First-tier Tribunal (Tax)

[2010] UKFTT 578 (TC)

TC00828

Appeal number TC/2010/04949

FIRST-TIER TRIBUNAL

TAX

VAT penalty – inaccurate final VAT return – appeal dismissed

                                        MOLLAN & CO LIMITED                       Appellant

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                                                   REVENUE AND CUSTOMS               Respondents

TRIBUNAL: Mr Michael S Connell (Tribunal Judge)

                        Mr Richard Crossland (Member)

Sitting in public at York House  Leeds on 09 September 2010

having heard Mr Peter Mollan, Director of the Appellant company and

Mrs N Newham for the Respondents :

© CROWN COPYRIGHT 2010

DECISION

1.         This is an appeal against a VAT penalty imposed for an inaccurate final VAT return by the Appellant company.

2.         The Appellant was registered for VAT with effect from 01.09.02.

3.         In July 2005 the Appellant elected to waive the VAT exemption on land and buildings in its ownership at 3 Maple House  North Minster Business Park  Northfield Lane  Upper Poppleton  York (“the Property”).  The effective date of the election was 30.06.05.

4.         In April 2009 the Appellant requested cancellation of its VAT registration status because it was trading below the VAT turnover threshold.  The Appellant was de-registered with effect from 02.05.09.  The Appellant was asked by HMRC to furnish details relating to business assets and stock on hand held  at the date of de-registration.

5.         On 06.06.09 the Appellant returned the completed form providing details of its business property at de-registration, confirming that it had reclaimed VAT on its purchase of the Property in the sum of £42,875.00 by virtue of the election to waive the VAT exemption.

6.         On 10.06.09 HMRC received the Appellant’s final VAT return.  No output tax was declared on the open market value of the property.

7.         When the Appellant de-registered for VAT there was a supply of the property at 3 Maple House by virtue of paragraph 8(1) to Schedule 4 of the VAT Act 1994.  Accordingly, VAT due on the supply should have been declared in the final VAT return.  This is explained in paragraph 6.3 of VAT Public Notice 700/11 ‘cancelling your registration’, the content of which had been drawn to the Appellant’s attention by HMRC on 24.04.09.

8.         On 12.10.09 the Appellant applied to re-register for VAT by means of an e-VAT application.  On 28.10.09 HMRC responded to the application requesting sight of documentation to support the fact that the Appellant was trading and making taxable supplies in the UK.  On 02.11.09 the Appellant provided the information, explaining that it wished to re-register stating that it had incorrectly applied to de-register for VAT and that it wished to reinstate the original VAT registration.  After telephone calls with HMRC helpline, the Appellant was told that this was not possible and that the only recourse would be to apply again and become re-registered.

9.         On 30.01.10 HMRC informed the Appellant that, as it had claimed input tax on the Property at following its election to waive VAT exemption on the property, it was therefore required to account for output tax on the open market value of the Property at the point of de-registration.  Using the information provided by the Appellant, HMRC assessed the amount of VAT at £30,000.00.

10.       The Appellant contended that its decision to de-register had been an error and that it had contacted HMRC to ascertain whether the de-registration could be revoked.  HMRC took the view that the non-declaration of output tax was a careless error but that a penalty was nonetheless payable because at no point had the Appellant volunteered its error in the declaration made in its final VAT return.

11.       HMRC issued a penalty notice in the sum of £4,500.00 representing a reduced penalty of 15% of the potential lost revenue of £30,000.00.  The 15% penalty represented the maximum allowable reduction to the 30% penalty normally levied for a careless error under the provisions contained in Schedule 24 of the Finance Act 2007.

12.       At the hearing the Appellants accepted they had made a careless error in their final VAT return but argued that disclosure of the error to HMRC was not prompted.  Mr Mollan argued that the original error of de-registering the business when the business still held an opted property was communicated to HMRC immediately the error was identified in October 2009.  He said the company had contacted the VAT national helpline for advice to see whether they could reverse the de-registration process.  He said that the first initimation that HMRC had identified a problem was on 13.01.10 when HMRC wrote to the Appellant advising it that it should have accounted for output tax at the point of de-registration.

13.       Mr Mollan also reiterated further grounds of appeal as set out in his letter to HMRC dated 30.03.10, arguing for various reasons that full disclosure had been made to HMRC of the original error prior to HMRC identifying the error and non-payment of output tax.

14.       The Tribunal considered both these written representations and the exchange of correspondence which had occurred between the Appellant and HMRC leading up to the appeal and also the submissions put to the Tribunal at the hearing.  The Tribunal concluded that a VAT penalty was payable and agreed that the penalty should be £4,500.00 representing 15% of the potential lost revenue.  It had been necessary for HMRC to ascertain for itself from the information provided by the Appellant company that it had incorrectly completed its final VAT return.  There was no evidence that the Appellant at any point prior to then had communicated the error in its final VAT return and, in consequence, this was not an unprompted disclosure of the error.

15.            The appeal was accordingly dismissed.

16.            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: 16 November 2010