Tajinder Singh Pawar v The Commissioners for HMRC

This decision relates to an application for permission to notify a late appeal to the Tribunal in respect of a personal liability notice issued to the Appellant on 5 October 2017 (“the 2017 PLN”), whereby HMRC seek to make the Appellant personally liable in respect of 100% of a penalty of £874,238 imposed on a company First Stop Wholesale Limited (“FSW”). The penalty was imposed in respect of errors HMRC had asserted to exist in the VAT returns of FSW.

The 2017 PLN was made the subject of a statutory review, the review conclusion letter confirming the decision to impose it being issued on 19 November 2018.

The Appellant sought to appeal against the 2017 PLN, notifying his appeal to the Tribunal on 22 February 2022. It is common ground that the appeal was notified just over 38 months late.

With the consent of the parties, the form of the hearing was V (video) using the Tribunal’s video hearing system. A face to face hearing was not held because at the time the matter was listed for hearing, the public health emergency rendered a face to face hearing risky.

Prior notice of the hearing had been published on the gov.uk website, with information about how representatives of the media or members of the public could apply to join the hearing remotely in order to observe the proceedings. As such, the hearing was held in public.

I was provided with a main documents bundle in electronic form, running to 1,793 pages. Subsequently, I was provided shortly before the hearing with one additional page to add to that bundle and a separate document bundle of 22 pages. During the hearing, I was provided with an authorities bundle of 451 pages and a further 9 page document (a letter which had been attached to an email from the Appellant to HMRC on 3 November 2017 which was itself included in the original bundle, but without the attachment).

I find the following facts.

Following an investigation which started in spring 2013, on 24 September 2014 HMRC issued VAT assessments to FSW in the total sum of £2,642,141, in respect of various VAT accounting periods between 1 June 2010 and 28 February 2014.

HMRC issued a “Penalty calculation summary” letter dated 17 December 2014 to FSW, notifying it of the penalties it proposed to charge in respect of the underpaid VAT, and on 29 December 2014 they presented a winding up petition to the Court based on an asserted total tax debt of £3,069,426.41 (which figure included the VAT assessments).

Following this, on 9 January 2015, HMRC issued an “inaccuracy” penalty assessment to FSW under Schedule 24 Finance Act 2007 (“Schedule 24”) in the sum of £1,256,490.91. shortly afterwards, on 3 February 2015, HMRC issued a personal liability notice (“PLN”) to the Appellant pursuant to paragraph 19 of Schedule 24, making him personally liable to pay 100% of the penalties imposed on FSW. This was on the basis that they believed FSW was likely to become insolvent and the Appellant was its sole director and 100% shareholder.

In the meantime, FSW had lodged an appeal with the Tribunal against, amongst other things, the VAT assessments and penalty assessment. The appeal was first lodged on 22 January 2015, but appears to have suffered from some defect as result of which the notice of appeal was returned by the Tribunal. It was relodged on 24 February 2015. In the meantime, discussions continued between HMRC and Bahia & Co (the Appellant’s accountants at the time) as to action that could be taken to reduce the VAT liability that had been assessed.

It appears that much of the assessment arose as a result of the disallowance of input VAT claimed by FSW in relation to purchase invoices addressed not to it but to the Appellant personally (trading under the style “The Wine Lodge”). The Appellant claimed that the goods were actually sold by FSW (which accounted for output tax on the sale) and he had only acted as agent or nominee in purchasing them, which was why FSW (and not he) had claimed the input tax on their purchase. In a letter dated 11 February 2015, Bahia & Co referred to a telephone conversation that had taken place with HMRC that day, in which there had been discussion about the course of action proposed to correct the position. On 27 February 2015 HMRC wrote back, saying that “as Mr Pawar holds valid VAT invoices he will be entitled to reclaim the input tax under his VAT registration numbers subject to the normal rules.” The letter went on to say “However, HMRC cannot agree to the assumption that the goods have been sold and invoiced by First Stop Wholesale Ltd; one of the conditions for reclaiming VAT as input tax is that the goods purchased must be attributable to a taxable supply therefore Mr Pawar can only reclaim the input tax provided corresponding sales invoices are raised to First Stop Wholesale Ltd. The company will then be entitled to reclaim the VAT subject to the normal rules.”

Bahia & Co replied on the same day, including the following text in their letter:

On the same day (27 February 2015), FSW was placed into administration with HMRCs agreement (the winding up petition being dismissed). Two partners of UHY Hacker Young LLP were appointed as administrators.

