Teletape (A Firm)
| Jurisdiction | UK Non-devolved |
| Judgment Date | 30 November 2016 |
| Neutral Citation | [2016] UKFTT 797 (TC) |
| Date | 30 November 2016 |
| Court | First-tier Tribunal (Tax Chamber) |
Judge Anne Redston, Mr Mark Buffery
William Hansen of Counsel, instructed by Burlingtons Legal LLP, appeared for the appellants
Philip Shepherd, of HM Revenue & Customs Appeals and Reviews Unit, appeared for the respondents
Value added tax – Misdeclaration penalties – Two year time limit for assessment – Whether time runs from withdrawal of appeal against substantive assessment – Whether tribunal bound by House of Lord's decision in R (on the application of Anufrijeva) v Secretary of State for the Home Department [2004] 1 AC 604 to find that assessment made only when notified – HMRC's failure to follow published guidance – Issuance of notification to wrong person – Appeal dismissed.
[1] This was the appeal of the Teletape partnership (the Appellants) against two VAT misdeclaration penalties, one of £507,369 for the period 05/06, and the second of £157,299 for the period 06/06.
[2] The Appellants submitted that:
1) the original Notices had been issued in the wrong name
2) an assessment was not made until it was notified, as was clear from the House of Lords' decision in R (on the application of Anufrijeva) v Secretary of State for the Home Department ELR[2004] 1 AC 604 (Anufrijeva);
3) the assessments had been notified to the Appellants after the statutory two year time limit; and
4) HMRC had failed to follow its published guidance on assessment and notification, and the Tribunal was required to take this into account when deciding the appeal.
[3] HMRC submitted that:
1) the use of the wrong name on the original Notices was remedied before the hearing, and this was sufficient to cure the defect;
2) assessment and notification were separate operations, and Anufrijeva was not relevant;
3) valid assessments had been made within the two year statutory time limit; and
4) although HMRC had failed to follow its published guidance, that failure could only be challenged by judicial review.
[4] We found that that Anufrijeva could be distinguished from the Appellants' position, and that the two year time limit ran from assessment, not notification. Although HMRC had breached its own guidance, the Tribunal did not have the jurisdiction to decide the case on that basis. We agreed that the original Notices were unenforceable because they had been issued in the wrong name, but their later replacement by valid Notices was sufficient to cure the defect. We upheld the penalty assessments and dismissed the Appellants' appeal.
[5] The penalties were levied under Value Added Taxes Act 1994 (VATA) s 63. By subsection (b), this provides that a misdeclaration penalty will be equal to 15 per cent of the VAT which would have been lost if the inaccuracy had not been discovered.
[6] VATA s 76 is headed Assessment of amounts due by way of penalty, interest or surcharge and provides, so far as relevant to this decision, that:
(1) Where any person is liable …
(b) to a penalty under any of sections 60 to 69B …
the Commissioners may … assess the amount due by way of penalty, interest or surcharge, as the case may be, and notify it to him accordingly …
(3) In the case of the penalties, interest and surcharge referred to in the following paragraphs, the assessment under this section shall be of an amount due in respect of the prescribed accounting period which in the paragraph concerned is referred to as the relevant period …
(d) in the case of a penalty under section 63, the relevant period is the prescribed accounting period for which liability to VAT was understated or, as the case may be, for which entitlement to a VAT credit was overstated.
[7] VATA s 77(2) reads, so far as relevant to this decision:
… an assessment under section 76 of an amount due by way of any penalty, interest or surcharge referred to in subsection (3) … of that section may be made at any time before the expiry of the period of 2 years beginning with the time when the amount of VAT due for the prescribed accounting period concerned has been finally determined.
[8] The appeal was made under VATA s 83(1)(n), which reads:
(1) Subject to sections 83G and 84, an appeal shall lie to [the tribunal with respect to any of the following matters …
(n) any liability to a penalty or surcharge by virtue of any of sections 59 to 69B …
[9] Section 83G is headed bringing of appeals and begins:
(1) An appeal under section 83 is to be made to the tribunal before
a) the end of the period of 30 days beginning with
i) in a case where P is the appellant, the date of the document notifying the decision to which the appeal relates …
ii) if later, the end of the relevant period (within the meaning of section 83D) …
[10] Mr Ravi Darayanani and Officer Raffaela Lahi both provided witness statements, which were accepted. As a result, neither was called to give evidence. The Tribunal also had the benefit of a helpful bundle of documents provided by the Appellants, which included:
1) correspondence between the parties, and between the parties and the Tribunal;
2) HMRC's record of particulars relevant to Teletape; and
3) HMRC's internal assessment form VAT292, signed and dated on 23 June 2015.
