TC09641 - [2025] UKFTT 01115 (TC)

The question I must decide is whether Mr Lambert’s case, as expressed in his grounds of appeal, has no reasonable prospect of success. In making this decision I have considered whether Grounds 1 to 3 constitute an abuse of the Tribunal’s process, because if they do, following the reasoning in Shiner at [19], it follows that they have no reasonable prospect of success.

I find that Grounds 1 to 3 seek to re-litigate matters that have already been determined by this Tribunal in the previous decision in Fulfillment Logistics, and are therefore an abuse of the Tribunal’s process.

In Ground 1, Mr Lambert states that his behaviour was neither deliberate nor concealed. The sole basis he gives for this statement is that he did not know about the “alleged fraud that was claimed”.

Regarding the denial of the input tax deduction, the “alleged fraud” involved the transfer of the contact lens business from CLUK to a company in the Seychelles (CLL) with the intention of evading VAT. The Tribunal in Fulfillment Logistics found, at [235], that:

“We are satisfied that… there was a deliberate scheme to move the Contact Lens Business offshore with a view to evading VAT.”

The Tribunal also found, at [242], that Mr Lambert was CLL’s finance manager, and at [246] held that:

“…we find it inconceivable that Mr Lambert did not know the real reasons for the move to CLL. He went along with the 2007 sale, became the finance manager for CLL and took advice on from The VAT Consultancy in 2013. In all that time we find he would have been told the real reason for the CLL structure.”

Regarding the output tax assessment, the Tribunal found at [341] that the behaviour of FLUK (of which Mr Lambert was the sole director) was “deliberate”, and at [342] held that:

“we are satisfied that Mr Lamber[t] knew the appellant should be charging VAT.”

Based on these findings it is, in my view, clear that the Tribunal in Fulfillment Logistics decided that Mr Lambert did know about the VAT fraud that gave rise to the issue of the penalty assessment, in relation to both the denial of the input tax claim, and the output tax assessment. By Ground 1, he is seeking re-litigate an issue that has already been determined by the Tribunal.

In Ground 2, Mr Lambert argues that all FLUK’s VAT returns were submitted in the belief that they did not contain inaccuracies. As Mr Lambert was FLUK’s sole director, it is his belief that is in point.

On the question of whether Mr Lambert knew that the VAT returns were inaccurate because they purported to reclaim input tax that was not properly due, the Tribunal decided that Mr Lambert knew of the connection to VAT fraud, in that he knew that the contact lens business had been transferred to CLL with the intention of evading VAT. In accordance with the decision of the Upper Tribunal in Booth at [43], it follows that Mr Lambert had the requisite “state of knowledge” to support a finding of deliberate inaccuracy. As regards the under-declared output tax, the Tribunal’s finding in Fulfillment Logistics that Mr Lambert knew FLUK should have been charging VAT means he must also have known that the related VAT returns were inaccurate.

The Tribunal’s findings in Fulfillment Logistics therefore lead inevitably to the conclusion that FLUK, through its sole director Mr Lambert, knew that the VAT returns contained inaccuracies. In case my reasoning on this point is wrong I find, in any event, that the Tribunal’s findings in Fulfillment Logistics mean that Mr Lambert’s case has no reasonable prospect of succeeding on Ground 2.

In Ground 3, Mr Lambert states that he is being unfairly held accountable for actions that he has been wrongly accused of. He does not specify the actions in question but I conclude this is a reference to Grounds 1 and 2, and repeats his claim that he did not know about the fraud or the inaccuracies. My findings on Grounds 1 and 2 therefore apply equally to Ground 3.

In his response to HMRC’s strike-out application, Mr Lambert highlights the fact that Fulfillment Logistics was an appeal by FLUK, whereas now he seeks to appeal in his personal capacity. He refers to Article 6 of the European Convention on Human Rights (“Article 6”), which provides that “everyone is entitled to a fair and public hearing”. He states that he has not, as an individual, yet received that fair and public hearing.

This scenario was considered by this Tribunal in both Hackett and Trees, and in both cases the Tribunal referred to the judgment of the High Court in Gleeson. The correct approach, set out in Gleeson, is to determine whether there is a “sufficient degree of identification” between Mr Lambert and FLUK to make it just to hold that the decision to which FLUK was a party (Fulfillment Logistics) should be binding in proceedings to which Mr Lambert is a party.

It is clear from the reasoning of the Tribunal in both Hackett and Trees (with both of which I agree) that the answer is yes. As was the case in Trees, Mr Lambert is FLUK’s sole director, and so FLUK is his alter ego, or “corporate embodiment”. To adopt the language of the Tribunal in Hackett, Mr Lambert has, in his capacity as director of FLUK, had the opportunity to put forward his case that there was no connection between the transactions of FLUK and the fraudulent evasion of VAT, and that FLUK (through its sole director Mr Lambert) did not know of any such connection. As was the case in Hackett, to allow Mr Lambert to re-litigate this question would be an abuse of process.

Regarding Article 6, Mr Lambert was the sole witness for FLUK at the hearing in Fulfillment Logistics. The Tribunal’s findings, including those I have set out above concerning Mr Lambert’s knowledge of the relevant fraud, were made following a four-day hearing at which the Tribunal made detailed findings of fact based on careful consideration of the evidence before it, including the evidence of Mr Lambert. I therefore do not consider that Mr Lambert has been denied the rights contained in Article 6, notwithstanding that the previous proceedings were in the name of a different party.

