Plant Force (Leeds) Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 25 April 2017 |
| Neutral Citation | [2017] UKFTT 349 (TC) |
| Date | 25 April 2017 |
| Court | First-tier Tribunal (Tax Chamber) |
Judge Richard Thomas, Ann Christian
Jeremy Barnett, instructed by Wine & Co (Chartered Accountants), appeared for the appellant
Tom Rainsbury, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Value added tax – Civil evasion penalty for failure to make returns and pay VAT due – (1) Whether omissions by appellant to make returns and pay on time were made for the purpose of evading VAT and involving dishonesty – No – (2) Whether, if yes, penalty should have been reduced by amount of default surcharges – Yes – Value Added Tax Act 1994 (VATA 1994), s. 60 – Company's appeal allowed.
The First-tier Tribunal (FTT) allowed the appeal against HMRC's decision that failing to file VAT returns was due to dishonesty. The FTT found, as a fact, that the only director did not know that what he was omitting to do led to tax evasion and did not omit to do anything for the purpose of evading tax.
The appellant, Plant Force (Leeds) Ltd (“PFL”), transported heavy items. It failed to file returns and to pay VAT for nine consecutive quarters to 04/13. For that period, HMRC issued “central assessments”, which were based on previous returns and were in relatively small amounts. PFL failed to inform HMRC that the central assessments were too low.
HMRC decided that “deliberately not submitting VAT returns is fraud”. Mr Atkins, who was the only director and shareholder of PFL, replied that “he didn't commit fraud he just got behind” and that he thought that his then accountants were submitting the returns. As regards the central assessments and surcharges, Mr Atkins said that he would have forwarded notices about VAT returns to his then accountants, who would he thought have got back to his bookkeeper to pay the VAT.
The VAT at issue was £148,344. The penalty under VATA 1994, s. 60 for dishonestly evading VAT was cut by 40% for disclosure and co-operation to £89,001. PFL appealed against that penalty. HMRC tried to recover all of the penalty from Mr Atkins.
PFL and Mr Atkins agreed that:
1) he was the sole controlling mind of PFL and that, if PFL was dishonest, then it was entirely Mr Atkins' actions (or omissions) that could have made it dishonest; and
2) if PFL had dishonestly evaded VAT, the only person to whom liability under VATA 1994, s. 61 could be transferred was Mr Atkins and there was no one else to whom any part of the liability could be attributed.
The FTT considered whether the acts and omissions of Mr Atkins, which resulted in PFL not paying VAT correctly for nine consecutive quarters, were dishonest.
At the FTT hearing, Mr Atkins was asked about telling HMRC that “he just got behind”. He replied that he got behind, because of his then accountants and he did not know what was going on. He denied turning a blind eye. He stated that PFL's VAT problems had started when he had to focus on running PFL after the departure of the transport manager and the book keeper. He did not contact HMRC, because he was “fighting fires”. He denied knowing that VAT was not being paid until told by HMRC.
The FTT “found Mr Atkins to be a straightforward and credible witness. He did not try to say that he had not been careless or negligent in the way the appellant had dealt with its VAT responsibilities. He struck us as someone who was much more at ease dealing with the operational side of his business and that he had devoted all his time and attention (and a lot of money) in the period to ensuring that his business stayed afloat” (para. 87 of the decision).
The FTT decided that the fact that PFL paid the precise amount of the VAT said to be due, once Mr Atkins knew of it, indicated honesty. There may have been incompetence, or even recklessness, but that was not dishonesty (para. 113 of the decision).
The FTT noted that, in Lawrance v General Medical Council UNK[2015] EWHC 586 (Admin), Collins J said at para. 35:
the panel … should only find dishonesty established if they were satisfied that there was cogent evidence of dishonesty. The civil standard [of the balance of probabilities] applies, but where dishonesty or particularly a serious offence is alleged the decision makers must be aware of the need for such cogent evidence.
Also, the FTT noted that the Court of Criminal Appeal in R v Dealy VAT[1995] BVC 86 quoted the following direction to the jury by the trial judge:
Evasion … means to get out of something. If you evade something, you get out of its way, you dodge it, and that is what this case is about. Was Mr Dealy trying to dodge paying the VAT that his company … owed …?
For there to be evasion of VAT, it is not necessary to show an intention to deprive HMRC permanently of VAT that is due to them. However, there must be a deliberate intention not to pay (para. 126 of the decision).
