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VAT
VAT
As we have mentioned above, HMRC made the VAT assessments against SA and Global under section 73(1) VATA. Section 73 permits HMRC to make an assessment “to the best of their judgment” where, inter alia, a taxpayer has failed to make returns as required by VATA. At all material times, section 73(1) VATA was in the following form:
Where a person has failed to make any returns required under this Act (or under any provision repealed by this Act ) or to keep any documents and afford the facilities necessary to verify such returns or where it appears to the Commissioners that such returns are incomplete or incorrect, they may assess the amount of VAT due from him to the best of their judgment and notify it to him.
The civil evasion penalty levied against SA was issued under section 60 VATA. At the relevant time, section 60 VATA was, so far as relevant, in the following form:
60.— VAT evasion: conduct involving dishonesty.
In any case where—
for the purpose of evading VAT, a person does any act or omits to take any action, and
his conduct involves dishonesty (whether or not it is such as to give rise to criminal liability),
he shall be liable, subject to subsection (6) below, to a penalty equal to the amount of VAT evaded or, as the case may be, sought to be evaded, by his conduct.
…
On an appeal against an assessment to a penalty under this section, the burden of proof as to the matters specified in subsection (1)(a) and (b) above shall lie upon the Commissioners.
HMRC issued a DLN to Mr Malde under section 61 VATA in respect of the civil evasion penalty issued to SA. Under section 61, HMRC was able to issue a DLN to recover the amount of a penalty assessed on a company under section 60 VATA (or a proportion of such a penalty) from a director or managing officer of the company in certain circumstances. At the relevant time, it was in the following form:
61.— VAT evasion: liability of directors etc.
Where it appears to the Commissioners—
that a body corporate is liable to a penalty under section 60, and
that the conduct giving rise to that penalty is, in whole or in part, attributable to the dishonesty of a person who is, or at the material time was, a director or managing officer of the body corporate (a “named officer”),
the Commissioners may serve a notice under this section on the body corporate and on the named officer.
A notice under this section shall state—
the amount of the penalty referred to in subsection (1)(a) above (“the basic penalty”), and
that the Commissioners propose, in accordance with this section, to recover from the named officer such portion (which may be the whole) of the basic penalty as is specified in the notice.
Where a notice is served under this section, the portion of the basic penalty specified in the notice shall be recoverable from the named officer as if he were personally liable under section 60 to a penalty which corresponds to that portion; and the amount of that penalty may be assessed and notified to him accordingly under section 76.
Where a notice is served under this section—
the amount which, under section 76, may be assessed as the amount due by way of penalty from the body corporate shall be only so much (if any) of the basic penalty as is not assessed on and notified to a named officer by virtue of subsection (3) above; and
the body corporate shall be treated as discharged from liability for so much of the basic penalty as is so assessed and notified.
No appeal shall lie against a notice under this section as such but—
where a body corporate is assessed as mentioned in subsection (4)(a) above, the body corporate may appeal against the Commissioners' decision as to its liability to a penalty and against the amount of the basic penalty as if it were specified in the assessment; and
where an assessment is made on a named officer by virtue of subsection (3) above, the named officer may appeal against the Commissioners’ decision that the conduct of the body corporate referred to in subsection (1)(b) above is, in whole or part, attributable to his dishonesty and against their decision as to the portion of the penalty which the Commissioners propose to recover from him.
In this section a “managing officer” , in relation to a body corporate, means any manager, secretary or other similar officer of the body corporate or any person purporting to act in any such capacity or as a director; and where the affairs of a body corporate are managed by its members, this section shall apply in relation to the conduct of a member in connection with his functions of management as if he were a director of the body corporate.
Section 60 and section 61 VATA were repealed by FA 2007, subject to certain transitional rules. The former penalty regime was replaced by a new regime found in Schedule 24 FA 2007 and Schedule 41 FA 2008. HMRC issued the registration penalty and the inaccuracy penalty to Global and the relevant PLNs in respect of them to Mr Malde under Schedule 41 FA 2008 and Schedule 24 FA 2007.
Under paragraph 1 Schedule 41 FA 2008, a penalty is payable by a person where that person fails to comply with a “relevant obligation”. A relevant obligation is an obligation listed in the table in paragraph 1. The table includes, in relation to VAT:
“Obligations under paragraphs 5, 6, 7 and 14(2) and (3) of Schedule 1 to VATA 1994 (obligations to notify liability to register and notify material change in nature of supplies made by person exempted from registration).”
