Maxxim Residential Design Limited v The Commissioners for HMRC

Mr Evans, in his oral evidence, did not accept that the Disputed Invoices had been sent by him to Mr Sandberg as the copy e-mail dated 1 August 2014 contained in hearing bundle did not show any attached documents. Furthermore, the ACD invoice numbered 17048 was illegible and no reliance could be placed upon it. We find as fact that Mr Evans did send the Disputed Invoices to Mr Sandberg for the following reasons. On 25 July 2014, Mr Evans e-mailed Mr Sandberg a detailed list of purchases for the period 1 April 2014 to 30 June 2014. Mr Sandberg replied on 30 July 2014 stating: “I need to see the following invoices” and requested specifically copies of invoices in respect of the Appellant: “Car Hire Invoices – VAT £429.83, Architectural Consultant – June – VAT £2,961.67, Urban design Consultant – VAT £2,765.00”. The Architectural Consultant and Urban design Consultant invoices were selected by Mr Sandberg as they were the Appellant’s two highest value claims.

Mr Evans e-mailed on 1 August 2014 stating: “Please find attached invoices for Maxxim … In terms of the car hire invoices, you will see that there is a claim for VAT in March, but was included in this VAT return … The submission figures were based upon agreed rentals with AVIS”. Mr Sandberg’s response on 4 August 2014 timed at 12.47 e-mail did not state, as commonly occurs, that the attachments had not been attached to the e-mail. On the contrary, it stated: “I have just a couple of queries/comments concerning the invoices that you sent me” and then proceeded to refer to the ACD (Landscape Architects) Ltd Invoice number 17048 as being illegible at the bottom of the invoice and the Avis car hire invoices: documents that Mr Evans had stated were attached to his e-mail dated 1 August 2014. Mr Evans’ reply of the same date timed at 13.31 did not query Mr Sandberg’s reference to the 17048 Invoice nor that the entire document was illegible and he could not provide the information requested but provided the information requested stating: “Thanks for the email below, here is further information as requested.” We accept that the e-mail chain in the hearing bundle does not show the attachments but we consider it clear from the e-mail chain that the Disputed Invoices were attached to Mr Evans’ e-mail dated 1 August 2014. We note that Mr Sandberg’s e-mail to Mr Evans dated 30 October 2015 refers to attached letters but similarly the printed copy of the e-mail does not show the attachments suggesting that the e-mails contained in the hearing bundle were printed in HTML and not plain text.

Mr Evans’ evidence was that it was he that had notified HMRC of the errors and that HMRC had acted unfairly and disproportionately when, following that notification, it proceeded to raise assessments and imposed penalties. Mr Evans’ evidence was that he had “raised the alarm bell” when he had stated in his e-mail dated 8 August 2014 “We have discovered there are errors included on the return and information provided and we would like to revise the returns before any repayment is made.” Mr Evans submitted that the evidence shows that there was no motivation to get the money back, the Appellant wanted to correct the error. Mr Evans evidence was that HMRC had only found the evidence after he had disclosed the error. Ms Brown submitted that it was clear from the e-mails that, when they were looked at in context, that Mr Sandberg had already identified errors and was requesting information and documents to verify the claims. It was only after Mr Sandberg had made the request on 6 August 2014 for specific documents that Mr Evans stated that there were “errors” in the return and information provided. We agree with Ms Brown’s submissions and find as fact that whilst Mr Evans did notify HMRC of the errors in the returns and information provided, HMRC were notified because Mr Evans believed that they had discovered or were about to discover the errors. When the e-mails are looked at in context it is clear that Mr Evans only stated that there were errors once it was clear that Mr Sandberg was enquiring into the returns and was requesting copies of documents that would clearly identify the inaccuracies. In addition, Mr Evans did not identify or provide any further details of what the “errors” were.

