Court orders company director to pay £29k
The court has dismissed the appeal of a company director against a personal liability notice (PLN) of £29,473.49 for a deliberate inaccuracy on his VAT returns
The First Tier Tribunal has dismissed the appeal from Taha Osman against a penalty notice from HMRC for inaccuracies in the VAT returns of his takeaway businesses as a result of standard-rated sales having been mischaracterised as zero-rated sales.
Osman was the sole director of a takeaway food shop in Salford which was incorporated in 2017.
After visiting the shop and the company’s accountant, HMRC issued an assessment for £56,140 on 5 July 2019 under section 73 Value Added Tax Act (VATA) 1994.
HMRC also found that in regard to records, Z-readings were taken from the till each day to reconcile the cash in the till, but these were not retained and that till rolls were not retained. The business also only accepted payments in cash.
HMRC issued an inaccuracy penalty on the basis that the assessment arose as the result of a ‘deliberate but unconcealed inaccuracy’. The penalty was also issued to him personally on the basis that his ‘deliberate behaviour’ had been entirely responsible for the inaccuracy.
As part of HMRC’s review of its decision, Osman’s accountant advised that there had been a longstanding misunderstanding between HMRC and Osman, and rather than 84% of sales being zero-rated and 16% standard rated as shown in the returns the percentages should have been reversed.
However, HMRC considered that, even if reversed, the percentage of zero-rated sales was excessive and unsupported, and they upheld the assessment based on 99% of sales being standard rated.
Osman appealed against the personal liability notice, on the basis that he had not acted deliberately when submitting the VAT returns.
Osman argued that he did not know anything about VAT and did not understand the difference between standard-rated and zero-rated sales. He also stated that he did not know that the shop till could record sales information and did not know that the business had to keep records.
Osman claimed that he relied entirely on his accountants to deal with his VAT returns and did not know how to check the returns and that his accountants had never explained to him that he needed to keep this information.
Osman stated that he did not know that the figures were incorrect and had not deliberately provided incorrect figures to his accountants or to HMRC
HMRC argued that Osman did ‘knowingly and repeatedly’ provide incorrect information to his accountant, as he had provided them with the split of sales between zero-rated and standard-rated.
HMRC argued that as a business owner Osman must have been aware of the concept of VAT and that it must have been clear to him that the information on the VAT returns was incorrect, as the zero-rated sales declared were completely different to those which he had provided to the accountants.
The courts heard that the accountants had confirmed to HMRC that the figures were, in any event, incorrect due to ‘poor record-keeping and calculation errors’.
The First Tier Tribunal agreed that Osman should have established what was required of him as a business owner and to comply with his tax obligations.
While the First Tier Tribunal did not consider that Osman had been dishonest with regard to the split of standard and zero-rated supplies it considered that he had not taken any steps to establish whether the information provided was accurate and that he had been reckless as to whether such information was accurate.
The tribunal, therefore, considered that Osman could not reasonably have believed that the information provided to HMRC in the VAT returns was accurate and, as such, it found that the VAT returns were provided in the knowledge that they were not accurate and with the intention that HMRC should rely on them. The court them dismissed the appeal.
Meg Wilson, senior tax writer, Croner-i said: ‘The First Tier Tribunal found that although the company director had not been dishonest, by not keeping records and not considering the accuracy of the split between standard-rated and zero-rated sales his actions had been deliberate, and therefore the company’s inaccuracy penalty could be attributed to him.’
Story by Ruby Flanagan of Accountancy Daily