DECISION
Appeal
1.
This is an Appeal against an assessment by Her Majesty’s Revenue &
Customs (“The Commissioners”) which was imposed under Section 61 of the Value
Added Taxes Act 1994 (“VATA 1994”).
2.
The Commissioners had imposed a penalty under Section 60 VATA 1994 on a
company, Seen 2B Clean Ltd (“The Company”), run by the Appellant and her husband.
The Company has not correctly accounted for tax and did not register for VAT
when its turnover had crossed the registration threshold. The Commissioners
considered this to be dishonest and sought to apportion the whole of the
penalty to the company’s controlling director, the Appellant.
3.
The notification of the assessment was dated 15 December 2011. The
original penalty was £30,429 which was reduced by 10% to £27,386. The
Appellant by a letter dated 12 January 2012 requested a review of the
Decision. The review was undertaken on 5 March 2012 and upheld the assessment
on the Appellant.
Background
4.
The Company was registered under No 05846060 with a trading address at 24 Mill Lane, Wareham, Dorset, and BH24 RB. It was incorporated on 14 June 2006 and
commenced trading on 1 August 2006. Its principle trading activity was
commercial and domestic cleaning.
5.
The authorised share capital of the Company was a hundred ordinary
shares of £1 each. The issued share capital is £2; one share each to Glenda
Candy and Brett Candy. The Company Secretary was Glenda Candy, who made all
important decisions regarding the business.
6.
The Company’s auditors are G Suttle & Co Ltd.
7.
The Company went into voluntary liquidation in July 2011, with HMRC as
the main creditor.
8.
Business was conducted from the home of the directors. Staff were on
occasional contracts. The rate for cleaning was between £10-£15 per hour. The
business turnover was heavily reliant on a few large contracts.
VAT History
9.
The Company registered for VAT with an effective date of 3 November
2008.
10.
In March 2011, during an inspection by HMRC, it was found that the
Company should have been registered for VAT at an earlier date since its
turnover exceeded the registration threshold. The accounts showed turnover for
the period 14 June 2006 to 30 June 2007 (financial year end) to be £93,133; for
the period 1 July 2007 to 30 July 2008 was £132,385 and for the period 1 July
2008 to 20 June 2009 was £160,568.
11.
Mr Suttle, the Accountant to the Appellant, advised that the date of
registration should have been 1 June 2007. This was only apparent when he
prepared the accounts in March 2008.
12.
It was not anticipated by the directors that the Company would have to
be VAT registered in 2007 since major contracts were lost. It was thought
that the turnover would fall. In fact, it increased. The effective VAT
registration date was 3 November 2008.
13.
Mr Suttle acting as the Auditor prepared the accounts on the basis of
figures received at year end. There was a local bookkeeper who kept the books
during the year. .
Relevant Correspondence
14.
The completed VAT registration form was dated 1 December 2008 with the
expectation that the turnover would exceed £130,000 in the 12 months from
November 2008. On 23 March 2011 at a meeting of the officers of the HMRC, the
Appellant and their advisors agreed that the VAT registration should have taken
place around June 2007.
15.
On 16 June 2011 Mr Peter Le Morvan, the officer in charge of this
investigation, wrote to the Appellant stating;
“As
we discussed, the date of incorporation of the business was 14 June 2006, yet
the effect date of VAT Registration was 3 November 2008. When I queried this,
it appears that the business should have registered for VAT from a considerably
earlier date. This was confirmed during our recent meeting on 14 June. During
this meeting, Mr Suttle stated that he had written to you at an earlier date
(March 2008) suggesting that you register for VAT. I believe this was after he
completed annual accounts for your first year of trading and around the time
that you lost three large contracts and turnover was anticipated to reduce
significantly. Could you please provide me with any correspondence between Mr
Suttle and yourself relating to these matters?...... could you also send me
copies of any paperwork relating to the lost contracts…..”
16.