Mr Evans’ evidence was that Mr Sandberg had agreed that the Appellant could correct the errors by adjusting the next return. Mr Sandberg later changed his position and did not allow Mr Evans to amend the return and then proceeded to “use a sledgehammer to crack a nut” by “nilling the returns” rather than sticking to what had originally agreed. Ms Brown submitted that it was clear from the correspondence and Mr Sandberg’s evidence that at no stage had it been agreed that identified errors could be addressed by the Appellant amending its return. Mr Sandberg had agreed that the Appellant could adjust the amount overclaimed for the Avis car hire but that was only in respect of the Avis car hire invoices and on the basis that: “As this is a relatively small amount, could you please make an adjustment to the input tax claim on your next Return”. On 19 August 2014, Mr Sandberg e-mailed Mr Evans stating:

“As I have not been able to examine the records for both Maxxim Residential Design Ltd and. R J Architecture Ltd, in order to verify the input tax claims, and you had previously advised me that there had been errors made, I will have no alternative but to reduce the input tax claimed by both companies to £Nil for the 06/14 VAT Returns.”

We find as fact that there was no agreement that the Appellant could adjust the errors in the next VAT return. It is clear from the correspondence and documents that Mr Sandberg had agreed that an adjustment could be made to the next return to correct the overclaimed VAT in respect of the Avis car hire invoices but that was on the basis of the minimal amount of VAT involved. Mr Sandberg was clear in his evidence (which was accepted) that the agreement was solely made in respect of the Avis car hire invoices and that form VAT652 Notification of errors in VAT returns could not be used as the net value of the errors exceeded £10,000.

Mr Evans’ evidence was that he had not attended a meeting with Mr Sandberg to discuss the errors as he was not happy that Mr Sandberg’s colleague, Mr Reed, would be attending. Mr Evans considered this to intimidating and “mob handed” and that HMRC were trying to get him to attend a meeting for ulterior purposes. The use of the word “Official” in the e-mail confirming Mr Reed’s attendance reinforced the feeling of intimidation. Mr Evans obtained the advice of an accountant who advised him not to have the meeting and that HMRC had no legal right to require a meeting in respect of a VAT return. Ms Brown submitted that Mr Sandberg’s e-mail dated 8 August 2014 accurately stated the purpose of the meeting: “it would be best to arrange a meeting so I can examine the records of both companies … During this meeting we would be able to discuss any errors that have been made and how to address them”.

Mr Sandberg’s evidence and e-mails confirmed that he would be accompanied by Mr Reed as this was standard HMRC practice to ensure that HMRC officers did not attend premises alone. The “Official” security designation had been present on all previous e-mails sent to Mr Evans. We find that Mr Evans has not provided any credible explanation as to why the meeting to discuss the errors and examine the Appellant’s records was cancelled. Mr Evans did not provide any evidence of the advice allegedly received from the unnamed accountant advising him not to attend the arranged meeting or any subsequent meetings with Mr Sandberg and Mr Reed. In our view, at the very least, an accountant would have sought confirmation from Mr Sandberg of the purpose of the meeting before advising his client. We did not accept this evidence as plausible. We similarly do not accept that the word “Official” in the ‘Subject Matter’ of the e-mail from Mr Sandberg would have led Mr Evans to conclude that Mr Sandberg had not been honest about the purpose of the meeting and that a malign hidden agenda was the reason for requesting the meeting. The “Official” security designation had been present on all previous e-mails to Mr Evans and was the default security classification when communicating with taxpayers by e-mail.

Mr Evans’ evidence was that the Appellant’s business did not operate on a straight line and that there were “good times and bad times”. There was no output tax as the business was not doing as well as it had previously. In response to questions from the Tribunal, Mr Evans stated that the Appellant’s customer base had changed but not the nature of the work, a consultancy that does architectural designs, had not changed. Mr Evans did not agree that for the period 03/13 to 03/14 the Appellant had no work as the Appellant’s business had grown significantly since 2008 and during that period, the Appellant may have been supervising construction projects and had a limited turnover during that period. He stated that the reason the Appellant’s income for the period 03/13 to 03/14 was almost zero was because the Appellant had not been paid for consultancy work done during that period and that payments made were on a staged basis which was dependent upon how long each phase of work lasted.

