United Kingdom VAT & Duties Tribunals Decisions

 


19035

PENALTY – EVASION –Commissioners attribute dishonest conduct of company to a named officer – PRELIMINARY ISSUE–– – Notice of liability to penalty – validity of notice of assessment – Appeal dismissed on this point –

MAIN ISSUE – conduct involving dishonesty – liability of director/secretary – dishonest conduct proved on a balance of probabilities- other directors' acquiescence in dishonesty also a factor – proportionality taken into account – degree of culpability resulted in further mitigation of reduced penalty by 75 per cent – Appeal partially allowed VATA 1994 ss 60, 61, 70 and 76 – Human Rights Act 1998 Sch 1, Pt II, art.1.

LONDON TRIBUNAL CENTRE

DAVID SAWYER Appellant

- and -

THE COMMISSIONERS OF CUSTOMS & EXCISE Respondents

Tribunal : RODNEY P HUGGINS (Chairman)

HELEN FOLORUNSO

HEATHER KELLY

Sitting in public in London on 7, 8 and 9 March 2005

Richard Barlow of Counsel for the Appellant

Michael Barnes of Counsel instructed by the Solicitor for Customs and Excise for the Respondents.

© CROWN COPYRIGHT 2005

5 10 15 20 25 30 35 40 45 10 15 20 25 30 35 40 45 5 10 15 20 25 30 35 40 45 5 10 15 20 25 30 35 40 45 5 10 15 20 25 30 35 40 45 5 10 15 20 25 30 35 40 45 5 10 15 20 25 30 35 40 45 5 10 15 20 25 30 35 40 45 5 10 15 20 25 30 35 40 45	DECISION The appeal 1. Mr David Sawyer ("the Appellant/Mr Sawyer") was, at the relevant time, a director and/or company secretary of a company known as J L Distribution Services Limited (referred to in this decision as "Services") which was registered for VAT with effect from 1 September 1997. The Commissioners decided that Services was liable to a penalty under section 60(1) of the Value Added Tax Act 1994 (the 1994 Act) for dishonest evasion of VAT. They alleged that the company dishonestly made use of false invoices which it had not paid in order to claim credit for input tax against its output tax on the supplies it made in its business of distribution of fish including dealings with fish merchants and other fish sellers. 2. Services paid by instalments the assessment dated 27 March 2001 for the VAT not paid on the invoices in the sum of £407,937 plus interest. However, it was indicated to Customs by the company's representatives that Services would be liquidated if the assessment was not paid by instalments. Therefore, Customs decided that in view of the company's precarious financial position, the penalty for evasion should be levied on Mr Sawyer only as it was alleged he was the controlling mind and involved in the day to day running of the business of Services. Two notices of assessment both dated 25 November 2002 were issued for penalty tax in the reduced sum of £313,193. The penalty was amended after a local reconsideration where the culpable arrears were amended to £407,947 and the level of mitigation allowed increased to 30%. The effect of these adjustments was that the penalty was reduced to £285,555.00 which was notified to the Appellant by letter on 4 March 2004. It is against this reduced assessment that the Appellant appeals. The legislation and Notices issued thereunder 3. It is convenient at this stage to set out the relevant law. 4. Section 60 of the 1994 Act except for sub-section 6 which does not apply reads as follows : "(1) In any case where – for the purpose of evading VAT, a person does not act or omits to take any action, and his conduct involves dishonesty (whether or not it is such as to give rise to criminal liability). He shall be liable, subject to subsection (6) below, to a penalty equal to the amount of VAT evaded or, as the case may be, sought to evaded, by his conduct. in relation to VAT itself or a VAT credit as a reference to the aggregate of the amount (if any) falsely claimed by way of credit for input tax and the amount (if any) by which output tax was falsely understated; and in relation to the sums referred to in subsection (2)(a), (c) and (e) above as a reference to the amount falsely claimed by way of refund or repayment. (4) Statements made or documents produced by or on behalf of a person shall not be inadmissible in any such proceedings as are mentioned in subsection (5) below by reason only that it has been drawn to his attention – that, in relation to Vat, the Commissioners may assess an amount due by way of a civil penalty instead of constituting criminal proceedings and, though no undertaking can be given as to whether the Commissioners will make such an assessment in the case of any person, it is their practice to be influenced by the fact that a person has made a full confession of any dishonest conduct to which he has been a party and has given full facilities for investigation and, that the Commissioners or, an appeal, a tribunal have power under section 70 to reduce a penalty under this section, and that he was or may have been induced thereby to make the statements or produce the documents. (5)The proceedings mentioned in subsection (4) above are – any criminal proceedings against the person concerned in respect of any offence in connection with or in relation to VAT, and any proceedings against him for thr recovery of any sum due from him in connection with or in relation to VAT. … (7) On an appeal against an assessment to a penalty under this section, the burden of proof as to the matters specified in subsection (1)(a) and (b) above shall live upon the Commissioners." 