The letter, which was very detailed, asked for an explanation why registration
for VAT had not taken place and enclosed a spreadsheet listing all income for
the period 1 June 2006 to 30 March 2007. The figures were taken from the
Appellant’s sales ledger and invoices. The letter indicated that an assessment
would be raised for VAT due.
17.
On 11 July 2011, Officer Le Morvan again wrote to the Appellant requesting
information on the VAT registration, he had had no response to his letter of 16
June. He therefore proceeded to raise an assessment for under declared VAT.
18.
On 30 August 2011 Officer Le Morvan again wrote to the Appellant. He
said that he believed that the under declaration of VAT occurred as a result of
dishonest conduct. He provided a copy of Public Notice 160.
19.
On 12 October 2011, Officer Le Morvan wrote to the Appellant requesting a
meeting to discuss the VAT affairs of the Company. He telephoned the Appellant
on 8 November 2011 to confirm their attendance. The Officer received no
communication from the Appellant.
20.
On 15 December 2011, a Civil Evasion Penalty Notice of Assessment was
issued.
21.
On 12 January 2012 a review was requested. The review dated 5 March
2012 upheld the decision of the Officers.
Relevant Authorities and Legislation
22.
Section 60 VATA 1994 provides:
(1)
In any case where –
(a)
For the purpose of evading VAT, a person does any act or omit to take
any action; and
(b)
The conduct involves dishonesty (whether or not it is such as to give
rise to criminal liability),
He shall be liable subject to
sub section (6) below, to a penalty equal to the amount of VAT evaded or, as
the case may be, sought to be evaded, by his conduct.
23.
Section 61 VATA 1994 enables the Commissioners to allocate the Section
60 penalty imposed on a company to a director or managing officer of that
company where the conduct giving rise to the penalty is, in whole or in part, attributable
to the dishonesty of the director or managing officer.
24.
Section 61 (5) VATA 1994 gives a right to appeal against the assessment.
25.
Section 70 VATA 1994 allows for the mitigation of penalties.
26.
The following cases were referred to
(1)
Han and another v HMRC STC [2001] 1188
(2)
Ackbar and others v HMRC [2000] STC 237
(3)
McNicholas Construction Company Ltd v HMRC [2000] STC 553
(4)
Stevenson v HMRC [1996] STC 1096
(5)
Prebble C & Prebble H v HMRC Tribunal VTD 19331
(6)
Gandhi Tandoori Restaurant v HMRC Tribunal VTD 3303
(7)
M & S London v HMRC Tribunal VTD 19149
Evidence
27.
The Tribunal received two bundles of documents; one containing correspondence
and related enclosures and other a List of Authorities and Legislation. There were
two witnesses, Mr Peter Le Morvan, Higher Officer at HMRC and Glenda Candy, the
Appellant, who both gave oral evidence.
Finding of Facts
28.
The Company’s main business is domestic and industrial cleaning. The
Appellant and her husband are directors of the Company. The Appellant makes
all important decisions for the Company.
29.
The Company was registered for VAT in November 2008.
30.
The directors acted on the advice of their accountant Mr G Suttle and
sought advice on VAT registration.
31.
The Appellant first knew that the Company should be registered for VAT
in March 2008 when informed by her Accountant.
32.
The Company was put into voluntary liquidation on the advice of the
Accountant.
33.
The Appellant’s main focus was the development of the business through
new clients.
34.
The compliance record of the Company was poor and not well organised.
Submissions of the Appellant
35.
Mr Suttle stated that the Appellant was not dishonest and did not make
any dishonest statements. He explained that she did not collect any VAT and
once registered had been compliant with all VAT requirements for filing and
payment.
36.
The Appellant’s Statement of Case stated;
“The
company Seen To Be Clean Ltd was formed on 14 June 2006 and prior this Mr &
Mrs Candy (the directors) had been in a partnership and accounts revealed
turnover far below the VAT limit. Therefore neither director had any knowledge
of VAT …
The first accounts were
produced in March 2008 and it is apparent that the turnover had gone up and
exceeded the VAT limit. This was a dramatic climb in turnover with prior no
knowledge of such an occurrence taking place, the directors had not sought
advice as they were unaware of the VAT registration limits.