We find during the period 03/13 to 03/14 the nature of the Appellant’s business had significantly changed with little or no taxable supplies made during that period. The burden of proof is on the Appellant to demonstrate the receipt of a taxable supply in order to exercise the right to make a claim to input tax. Mr Evans stated that he had not refused to supply records but was simply refusing to meet with Mr Sandberg and Mr Reed but the outcome was the same: no records evidencing the receipt of taxable supplies for the period 03/13 to 03/14 were provided to HMRC.

There was no dispute between the parties concerning the relevant law which we summarise below.

In this appeal, HMRC have denied input tax claimed by the Appellant. "Input tax" is defined in Section 24(1) VATA as VAT on the supply to a taxable person of any goods or services used, or to be used, for the purposes of his business.

In addition, in order to claim VAT as input tax Section 24 VATA states that the taxpayer must provide such evidence as may be specified in regulations or HMRC may direct. Regulation 13 of the VAT Regulations 1995 (“VAT Regs”) requires a taxable person to issue a VAT invoice whenever a taxable supply is made to another taxable person in the UK. At the time of completing a VAT return and claiming input tax a taxable person must hold the VAT invoice(s) relating to the claim (Regulation 29(2)(a)) although HMRC has discretion under Regulation 29 to permit alternative evidence to VAT invoices to be relied upon.

Section 26 of the VATA sets out that a taxable person is entitled to credit for so much of the input tax as is allowable under regulations as being attributable to identified supplies which in the case of the Appellant are taxable supplies. A "taxable supply" is defined in section 4 VATA as being a supply which is not exempt.

Regulation 29(2) of the VAT Regulations 1995 requires that the taxpayer, at the time of claiming deduction of input tax, provide HMRC with evidence to support such a claim.

The VAT legislation prescribes detailed record-keeping requirements. Those requirements include the obligation to keep business and accounting records, a VAT account and copies of all invoices issued and received by a taxable person (Regulation 6 of the 1995 Regs).

By virtue of section 73(1) VATA, where it appears to HMC that tax returns made by a taxpayer are incomplete or incorrect, HMRC may assess the amount of VAT due from him to the best of their judgment and notify it to him.

Section 73 VATA

“73 Failure to make returns etc

(1)

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.

(2)

In any case where, for any prescribed accounting period, there has been paid or credited to any person-

(a)

as being a repayment or refund of VAT, or

(b)

as being due to him as a VAT credit,

an amount which ought not to have been so paid or credited, or which would not have been so paid or credited had the facts been known or been as they later turn out to be, the Commissioners may assess that amount as being VAT due from him for that period and notify it to him accordingly.”

Assessments under VATA s 73(1) "shall not be made later than" the time limits set out in VATA s 73(6), namely:

Schedule 24 Finance Act 2007

The approach to a “best judgment” assessment was set out in Fio’s Cash and Carry Ltd v HMRC [2017] UKFTT 346 (TC) (“Fio”) in a passage approved by the Upper Tribunal in Kyriakos Karoulla t/a Brockley’s Rock v HMRC [2018] UKUT 0255 (TCC):

“14.

In considering an appeal against an assessment under section 73(1), the approach to be adopted was set out in two Court of Appeal decisions, Rahman (t/a Khayam Restaurant) v Customs and Excise Commissioners [2002] EWCA Civ 181, and Pegasus Birds Ltd v Customs and Excise Commissioners [2004] EWCA Civ 1015. The law was more recently summarised by the Upper Tribunal in Mithras (Wine Bars) Limited v HMRC [2010] UKUT 115(TCC)”.

