United European Gastroenterology Federation v Revenue & Customs [2013] UKFTT 292 (TC) (09 May 2013)
DECISION
Introduction
1.
This is an appeal against a penalty under Schedule 24, Finance Act 2007
(“Schedule 24”) imposed for a careless inaccuracy in the Appellant’s VAT
returns for the periods 06/09, 09/09 and 12/09. The penalty totals £104,973.
2.
As a result of what the Appellant (rightly, in our view) concedes to
have been a careless error in each case, those returns did not include output
VAT totalling £693,897 and wrongly included input VAT totalling £5,925. The
total error was therefore £699,822.
3.
Schedule 24 lays down penalties for inaccuracies in returns, and
provides that the penalties should be reduced if the taxpayer discloses the
inaccuracies to HMRC.
4.
For careless errors, Schedule 24 lays down a penalty range of 15% - 30%
for “prompted” disclosures and a range of 0% - 30% for “unprompted”
disclosures. In each case, the percentage is calculated by reference to the
“potential lost revenue”, i.e. in this case the £699,822 figure mentioned at [2]
above.
5.
In view of the quality of the Appellant’s disclosure, HMRC accepted that
it was entitled to the maximum mitigation that was permitted.
6.
They regarded the Appellant’s disclosure as “prompted”. They therefore
imposed a penalty at a rate of 15%. Hence the penalty was calculated at
£104,973.
7.
The Appellant maintained that its disclosure was unprompted and
therefore qualified for 100% mitigation, with no 15% minimum penalty.
8.
The question of whether the disclosure was prompted or unprompted was
therefore the main issue between the parties.
9.
If it did not succeed fully on the main issue, then the Appellant also
argued that any penalty should be suspended. HMRC argued that in the
circumstances of this case, suspension was not available.
10.
The Appellant has not argued for any special reduction of the penalty
and we therefore do not consider that issue.
The Facts
11.
We heard evidence from:
(1)
Ramzan Khan, the HMRC officer who carried out the relevant control visit
and imposed the penalty the subject of the appeal, and
(2)
Dr Gernot Schuster, a partner in Deloitte Tax Wirtshaftsprüfungs GmbH in
Austria (“Deloitte Austria”), who acted as accountants to the Appellant in Austria.
12.
We also received a bundle of documents agreed between the parties. From
the evidence before us, we find the following facts.
13.
The Appellant is a Swiss-registered non-profit making association with
its place of management in Austria. Its status is similar to a charity in the UK. It is a professional organisation combining all the leading European societies
concerned with combating digestive disease. As part of its range of
activities, it organises a congress each year, generally in a different
country. It organised a congress in the UK in November 2009.
14.
The Appellant engaged a third party supplier based in Austria, Destination Management & Consulting gesmbh (“DM&C”), to assist it in organising the
UK congress. DM&C also assisted in organising the 2008 congress in Vienna. The short contract between the Appellant and DM&C in relation to the UK congress was signed on 24 January 2007.
15.
Up to (and including) the 2007 congress, the Appellant had used a
different service provider to help in the organisation of the conference, which
had invoiced delegates for their congress fees in its own name as principal,
rather than in the name of the Appellant. There was no evidence before us that
such matters were considered or discussed with DM&C.
16.
The contract between the Appellant and DM&C which was signed in
January 2007 was extremely sketchy. The description of DM&C’s services
took the form of a number of bullet points under three headings, covering less
than half a page. Its services under the “Finance” heading were listed as:
“Ÿ Contract
negotiations with the service providers
Ÿ Handling
of all relevant financial transactions
Ÿ Payment
statistics and reports
Ÿ Final
invoice”
17.
In March 2009 the Appellant applied for a UK VAT registration. The
application was signed by a Dr Peter Milla, a distinguished Paediatric
Gastroenterologist and Treasurer of the Appellant. In it, an effective
registration date of 10 March 2009 was requested and the application was for a
voluntary registration based on an expected turnover of £7 million.
18.
The vast majority of the Appellant’s income from the 2009 annual
congress (some €6.1 million) was made up of the delegates’ fees paid by the
17,500 delegates. In addition, there were fees from exhibitors and commissions
from hotels.
