UT/2024/000022 - [2025] UKUT 00309 (TCC)

There is no challenge to the basic factual background which the FTT derived from the documentary evidence before it, which included correspondence between the parties, notices and assessments, and notes of meetings. In this section we set out those of the facts necessary to help understand the Appellant’s grounds before us. Unless otherwise stated the paragraph numbering refers to that in the FTT Decision.

The FTT found that on 24 September 2014, HMRC assessed the Company to VAT in the sum of £2,642,141 in respect of various VAT accounting periods between 1 June 2010 and 28 February 2014. On 9 January 2015, HMRC issued a penalty assessment to the Company in the sum of £1,256,490.91 which the Company appealed against to the FTT. On 3 February 2015, HMRC issued Mr Pawar with a PLN in the sum of £1,256,490.91, representing 100% of the penalty ([8] to [11]).

HMRC also issued an inaccuracy penalty in relation to the Company’s corporation tax return which the Company appealed to the FTT against. A PLN was also issued in respect of the corporation tax penalty, although the FTT noted the material before it in relation to corporation tax position being “sketchy in the extreme” ([11], [16] and [78]).

The FTT found that much of the VAT assessment, the penalty imposed on the Company, and therefore the PLN, arose from the disallowance of input tax claimed by the Company on invoices addressed not to it, but to Mr Pawar’s sole proprietorship (“the Wine Lodge”), which was VAT registered. The corporation tax liabilities were based on essentially the same VAT investigation by HMRC ([12]). The Appellant had arranged for the Company to make payments on invoices addressed to “The Wine Lodge” in order to benefit from supplier discounts available under his sole proprietor account. He claimed that the goods were actually sold by the Company (which accounted for output tax on the sale) and that he had only acted as agent or nominee in purchasing them ([12]).

As explained by the FTT (at [12]):

“…The Appellant claimed that the goods were actually sold by [the Company] (which accounted for output tax on the sale) and he had only acted as agent or nominee in purchasing them, which was why [the Company] (and not he) had claimed the input tax on their purchase.”

HMRC accepted that Mr Pawar could reclaim the input VAT under his own registration, provided he issued sales invoices to the Company ([15]).

The FTT explained (at [13]) that the Appellant’s then accountants had referred in correspondence to a proposal that Mr Pawar would:

“claim the invoices as mentioned on [Mr Pawar’s] personal VAT reference and raise a notional sales invoice to [the Company] for each quarter to the value of £1 in order to meet the requirement that goods purchased for reclaiming VAT must also have a corresponding sale.”

HMRC responded on 12 March 2015 confirming (as set out at [15]) that:

“due to the large number of invoices involved, we will exceptionally agree to your proposal to raise a notional sales invoice for each period to [the Company] in order to achieve a tax neutral position. In order for us to deal with your client’s claim you may submit a voluntary disclosure i.e. notification to us in writing of the adjustments you have made in relation to the input tax and copies of the corresponding notional sales invoices. Please note that as there is no tax loss, the interest charged on the original assessment that was issued to [the Company] will be inhibited.” 

The FTT also recorded (at [17]) that it had been pointed out “at an early stage” that the proposal needed to be implemented within a statutory four year time limit. (This ran from the relevant VAT periods and there is no dispute that by the time the FTT heard the late appeal application the time for this “corrective action” had long expired).

As will be seen, the Appellant’s grounds before us highlight HMRC’s agreement to the corrective action (the proposal that input tax credit would be claimed in Mr Pawar’s VAT with a notional invoice from Mr Pawar to the Company for the supply of goods for consideration of £1) “in order to achieve a tax neutral position”. The Appellant also emphasises that HMRC had noted there to be “no tax loss” (though, as we explain below, the corrective action was never taken).

Mr Pawar instructed new accountants, Grant Thornton, to act for him personally. The Company went into liquidation shortly afterwards but discussions between Grant Thornton and HMRC continued as to the proposed “corrective action” ([19] and [20]). In June 2016 Grant Thornton prepared 33 pages of schedules, summaries and diagrams covering VAT periods from 08/10 to 08/12 only. A meeting took place between HMRC and Grant Thornton in that month (at [20]).