The first stage is for the Tribunal to consider whether, at the time such an assessment was made, it was made to the best judgment of the Commissioners. At this stage, the Tribunal’s jurisdiction is akin to a supervisory judicial review jurisdiction. As stated by Chadwick LJ (as he then was) in Rahman (at [32]):

“In such cases … the relevant question is whether the mistake is consistent with an honest and genuine attempt to make a reasoned assessment of the VAT payable or is of such a nature that it compels the conclusion that no officer seeking to exercise best judgment could have made it. Or there may be no explanation; in which case, the proper inference may be that the assessment was indeed arbitrary.”

Chadwick LJ observed at [43] that instances of a failure to exercise best judgment would be rare. As he stated at [36]:

“… But the fact that a different methodology would, or might, have led to a different—even to a more accurate—result does not compel the conclusion that the methodology that was adopted was so obviously flawed that it could and should have had no place in an exercise in best judgment.”

Where the Tribunal is satisfied that the Commissioners have used their best judgment in making the assessment, the second stage for the Tribunal is to consider whether the amount assessed is correct. As Mithras makes clear, in relation to this second stage the Tribunal has a full appellate jurisdiction. It can therefore consider all available evidence, including material not available to HMRC at the time when the assessment was made, in substituting its own judgment as to the correct amount of the assessment.

In Van Boeckel v Customs and Excise Commissioners [1981] AER 505 ("Van Boeckel") the High Court (Woolf J as he then was) considered the application of best judgment.

“... It should be recognised … that the commissioners should not be required to do the work of the taxpayer in order to form a conclusion as to the amount of tax which, to the best of their judgement is due. In the very nature of things frequently the relevant information will be readily available to the taxpayer, but it will be very difficult for the commissioners to obtain that information without carrying out exhaustive investigations. In my view, the use of the words 'best of their judgment' does not envisage the burden being placed on the commissioners of carrying out exhaustive investigations. What the words 'best of their judgement' envisage, in my view, is that the commissioners will fairly consider all material placed before them and, on that material, come to a decision which is one which is reasonable and not arbitrary as to the amount of tax which is due."

The Court of Appeal in Customs & Excise Commissioners v Pegasus Birds Ltd [2004] EWCA Civ 1015, approved the approach of Woolf J. The Court of Appeal proceeded to provide guidance to the Tribunal when faced with “best of their judgment” arguments and confirmed that the Tribunal’s primary task is to find the correct amount of tax on the basis of the material before it and in all but very exceptional cases this should be the focus of the hearing; any mistake which the Tribunal considers that HMRC has made in its assessment may still be to best judgment if it is consistent with an honest and genuine attempt to make a reasoned assessment of the VAT payable; and an assessment which appears to be unreasonable or wholly unreasonable may still be the result of an honest and genuine attempt to assess the VAT properly due. At [38] Carnwath LJ stated:

“The tribunal should remember that its primary task is to find the correct amount of tax, so far as possible on the material properly available to it, the burden resting on the taxpayer. In all but very exceptional cases, that should be the focus of the hearing, and the tribunal should not allow it to be diverted into an attack on the Commissioners’ exercise of judgment at the time of the assessment.”

The question of how HMRCs are entitled, or required, to deal with returns was addressed by Lightman J in the case of R (on the application of UK Tradecorp Ltd) v Customs and Excise Commissioners [2004] EWHC 2515 (Admin)

Lightman J further considered the measures and steps that HMRC are entitled to take for the protection of the Exchequer:

“[33] The first reason is that there is authority binding on me to this effect. I have in mind the decisions of Neuberger J in Capital One Developments Ltd v Customs and Excise Comrs [2002] STC 479 and of Moses J in GSI. Neuberger J held that there was a critical distinction between an unadjudicated claim to input tax and an admitted or established claim; that the decision in Molenheide proceeded on the basis that the Belgian authorities in that case had admitted the claims and had merely raised a cross claim; and that the protection from derogation afforded to admitted or established claims did not extend to claims which were neither admitted nor adjudicated upon. Moses J cited with approval and followed that line of reasoning. The second reason is the line of reasoning having reference to the terms of the Sixth Directive and the decision in Genius which I have set out above. The third is practical common-sense. It must surely be incumbent on the taxpayer to satisfy the commissioners of his entitlement to a deduction. Fiscal neutrality requires that this should be so and that repayments should not be made to taxable persons who have or show no such entitlement. Surely it cannot be sufficient merely to make a claim to be entitled or treated by the law as entitled or have the same protection.”