19.
It appears that DM&C issued invoices to the delegates for their
congress fees in the name of the Appellant and on its behalf. We were told
this was done without reference to or discussion with the Appellant. A copy of
an invoice was included in the evidence before us. It included the Appellant’s
VAT number, which must therefore have been supplied to DM&C at some point.
In the context of that contact, one would normally expect there to be a
discussion about the reason why the VAT number was being requested. However, because
the Appellant accepted that it had been careless, it was not necessary for us
to consider this aspect further.
20.
DM&C did not give the Appellant or its advisors any information
about or details of the invoices they were issuing to delegates at the time
they were issued. The Appellant and its advisors either assumed that DM&C
had invoiced delegates’ fees in its own name as principal or gave the matter no
thought at all. As a result, no figures in respect of sales or output tax for
those fees were included on the Appellant’s UK VAT returns for periods 06/09,
09/09 or 12/09. Those returns were prepared and submitted by Deloitte in the UK as the Appellant’s agent. The Appellant does not dispute the validity of the invoices
issued on its behalf by DM&C.
21.
The congress took place in London on 21-25 November 2009.
22.
The Appellant received various payments from DM&C, at least some of
which were identified as “registration fees” on the bank remittance advices.
In particular, it received round sum payments of €1 million each on 16 November
2009 (just before the congress started) and 12 January 2010, followed by payments
of €3,829,892.03 on 14 April 2010 and £171,198.34 on 18 May 2010. The November
and January payments were identified as “registration fees”. There was no
evidence before us as to whether the April and May payments were similarly
identified.
23.
Deloitte UK prepared and submitted the Appellant’s 12/09 VAT return on
26 February 2010. That return requested a repayment of just over £150,000. In
response to it, HMRC contacted Deloitte UK by telephone on 30 March 2010 to
arrange a visit to “discuss your request for a VAT repayment for December
2009”. The date initially agreed for the visit was 27 April 2010 at the St Albans office of Deloitte.
24.
On 22 April 2010, the date for the visit was re-arranged at the request
of Deloitte. This was because of delays in getting the Appellant’s records
delivered from Austria to the UK. The new agreed date for the visit was 21 May
2010.
25.
In the meantime, Deloitte Austria had been compiling the Appellant’s
financial statements for the calendar year 2009. It was only when doing so
that they identified the mistake that had been made. On 10 May 2010 DM&C
provided the Appellant with the “Final Statistics” for the 2009 congress, which
for the first time fully documented all the income and expenditure in respect
of the services carried out by DM&C. When this was passed on to Deloitte Austria, they recognised that something must be wrong and within two days they had
established that DM&C had been issuing invoices in the name of the
Appellant. They advised the Appellant that Deloitte UK should be contacted to
make a disclosure to HMRC and on 19 May 2010 sent an email to the Appellant
confirming the telephone discussion to that effect. Following that email,
Deloitte Austria were obviously instructed to make that contact themselves,
which resulted in a call to Deloitte UK on 20 May 2010, in which Dr Hofer of
Deloitte Austria told Tom Nash of Deloitte UK what had been discovered.
26.
Thus when Deloitte UK heard from Deloitte Austria about the error that
had been identified, it was the day before the agreed visit from HMRC. Tom
Nash of Deloitte UK immediately telephoned HMRC to explain that additional
information been discovered and that there was a possibility the 12/09 return
needed to be amended. It was agreed that the 21 May visit should be deferred
in order to enable Deloitte to investigate the position fully. A new visit was
arranged for 1 July 2010. We find that during this conversation, only the most
general indication was given by Deloitte that something was potentially wrong,
and there was no disclosure of either the general nature or extent of the
problem.
27.
On 28 June 2010 Deloitte sent to HMRC by fax a letter dated 25 June
2010. That letter explained the outline of the mistake that had been
discovered and invited HMRC to consider whether it would be appropriate to
defer the visit until Deloitte had been able to put together a formal voluntary
disclosure. This fax resulted in the further postponement of the visit from 1
July.
28.