The FTT held (at para. 137 of the decision) that:
Mr Atkins' state of mind is important, not only in relation to whether his conduct was dishonest, which requires his conduct to have been deliberate, not careless, but also when the question of his purpose is considered. The omissions to file the returns and, more significantly, to pay the tax at the right time must, to bring him within the ambit of s. 60, have been for the purpose of evading tax: it is not sufficient that they have that result.
In allowing PFL's appeal, the FTT held (at para. 138ff. of the decision) that HMRC had not discharged the burden on them to show that PFL, through Mr Atkins, had dishonestly omitted to pay for the purpose of evading VAT, because:
1) Mr Atkins had relied on his then accountants to deal with VAT compliance;
2) the calculation of the outstanding VAT, as shown in the annual accounts, was a detailed calculation, not a guess;
3) Mr Atkins did not suggest that he did not know how VAT worked or what PFL's obligations were, nor did he deny that would have received the surcharge notices and central assessments; and
4) once alerted to the scale of the outstanding VAT, Mr Atkins took all appropriate steps to pay what PFL owed.
The FTT held that ordinary members of the public would view VAT evasion, by submitting inaccurate returns by suppressing turnover or manufacturing false invoices, as dishonest. The FTT was less clear that failing to pay VAT on time would be so regarded, but accepted that it would, and it has been seen by Tribunals and Courts in other cases. The FTT found that Mr Atkins did not know that what he was omitting to do led to tax evasion and did not omit to do anything for the purpose of evading tax, thus he was not dishonestly doing those things (para. 147 of the decision).
Default surcharges had been imposed in relation to the central assessments. After the returns had been submitted, the default surcharges were recalculated. Most, if not all, of the surcharges were at 15% of the late paid VAT. The surcharges had not been taken into account in arriving at the abatement of the s. 60 penalty, because HMRC argued that the actions or omissions caught by the surcharge were not the same as those penalised by s. 60, so there was no “double jeopardy”.
The FTT noted that Finance Act 2007 (FA 2007), Sch. 24, para. 12(2) contains a specific reduction of penalties for “any surcharge for late payment of tax”. This indicated that Parliament thought that VATA 1994, s. 59 and s. 60 dealt with the same “behaviour”. The FTT held that, if necessary, it would have used VATA 1994, s. 84(6) to vary (reduce) the penalty to an appropriate amount. The FTT would have reduced the penalty by the amount of all default surcharges imposed under s. 59 for the relevant periods.
The burden of proof was on HMRC to show that, on the balance of probabilities, there was VAT evasion and that it involved dishonesty. HMRC made no attempt to show that Mr Atkins had lied. This case illustrates how important it is for the taxpayer to give evidence at the hearing, so that the FTT can decide whether he is credible and honest.
[1] This was an appeal by Plant Force (Leeds) Ltd (“the appellant” or, in paragraphs 3 to 27 where there may be ambiguity, “PFL”) against a decision of the Respondents (“HMRC”) that it was liable to a penalty for dishonestly evading Value Added Tax (“VAT”). The amount of the penalty that HMRC say was due, after making reductions in accordance with their policy in relation to this type of penalty, was £89,001.
[2] We chose our words carefully in the previous paragraph for the reasons given in the next section of this decision.
[3] The penalty for dishonest evasion of VAT is set out in section 60 Value Added Tax Act 1994 (“VATA”). That section relevantly provides:
(1) In any case where–
a) for the purpose of evading VAT, a person does any act or omits to take any action, and
b) his conduct involves dishonesty (whether or not it is such as to give rise to criminal liability),
he shall be liable, subject to subsection (6) below, to a penalty equal to the amount of VAT evaded or, as the case may be, sought to be evaded, by his conduct.
(3) The reference in subsection (1) above to the amount of the VAT evaded or sought to be evaded by a person's conduct shall be construed–
a) in relation to VAT itself … as a reference to … the amount … by which output tax was falsely understated;
…
(7) On an appeal against an assessment to a penalty under this section, the burden of proof as to the matters specified in subsection (1)(a) and (b) above shall lie upon the Commissioners.
[4] Section 76 VATA says:
(1) Where any person is liable–
…
(b) to a penalty under section[ ] 60 …
the Commissioners may … assess the amount due by way of penalty … and notify it to him accordingly; …
[5] As to appeals, section 83 VATA provides:
(1) Subject to section 84, an appeal shall lie to a tribunal with respect to any of the following...
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