The letter (3) informed them
of the matter and the need to register.
In March 2008 I met with Mr
& Mrs Candy and discussed the dramatic increase in turnover, which they
attributed to winning office cleaning contracts and that they had now been
lost. It therefore appeared that the turnover would fall back to the levels of
previous years and that under VAT laws such a short term event would enable
them not to register.
The business is somewhat reliant
on summer trade as the business cleans holiday cottages during the summer
months.
During the summer it became
apparent that the turnover would not go down but in fact go up, the loss of
contracts being replaced with others”
37.
The Statement of Case says there was no dishonest intend and states;
“This is not the case, like
many small businesses relying on the directors working environment, Mr &
Mrs Candy worked the summer months, whilst also trying to look after children
on the summer holidays. It was not until the summer was finished that they had
time to account for the full turnover and discover the implications, as soon as
they did, they registered.
HMRC state the letter of the
law, but failed to take into account the pressure of running a small business
and the timescales involved, especially on a seasonal business”.
38.
The Accountant submitted that under Section 61(1) (b) VATA there must be
dishonesty. The conduct of the Appellant was not dishonest as they did not
benefit.
39.
The Appellant accepts that VAT thresholds were exceeded and registration
should have taken place at an earlier date.
40.
It is submitted that the Appellant, on professional advice, did not make
any contact with HMRC once the Company was put into voluntary liquidation. The
decision to put the Company into liquidation was on the advice of Mr Suttle,
Accountant.
41.
It is accepted that Mrs Candy was the controlling director, who dealt
with all Company matters including the VAT forms, customers, invoices, staff,
new clients and National Insurance and PAYE compliance.
Respondents submissions
42.
In spite of being informed by both her accountant and the Commissioners
that the VAT threshold registration limit had been exceeded in 2007, the
Appellant did nothing to register. This is borne out by a letter from Mr
Suttle who stated that the Appellant had sought advice “as soon as it appeared
that the limit was being approached” and therefore she was aware of the
threshold limit and chose not to do anything.
43.
The Appellant stated that there was a potential downturn in her business
in 2007 but this is unsupported by evidence. In fact, the turnover increased
in the relevant period.
44.
In March 2008, the Commissioners wrote to the Appellant to inform them
that their VAT registration limit had been exceeded by some 18 months. This
was the second time the Appellant had been written to and therefore knew the
registration limits had been exceeded. No action was taken.
45.
On completion of the VAT form on 3 November 2008, the Appellant stated
that there was an expectation that she would need to be registered given the
turnover of the Company. This was a dishonest act in that she already knew that
she needed to be registered.
46.
The Appellant was the controlling director for the purposes of the
Section 61 VATA 1994. She made all the important decisions on behalf of the
company.
47.
It is not correct to say the director had not sought advice on the VAT
thresholds. It was clear when the accounts were prepared in 2008 that advice
had been sought. This was confirmed in a letter from the Appellant’s
accountant dated 12 January 2012.
48.
The Appellant has provided an excuse for non registration. She said
that she was busy working, as a cleaner and administrator of the company, raising
children with inadequate childcare and a growing and developing the business. These
are not reasonable excuses. The lack of childcare cannot excuse 21 months of
delay.
49.
The Appellant was not prepared to meet or negotiate with HMRC. She did
not approach the Commissioners. The fact that there is a new entity running the
business which has a good compliance record is not a relevant or mitigating
factor for a civil evasion penalty.
50.
There is no evidence that the Appellant lost their main clients or expected
to loose those clients in the 2007/2008 period. There is no evidence that the
turnover decreased in 2007-2008. In fact, the turnover increased above the VAT
registration threshold.
51.
The Accountant, Mr Suttle, informed the Appellant that they should have
registered for VAT in March 2008.
52.
After the Company went into liquidation, the Appellant and her husband
formed a partnership which carried out the same contract cleaning business.
The partnership had the same business email address as the Company. The
partnership was registered for VAT in July 2011.