It seems that the discussions between HMRC and Bahia & Co continued after the administration (though whether this was with the agreement of the administrators is unclear). On 12 March 2015, HMRC wrote back to Bahia & Co, as follows:

At some point in May 2015, the Appellant instructed Grant Thornton to act for him personally (there was also a corporation tax assessment, associated penalty and PLN, which are not the subject of this appeal, but which were based on essentially the same VAT investigation by HMRC). It seems they were appointed in succession to Bahia & Co because Mr Bahia emigrated to Canada. The details of what work they did in the first few months of their engagement is not clear, except that they obviously familiarised themselves as far as they could with the issues and the detail.

On 5 June 2015, FSW was placed into creditors’ voluntary liquidation with the same individuals at UHY Hacker Young acting as liquidators. It is not clear what agreement was reached between the liquidators and the Appellant, but it is clear that discussions continued between HMRC and the Appellant (and his advisers) concerning the possibility of some or all of the VAT assessment against FSW being eliminated by means of what has subsequently been called “corrective action” (i.e. the identification of input VAT wrongly claimed by FSW rather than the Appellant’s business, and the issuing of VAT invoices by the Appellant’s business to FSW in respect of the relevant supplies in order to regularise the position). It was pointed out at an early stage that this was subject to a four year time limit.

Grant Thornton were clearly in touch with HMRC attempting to move matters along, but encountered difficulties as a result of the administration and subsequent liquidation of FSW. On 16 July 2015 they wrote to HMRC, asking them to accept that letter as a formal appeal against the 3 February 2015 PLN. The stated grounds were that “we believe HMRC’s VAT computation to be incorrect and on the basis that there is no potential loss of revenue to the Crown, and therefore that any tax-geared penalty would be nil.” HMRC clearly replied to this letter, but no copy of that reply was before me.

After at least one further exchange of correspondence, a meeting took place between HMRC and Grant Thornton on 1 December 2015, a note of which was contained in the bundle. This note includes clear indications that at that time there were still active discussions under way for the VAT position to be corrected to some extent by the proposed “corrective action”, but there was clearly a lot of detail to be worked through. Grant Thornton had also identified that whilst the main issue was the incorrectly claimed input tax, there were also some issues around zero rating of supplies on which HMRC had assessed FSW to output VAT, some invoices where HMRC had challenged their “validity”, and some duplications of sales on till rolls. It was agreed that Grant Thornton would prepare and submit detailed documentation to HMRC, referred to at one point as a “disclosure report”.

Clearly the detailed work of Grant Thornton took some time, and it was only on 7 June 2016 that they sent their workings to the Appellant, amounting to 33 pages of detailed schedules and some supporting summaries and diagrams, covering VAT periods from 08/10 to 08/12 only. This was shared with HMRC, and a meeting took place on 27 June 2016 between HMRC and Grant Thornton. From the note of that meeting, it appears that discussions were constructive, but “credible evidence” was required to back up the information that had been presented. There was also some discussion about subsequent VAT periods, but it is unclear whether records had yet been provided for those periods to Grant Thornton. At that stage, however, it is clear that HMRC were still saying they were prepared to work through the figures provided to them and adjust the assessments that had been issued to FSW.

The summary of the outcome of GT’s work showed that for the VAT accounting periods 08/10 to 08/12, they considered £516,087.06 of input tax claimed by FSW which was reflected in HMRC’s assessment was “proper” to the Appellant’s personal VAT registration, and therefore was capable of valid recovery by FSW, subject to the appropriate invoicing by the Appellant to FSW, so potentially reducing the assessment for that period by that amount. Since the total assessments raised by HMRC in respect of those periods amounted to £667,966, this would represent a significant reduction, down to £151,878.94. The summary schedule presented by Grant Thornton suggested that in fact the net additional liability of FSW in respect of those periods might be significantly less even than that figure.

The work done by Grant Thornton did not cover the periods after 08/12. It was not explained to me why this was. For the two subsequent periods 11/12 and 02/13 (penalties for which were subsequently made subject to the 2017 PLN), HMRC had raised assessments totalling £676,859 and penalties totalling £470,604.33 (so more than half of the total penalties subsequently comprised in the 2017 PLN – see [28] below).

It is not clear what happened following the meeting on 27 June 2016. The appeal of FSW against the VAT assessments and penalties proceeded slowly. It was only on 9 May 2017 that HMRC granted hardship, and their statement of case in that appeal was not served until 25 September 2018. There is no clear picture as to the reasons for this delay, nor was there any evidence in the bundle before me of further correspondence or other action to progress matters pursuant to the actions agreed at the 27 June 2016 meeting.

So far as the Appellant is concerned, the next event following the meeting on 27 June 2016 which is recorded in the bundle was the issue by HMRC on 5 October 2017 of the PLN which is the subject of these proceedings.