Grant Thornton concluded that £516,087.06 of input VAT was “proper” to the Appellant’s personal VAT registration (HMRC had assessed £667,966 in respect of those periods), though the FTT noted that Grant Thornton’s analysis did not cover periods after 08/12 (at [22]). It was not clearly explained to the FTT why Grant Thornton’s work did not cover subsequent periods. The tribunal noted that for the two subsequent periods 11/12 and 02/13 HMRC had raised assessments totalling £676,859 and penalties totalling £470,604.33 which amounted to more than half of the total penalties subsequently comprised in the PLN which the Appellant seeks permission to appeal ([22]).

The FTT recorded, in relation to the meeting in June 2016 that “it appeared that discussions were constructive but “credible evidence” was required to back up the information that had been presented” ([20]). It was not clear to the FTT what happened after that meeting; so far as the Appellant was concerned the next event was on 5 October 2017, when HMRC issued a revised PLN to him, reducing the penalty amount to £874,238 (at [24]–[30]).

The FTT noted that the revised PLN included a section outlining the options of review or appeal ([30]). Discussion of the PLN took place in correspondence between Mr Pawar and HMRC in October and November 2017 (at [31]-[34]).

Mr Pawar subsequently instructed a new adviser, Mr Christopher Mann of Tiberius Solutions Ltd, and discussions with HMRC continued through 2018, including a face-to-face meeting on 15 March 2018 at which it was agreed that the Appellant and Mr Mann would go away to discuss the quantum of the assessment and revert to HMRC ([36]). Between April and June 2018 Mr Mann raised issues concerning the lawfulness of the penalty, which he said was a more pressing issue, and added that the exercise of reviewing the assessment had not been started ([38-40]) The FTT found that by August 2018 the parties had “taken up entrenched positions” ([42]). However, HMRC agreed to carry out a statutory review of the decision to impose the PLN ([43]).

A review conclusion letter upholding the PLN was issued to the Appellant on 19 November 2018; it upheld HMRC’s earlier decision in full and concluded with a section referring to the possibility of an appeal to the tribunal and the 30-day deadline for doing so (at [44]–[45]). (This is the decision in respect of which the FTT refused permission for a late appeal; the subject of the appeal before us.) The letter also indicated in an earlier section that responsibility for the matter had reverted to the previous HMRC officer (a passage which Mr Mann later seized on when writing to HMRC on 1 May 2019).

The FTT then summarised the events from 19 November 2018 (when the PLN was notified to Mr Pawar) through to 22 February 2022 (when the appeal was eventually notified by him to the FTT ([46]–[51]).

The only evidence before the FTT of communication between Mr Mann and HMRC in this period consisted of an email dated 1 May 2019 in which Mr Mann wrote to officer Joanne Jones of HMRC stating:

“further to the 19 November 2019 letter which stated that the responsibility for this matter had reverted back to you. Our client is still waiting to hear from you regarding the next steps available for resolving this matter.”

On 30 May 2019, the Company’s liquidators confirmed the Company’s withdrawal of the Company’s appeals, following which it appears the PLN was released for collection. The FTT noted that Mr Pawar replied to HMRC letters of 12 December 2019 and 12 March 2020 warning of possible bankruptcy proceedings and referred to a phone call made by him to HMRC on 17 April 2020 which it accepted “at least show[ed] some further engagement by the Appellant” at that time. In May 2021 a different HMRC officer invited the Appellant to contact her to discuss the matter, but there was no evidence before the FTT of any response from the Appellant ([49]).

The next piece of evidence before the FTT was of the issue of a statutory demand dated 24 January 2022 addressed to the Appellant for the recovery of over £1.1 million in respect of various tax liabilities (which the FTT presumed included the £874,238 from the October 2017 PLN) ([50]). There followed “a flurry of activity” including the submission of the late appeal to the FTT on 22 February 2022 ([51]).

The oral hearing in relation to Mr Pawar’s late PLN appeal application took place before the FTT on 6 January 2023.