The visit eventually went ahead on 24 August 2010. There followed a
series of further communications, culminating in agreement as to the
corrections that were required to the various VAT returns.
29.
Eventually, HMRC issued a pre-decision letter dated 5 September 2011 in
relation to the penalties it proposed, stating that:
(1)
in respect of period 06/09, the omission of the delegates’ fees had
caused an underdeclaration of output tax of £92,772;
(2)
in respect of period 09/09, the same omission had caused an underdeclaration
of output tax of £195,110;
(3)
in respect of period 12/09, the same omission had caused an
underdeclaration of output tax of £406,015. In addition, £5,925 of input tax
had been claimed which was disallowable as business entertainment. The total
underdeclaration was therefore £411,940;
(4)
the total “potential lost revenue” was therefore £92,772 + £195,110 +
£411,940 = £699,822;
(5)
applying the maximum available mitigation for a prompted disclosure of a
careless inaccuracy, a penalty was chargeable at the rate of 15%, i.e.
£104,973.30.
30.
The Appellant does not dispute the calculation, apart from the
applicable penalty rate.
31.
Following a pre-decision letter dated 5 September 2011 and a penalty calculation
summary dated 7 September 2011 there was further correspondence culminating in
a letter dated 5 October 2011 from Officer Khan setting out the basis of his
decision and a formal penalty assessment dated 10 October 2011. Following a
request for a statutory review dated 3 November 2011, HMRC issued a review
decision letter dated 16 December 2011, confirming the original decision. The
appeal was then notified to the Tribunal on 13 January 2012.
32.
Dr Schuster told us that the same error had occurred in relation to its
2008 congress in Vienna – the first which was managed for it by DM&C. It
was only when the error came to light in relation to the 2009 UK congress that the previous year was checked and the same error was found – without having been
picked up at the time by Deloitte Austria or on the Swiss audit of the
Appellant’s financial statements. A voluntary disclosure had been duly made to
the Austrian VAT authorities, who had charged a 2% penalty.
33.
We find that the Appellant would have disclosed the underdeclarations of
output tax (but would not have disclosed the overclaim of input tax)
irrespective of whether or not HMRC had made contact with Deloitte to arrange
the visit to verify the 12/09 repayment return. Therefore it could be said
that in colloquial terms the bulk of the Appellant’s disclosure was not
prompted by anything done by HMRC, as it would have been made in any event.
34.
Mr Khan was questioned about his normal approach to visits such as the
one he made to Deloitte in relation to the Appellant. We accept his evidence
that, whilst there was no formal checklist laid down by HMRC of matters to be
considered, he always included as one of his most basic enquiries (as part of
gaining an initial understanding of the business he was visiting) the question
of output VAT on the main streams of revenue of the business. He was confident
that the same could be said of his colleagues generally.
35.
A copy of the manuscript notes he made of the visit on 24 August 2010
was included in the evidence. Those notes included a pre-prepared list of
areas to be covered on the visit, and second on the list was “MBA” (main
business activity), against which he had noted the streams of income at the
meeting. We accept his evidence that he was aware before the meeting of the
estimated £7 million turnover figure given in the VAT registration application
form and even if he had been informed that DM&C had dealt with the VAT
under its own registration, simply accounting to the Appellant for net profit,
he would have tested what he was being told. We accept that he would have
wanted to see where the UK VAT was being accounted for, if it was not by the
Appellant. We also accept that the same could be said of his colleagues
generally.
36.
We therefore find that HMRC would, even if the visit had gone ahead
before Deloitte had indicated there were potential errors in the returns, have
made enquiries about the Appellant’s output tax liability (especially in the
light of the estimated turnover of £7 million indicated in its VAT registration
application form) and they would, as a result of such enquiries, eventually have
discovered the underdeclarations of output tax. We also find as a fact that Mr
Khan did discover the over-reclaim of input tax purely as a result of his
enquiries at the meeting.
37.
The Appellant ceased its business activities in the UK once the UK congress was completed. At a later date it deregistered for VAT and is only likely
to undertake further business activities in the UK requiring VAT registration
if it decides to hold another congress here (which is apparently not currently
planned).
38.