In Georgiou (t/a Marios Chippery) v CCE, [1996] STC 463, the Court of Appeal held that the Tribunal had used the right test in deciding that HMRC had assessed to the best of their judgment by using the evidence before them at the time of making the assessment.

Mr Evans submissions on behalf of the Appellant are summarised as follows.

It was accepted that the Appellant had not received repayment of input tax from HMRC, HMRC have gone too far in issuing assessments made to best judgement and penalties when the appropriate course of action would have been to make an adjustment to the Appellant’s return. The Appellant had accepted that it had made errors but HMRC had refused to cooperate with the Appellant and had acted in a heavy-handed way.

It was accepted that a meeting with HMRC had not taken place but a meeting for the purpose of an adjustment of a VAT return was unnecessary. It was the Appellant that had alerted HMRC of the errors in the return and the 15% reduction for the quality of the disclosure did not adequately reflect that position. Once the errors had been brought to HMRC’s attention no further documents or records were provided as they were not required. An adjustment to the 06/14 return could have been made using form VAT652 and this course of action had been agreed by Mr Sandberg who then resiled from that agreement. It was clear that the Appellant had engaged with HMRC and it had not been necessary to raise assessments to best judgment nor impose penalties for human error. The Appellant was not a missing trader and this fact would have been plain to any reasonable person.

Ms Brown’s submissions on behalf of HMRC are summarised as follows.

During the course of HMRC’s checks into the 06/14 VAT repayment claim, records were requested to support the claim for £11,179.20. The Appellant provided listings and amounts but as these did not contain sufficient detail, copies of specific invoices were requested. The two invoices provided by the Appellant were subsequently found to be invalid invoices. When a repayment return is found to be in error HMRC are under a duty to conduct a reasonable and proportionate investigation into the claims for a refund and repayment. As repayment claims had also been made by the Appellant for the periods 03/13 to 03/14, HMRC sought to examine the Appellant’s business records.

The meeting scheduled for 19 August 2104 for the purpose of examining the Appellant’s business records was cancelled by Mr Evans and a subsequent unannounced visit on 28 August 2014 for the purpose of examining the Appellant’s business records was unsuccessful as Mr Evans was not present and not contactable by telephone. The Appellant failed to produce documents in accordance with a Schedule 36 Notice and HMRC subsequently raised “best judgment” assessments for the periods 03/13 to 03/14 inclusive as no supporting documents had been provided and Mr Sandberg had reason to believe that the practice of creating fraudulent invoices began when the business changed and ceased to make taxable supplies. HMRC took into account and applied and considered all credible information, knowledge and documentation when calculating the assessment. Likewise, HMRC correctly charged penalties in accordance with Sch 24 when it considered the inaccuracies identified in the VAT returns for the period 06/14 and the periods 03/13 to 03/14.

In the event that the Tribunal finds that the behaviour was not deliberate, HMRC submit that the penalty remains chargeable for non-deliberate behaviour calculated at £3,736.80 for the periods 03/13 to 03/14 inclusive and £3,102.22 for the period 06/14 on the potential lost revenue with the same reduction given for the quality of disclosure.

As the above case law makes clear, the Tribunal must consider the “best judgment” assessment in two stages.

The first stage is whether HMRC had fairly considered all the material before them and on that material, had come to a decision which is reasonable and not arbitrary as to the amount of tax due. We are satisfied that Mr Sandberg fairly considered all the material before him. We have found as fact that the Disputed Invoices were provided to HMRC by Mr Evans and that there was a significant change in the business with none or minimal taxable supplies made in the period 03/13 to 06/14; the assessments were on the basis that similar action may have taken place in the earlier returns when there was a significant change in the business. We accept that the assessments were made to Mr Sandberg’s best judgment.