5.Section 61 requires to beset out in full (except for subsections (4) and (5)(a) which only apply to a body corporate) It provides : "(1) Where it appears to the Commissioners – that a body corporate is liable to a penalty under section 60, and that the conduct giving rise to that penalty is, in the whole or in part, attributable to the dishonesty of a person who is, or at the material time was, a director or managing officer of the body corporate (a "named officer"), the Commissioners may serve a notice under this section on the body corporate and on the named officer. (2) A notice under this section shall state – the amount of the penalty referred to in subsection (1) (a) above ("the basic penalty"), and that the Commissioners propose, in accordance with this section, to recover from the named officer such portion (which may be the whole) of the basic penalty as is specified in the notice. (3). Where a notice is served under this section, the portion of the basic penalty specified in the notice shall be recoverable from the named officer as if he were personally liable under section 60 to a penalty which corresponds to that portion ; and the amount of that penalty may be assessed and notified to him accordingly under section 76. … (5) No appeal shall lie against a notice under this section as such but - … (b) where an assessment is made on a named officer by virtue of subsection (3) above, the named officer may appeal against the Commissioners' decision that the conduct of the body corporate referred to in subsection (1)(b) above is, in whole or part, attributable to his dishonesty and against their decision as to the portion of the penalty which the Commissioners propose to recover from him. In this section a "managing officer", in relation to a body corporate, means any manager, secretary or other similar officer of the body corporate or any person purporting to act in any such capacity or as a director; and where the affairs of a body corporate are managed by its members, this section shall apply in relation to the conduct of a member in connection with his functions of management as if he were a director of the body corporate." 6. Section 70 permits reduction in penalties in the following terms : "(1) Where a person is liable to a penalty under section 60, 63, 64 or 67, the Commissioners or, on appeal, a tribunal may reduce the penalty to such amount (including nil) as they think proper. In the case of a penalty reduced by the Commissioners under subsection (1) above, a tribunal, on an appeal relating to the penalty may cancel the whole or any part of the reduction made by the Commissioners. None of the matters specified in subsection (4) below shall be matters which the Commissioners or any tribunal shall be entitled to take into account in exercising their powers under this section. This matters are – the insufficiency od the funds available to any person for paying any VAT due or for paying the amount of the penalty; the fact that there has, in the case in question or in that case taken with any other cases, been no or no significant loss of VAT; the fact that the person liable for the penalty or a person acting on his behalf has acted in good faith." 7. The Commissioners' power to impose a penalty is regulated by section 76 of the Act, the relevant part of which reads : "(1) Where any person is liable – to a surcharge under section 59, or to a penalty under any of sections 60 to 69, or for interest under section 74, The Commissioners may, subject to subsection (2) below, assess the amount due by way of penalty, interest or surcharge, as the case may be, and notify it to him accordingly; and the fact that any conduct giving rise to a penalty under any of sections 60 to 69 may have ceased before an assessment is made under this section shall not affect the power of the Commissioners to make such an assessment." [The following subsections are 8. Subsection 60(4) of the Act contemplates that certain matters may be drawn to the attention of a person potentially liable to a penalty. The Commissioners' practice is to do so by means of the Notice 730. Two passages in that Notice appear to be relevant. At page 1 appear the words : "Under [Value Added Tax Act 1994 section 60(1)] a penalty may be imposed in a case where : for the purpose of evading tax, a person does any act or omits to take any action; and (b) that person's conduct involves dishonesty (whether or not is it such as to give rise to criminal liability). The penalty which the law imposes is an equal amount to the tax evaded, but the Commissioners or a VAT tribunal have the power to mitigate (lessen) the penalty as they think proper. The Commissioners will not normally under criminal proceedings where a person has been invited to co-operate but, where applicable, they reserve the right to do so." At pp4 and 5 appear the words : "Reductions from the penalty figure will normally be made for three reasons, to the maximum percentages specified, as follows : An early and truthful explanation as to why the arrears arose and the extent of them – Up to 40% Co-operation in establishing the true amounts of arrears – Up to 25% Attending the interviews and producing records and information as required Up to 10% In most cases therefore, the maximum reduction obtainable will be 75% of the tax underdeclared. In exceptional circumstances however, consideration will be given to a further reduction, for example where you have made a full and unprompted voluntary disclosure. If there are any other matters whatsoever which you consider may affect the level of penalty, you should inform the officer accordingly." The emphasis appears in the Notice. 