Paragraphs 5, 6 and 7 Schedule 1 VATA 1994 are the obligations on persons who make taxable supplies or who expect to make taxable supplies with a value in excess of the relevant threshold to notify HMRC of a liability to register for VAT.
Under paragraph 22 Schedule 41 FA 2008, HMRC may issue a PLN to recover the amount of a penalty (or a proportion of it) payable by a company under paragraph 1 Schedule 41 (and certain other provisions of Schedule 41) from an officer of the company in certain circumstances. At all material times, paragraph 22 was in the following form, so far as relevant:
22
Where a penalty under any of paragraphs 1, 2, 3(1) and 4 is payable by a company for a deliberate act or failure which was attributable to an officer of the company, the officer is liable to pay such portion of the penalty (which may be 100%) as HMRC may specify by written notice to the officer.
Sub-paragraph (1) does not allow HMRC to recover more than 100% of a penalty.
…
Under paragraph 1 Schedule 24 FA 2007, a penalty is payable by a person where that person gives HMRC a document of a kind listed in the table in sub-paragraph (4) of paragraph 1, that document contains an inaccuracy, and the inaccuracy was careless or deliberate on that person’s part. The table in sub-paragraph (4) includes in respect of VAT:
VAT return under regulations made under paragraph 2 of Schedule 11 to VATA 1994.
Under paragraph 19 Schedule 24 FA 2007, HMRC may issue a PLN to recover the amount of a penalty payable by a company under paragraph 1 Schedule 24 for a deliberate inaccuracy (or a proportion of it) from an officer of the company in certain circumstances. At all material times, paragraph 19 was in the following form, so far as relevant:
19 Companies: officers' liability
Where a penalty under paragraph 1 is payable by a company for a deliberate inaccuracy which was attributable to an officer of the company, the officer is liable to pay such portion of the penalty (which may be 100%) as HMRC may specify by written notice to the officer.
Sub-paragraph (1) does not allow HMRC to recover more than 100% of a penalty.
- Heading
- Introduction
- Background
- VAT
- Excise duties
- The FTT Decision
- The Grounds of Appeal
- Ground 1: the burden of proof
- Background
- The FTT Decision
- The parties’ submissions in outline
- The relevant case law principles
- The burden of proof in tax appeals
- The burden of proof in penalty appeals
- DLN
- Penalties under Schedule 24 FA 2007 and Schedule 41 FA 2008
- Ground 2: approach to the issues and evidence
- Background
- The FTT Decision
- Discussion
- Conclusion
- Ground 3: conclusions inconsistent with the underlying evidence
- Background
- The FTT decision
- The parties’ submissions in outline
- Discussion
- Application to the facts of this case
- Conclusion
- Ground 4: breach of “best judgment” requirement
- Background
- Relevant case law principles
- There are two distinct questions which arise where an assessment purports to be made under section 73(1) VATA: first, whether the assessment has been made under the power conferred by that section; an
- The test as to whether an assessment is made to the best of HMRC’s judgment is classically set out in the judgment of Woolf J in Van Boeckel , at page 292e-293a, where he said this
- As to whether an alleged error in an assessment is to be taken as evidence that the assessment was not made to the best of HMRC’s judgment, the relevant question is whether the mistake is consistent w
- There are, however, dangers in an over-rigid adherence to a two-stage approach (i.e. first, validity; second, quantum) to a challenge to a best judgment assessment. The important issue for the tribuna
- The FTT Decision
- The parties’ submissions in outline
- The only relevant test of whether the assessment met the best judgment requirement was whether the mistakes in the assessment were “consistent with an honest and genuine attempt to make a reasonable a
- Application to the facts of this case
- Ground 4
- Ground 5
- Conclusion
- Background
- In relation to Ground 3
- In relation to Ground 4
- In relation to Ground 5 Why, if there was a breach of the best judgement requirement, it rejected the Court of Appeal’s guidance in Pegasus Birds at [23-29] not to automatically set aside the whole assessment but instead to
- If the Tribunal considered Mr Foster’s failure to consider the York Wine bank statements was so “serious or fundamental” that it required the whole assessment to be set aside ( Pegasus Birds [29]), wh
- The parties’ submissions in outline
- Discussion
- Application to the facts of this case
- Conclusions