53.
Mrs Candy was the controlling Director of the Company and made all important
decisions relating to the Company’s affairs.
54.
The penalty imposed on the Appellant could have been reduced if she had
cooperated more fully with the HMRC.
55.
The Respondents accept that there is no clear evidence that the
Appellant knew that the Company had exceeded the VAT registration limit before
March 2008 although the registration threshold had been exceeded before that
time.
Witnesses
Mrs Glenda Candy
56.
The witness made the following points;
(1)
The Company relied on the advice of Mr Gary Suttle on accounting and
taxation matters.
(2)
She expected a downturn in turnover in 2007-2008.
(3)
The business turnover was variable and reliant on summer cleaning for
cottages and holiday homes.
(4)
The Accountant informed her to register for VAT in March 2008.
(5)
She made no contact with HMRC on the advice of her accountant.
Mr Peter Le Morvan, Officer,
HMRC
57.
The witness made the following points;
(1)
He made several approaches to the Appellant to obtain information.
(2)
He confirmed all the facts and assertions in the correspondence between
Jun 2011 and November 2011.
Discussion
58.
Let us start by outlining the legal position.
59.
Section 60 (7) of VATA 1994 provides that the burden of proof of
liability to a Section 60 (1) civil evasion penalty, lies upon the
Commissioners.
60.
The burden of proof in respect of all other matters, including
mitigation, lies with the trader.
61.
The standard of proof required in civil cases is proof on the balance of
probabilities. In cases where dishonesty is alleged, such as civil evasion
cases, the evidence must be compelling. The allegation is more serious and
when assessing the probabilities the Court will have in mind that the more
serious the allegation the less likely the event occurred and therefore the
stronger the evidence should be before the Court would conclude that the
balance of probabilities standard has been reached. This is sometimes referred
to as a “high degree of probability” and this was identified in the case of Gandhi
Tandoori Restaurant. where it was stated:
“…..
we can see no reason why the standard (balance of probabilities) should not
apply in cases such as this, because the issue of dishonesty by the taxpayer
arises and because the consequences of the finding of dishonesty gave rise to
potentially serious penalties, we consider that we should not be satisfied with
anything less than a high degree of probability”.
62.
The Tribunal would therefore look at the quality and weight of the
evidence.
63.
Next the Tribunal will turn to the meaning of the word dishonesty. In Gandhi
Tandoori Restaurant the court made the following observation;
“It
seems to us clear that in such a context, were a person has, ex hypothesi,
done, or omitted to do, something with the intention of evading tax, then by
adding that the conduct must involve dishonesty before the penalty is to
attach, Parliament must have intended to add a further element in addition to
the mental element of intending to evade tax. We think that element can only
be that when he did, or omitted to do, the act with the intention of evading
tax, he knew that according to the ordinary standards of reasonable and honest
people that what he was doing would be regarded as dishonest”.
64.
Dishonesty does involve attributing some intention to deceive to the
Appellant.
65.
In Ghosh [1982] 1 QB 1053, the Court of Appeal identified a two
step approach for showing dishonesty. They stated;
“In
determining whether the prosecution has proved that the defendant was acting
dishonestly, a jury must first of all decide whether according to the ordinary
standards of reasonable and honest people what was done was dishonest …. If it
was dishonest by those standards then the jury must consider whether the
defendant himself must have realised that what he was doing was by those
standards dishonest. In most cases, where the actions are obviously dishonest
by ordinary standards, there will be no doubt about it. It will be obvious
that the defendant himself knew that he was acting dishonestly. It is
dishonest for a defendant to act in a way which he knows ordinary people
consider being dishonest, even if he asserts or genuinely believes that he is
morally justified in acting as he did.”
66.
There is therefore a two stage test, first, an objective assessment of
dishonesty and then a subjective check to see if the individual knew he was
dishonest. A dishonest state of mind is a requirement. It is therefore
important to establish the traders’ knowledge and understanding of their
actions and its implications.
67.
