Solar Power PV Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 07 June 2016 |
| Neutral Citation | [2016] UKFTT 400 (TC) |
| Date | 07 June 2016 |
| Court | First-tier Tribunal (Tax Chamber) |
Judge Jonathan Cannan, Mrs Gay Webb
Mr Andrew Ronnan, director appeared for the appellant
Mr John Nicholson of HM Revenue & Customs appeared for the respondents
Value added tax – Penalty – Finance Act 2007 (“FA 2007”), Sch. 24 – Inaccuracy in VAT returns – Whether deliberate – Special circumstances – Proportionality – Appeal dismissed.
[1] The Appellant was in business selling and installing photovoltaic solar panel systems at commercial and residential premises. It has been VAT registered since 21 October 2010. Following a VAT audit visit on 1 December 2014 the Respondents considered that the Appellant had understated the VAT due on its VAT returns for periods 06/11, 09/11, 12/11 and 09/12. The total amount of VAT said to have been understated on those returns was £145,019.
[2] On 20 February 2015 the Respondents made a penalty assessment against the Appellant pursuant to Schedule 24 Finance Act 2007 (“the Penalty”). The Penalty was in the sum of £50,756 and was made on the basis that the Appellant had deliberately understated its liability to VAT although it had not sought to conceal the understatement. The Appellant appeals against the Penalty.
[3] We set out in detail below the circumstances in which the Appellant came to understate its VAT liability and why Mr Andrew Ronnan, the director of the Appellant who appeared before us, says that it should not be liable to a penalty. In broad terms the Appellant contends in its notice of appeal dated 1 July 2015 as follows:
1) The liability to VAT arose in extraordinary circumstances involving an unlawful Government proposal to regulate the market for supply and installation of solar panels.
2) There was no deliberate understatement of VAT and all the VAT due was paid.
3) The Penalty failed to take into account health issues suffered by Mr Ronnan's family.
4) The Penalty failed to take into account that the Appellant was utilising a form of cash accounting which also gave raise to overpayments in some periods.
5) The Penalty is unfair and disproportionate.
[4] We set out below the relevant statutory provisions governing penalties for inaccuracies in VAT returns. We then make findings of fact relevant to the issues in the appeal. In setting out reasons for our decision we consider the arguments raised by the parties.
[5] The following references are to the penalty regime in place in 2011 and 2012 when the relevant returns were made. Save where otherwise noted references are to Schedule 24 Finance Act 2007.
[6] Paragraph 1(1)(a) provides that a penalty is payable where a taxpayer gives HMRC a document including a VAT return and two conditions are satisfied. The first condition for present purposes is that the document contains an inaccuracy which leads to an understatement of liability to VAT. The second condition is that the inaccuracy was careless or deliberate.
[7] Paragraph 3(1)(a) provides that an inaccuracy in a document is “careless” if “the inaccuracy is due to failure by [the taxpayer] to take reasonable care”. Paragraph 3 also distinguishes inaccuracies which are “deliberate but not concealed” from those which are “deliberate and concealed”. It is not suggested by HMRC that the inaccuracy in the present case was concealed but they do contend that it was deliberate.
[8] Paragraph 4 makes provision for the standard amount of penalties. The standard penalty for careless action is 30% of the potential lost revenue (“PLR”). The standard penalty for deliberate but not concealed action is 70% of the PLR.
[9] Paragraph 5 defines the PLR as follows:
(1) The potential lost revenue in respect of an inaccuracy in a document … is the additional amount due or payable in respect of tax as a result of correcting the inaccuracy …
[10] Paragraphs 9 and 10 provide for reductions in the standard penalties where a person discloses an inaccuracy. Disclosure in this context is defined as:
a) telling HMRC about it,
b) giving HMRC reasonable help in quantifying the inaccuracy …, and
c) allowing HMRC access to records for the purpose of ensuring that the inaccuracy … is fully corrected.
[11] There is a distinction for these purposes between an “unprompted” disclosure and a “prompted” disclosure. Paragraph 9(2) provides that a disclosure 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. Otherwise a disclosure is prompted.
[12] Paragraph 10 sets out the reductions for disclosure which HMRC must apply to a penalty. Those reductions depend on whether any penalty is a 30% penalty for a careless inaccuracy or a 70% penalty for a deliberate but not concealed inaccuracy. The reduction which HMRC must apply will depend on whether the disclosure was prompted or unprompted. It must also reflect the “quality” of the disclosure. Paragraph 9 defines the quality of a disclosure as including “timing, nature and extent”.
