Upper Tribunal Tax and Chancery Chamber

[2024] UKUT 00390 (TCC)

Fecha: 04-Ene-2024

Second ground of appeal

The FTT’s findings

23.

The FTT made findings that the Applicant’s conduct was deliberate in the context of the corporation tax appeal (see [310]-[313]) and VAT appeal (see [353]) as follows:

310.

In order to satisfy paragraph 43 Schedule 18 the loss of tax must have been brought about by the careless or deliberate behaviour of the appellant or someone acting on their behalf. HMRC have argued that the behaviour in this instance was deliberate. That is on the basis that both of the directors knew that income was payable to the appellant, albeit it had been collected by them ostensibly in their capacity as directors of the appellant, but that income was not reflected in the accounts or tax returns. It was the directors who made all of the purchases and sales so they would have known the large sums of money that were passing through their hands. The accounts simply did not reflect that.

311.

In the words of HMRC, the appellant’s record keeping arrangements were:

“fundamentally inadequate and its business processes were not sufficiently robust to ensure that all income and associated expenses were brought into account in calculating its profits chargeable to corporation tax. That is not the behaviour of a prudent and reasonable taxpayer wishing to comply with their legislative requirements”.
312.
All of that is true but we would go further. This is not simply a case of lamentably poor record keeping which in itself was entirely caused by the directors. What was the appellant’s intention? Having made the choice to use the appellant as a trading vehicle, nevertheless the directors chose to operate using their own debit and/or credit cards, and bank accounts. The Barclays account was used both for the appellant and the Bottle Stop. They knew that those transactions were not in the accounts. They chose to buy and sell 9,700 cases of Villa Radiosa off record. The stock flow exercise identifies significant volumes of off record sales and purchases.
313.
They were responsible for the appellant’s accounts and tax returns and, not least because of the sheer volume of anomalies in the records, they must have known that they were not accurate. In our view, to paraphrase the Supreme Court in HMRC v Tooth [2021] UKSC 17, at every stage there was an intention to mislead the Revenue with the consequence that there was insufficiency of tax. Looking at the totality of the evidence we find that the behaviour was deliberate.
..
353.
It is argued for the appellant that Mr Paudel believed that the records were correct and therefore the VAT returns would have been correct. We do not accept that for the reasons given in relation to Corporation Tax. We have explained at paragraphs 310 and 311 above why we thought that the behaviour was deliberate for Corporation Tax purposes and we adopt that reasoning for VAT. We find that the behaviour was deliberate but not concealed.
[emphasis added]

24.

The FTT rejected any need to find that the Applicant’s behaviour was dishonest and accepted that HMRC did not plead, allege or put their case on the basis that the deliberate conduct was also dishonest. It did so in the following terms at [238]-[241] of the Decision:

Whether HMRC alleged fraudulent or dishonest behaviour?

238.

We do not propose to address every argument that was advanced for the appellant in relation to the argument that HMRC had alleged fraudulent and dishonest behaviour. Mr Jones argued that it had not been put to Mr Paudel that he was fraudulent or dishonest and indeed it was not. However, we find that that was because, although HMRC certainly argued that the appellant’s behaviour, through its directors, was deliberate and caused a loss of tax, they did not argue that it was either fraudulent or dishonest.

239.

Mr Jones argued that HMRC had “rowed back” on the issue of fraudulent or dishonest behaviour but there was an “undercurrent” to that effect in the assessments and HMRC’s case. The only inference to that effect that we found was at paragraph 73 of the VAT Statement of Case where HMRC had said that the behaviour was “at least deliberate”. That was not repeated and Mrs McIntyre did not advance that argument at any stage.

240.

In any event, in our view, that had not been Officer Dyson’s approach. He made it very clear that he had relied on what had been said at the meeting on 16 May 2017 and had given VKM and others numerous opportunities to comment thereon and they simply had not responded in any satisfactory fashion. Officer Maqsood had adopted the same approach.

241.

In summary, deliberate behaviour is not necessarily either fraudulent or dishonest and we do not accept that HMRC have argued fraudulent or dishonest behaviour.