Let us look at the evidence. Officer Le Morvan who conducted the
investigation said that the matter was first allocated as an employee
compliance issue and as part of a cross tax investigation. After uplifting
records from the Company, it transpired that they should have registered for
VAT in 2007. They registered in November 2008. He visited the Appellant again
and had discussions with their Accountant Mr Suttle. He requested information
from the Appellant. This included correspondence between Mr Suttle and the
Appellant, where he suggested that the Appellant be registered for VAT around
March 2008 together with paperwork relating to the loss of the large three
contracts. He did not get a reply nor did he get a reply from the Accountant
regarding the various calculations which he prepared and provided. Sometime
later, without an explanation being provided, the Company was put into
voluntary liquidation and a new company formed to run the business. Mr Le Morvan
saw this as an act of dishonesty both in setting up a new business and in
liquidating the previous company in order to avoid the payment of tax.
68.
It is not disputed that Mrs Candy is the controlling Director of the
Company. Her husband, Mr Brett Candy was involved in sourcing cleaning
materials for the Company rather than dealing with the day to day management.
Mr Le Morvan therefore wanted to meet and speak to Mrs Candy. He made several
attempts to do so but these were all unsuccessful. He gave oral evidence that
he was never presented with a proper and convincing story backed up by evidence
to show why the Company had not registered for VAT at the time it exceeded the
VAT threshold. He felt that the parties knew that registration was required
and received advice, from their Accountant in March 2008, that they should be
registered. They disregarded the advice of the Accountant. The Company’s year-end
accounts were prepared in March 2008 and at that time the Appellant knew that
they should be registered for VAT. They registered some months later. They
were not knowledgeable about VAT, their records were not computerised and they
thought that they were below the limit and there was no need to register before
being informed to do so in March 2008.
69.
In her sworn oral evidence Mrs Candy said that she ran a family business
which involved a substantial amount of physical cleaning work by herself and
her staff. While she agrees that she should have been registered at an earlier
date, she claims that this was only apparent at a later date. Her business was
seasonable and variable and she had a young family. She had not charged VAT to
any of her customers. There was no intention on her behalf to be dishonest.
All the records were kept by the bookkeeper and she relied on her advisors to inform
her when she should have been registered for VAT.
70.
When she realised that her turnover had exceeded the registration
threshold she sought advice from her accountant. She accepts that she did not
attend meetings with the Commissioners once the Company was in voluntary
liquidation. This on the advice from her advisors. The first advice she took
regarding VAT was in March 2008 from Mr Suttle when the accounts were being
prepared. The accounts showed that she should have been registered for VAT
since her turnover exceeded the threshold figure. She also made the point that
Mr Suttle was employed as the Accountant/Auditor for the Company but the
bookkeeping was done by Emma Martin who was not an employee of Mr Suttle. The
Commissioners reviewed in detail the turnover figures from the “monthly money
in and money out” spreadsheets which were given to them. These business
records showed that the monthly turnover in the period 1 July 2006 to 30 June
2007, 1 July 2207 to 30 June 2008 and 1 July 2008 to 30 June 2009 were as
follows:
|
Month
|
Turnover
|
Output tax (11%)
|
|
April 2007
|
13,516.85
|
1,486.85
|
|
May 2007
|
11,209.60
|
1,233.05
|
|
June 2007
|
9,678.50
|
1,064.63
|
|
July 2007
|
8,793.25
|
967.25
|
|
August 2007
|
11,914.01
|
1,301.54
|
|
September 2007
|
10,333.96
|
1,136.73
|
|
October 2007
|
11,675.88
|
1,284.34
|
|
November 2007
|
9,339.10
|
1,027.30
|
|
December 2007
|
6,087.25
|
669.59
|
|
January 2008
|
11,420.93
|
1,256.30
|
|
February 2008
|
11,974.30
|
1,317.17
|
|
March 2008
|
12,448.13
|
1,369.29
|
|
April 2008
|
12,495.68
|
1,484.52
|
|
May 2008
|
14,741.03
|
1,621.51
|
|
June 2008
|
13,362.80
|
1,609.60
|
|
July 2008
|
15,908.29
|
1,749.91
|
|
August 2008
|
16,359.75
|
1,799.57
|
|
September 2008
|
14,632.80
|
1,609.60
|
|
October 2008
|
15,912.61
|
1,750.38
|
|
Total
|
232,804.84
|
25,608.45
|
71.