I would also observe that Mr Lambert was provided with the opportunity to attend a further Tribunal hearing to consider this strike-out application. If he had attended he would have able to set out his case as to why the appeal should not be struck out.

For the reasons I have given above, I find that Grounds 1 to 3 seek to re-litigate matters that have already been determined by this Tribunal, and are therefore an abuse of process. I further find that, in light of the Tribunal’s findings in Fulfillment Logistics, Grounds 1 to 3 have no reasonable prospect of success. I therefore exercise my discretion to strike out Grounds 1 to 3.

Ground 4 concerns the mental distress caused to Mr Lambert as a result of the “relentless persecution” he has faced “under the guise of these false accusations”. In his response to HMRC’s strike-out application, Mr Lambert argues that his mental health must be taken into account in accordance with the Equality Act 2010.

For this ground of appeal to have a reasonable prospect of success, it must be a ground on which the Tribunal could cancel or reduce the penalty. Mr Lambert has not explained what provisions in the Equality Act 2010 would provide the Tribunal with a basis for cancelling or reducing a penalty for inaccuracies in a VAT return. Without this explanation I am unable to find that this ground of appeal has a reasonable prospect of success.

HMRC may reduce a penalty if it considers it would be right to do so because of special circumstances. In the case of FLUK, HMRC’s penalty explanation letter states that they considered whether there were any special circumstances, and concluded there were none. A Tribunal may only overturn HMRC’s decision as to whether there are special circumstances if it considers this decision was flawed.

Mental health considerations may provide the basis for an argument that there are special circumstances. In this case, the evidence Mr Lambert has provided of his mental health difficulties consist of a letter from his GP dated 11 December 2023, stating that Mr Lambert was diagnosed with moderately severe depression on 23 October 2023. I infer from Ground 4 that Mr Lambert is arguing that this depression has been caused by HMRC’s efforts to recover the VAT that was due from FLUK.

The VAT returns in respect of which HMRC has imposed penalties in this case date from 2018 and earlier. I have seen no evidence that Mr Lambert was suffering from mental health difficulties at this time. I do not consider there to be a reasonable prospect that a Tribunal would conclude that HMRC should reduce inaccuracy penalties on the grounds that HMRC’s efforts to recover the correct amount of VAT may have resulted, several years after the relevant VAT returns were submitted, in Mr Lambert suffering from depression.

In Ground 5 Mr Lambert states that he is unable to pay the penalty. I can state shortly that the Tribunal would not be able to reduce or cancel the penalty on these grounds. The legislation is explicit that inability to pay is not a special circumstance that would justify a penalty reduction.

For the reasons I have given, I find that Grounds 1 to 5 have no reasonable prospect of success. I further find that Grounds 1 to 3 are an abuse of the Tribunal’s process. I therefore strike out the appeal.

I would observe that I have made this decision based on Grounds 1 to 5, as they have been presented to me in Mr Lambert’s notice of appeal. This does not mean that there are no grounds on which Mr Lambert could succeed in an appeal against the penalties. The penalty assessments were issued after the Tribunal had released its decision in Fulfillment Logistics. The Tribunal has not, therefore, made findings on all of the behaviours on which HMRC relied when quantifying the penalty assessment.

For instance, where an inaccuracy is disclosed, HMRC must provide a reduction to reflect the quality of that disclosure, known as “telling, giving and helping”. HMRC’s assessment of the quality of FLUK’s disclosure is explained, under the headings of “telling, giving and helping”, in their penalty explanation letter dated 28 June 2023. It may be that Mr Lambert has grounds on which to dispute HMRC’s assessment of the quality of FLUK’s disclosure, and if so these would be grounds that have not previously been considered by the Tribunal.

If Mr Lambert exercises his right to apply for this decision to be set aside and for the appeal to be reinstated, he may apply at the same time to amend his grounds of appeal to remove those that lack a reasonable prospect of success, and replace them with new grounds.

If Mr Lambert wishes to pursue this course I would, however, strike two notes of caution. The first is that although he has the right to apply to amend his grounds of appeal, it does not follow that this application will necessarily succeed (still less that Mr Lambert would automatically be successful should the reinstated appeal proceed to a full hearing). In deciding whether to allow an amendment to a party’s grounds of appeal, the Tribunal will undertake a balancing exercise taking into account the need to deal with cases fairly and justly, and the injustice to each party and to litigants in general if the application is allowed or refused. For a helpful short summary of the principles the Tribunal would take into account, I would refer Mr Lambert to this Tribunal’s decision in Ataf Iqbal Butt [2024] UKFTT 893 (TC) (Footnote: ¹) at paragraph [13], and would in particular draw his attention to the need for supporting evidence.

The second note of caution is that not every ground of appeal will form a basis on which the Tribunal can remove a penalty in its entirety. The “telling, giving and helping” criteria that I refer to above, for instance, could only form the basis for a reduction in the amount of the penalty, not for a complete cancellation.

For the reasons I have given, the appeal is struck out.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.