[11] On the basis of that evidence, the Tribunal found the following facts, which were not in dispute.
[12] At some point before 21 October 1985, Mr Manohar Daryanani, Mrs Shanta Daryanani and Mr Prakash Daryanani formed a partnership which they called Teletape. We infer from Mr Ravi Daryanani's witness statement that he either later became a partner, or had authority from the partnership to act on its behalf. Neither party sought to argue that any such change was relevant to the issues in dispute.
[13] Teletape was registered for VAT with effect from 21 October 1985. In this decision, where we refer to Teletape without more, this is a reference to the partnership registered for VAT purposes in that name, and to the partners who formed the partnership.
[14] In period 05/06, Teletape claimed input tax of £3,560,490.50; in the following period, it claimed input tax of £1,103,856.25. Both claims related to the purchase of mobile phones. On 11 May 2007 HMRC refused to repay the input tax claimed, on the basis that Teletape knew or should have known that the transactions formed part of an overall scheme to defraud HMRC. Teletape appealed that decision to the VAT tribunal, but subsequently withdrew the appeal.
[15] The Tribunal was notified of the withdrawal on 27 June 2013 by way of draft directions signed by Dass Solicitors for the Appellants and by HMRC Solicitors' Office. On 1 July 2013, Judge Berner wrote the words approved and directed accordingly on those directions.
[16] Teletape de-registered from VAT with effect from 30 April 2014, because the partnership had ceased to trade.
[17] Meanwhile, on 18 November 2005, a company called Teletape Ltd had been incorporated. Mr Ravi Daryanani was a director of that company, and its business address was 321 Caledonian Road, the same as that of the partnership. Teletape Ltd registered for VAT on 24 August 2009.
[18] On 27 March 2015, Officer Lahi began to consider whether to raise misdeclaration penalties in relation to the input VAT claimed by Teletape in 05/06 and 06/06. She decided that HMRC were in time to make the assessment and that the 15% penalty prescribed by VATA s 63(1)(b) should be mitigated by 5%. The penalty for period 05/06 was thus £507,369 (£3,560,490.50 × 15% × 95%) and that for period 06/06 was £157,299 (£1,103,856.25 × 15% × 95%). She completed a number of internal HMRC checks.
[19] On 11 June 2015 Officer Lahi completed Form VAT292 by inserting the penalties, the partnership's VAT number, the VAT periods and the date of issue, namely 11 June 2015. The copy of the form provided to us does not show the name of the trader. Mr Hansen accepted that it was an authentic copy of the original form.
[20] On 23 June 2015 another HMRC Officer reviewed Officer Lahi's decision to raise the penalties, their calculation and the mitigation. That Officer then forwarded the VAT292 to a senior HMRC officer, who countersigned the form. The penalties were keyed into the HMRC system and entered in the internal records for Teletape. HMRC's internal assessment of the penalties was now complete.
[21] Later the same day, Officer Lahi typed up two Notices of Assessment. Both were addressed to the Company Officers, Teletape Limited, 321 Caledonian Road rather than to Teletape, the partnership. Officer Lahi printed out, signed and dated the two Notices. Either Officer Lahi or a colleague put the Notices in an envelope, attached a first class stamp, and took the envelope to a post box before the Post Office made the final collection from that box on that day.
[22] On 27 June 2015, the Post Office delivered a note to The Company Officers at 321 Caledonian Road. The note said unfortunately we can't deliver your item because the sender did not pay the full postage. This was because the postage had not been sufficient for a large letter. The shortfall was £0.11, to which the Post Office had added a £1 handling fee. The note did not identify the sender of the item. Mr Ravi Daryanani paid the £1.11 over the telephone using a credit card, and the Notices were delivered to 321 Caledonian Road on 30 June 2015.
[23] The first of the Notices begins:
This notice of assessment of misdeclaration penalty is issued following HM Revenue & Customs decision/s to disallow a credit to input tax of £3,560,490.50 notified to you on 11/5/07 concerning Value Added Tax period 05/06 … As the Value Added Tax return for this period contained a large inaccuracy that resulted in an overstatement of your entitlement to a repayment [HMRC] … have made an assessment of misdeclaration penalty in the sum of £507,369.
[24] The Notice ends by saying that the sum of £507,369.00 is now due...
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