The second stage is for the Tribunal is to consider all the available evidence (including evidence not available to HMRC at the time when the assessments were made) and determine the correct amount of tax.

As stated above at [‎‎6], it is for the Appellant to provide evidence to rebut HMRC’s assessments for the VAT periods 03/13 to 06/14. Mr Sandberg calculated the assessments in reliance upon the change in business from 03/13 as the sales appeared to have ceased and the fraudulent activity began. No evidence was provided to the Tribunal to rebut HMRC’s assessments and we find there is no evidential basis on which to set aside or reduce the assessments.

The assessments were made on 28 October 2015 for the VAT period 03/13 to 06/14. S73(1) VATA requires that these assessments "shall not be made later than" the time limits set out in VATA s 73(6), namely:

In Pegasus Birds v HMRC [1999] STC 95 ("Pegasus Birds"), Dyson J set out six principles to be used in deciding whether "evidence of facts, sufficient in the opinion of the Commissioners to justify the making of the assessment" has come to their knowledge of HMRC. These are:

HMRC’s Statement of Case was silent on the issue of time limits, HMRC’s skeleton argument asserted that the assessments had been “issued within legislative time limits”. It is clear that the assessment made on 28 October 2015 for the VAT periods 12/13, 03/14 and 06/14 were within the time limit in s73(6)(a) at [‎62] above.

In issue were also the assessments for the periods 03/13, 06/13 and 09/13 which fell outside the two year time limit within s73(6)(a). In respect of the time limit within s73(6)(b) VATA Mr Sandberg’s unchallenged evidence was that on 4 August 2014 he discovered what appeared to be false invoices and he subsequently examined earlier returns as he considered that similar action may have taken place in previous returns. The accepted evidence was that no additional information or documents had been provided by the Appellant to HMRC. Examination of the earlier returns confirmed that the claims to input tax began in the periods 3/13 to 3/14 when there was a significant change in the Appellant’s business with no or minimal sales in those periods. We considered whether Mr Sandberg’s analysis of the earlier returns in October 2015 was the “last piece of evidence of these facts to sufficient weight to justify making the assessment was communicated the Commissioners”. We agree with the conclusions of the VAT Tribunal in Lazard Brothers & Co v HMRC (1995) VAT Decisions 13476 which, following a review of the authorities, concluded:

In our view, the assessments issued on 28 October 2015 for the VAT periods 03/13, 06/13 and 09/13 were on the basis of information provided to HMRC by ACD and RPS on or about 4 August 2014, therefore HMRC had been provided with “evidence of facts, sufficient in the opinion of the Commissioners to justify the making of the assessment” and therefore the assessments for VAT periods 03/13, 06/13 and 09/13 were out of time.

Accordingly, we confirm the assessments for VAT periods 12/13, 03/14 and 06/14 but set aside those for the earlier periods.

The Tribunal (Judge Redston and Ms Gordon) in Albany Fish Bar Ltd v HMRC [2021] UKFTT 0221 (TC) considered whether a penalty should be reduced because it had found invalid assessments for earlier period. At [139] to [157], the Tribunal conducted a detailed analysis of the law to determine whether the penalty should be reduced in consequence of the invalid assessment. The Tribunal stated:

We agree with the decision of the Tribunal in Albany Fish Bar and adopt their reasoning. Accordingly, we find that the penalty is not to be reduced because the assessments for VAT periods 03/13, 06/13 and 09/13 were out of time.

The penalty for the period 06/14 was charged under Sch 24 on the basis that the behaviour had been deliberate and concealed. Ms Brown submitted that the behaviour was considered deliberate and concealed as the Appellant had made errors in the input tax claim and two invoices provided in support of the input tax claim were found to be false. At [‎45-‎46] above we found as fact that Mr Evans had supplied the false invoices to HMRC. In Auxilium Project Management v HMRC [2016] UKFTT 249 (TC) (“Auxilium”) the Tribunal held at [63] that:

“a deliberate inaccuracy occurs when a taxpayer knowingly provides HMRC with a document that contains an error with the intention that HMRC should rely upon it as an accurate document”.