On 5 October 2017, apparently out of the blue, HMRC wrote to the Appellant. They sent him a new PLN bearing that date, along with a covering letter. The covering letter included the following text:

The accompanying PLN was in exactly the same form as the PLN issued on 3 February 2015, except for the amount, date (and the due date for payment or for asking for a review or appealing to the Tribunal) and the table showing the penalties charged to the company and the amounts the Appellant was required to pay.

The PLN required payment of its amount by 4 November 2017, and stated that any request for a review (or appeal to the Tribunal) should also be received by that date.

The amount of the new PLN was £874,238. The table referred to a single penalty assessment on FSW but broke it down into two lines. The first line referred to the £874,238 that the Appellant was required to pay (based on him being personally liable for 100% of that part of the penalty). The second line referred to an additional £382,252.80 penalty, of which the Appellant was required to pay “0%”. Thus this PLN proceeded on the basis that the original penalty to FSW was the total of those two amounts, namely £1,256,490.80.

In passing, it is worth recording that the original 3 February 2015 PLN included three different figures for the penalty amount. It stated that the company was liable for a penalty of £1,256,490.81 (1p more), that the Appellant was liable to pay £1,256,490.91 (an additional 10p), but he was actually required to pay £1,266,499.91 by the original due date (an additional £10,009.11). On any view (and particularly with respect to a document requiring a payment of well over £1.2 million) this document had been extremely carelessly prepared.

The new PLN included the following section:

On 17 October 2017, the Appellant emailed HMRC acknowledging receipt of the PLN. After noting the 4 November 2017 deadline, the Appellant said that insufficient detail had been provided of “the circumstances surrounding your decision” and he requested (a) an explanation of why the penalties from period 05/13 were no longer included and (b) an explanation of the circumstances leading to the issue of the revised PLN and the legislative basis for it having been issued within any relevant time limit.

On 20 October 2017, HMRC replied. It was explained that “the penalties relating to the VAT periods where no returns were submitted (those listed) are no longer being charged to the company officer”. As to the time limit point, the statutory time limit of 12 months plus 30 days referred to in paragraph 13(3)(a) of Schedule 24 Finance Act 2007 was referred to, stating that “the notice of assessment of tax was issued on 14 October 2014, the penalty assessment was notified on 9 January 2015 with the original PLN notified on 3 February 2015. Therefore, the assessment of the penalty amounts was made in the time allowed by paragraph 13. The PLN has simply been amended and you have been notified accordingly.” In this letter, it was also stated that the 4 November 2017 deadline date set out in the PLN was “automatically populated” and that there was in fact no such deadline. The original deadline set out in the February 2015 PLN were said to still apply.

The Appellant sent a long letter by email to HMRC on 3 November 2017 in response. In this letter, he raised a number of quite detailed and very specific points objecting to the calculations upon which HMRC’s VAT assessments to FSW had been based (including the disallowance of large specific amounts of input tax deemed to be “proper” to the Appellant personally). He also questioned the allocation of 100% of the FSW penalties to him, bearing in mind there was another director of FSW for a large part of the period under consideration. He asked for HMRC to review their decision in the light of all this.

HMRC responded by email dated 27 November 2017. They declined to reopen the question of the correctness of the VAT assessment raised against FSW, observing that it was the subject of a live appeal before the Tribunal. It was conceded that HMRC had agreed to consider proposals advanced by Grant Thornton, but “only if credible records were produced to support them”. A justification was also provided for allocation of 100% of the penalties to the Appellant.

On 3 January 2018, the Appellant emailed HMRC to suggest a meeting “rather than engage in protracted correspondence”. After HMRC had obtained confirmation from Hacker Young that they did not object, a meeting was arranged for 15 March 2018.

The Appellant attended that meeting with his new adviser, Chris Mann of Tiberius Solutions Limited. HMRC’s note of that meeting was included in my bundle. It is clear from that note that HMRC did not wish to get involved in a detailed discussion of the underlying VAT liabilities of FSW, which were still subject to appeal before the Tribunal. They were simply interested in reaching a deal over the allocation of personal liability between the two directors and deciding on a “reasonable amount of tax” upon which it would be based. It was agreed that the Appellant and Mr Mann would “go away to discuss the figures on how much they think the assessment should be, and come back to Joanne [officer Joanne Jones, who was at the meeting] with the figures.”

Following that meeting, in an email dated 29 March 2018, officer Jones said “I look forward to receiving your calculations for consideration of the tax due from First Stop Wholesale Limited. I think a month from the date of the meeting plus a little additional time to take account of the Easter break should be sufficient, so let’s say by Friday, 27 April 2018.”

Mr Mann wrote to officer Jones on 5 April 2018. This letter did not set out any proposals in relation to quantum, instead it set out a series of arguments why it was considered that no penalty should be imposed at all on the Appellant, by reason of supposed procedural shortcomings in the process leading up to imposition of those penalties.