The above figures were based on information provided by Mr Suttle to the
Commissioners. There can be no dispute that these figures are accurate and
reflected the turnover of the Company and clearly showed that registration
should have taken place at a much earlier date around April 2007. However this
letter was written on 16 June 2011 and there is nothing to indicate that the
Appellant knew of these figures until March 2008 when informed by her
accountant. The assessment itself was retrospective in that it looked back at
the figures. The Respondents say that the Appellant must have sought advice in
2007 regarding the VAT threshold limit. There is no evidence that this is the
case. There is evidence and it is accepted by the Appellant that they should
have been registered in March 2008 when the accounts prepared by the accountant
showed that they had exceeded the limit. The Appellant stated that there was
a potential downturn in the business and major contracts would have been lost.
This is stated in a letter by Mr Suttle on 12 January 2012 to the
Commissioners. There is no evidence presented at the Tribunal of the loss of
these contracts. The Tribunal therefore treats that submission by the
Appellant with some caution.
72.
The Appellant stated that her family and work obligations and her lack
of knowledge of VAT accounting rules prevented her from registering at the
correct time. The question for the Tribunal is whether this can provide an
excuse for late registration of over one year and a half. The answer to that
would be no. These cannot excuse such an inordinate delay in the registration
for VAT. The registration took place in November 2008 which was itself some
seven months after being informed by her own advisor that she should have been
registered for VAT.
73.
The Appellant does not dispute that the Company is liable for a penalty
or indeed that the legislative provisions allow such a penalty to be attributed
to the Appellant under Section 61 of the VATA 1994. The question for the
Tribunal however is whether the Appellant acted in a dishonest manner.
74.
The Respondents state that in liquidating the company and setting up a parallel
company to run the business was an act of dishonesty. It may well be treated
in some cases as evidence of a dishonest nature. The Appellant gave oral
evidence that she was advised on this action by her Accountant Mr Suttle. This
seems an unfortunate way to proceed in the circumstances and does send the
wrong message. The better message would have been to ask the Appellant to
approach HMRC and give a full explanation of the reasons why the registration
was late, negotiate a settlement and a time to pay arrangement and ask for the
mitigating provisions to be considered in her favour. In the circumstances the
Tribunal does not believe that the Appellant acted dishonestly with regard to this
matter since, as a person with limited knowledge of VAT law and practice, she relied
on advice from her accountant and took that advice and acted upon it. In the
circumstances, this cannot be considered dishonesty and certainly not where a
high degree of probity is required.
75.
Let us look in particular at the question of dishonesty as it relates to
the Appellant.
76.
The Tribunal believes that the Appellant had a casual approach in
dealing with record keeping. This caused both an enquiry into her employee
matters and her VAT matters. Her focus was on developing and growing the
cleaning business which as very demanding on her and her young family.
Although her husband worked with her there were some 14 employees, all of whom
were part time and who had verbal contracts which had to be managed.
Additionally, the Appellant had to seek new clients and develop the business,
which itself is an onerous obligation. There was clearly a failure to register
for VAT but the Tribunal does not believe that this was a deliberate failure.
It is clear that in dealing with taxation matters, the Company had several
outstanding issues and administratively, there was not the level of competence
and compliance that one would expect with a well run business. There were potential
tax issues and class A NIC arising from the use of a company car and van.
There were issues around whether the workers were self employed or were
employees and there was the question of the VAT registration. There were
additional issues relating to workers being paid by invoice on a self employed
based and sums paid to the directors as personal expenses. The picture which
emerges is a company which administratively was not competently run and was liable
to make mistakes in its record keeping and compliance.
77.
Additionally, there were concerns by the Appellant about contracts.