Sch 24 does not define “deliberate and concealed” but gives the example of “submitting false evidence in support of an inaccurate figure”. Accordingly, we find that the behaviour was deliberate and concealed.

The penalty for the period 03/13 to 03/14 (“Earlier Returns”) was charged under Sch 24 on the basis that the behaviour had been deliberate as errors were found in the 06/14 VAT returns and HMRC considered that it appeared from the VAT returns for the Earlier Returns that similar errors had been made and the errors were deliberate. The disclosure was considered prompted as HMRC were not told about the inaccuracies before they were discovered or were about to discover it. The Tribunal in Auxilium at [64] emphasised that the test for determining whether a deliberate inaccuracy occurred was a subjective test and that the question was not whether a reasonable taxpayer might have made the same error or even whether the taxpayer failed to take all reasonable steps to ensure that the return was accurate, “it is a question of knowledge and intention of the particular taxpayer at the time”. As stated at [‎31-‎32] above, despite requesting information and records to verify the Earlier Returns, no information was provided by Mr Evans nor was any explanation or evidence put before the Tribunal to explain the Earlier Returns. At [‎9] above, we found that Mr Evans submitted the Earlier Returns and, at [‎52-‎53] above, we found that the Appellant’s business did change during the VAT period 03/13 to 03/14. Accordingly, we find that the inaccuracy in the Earlier Returns was a deliberate inaccuracy and that Mr Evans did knowingly and intentionally provide inaccurate documents to HMRC. At [‎47] above, we found that the disclosure was prompted as Mr Evans believed that HMRC had or were about to discover the errors.

Sch 24, paragraph 10 provides that a penalty for deliberate and concealed behaviour is a maximum of 100% and a minimum of 50% of the Potential Lost Revenue (‘PLR’) and for deliberate but not concealed is a maximum of 70% and a minimum of 35% of the PLR. Sch 24, paragraph 9 provides for mitigation of the penalty within the 50% or 35% band depending on the “quality” of the person’s disclosure divided into “telling”, “helping” and “giving”.

The behaviour in respect of the VAT return for period 06/14 was considered deliberate and concealed with prompted disclosure. Mr Sandberg mitigated the penalty by 15% on the basis that the Appellant admitted to HMRC that the return was inaccurate but provided no further information (10% reduction), for providing minimal information following requests to information and documentation (5%) and nil for helping HMRC understand it. The overall penalty was reduced by 7.5% (15% of the available band of 50%) providing a penalty percentage of 92.5%.

The behaviour in respect of the Earlier Returns was considered deliberate with prompted disclosure. The disclosure was considered prompted because HMRC were not told about the inaccuracies before they were discovered or were about to be discovered. No reduction was given for the quality of the disclosure as the requested information was not provided by the Appellant such that the penalty was 70% of the PLR and HMRC did not consider that there were any special circumstances which would reduce the penalty.

Mr Evans submitted that insufficient weight had been given to the fact that he had disclosed the errors and, on that basis, the penalties should be dismissed. Ms Brown submitted that sufficient weight had been given the limited disclosure and assistance provided by the Appellant and that was reflected in the reduction given or the absence of a reduction. We agree with Ms Brown. We found at [‎47] above that the disclosure was prompted as Mr Sandberg had already identified the errors and that no further details were provided by the Appellant as to what the “errors” were. We find that that the reductions given by Mr Sandberg fairly represent the limited disclosure and assistance given by the Appellant.

For the reasons set out above, we confirm the assessments for VAT periods 12/13, 03/14 and 06/14 but set aside those for the earlier periods. The penalties of £10,340.76 and £8,719.20 are upheld.

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.