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1st Tier Tribunal overturns VAT Dishonesty Finding | Regulatory Lawer

1st Tier Tribunal overturns VAT Dishonesty Finding | Regulatory Lawer

In a fully argued case, the First Tier Tribunal have overturned a finding of Dishonesly avoiding the payment of VAT under s61 of the Value Added Tax Act 1994 [VATA]. The assessment of a penalty of £89,001 was therefore quashed, and the decision gives a detailed explanation of the application of the Ghosh test for dishonesty in civil cases such as this.

In the case of Plant Force ( Leeds) Ltd v The Commissioners for Her Majesty's Revenue & Customs  [2017] UKFTT 349 ( TC)  an appeal against a civil evasion penalty for failure to make returns and pay VAT due was allowed in full The question for the Tribuncal was whether or not omissions by the appellant to make returns and pay VAT on time was made for the purpose of evading VAT and involving dishonesty. There was an ancillary question of whether or not the penalty should have been reduced by the amount of default surcharges that had already been paid, and again that was answered in the appellants favour.  

In this case,  Jeremy Barnett, Counsel, was instructed by Jeffrey Wine of Wine and Co ( Chartered Accountants), Leeds for the Appellant. Tom Rainsbury was instructed by the General Counsel and Solitictor to HM Revenue and Customs, for the Respondents.

The primary facts of the case were not in dispute. The HMRC officer who conducted the investigation into the appellant's failure to file returns and to pay VAT gave evidence that the Company began to slip behind with its VAT returns and other tax debts and in 2008 HMRC threatened winding up for upaid VAT and PAYE.

The appellant failed to make 9 consecutive returns and HMRC issued automated central assessments and surcharge notices. At no time did the appellant inform HMRC that the central assessments were too low. There were notes of various messages of contact by bookeepers employed by the company and requests for extensions.  The company instructed Wine and Co who called a meeting with HMRC where explanations were given about a potential failure by a previous firm to deal with the issue. 

The investigating officer concluded that 'deliberately not submitting VAT returns is fraud'. Mr Atkins response was that he didn't commit fraud, he just got behind. He denied that there had ever been a deliberate decison not to pay and pointed out to the Tribunal that a substantial penalty notice had been agreed and fully complied with.

The investigating officer imposed a penalty for evasion of £148,344 but was prepared to abate the penalty by 40% for disclosure and co-operation making the penalty £89,001. She also indicated that as HMRC considered that the penalty was wholly or partly because of the behaviour of Mr Atkins, HMRC intended to recover 100% of the penalty from him under s61 VATA.

The Tribunal found that Mr Aktins was a straightforward and credible witness. He accepted he had been careless or negligent in the way he had dealt with his VAT responsibilities, but maintained that his mind was on the impending application to wind up the company and that he believed that his staff and accountants were dealing with the VAT issues. 

There was much agreement about the law which was essentially Ghosh [1982] and its application in civil proceedings which was set out in Barlow Clowes International Ltd & Anor v Eurotrust International and ors ( Isle of Man) [2005] UKPC 37. The tribunal accepted however that the regulatory decision of Lawrance v General Medical Council [2015] EWHC 586 (Admin) was helpful where it was said that in these circumstances the court should only find dishonesty established if they were satisfied that there was cogent evidence of dishonesty.

There was also confirmation of the definition of evasion given in the criminal case of Dealy wich is an English word that means to get out of something, or dodge something. The Tribunal also dealt with the case of Kirshner v General Dental Council [2015] EWHC 1277 (Admin) where Moystn J had criticised the decision in Bryant over uncertainty as to the civil tests being applied in different courts. The court relied upon the decision of the Upper Tribunal in Peter Arakiel Brookes v HMRC [2016] UKUT (TCC) where Newey J held that there were two tests, but as the FTT had used the Ghosh test which was more favourable to the appellant than the Barlow Clowes test, then he could not complain.

The Tribunal applied the Barlow Clowes test and concluded that HMRC had not discharged the burden on them to show that the appellant, through Mr Atkins, had dishonestly omitted to pay for the purpose of evading VAT. They in effect concluded that the investigator should have checked what Mr Atkins had said in interview for themselves and that once alerted to the scale of the outstanding debt, Mr Atkins took 'all appropriate steps' to pay what the appellant owed. 

They accepted that negligence or even gross negligent was not sufficient for a finding in these circumstances.

For any advice and assistance for issues like these please do call Jeremy on 0844 2722322 or submit a comment below. Jeremy will come back to you at the earliest convenience.

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