It was suggested by Miss Bailey that, at the time of the disclosure to
HMRC (which she submitted was on 20 May 2010), there was no evidence in the UK which could have caused the discovery of the error. We accept that the error was not
obvious on the face of the information held in the UK at that time, however:
(1)
this does not affect our findings at [36]; and
(2)
by 28 June 2010 (the date on which we find that the inaccuracy was, in
general terms, disclosed to HMRC), the error was clearly apparent on the face
of the material held in the UK which would be available for consideration by
HMRC during their visit.
39.
We therefore reject Miss Bailey’s submission that, on the facts, the
Appellant could not have had any reason to believe that HMRC were about
to discover the error, whether that submission relates to the state of affairs
on 20 May 2010 or 28 June 2010. We address later in this decision whether the
Appellant actually had any reason to believe that HMRC were about to
discover the error.
The law
40.
The penalty in question has been imposed under Schedule 24.
41.
We only set out the parts of that Schedule which are relevant to the
matters in dispute, namely whether the disclosure made on behalf of the
Appellant was “prompted” and whether any penalty should be suspended. It is
common ground that the error in the Appellant’s VAT returns was careless and
therefore that it was liable, before any reduction for disclosure, to a penalty
at the rate of 30% of the potential lost revenue.
42.
The copy legislation included in the bundle prepared by HMRC was
incorrect. Instead of reproducing the legislation as it stood at the material
time, they included it as originally enacted. We only discovered the error as
a result of our subsequent researches. This is not the first time HMRC have
included an incorrect version of legislation in an authorities bundle before
the Tribunal and they should take care to ensure the error does not occur
again. It is quite conceivable that a Tribunal might reach a decision based on
the legislation included in the bundles by HMRC, then be required to review its
decision later when the error is drawn to its attention. We would consider
exercising our power to award costs against HMRC in such circumstances.
43.
Paragraphs 9 and 10 of Schedule 24, headed “Reductions for disclosure”,
provided at the relevant time (so far as material) as follows:
“9 (A1) Paragraph 10 provides for reductions in penalties
under paragraphs 1, 1A and 2 where a person discloses an inaccuracy.....
(1) A person discloses an inaccuracy ..... by –
(a) telling HMRC about it,
(b) giving HMRC reasonable
help in quantifying the inaccuracy ..... , and
(c) allowing HMRC access
to records for the purpose of ensuring that the inaccuracy ..... is fully
corrected.
(2) Disclosure –
(a) is “unprompted” if
made at a time when the person making it has no reason to believe that HMRC
have discovered or are about to discover the inaccuracy .... , and
(b) otherwise, is
“prompted”.
(3) In relation to
disclosure “quality” includes timing, nature and extent.
10 (1) Where a person who would
otherwise be liable to a 30% penalty has made an unprompted disclosure, HMRC
shall reduce the 30% to a percentage (which may be 0%) which reflects the
quality of the disclosure.
(2) Where a person who
would otherwise be liable to 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.
....”
44.
Accordingly, the crucial question is whether the Appellant’s disclosure
to HMRC was made at a time when it had “no reason to believe” that HMRC had
discovered or were about to discover the inaccuracy.
45.
On the matter of suspension, the relevant law is contained in paragraph
14 of Schedule 24 (and remains unchanged since original enactment):
“14 (1) HMRC may suspend all or part of a penalty for
careless inaccuracy under paragraph 1 by notice in writing to P.
(2) A notice must specify –
(a) what part of the
penalty is to be suspended,
(b) a period of suspension
not exceeding two years, and
(c) conditions of
suspension to be complied with by P.
(3) HMRC may suspend all or
part of a penalty only if compliance with a condition of suspension would help
P to avoid becoming liable to further penalties under paragraph 1 for careless
inaccuracy.
(4) A condition of
suspension may specify –
(a) action to be taken,
and
(b) a period within which
it must be taken.
(5) On the expiry of the
period of suspension –
(a) if P satisfies HMRC
that the conditions of suspension have been complied with, the suspended
penalty or part is cancelled, and
(b) otherwise, the
suspended penalty or part becomes payable.
