMRC's refusal to repay amounts to a reasonable excuse, this is all part of its claim that it had no means of knowledge and I deal with that below as part of the MTIC grounds of appeal.
[20] The additional grounds of appeal, which related specifically to the penalty appeal, and did not duplicate the MTIC grounds of appeal, and which were mentioned in the particularised grounds of appeal and/or the hearing but not in the Notice of Appeal, were the following allegations:
1) The assessment was...
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