[13] The reductions in the standard penalty by reference to the quality of disclosure give a range of potential penalties. For example the standard penalty for a deliberate but not concealed inaccuracy is 70% of the PLR. Where there is prompted disclosure the penalty must be reduced but the minimum penalty is 35% of the PLR. In the present case the Penalty has been applied at 35% of the PLR so that the maximum reduction for disclosure has been given on the basis that the inaccuracy was deliberate but not concealed and that the Appellant's disclosure was prompted.
[14] Paragraph 11 permits HMRC to reduce a penalty generally “if they think it right because of special circumstances”, but special circumstances does not include inability to pay. Paragraph 11 provides as follows:
(1) If they think it right because of special circumstances, HMRC may reduce a penalty under paragraph 1 …
(2) In sub-paragraph (1) “special circumstances” does not include–
a) ability to pay, or
b) the fact that a potential loss of revenue from one taxpayer is balanced by a potential over-payment by another.
[15] There is no general discretion to reduce a penalty simply because there are mitigating circumstances.
[16] Paragraphs 15 to 17 set out the rights of appeal in respect of penalties. The tribunal has jurisdiction to affirm or cancel HMRC's decision that a penalty is payable. It may also affirm HMRC's decision as to the amount of any penalty payable, or substitute another decision which HMRC would have had power to make. The tribunal's jurisdiction to reduce a penalty because of special circumstances is restricted to cases where HMRC's decision in relation to special circumstances is “flawed” in light of the principles applicable in proceedings for judicial review.
[17] On behalf of the Respondents we heard evidence from Mrs Susan Walters who is a VAT assurance officer of HMRC. She made a witness statement and gave oral evidence. On behalf of the Appellant we heard evidence from Mr Ronnan who gave oral evidence. Based on that evidence and the documentary evidence before us we make the following findings of fact on the balance of probabilities.
[18] The issues in this appeal are closely connected with the market for the installation of solar panels, taking advantage of what is known as the system for “Feed-in Tariffs” (“FITs”). The FIT scheme enabled electricity supply companies to make payments to small-scale producers of low carbon electricity, which includes electricity generated by solar photovoltaic cells. As such it encouraged members of the public and businesses to install solar panels. The Appellant's business model relied to a great extent on the amount of the FITs received by its customers.
[19] The FITs are set by the Department for Energy and Climate Change (“DECC”). Rates were set by statutory instrument with effect from 1 April 2010. They included a “generation tariff” and an “export tariff”. The generation tariff was calculated by reference to the electricity generated by a small-scale producer, including electricity generated for own use. The export tariff was calculated by reference to the electricity supplied by a small-scale producer to an electricity supplier. Once a solar panel installation was installed and commissioned the generation tariff was fixed for 25 years subject only to an indexation allowance for inflation.
[20] Much of the background which follows is taken from the Court of Appeal decision in Department for Energy and Climate Change v Breyer Group plc UNK[2015] EWCA Civ 408.
[21] DECC had originally stated that FITs would remain unchanged over the 25 year period for new installations commissioned between April 2010 and April 2012 so as to provide certainty for the purposes of investment by small-scale producers. FITs were set so as to deliver a rate of return of approximately 5% of investment for well-sited solar installations. DECC repeatedly stated that it would not act retrospectively to change FITs. It was anticipated that after April 2012 FITs would reduce for new installations to reflect reductions in technology costs but so as to broadly maintain the same rate of return.
[22] In February 2011 DECC announced that there would be a comprehensive review of the scheme. On 31 October 2011 it published a consultation document as part of that review. One proposal was for a reduction in the generation tariff with effect from 1 April 2012 by reference to installations which became eligible for FITs on or after 12 December 2011. Those installations would be eligible only for the reduced rate generation tariff after 1 April 2012. In effect DECC was proposing to bring forward from 1 April 2012 to 12 December 2011 the date by which installations had to be commissioned in order to qualify for the original tariffs for the life of the installation. If implemented this would have saved DECC some £1.6 billion.
[23] The effect of publication of the...
To continue reading
Request your trial
-
Capital SMA Ltd
...was well summarised as follows by the First-tier Tribunal (Judge Jonathan Cannan and Mrs Gay Webb) in Solar Power PV Ltd TAX[2016] TC 05154 at [68] and [68] The Court of Appeal decision in Clarks of Hove v Bakers' Union WLR[1978] 1 WLR 1207 at p. 1216 held that in the context of special cir......
-
Morris
...a VAT context) was well summarised as follows by the First-tier Tribunal (Judge Jonathan Cannan and Mrs Gay Webb) in Solar Power PV Ltd [2016] TC 05154 at [68] and [68] The Court of Appeal decision in Clarks of Hove Ltd v Bakers' Union [1978] 1 WLR 1207 at p. 1216 held that in the context o......