(6) If, during the period
of suspension of all or part of a penalty under paragraph 1, P becomes liable
for another penalty under that paragraph, the suspended penalty or part becomes
payable.”
46.
Finally, paragraphs 15 and 17 of Schedule 24 contain (amongst other
things) the following provisions concerning appeals (as they have stood since 1
April 2009):
“15 (1) A person may appeal against a decision of HMRC that
a penalty is payable by the person.
(2) A person may appeal against a decision of HMRC as
to the amount of a penalty payable by the person.
(3) A person may appeal against a decision of HMRC not
to suspend a penalty payable by the person.
....
17 (1) On an appeal under paragraph 15(1) the tribunal may
affirm or cancel HMRC’s decision.
(2) On an appeal under paragraph 15(2) the tribunal
may–
(a) affirm HMRC’s decision,
or
(b) substitute for HMRC’s
decision another decision that HMRC had power to make.
....
(4) On an appeal under
paragraph 15(3) –
(a) the tribunal may order
HMRC to suspend the penalty only if it thinks that HMRC’s decision not to
suspend was flawed, and
(b) if the tribunal orders
HMRC to suspend the penalty –
(i) P may appeal to the
tribunal against a provision of the notice of suspension, and
(ii) the tribunal may
order HMRC to amend the notice.
....
(6) In sub-paragraphs .....
(4)(a).... “flawed” means flawed when considered in the light of the principles
applicable in proceedings for judicial review.
(7) Paragraph 14 (see in
particular paragraph 14(3)) is subject to the possibility of an order under
this paragraph.”
47.
The parties did not refer us to any authorities to assist us in relation
to the question of whether the Appellant’s disclosure was prompted or
unprompted.
48.
In relation to the question of suspension, Mrs Checkley referred us to Fane
v HMRC [2011] UKFTT 210 (TC), in particular the statement in paragraph [65]
that:
“[b]earing these considerations in mind, HMRC’s guidance
indicating that a one-off error would not normally be suitable for a suspended
penalty is understandable and, in our view, justified.”
49.
In relation to the same question, we also considered Testa v HMRC
[2013] UKFTT 151 (TC), where the Tribunal (at [25]) said of the passage from Fane
quoted above that “as a general statement is must be treated with care.” The
Tribunal went on to find (at [38]) that HMRC’s uncritical adherence to a
general policy of “no suspension for one-off events” and their failure to give
any proper consideration to the suspension conditions proposed by the appellant
rendered HMRC’s decision not to suspend the penalty flawed in that case.
Submissions of the parties
Prompted or unprompted
50.
Miss Bailey argued that because the disclosure was unprompted, and HMRC
had already confirmed that a full 100% mitigation was available within the
relevant range, the penalty should be reduced to nil.
51.
She submitted the disclosure was unprompted because:
(1)
The evidence clearly showed that the disclosure would have been made
irrespective of any planned visit by HMRC; and
(2)
The facts were such that the Appellant had no reason to believe, at the
time it made the disclosure, that HMRC were about to discover the error.
52.
She submitted that the wording in paragraph 9(2)(a) of Schedule 24 (“has
no reason to believe”) meant that the test was a subjective one, looking into
the mind of the Appellant (or its controlling individuals); she asserted that
the only available evidence as to that state of mind was the uncontested
evidence of Dr Schuster to the effect that the Appellant had no reason to
believe, at the relevant time, that HMRC were about to discover the inaccuracy.
53.
She argued that HMRC’s approach – which she paraphrased as “the
disclosure must be prompted simply because a visit had been booked” – could not
be right as it would have arbitrary results. It could mean that a large and
complex business with regular meetings with a customer relationship manager
from HMRC might never be able to claim an unprompted disclosure; or that two
identical taxpayers making the same disclosure might get totally different
treatment, depending on the pure chance of whether one of them had received a
letter booking a routine control visit.
54.
Mrs Checkley simply argued that on the facts of this case, it was
clearly right to say that once the visit had been booked, the process whereby
HMRC would discover the error had begun; therefore the Appellant had reason to
believe that HMRC would discover it and so the opportunity to make an
unprompted disclosure had passed.
Suspension
55.