This impacted on the turnover. Given the business was seasonable and the
larger turnover arose in the summer, there would have been concerns throughout
the year if the turnover had dropped. These matters must have created
additional tension for the Appellant who admitted in oral evidence that her
main concern was the development of new business. It is possible to see how
the running of the business in these circumstances could have been an onerous
task. The Tribunal must find dishonesty in order to bring the penalty within
the statutory provisions. The first step is to look to see whether by the
standards of a reasonable and honest person whether the act of not registering
and the fact that the Appellant did not register in March 2008, when told to do
so by her accountant, constitutes an act of dishonesty. The Tribunal does not
think that there is dishonesty. The Appellant did not deliberately and
intentionally try not register for VAT but rather would falls into the category
of a person who had a casual approach to compliance. A casual attitude is not
the same as a reckless or dishonest approach. The Appellant naively thought her
turnover was below the threshold until told otherwise in 2008. A reasonable
person would not think that Mrs Candy was trying to avoid charging her
customers VAT. If one looks at the relevant VAT provisions, it is clear that
Parliament intended there to be a mental element of intending to evade tax. Therefore
one has to look not only at the fact that the person did not register for VAT
but whether there was an additional intention of evading the paying of tax and
that they knew that this was dishonest. In other words, there is a mental
element of dishonesty which must be showed or inferred from the conduct and
behaviour of the party involved. It is correct that the failure to register
amounts to an act of omission but that does not, on its own, constitute dishonesty.
78.
The Tribunal can therefore find no clear evidence that the Appellant
intended to evade tax either by the standards of a reasonable person or a
subjective intention on the part of Mrs Candy herself. Her registration when
advised to do so by her accountant does not support the inference of
dishonesty.
79.
In his evidence Mr Suttle stated that the Appellant had not taken advice
from him regarding VAT in 2007. He stated that the first she took advice on
this matter was in March 2008 which coincides with the time when the accounts
had been prepared. The Tribunal will therefore accept this evidence to show
that the Appellant had not taken on board her responsibilities regarding VAT
and it had not occurred to her that she needed to be registered for VAT at a
much earlier time. The one curious decision is the decision to put the company
into voluntary liquidation and not to approach the Revenue or respond to any of
their questions. This was action undertaken after advice had been received
from her advisors. This is a most curious way to proceed and is not
advisable. However this cannot be taken as an act of dishonesty since she was
acting on the advice those who were knowledgeable and familiar with the
compliance laws and rules. Dishonesty is a serious matter and it would require
the Respondent’s cogent evidence that the Appellant acted in a dishonest
manner. The level of evidence required has not been provided and to that
extent the Respondent’s have not discharged the burden which has been placed
upon them.
80.
The Tribunal therefore concludes that the Appeal should be allowed. The
Respondent’s have not discharged the heavy burden placed upon them by the law to
show dishonesty. It is correct that the Appellant took a very casual approach
to VAT registration and failed to register at the appropriate time. The
business was run in a manner which showed that there was some administrative incompetence
and mistakes in dealing with tax matters. The advice received by the Appellant
with regard to the liquidation of the Company sends the wrong message and is
not a proper way to proceed in these circumstances. The proper way to proceed
would have been to engage with the Respondents. However, taking all these
factors into account, the Tribunal does not find dishonesty on the part of the
Appellant.
81.
Dishonesty would require both objective and subjective dishonesty and
the high probability that the actions of the Appellant were intended to evade
the payment of tax. This is not the case. The Appellant’s present record of
compliance is exemplary, though this is not a factor which was considered by
the Tribunal in making its final decision. On balance the evidence presented
by the Commissioners does not convince us that there has been dishonesty and
the Tribunal has concluded that the Appellant did not act in a dishonest manner
in omitting to register and continuing to trade while unregistered.
82.
The Appeal is therefore allowed and the penalty imposed on the Appellant
is set aside.
83.
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.
DR K KHAN
TRIBUNAL JUDGE
RELEASE DATE: 13 February 2013
