TC09555 - [2025] UKFTT 00748 (TC)

3KH was incorporated on 30 July 2013 and traded as a restaurant under the name Tipu Sultan. At the time of incorporation neither MJ nor MB were shareholders or directors. On 1 August 2014 the shares were transferred to MJ and MB who, from that date held 50 and 100 shares respectively. They were appointed as directors from 14 April 2015.

On 7 November 2015 HMRC undertook covert observations of the restaurant in Moseley between noon and 23:00.

In July and August 2017 HMRC attempted to visit 3KH’s operations at Moseley (there is a dispute between the parties regarding these attempted visits which we address below in the section on the Mitigation Issue). It was not until 14 November 2017 that HMRC were able to access till data and some other business records.

Following examination of the records HMRC, through Officer Beard, formed a view that there had been a suppression of cash (but not credit card) sales from TSM. Limited further records were provided (z readings, bank statements, and purchase invoices for VAT periods 10/15 and 04/17). A review of these documents led Officer Beard to conclude that input tax had been over claimed. Officer Beard also identified a second restaurant, TSL, in respect of which input tax had been claimed but no sales declared. The VAT Assessments and Further VAT Assessments were issued to collect the output tax under declared and input tax over claimed.

Officer Beard highlighted to Officer Pinder that he had identified what he considered to be supressed sales. From this conclusion she considered that that there was an insufficiency of tax declared on the corporation tax returns and that discovery assessments were appropriate. With no evidence as to where the suppressed sales had been used in the business, she concluded they had been extracted by MJ and MB as participators and thus giving rise to a further corporation tax charge and associated NICs charge. Concluding that the insufficiently arose as a consequence of deliberately rendering incorrect returns the Discovery Assessments were issued.

HMRC considered that the errors giving rise to under declaration of VAT and insufficiency of corporation tax arose in circumstances giving rise to a deliberate penalty which was properly attributed to MJ and MB.