Miss Bailey submitted that it was clearly incorrect to say, as HMRC had
done in their review letter dated 16 December 2011, that suspension was not
available because any future UK business activities would be carried out under
a new VAT registration, thus making the Appellant a different “person” for the
purposes of paragraph 14 of Schedule 24.
56.
She further submitted that this was a case in which suitable suspensive
conditions could be laid down, binding on the Appellant if it chose to organise
a further congress (or indeed carry out any other taxable activity) in the UK.
These might include requirements for the Appellant to put in place clear systems
to ensure that VAT was adequately covered in contracts with suppliers and its
operation was appropriately checked and verified. She argued that HMRC should
have checked with the Appellant whether it had any further taxable activities
planned in the UK before reaching its decision.
57.
Mrs Checkley submitted that as all the indications were that the
Appellant had ceased its UK taxable activities for the foreseeable future once
the congress had been completed and tidied up, it was entirely reasonable to take
the view that there was no suspensive condition that would help the Appellant
to avoid becoming liable to further penalties under Schedule 24. She made no
attempt to defend the line of argument contained in HMRC’s review letter dated
16 December 2011 referred to in Miss Bailey’s submission at [55] above.
Discussion and conclusion
Prompted or unprompted?
58.
In view of our finding at [38(2)], the question for determination is
whether “the person making” the disclosure on 28 June 2010 had “no reason to
believe” that HMRC were “about to discover” the inaccuracy.
59.
In passing, we would observe that in the circumstances of this case
there would be no difference if we considered the same question as at 20 May
2010 (the date when Deloitte indicated to HMRC that the 12/09 return might need
amendment); the only thing that changed between the two dates was that
Deloitte’s and the Appellant’s general knowledge of the problem hardened into a
much fuller appreciation of its detail. On both dates, they were aware that
HMRC had arranged a visit specifically to consider the accuracy of the VAT
return for 09/12, which could therefore be expected to bring the Appellant’s
VAT position generally under the spotlight.
60.
We reject Miss Bailey’s submission that the “no reason to believe” test
is a subjective one. Paragraph 9(2)(a) of Schedule 24 requires the question to
be asked: “At the time the disclosure was made, did the person making it have
no reason to believe that HMRC had discovered or were about to discover the
inaccuracy?” The question is not whether the person actually held that belief,
it is whether there was any reason for them to hold that belief. To
answer that question, an objective examination of the facts is required, not an
enquiry into a subjective state of mind.
61.
In making that objective examination, the first question to be asked is
which “person” it should relate to. In the present case, it was Deloitte UK who actually made the disclosure, though clearly it was being made on behalf of the
Appellant. Which of these two is the “person” with whom we are concerned for
the purposes of paragraph 9(2)(a)?
62.
Since paragraph 9 is effectively an interpretation provision to explain
paragraph 10, and paragraph 10 refers to the situation in which “a person who
would otherwise be liable to a .... penalty has made [a prompted/an unprompted]
disclosure”, it seems clear that the references to “person” in paragraph 9 are
intended to refer to the person who may potentially benefit from mitigation of
the penalty under paragraph 10. We therefore interpret the reference in
paragraph 9(2)(a) to “the person making [the disclosure]” as referring, where a
disclosure is made by an agent, to the principal on whose behalf it is made.
In the present case, this means that the “person” in question for the purposes
of paragraph 9(2)(a) is the Appellant, rather than Deloitte UK. Both parties at the hearing proceeded on the assumption (without addressing the point
specifically) that this was correct.
63.
So if we are considering what the Appellant had “reason to believe”, we
must surely do so by reference to the facts known to it at the time. It is
clear from Dr Schuster’s evidence that (as you would expect) Deloitte Austria’s first step when it realised the problem was to contact the Appellant to inform it
about it.
64.
Thus, at the time when the disclosure was made (whether that was 20 May
or 28 June 2010), the Appellant was aware that there was a major problem with
its VAT returns, in that they had not included the output VAT charged on its
behalf to the delegates. It was also aware that HMRC had arranged a visit to
verify the repayment claim in its 12/09 return, and that visit was to take
place imminently (and certainly before the repayment would be authorised).
65.
