First-tier Tribunal (Tax)

[2010] UKFTT 466 (TC)

TC00728

Appeal number TC/2010/04056

VAT – penalty under Schedule 24 Finance Act 2007 – inaccurate VAT return – mistake by Appellant’s temporary book-keeper – whether careless – yes.  Whether prompted disclosure – yes – penalty assessed at 15% of potential lost revenue

FIRST-TIER TRIBUNAL

TAX

EXPRESS FOOD SUPPLIES Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

TRIBUNAL: Mr Michael S Connell (Tribunal Judge)

 Mr J E Davison  (Member)

Sitting in public at Newcastle upon Tyne on 29 July 2010

Mr Nassan Ali Al-Faham, proprietor of Express Food Supplies appeared in person

Mrs N Newham, officer of HMRC represented the Respondents :

© CROWN COPYRIGHT 2010

DECISION

1. This is an appeal by Express Food Supplies of a penalty assessment under Schedule 24 to the Finance Act 2007 in respect of an inaccuracy in the Appellant’s VAT return for the period from 01.02.09 – 30.04.09.

2. The Appellant’s VAT return for the period to 30.04.09 showed a repayment due to it of £21,660.82.  HMRC asked the Appellant to verify that the refund was properly due and also asked to examine the invoices referred to in the claim.  The Appellant’s accountant, after checking the return, confirmed that the Appellant was not entitled to the repayment claimed and in fact was only entitled to receive £1,082.23.

3. It transpired that the Appellant’s accounts administrator had been on holiday and a temporary employee had been recruited to cover her absence.  A small batch of purchase invoices for zero-rated purchases had been entered with a nil amount in the ‘net’ column and the full amount in the ‘VAT’ column, and a number of sales invoices had not been updated to the customers’ ledgers until after the original VAT return was completed.  The accountant corrected the mistakes and submitted a revised VAT return.  The accountant explained that, as the Appellant had been re-stocking with standard-rated packaging products, he had in fact been expecting a VAT refund for that quarter.

4. Penalties for inaccuracies in a document given to HMRC are contained within Schedule 24 of the Finance Act 2007.  The degree of culpability in making an error is given within paragraph 3(1) to Schedule 24.  In this instance, HMRC concluded that the inaccuracy had not been deliberate but had been careless, for which the penalty payable was 30% of the potential lost revenue.  Paragraph 10 of Schedule 24 provides for reductions in penalties.  Where a person who would otherwise be liable for a 30% penalty has made a prompted disclosure, HMRC shall reduce the 30% to a percentage not below 15% which reflects the quality of the disclosure.

5. Mr Al-Faham stated in his appeal that he believed he took reasonable care as he was not a book-keeper and was expecting a refund for the relevant period having purchased large quantities of stock.  However, following HMRC’s examination of the Appellant’s previous VAT return declarations, the highest declaration of net tax was a repayment from HMRC of £5,504.00 in the period to 10/08.  Accordingly, the repayment claim was approximately 4 times the previous highest net declaration of VAT. 

6. The repayment requested for the period ending 04/09 was initially £21,660.00 and was finally reduced to £1,082.00.  The potential lost revenue to HMRC was £20,578.00.  HMRC did not therefore accept that a reasonably conscientious business person would not notice that the VAT repayment being claimed or would not have queried the level of repayment prior to submission of the VAT return to HMRC.  HMRC considered the reductions for prompted disclosure as defined by paragraph 9(2) of Schedule 24 and allowed the maximum reduction permissible under paragraph 10(2) by reducing the penalty from 30% of the potential lost revenue to 15%.

8. At the hearing Mr Al-Faham stressed that the inaccuracy had not been deliberate and that the return was corrected at the earliest opportunity.  Nonetheless he agreed that he had been careless.

9. The Tribunal concluded that Mr Al-Faham’s actions did not demonstrate reasonable care in completing the Appellant’s VAT return.  The lack of reasonable care meant he had been careless within the meaning of paragraph 3(a) of Schedule 24 to the Finance Act 2007 which made him liable for a penalty under paragraph 1(1) and (2).  The Tribunal’s decision was therefore to uphold the penalty and dismiss the appeal.

10. This Decision contains full findings of fact and reasons for the decision.  A party wishing to appeal this decision must apply within 28 days of the date of release of this Decision.  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.

MICHAEL S CONNELL

TRIBUNAL JUDGE

RELEASE DATE: 26 August 2010