Mr Mann chased for a response on 14 May 2018 and on 22 May 2018 officer Jones replied. She rejected the points made in the 5 April 2018 letter and asked for the expected computations by 7 June 2018, in default of which “the matter will be referred back to HMRC Solicitor’s office for the Tribunal proceedings to continue”.

In response, on 1 June 2018, Mr Mann maintained the argument about the overall lawfulness of the PLN, asserting that officer Smith, in the 15 March 2018 meeting, had “conceded that the penalty levied against Mr Pawar was incorrect and that the assessments issued against the Company were ‘ridiculous’ and had been raised to the highest amounts possible in order to force the Company to produce information.” It was said that the exercise to review the assessments was “subject to the more pressing issue of the penalty concerns raised by ourselves being resolved”. As a result, it was stated that the exercise of reviewing the assessments had not yet been started.

Officer Jones responded on 22 June 2018, forwarding a copy of the notes of the 15 March 2018 meeting to Mr Mann and observing that she had now “sent the correspondence to the solicitor dealing with the appeal”.

The parties had now taken up entrenched positions. HMRC stated they did not accept the Human Rights Act arguments that had been raised in relation to the validity of the penalty, and in the absence of any proposals of the type referred to in their note of the 15 March 2018 meeting, they were content to let the quantum of the VAT assessments be decided in the course of the appeal of FSW before the Tribunal. Mr Mann was referred to the liquidators if he wished to seek to become involved in those proceedings. This was the position by the end of August 2018.

It seems to be common ground that a formal request to carry out a statutory review of the decision to impose the PLN was received by HMRC on 7 September 2018, and accepted by them in spite of it being, in their view, out of time. No copy of such request was included in my bundle. No reference was made by HMRC to the request for a review contained in the Appellant’s letter dated 3 November 2017 (see [33] above). By letter dated 11 October 2018, officer Jones confirmed that the matter would be referred for independent review. In the meantime, on 25 September 2018, HMRC delivered their statement of case on FSW’s appeal, restarting the process of bringing that appeal to a hearing. On 7 November 2018 the Tribunal issued case management directions to progress the appeal.

On 19 November 2018, HMRC issued their review conclusion letter in relation to the PLN. On the crucial issue of the quantum of the underlying assessments, and Mr Mann’s assertion that “HMRC have conceded that the VAT assessments on which the PLN is based are incorrect and should be recalculated to reflect more accurately liabilities”, the reviewing officer said this:

The letter went on to uphold the decision in full, and concluded with the following section:

So far as the evidence before me is concerned, nothing happened in relation to the Appellant’s appeal until 1 May 2019, over five months later. On that day, Mr Mann emailed officer Jones as follows:

In the meantime, it appears, FSW had not been engaging in the conduct of its appeal and HMRC had been seeking to enforce compliance by it with the case management directions. It seems that the Appellant sought to become involved, through his own solicitors, in the conduct of that appeal but apparently without the authority of the liquidators. On 29 May 2019, UHY Hacker Young (the liquidators’ firm) wrote to HMRC and the Tribunal as follows:

The following day, 30 May 2019, this was followed up by an email to the Tribunal (copied to HMRC) formally confirming the liquidators’ wish to withdraw FSW’s appeal.

The PLN appears to have been released for collection following the withdrawal of FSW’s appeal, and the next correspondence in my bundle was an email dated 18 May 2021 to the Appellant from an officer Jacqui King in HMRCs “Targeted Enforcement Recovery Unit”. This email refers to a previous email from a colleague at HMRC on 17 April 2021 “following your discussions with him regarding the penalties transferred to you as the Director of First Stop Wholesale Limited and the proposed bankruptcy action”. Ms Goldring informed me (but without referring to any documentation) that the previous email had in fact been sent on 17 April 2020 in response to a phone call that day from the Appellant (who had himself been replying to letters from HMRC dated 12 December 2019 and 12 March 2020 warning him of possible bankruptcy proceedings). As it at least shows some further engagement by the Appellant in April 2020, I am prepared to accept this, even though there was no documentation about it in my bundle. In her email dated 18 May 2021, officer King invited the Appellant to contact her to discuss the outstanding matter “within the next seven days”. Again, there is no evidence before me as to any response from the Appellant.

The next evidence in the bundle is a copy 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, including an amount of £874,238 in respect of a personal liability notice supposedly issued in respect of the year or period ended 28 February 2014. This is presumably intended to refer to the October 2017 PLN the subject of these proceedings.

There then followed a flurry of activity, including the submission to the Tribunal on 22 February 2022 of a late appeal against the 2017 PLN.

The parties are agreed that in deciding whether or not to grant permission for a late appeal, the Tribunal should follow the three stage process set out in William Martland v HMRC [2018] UKUT 178 (TCC) at [44] et seq: