Zaman
| Jurisdiction | UK Non-devolved |
| Judgment Date | 24 June 2021 |
| Neutral Citation | [2021] UKFTT 228 (TC) |
| Court | First-tier Tribunal (Tax Chamber) |
[2021] UKFTT 228 (TC)
Judge Zachary Citron, Mr Leslie Brown
The Appellant appeared in person
Mr R Macleod, advocate, instructed by the Office of the Advocate General, appeared for the respondents
Value added tax – FA 2007, Sch. 24 – Penalty for inaccuracy in VAT returns – Personal liability notice on director – Was there an inaccuracy in the VAT returns? – Company buying and selling of alcohol held in warehouses in France and Germany – Was place of supply the UK? – Burden of proof on HMRC – Held – Not proven that place of supply was UK – Appeal allowed.
The FTT allowed an appeal against a personal liability notice by the director of a company which had been assessed for underdeclared VAT. HMRC argued that the company had made supplies of goods in the UK on which VAT should have been charged, the FTT found that the movement of the goods under consideration to the UK had not been proved on the balance of probabilities.
The appellant appealed against a personal liability notice (“PLN”) which held him personally liable for a 100% inaccuracy penalty charged to a company (“Z Ltd”) of which he was sole director and shareholder.
Z Ltd traded in alcoholic goods. Although Z Ltd stated that the goods were bought and sold in France and Germany, HMRC determined that the goods were sold in the UK and that, therefore, the sales were subject to UK VAT. HMRC issued an assessment for underdeclared VAT and a 100% penalty for deliberate and concealed errors on a VAT return. The assessments were each for just over £1.7m. Z Ltd appealed neither assessment but, when Mr Zamen received a PLN he appealed to the FTT.
HMRC presented extensive evidence to the FTT in support of the contention that Z Ltd was involved in the illicit trade in alcoholic goods, and the FTT accepted that this was likely (e.g. para. 91). However, in the FTT's view the evidence showed that, on the balance of probabilities, the goods were present in or moved to warehouses in France and Germany when they were acquired by Z Ltd (para. 92) and it was not proven, on the balance of probabilities, that the goods were removed to the UK by or under its direction (para. 96).
As it was not proved that VAT had been underdeclared on sales made in the UK, it was not proved that the relevant VAT returns contained inaccuracies and that, as a consequence, an inaccuracy penalty was due. The appeal against the PLN was allowed (para. 96).
The FTT did not put evidential weight on the fact that Z Ltd did not appeal the original assessments. It accepted the appellant's evidence that he was not concerned that Z Ltd might be sued and found to be insolvent and that he considered himself protected by limited liability (para. 89).
HMRC will be disappointed to have lost this case. Although HMRC provided the FTT with detailed and comprehensive evidence that the appellant's company was involved in the illicit trade in alcoholic goods, the FTT had to restrict itself to considering the place of supply. On this specific issue the evidence presented by HMRC was weak.
[1] The appeal concerned the validity of a personal liability notice (the “PLN”) making the appellant (“Mr Zaman”) liable for 100% of an “inaccuracy” penalty (the “penalty”) of just over £1.7 million charged to Zamco Limited (“Zamco”), a company of which the appellant was sole director and shareholder.
[2] On 30 May 2018 the respondents (“HMRC”) issued an assessment (the “assessment”) to Zamco for £1,929,592 in respect of under-declared VAT in the periods 02/16 to 08/17 (the “relevant period”). The assessment was on the basis that Zamco's supplies of alcoholic goods in the relevant period took place in the UK and were therefore subject to VAT. Zamco did not appeal against the assessment.
[3] On 23 October 2018, HMRC charged the penalty to Zamco, in the sum of £1,736,632.80, under paragraph 1 Schedule 24 Finance Act (“FA”) 2007, on the basis that inaccuracies in its VAT returns in the relevant period were deliberate and concealed, and disclosure had been prompted; the penalty range was therefore 50%–100%; a 20% reduction was given (5% for telling HMRC about it, 5% for helping them to understand it and 10% for giving them access to records). HMRC did not consider there were any special circumstances. Zamco did not appeal against the penalty.
[4] On 26 October 2018, HMRC sent Mr Zaman the PLN, under paragraph 19(1) Schedule 24 FA 2007, as they believed Zamco was likely to become insolvent.
[5] On 20 March 2019, HMRC sent Mr Zaman a review conclusion letter upholding their decision to issue the PLN.
[6] On 30 April 2019 Mr Zaman notified an appeal against the PLN to the Tribunal.
[7] We had nine lever arch files containing
- correspondence between the parties;
- documents (such as purchase and sale invoices, warehouse documents, and emails from Zamco) (the documentation) provided by Zamco and Mr Zaman to HMRC relating to Zamco's purchases and sales of alcohol in the relevant period;
- Zamco's bank statements;
- responses by foreign tax authorities to enquiries made by HMRC about Zamco's transactions.
[8] We also had an email from Zamco's accountant dated 3 February 2021 agreeing with Mr Zaman that Officer Begg of HMRC had said at one point in HMRC's enquiries into Zamco's transactions that Zamco's UK tax affairs were “above board”.
[9] We had witness statements, and heard oral evidence, from Officer Begg and from Mr Zaman.
[10] The agreed issues before the Tribunal were:
- whether Zamco's VAT returns in the relevant period contained inaccuracies amounting or leading to understatement of liability to VAT (the inaccuracy issue); the issue was essentially whether all of Zamco's supplies in the relevant period were in the UK for VAT purposes – if so, its VAT returns contained such inaccuracies; if not, they did not;
- if Zamco's VAT returns did contain such inaccuracies, whether the inaccuracies were deliberate on Zamco's part (the deliberate issue); and
- if they were, whether the inaccuracies were attributable to Mr Zaman.
[11] The Tribunal considered whether a fourth issue was also before it, namely whether the amount of the penalty (and so of the PLN) was correct.
[12] In this section we make initial findings of fact (where the evidence was either uncontested or quite clear, or both); in our discussion below, we shall make further factual findings on matters where the evidence was contested, or less clear, or both. To support those later findings, we also use this section to summarise relevant evidence.
[13] Mr Zaman was the sole director and shareholder of Zamco. He also ran a take-away restaurant. Zamco operated out of small premises in Glasgow; it did not have premises to hold the large volumes of alcohol that, according to the documentation, Zamco bought and sold in the relevant period. Zamco had one part time employee, Shafik Ahmed.
[14] Zamco was registered for VAT in the UK between June 2015 and October 2017.
[15] Zamco was registered with HMRC under money laundering regulations as a “high value dealer” on 25 June 2016. This enabled it to accept cash payments in excess of €15,000 in exchange for goods.
[16] HMRC rejected Zamco's application to be registered under the Warehousekeepers and Owners of Warehoused Goods (“WOWGR”) Regulations 1999 in August 2016.
[17] Despite not appealing either the assessment or the penalty, Zamco did not pay either.
[18] The documentation indicated that Zamco bought and, very soon afterwards, on-sold large quantities of alcoholic goods (beer and wine) during the relevant period and that in all but one of the transactions the alcohol was held in warehouses in France and Germany during the short period of time it was in Zamco's ownership.
[19] Zamco's transactions during the relevant period, as evidenced by the documentation, can be summarised as follows:
- There were 397 invoices for purchases by Zamco, totalling over £12.2 million: over half of this (by value) was purchased from Harmsworth Distribution Ltd (HDL) (a UK company); the next largest supplier companies were Automenu (Slovenian) and Oviestro (Cypriot).
- There were 397 invoices for sales by Zamco, totalling over £12.5 million; the top four customer companies (making up about 80% of the total amount) were EDS (French) (137 invoices totalling over £5.2 million), Dany Direct (French) (46 invoices, nearly £2 million), Syntaqs Logistics (Hungarian) (69 invoices, £1.6 million), and Phaekox (Cypriot) (43 invoices, £1.3 million).
- Based on this documentation, therefore, Zamco made about £0.3 million on sales of about £12.5 million – a 2-3% margin.
- There were 382 back to back transactions where all the alcohol purchased from one supplier was sold to one customer.
- There were 11 purchases from Licores Nueva Indalica (Licores) (a Spanish company), and 14 sales to Maxi (a French company), both in same period of one week in April/May 2016, in which alcohol was not bought and sold back to back. HMRC's analysis of these transactions found that some products were purchased but not sold; and some products were sold but not purchased.
- At the time of Zamco's purchase, the alcohol was kept in, or sent by Zamco's supplier to, a warehouse in France or Germany in each purchase and sale, apart from one: alcohol purchased from Pretz Trading (Cypriot company) and on-sold to AKM Trading Services Ltd (UK company), was in a UK warehouse (Edwards Beers and Minerals).
- No VAT was charged on any of the invoices, apart from the UK-warehouse purchase just mentioned (and the treatment of that UK purchase in Zamco's VAT returns was not disputed.)
[20] The total amount paid in to Zamco bank accounts during the...
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