In those circumstances, could it be said that the Appellant had “no
reason to believe” that HMRC were about to discover the inaccuracy?
66.
This is clearly a much higher hurdle for the Appellant than if it had to
establish, for example, that there was a reasonable possibility (or even a
likelihood) that the inaccuracy would have escaped undetected. It is a hurdle
which, in the circumstances, we consider the Appellant cannot clear. Whether
or not it knew of the level of enquiry that HMRC would undertake during the
course of the visit, it is quite clear to us that it had at least some reason
to believe that the inaccuracy would be discovered as a result of it. It must
therefore fail the “no reason to believe” test and this is fatal to the appeal.
We should emphasise that this is the case, on our interpretation of the
statutory test, even though we fully accept the Appellant’s evidence that the
disclosure would have been made even if no HMRC visit had been arranged.
67.
We see nothing in Miss Bailey’s submissions summarised at [53] above to
the effect that this approach has arbitrary results. In the context of a large
and complex business, it might be quite possible to demonstrate that some
inaccuracy would be extremely unlikely to be picked up during a routine
pre-arranged control visit and therefore a disclosure of such an inaccuracy
might be unprompted, despite being made after a control visit had been booked.
It would be a question of whether there was any “reason to believe” that the
inaccuracy would be picked up on that routine visit. And in the case of two
identical taxpayers with identical inaccuracies, we do not find it indefensibly
arbitrary that they may be differently treated because one of them has received
notice of a visit before it makes its disclosure of an inaccuracy that is
likely to be picked up on the visit. This is akin to arguing that the speeding
motorist who is caught should be let off because other speeding motorists have
not been caught.
Suspension
68.
We agree with Miss Bailey’s submission at [55] that HMRC’s additional
reason in their review decision for rejecting any suggestion of suspension was
misconceived. The fact that the Appellant would have to apply for a new VAT
registration if it chose to carry out any future taxable activities in the UK
does not, in our view, mean that it should therefore be treated as an entirely
different person for the purposes of Schedule 24. Mrs Checkley was right, in
our view, not to seek to defend the statement to that effect made in HMRC’s
review letter dated 16 December 2011.
69.
If that had been the sole ground for HMRC’s decision not to suspend the
penalty, we would not have hesitated to find the decision “flawed” for the
purposes of paragraph 17(4) of Schedule 24. However, in his original letter
dated 5 October 2011, Officer Khan stated his reason for refusing suspension as
follows:
“As the trader has ceased to trade and will be deregistering
once the enquiry has been concluded, it precludes imposition and compliance
with a suspension condition.”
70.
In the review letter dated 16 December 2011, in addition to the
reasoning we have identified as flawed, HMRC re-iterated the earlier reason:
“I am afraid there is nothing further of value that I can add
to what has already been explained by Officer Khan regarding this matter. As
your taxable activities have ceased in the UK and are [sic] deregistering there
is no scope in law for suspending the penalties, even if this was
considered appropriate.”
71.
Because of the somewhat inconsistent reasoning given in the review
letter, it might perhaps be arguable that HMRC’s decision is “flawed” overall.
We do not consider this issue further because even if it were to be flawed, we
note that paragraph 17(4)(a) of Schedule 24 only authorises and does not
require us to order a suspension; and in the circumstances of this case
(where there is no evidence of the Appellant having carried on any taxable
activities in the UK since the 2009 congress, or having any intention to carry
on such activities in the foreseeable future) we would not in any event
consider this to be a suitable case for suspension.
Conclusion
72.
We find that the Appellant’s disclosure was prompted within the meaning
of paragraph 9(2)(a) of Schedule 24 (see [66] above) and therefore the
imposition of a minimum penalty of 15% cannot be impugned.
73.
We find that even if (which we doubt) HMRC’s decision not to suspend the
penalty was “flawed”, we do not consider this to be an appropriate case for the
penalty to be suspended in any event (see [71] above).
74.
The appeal must therefore, with some regret in view of the worthy
activities of the Appellant, be dismissed.
75.
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.
KEVIN POOLE
TRIBUNAL JUDGE
RELEASE DATE: 9 May 2013