9. The Human Rights Act 1998 in section 3 so far as it is possible to do so, provides that United Kingdom primary legislation and subordinate legislation must be read and given effect in a way which is compatible with the European Convention on Human Rights. The First Protocol to the Convention provides : "Every natural legal person is entitled to the peaceful enjoyment of his possessions. No-one should be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law. The preceding provision shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties. The issues 10. The notice of assessment by which Customs endeavoured to assess the penalty on Services although address to the Appellant and Services referred in the body of the notice letter to another company with which Services did business known as J L Distribution Limited (JLDL). It was argued by the Appellant that this error invalidated the Assessment as it became defective and, ipso facto, the other Assessment served on the same day on the Appellant (as a named officer of Services) relying on the service of the Assessment on Services could not be sustained on its own. The Commissioners maintained the error was a typographical omission and the intention of both penalty assessments was quite clear. The body corporate was Services and the Appellant the named officer. 11. Both Counsel accepted that there were three basic questions which the tribunal must address when considering the main issues. What responsibility did Mr Sawyer have for the running of Services ? (ii) Was he dishonest in running the company ? Thirdly, if he wad dishonest, did that dishonesty give rise to the overclaim of input tax ? 12. In the defence filed on his behalf, Mr Sawyer also pleaded that, if his denial that he acted dishonestly failed, alternatively the penalty attributed to him was excessive and unreasonable given his responsibilities and role within Services. The evidence 13. A bundle of documents was produced by Customs and a red file containing five written statements by the Appellant. 14. Mr Barnes for the Commissioners called two Customs Officers namely Mr Lawrence John Wootten (Mr Wootten) and Mr Mark Stephen Atchurst (Mr Atchurst). He also called Mr Dilip Vora (Mr Vora) who was a chartered accountant and partner in the firm of Jackson Feldman who were the Accountants acting for Services at the relevant time. Witness Statements by three further Customs Officers, Mr Stehen Laurence Farrow, Mr John Jamee Mitchell and Mr Renford Coleman were not objected to by Mr Barlow and so were admitted in evidence at the hearing as evidence if the facts stated in them. 15. Mr Barlow called the Appellant and three other witnessed who were : Mrs Irene Margaret Jones (Mrs Jones) who was the accounts clerks at Services from 1997 until May 2001. Mrs Katrina Thompson (Mrs Thompson) who was the accounts clerk and general administrator for Motorway Transport Limited and two associated companies from 1996 until March 1999. Mr Leonard George Norman (Mr Norman) who was the general manager of Nighthire Limited from 1997. The Preliminary Issue 17. As a result of investigations by Customs Officers including Mr Atchurst, a letter wad sent to him to Services dated 22 March 2001 indicating that an assessment for £407,957 would be forwarded shortly as incorrect claims to input tax had been made by Services. he added finally in his letter. "The assessment has been issued without prejudice to any action under Section 60 of the VAT Act 1994 or any other enactment." 18. The assessment was issued on 27 March 2001 and eventually Services paid the whole amount due by instalments. The false invoices giving rise to the input tax claim had been issued by two associated companies known as J L Distribution Limited and Scotfish Distribution Limited. 19. Mr Athurst with other officers continued investigations into the circumstances out of which the assessment arose. There was an exchange of letters with Kidd Rapinet Solicitors to Services at the time in May 2001. Subsequently, he asked Mr Sawyer's legal representative a Mr P Sanders if he would voluntarily make a statement to Customs Officers, but he declined to do so. However, Mr Chrisdulas Partelli (Mr Partelli) who was a Director of Services between July1999 and 16 February 2001 and then from 1 June 2001 did attend an interview with Customs Officers Mr Atchurst and Mr Coleman on 26 September 2001. It was made clear to Mr Partelli that the Customs investigation was being conducted with a view to the imposition of a civil penalty for fraudulent conduct as a result of the assessment served on Services for the repayment of input tax. 20. Services was therefore fully aware that a penalty for VAT evasion was being considered against both Services and one or more of its Directors and officers. 21. Two Notices of Penalty Assessments were sent by letters to Mr Sawyer and J L Destination Services Limited [at 70 Jeffreys Road, Brimsdown, Enfield, Middlesex on 25 November 2202. The first was addressed to Mr Sawyer and headed : "NOTICE OF AN ASSESSMENT UNDER SECTION 76 VAT ACT TO A PENALTY UNDER SECTION 60(1) VAT ACT 1994 APPORTIONED TOP A DIRECTOR OR MANAGING OFFICER UNDER SECTION 61 VAT ACT 1994" The opening two paragraphs read as follows : "The Commissioners of Customs and Excise consider that J L Distribution Limited has, by its failure to account for the full amount of tax which was due for the period from 1st September 1997 to 31st August 2000 made itself liable, under section 60 of th4e VAT Act 1994 to a penalty of £313,193 (Three hundred and thirteen thousand one hundred and ninety three pounds). They also consider that the conduct giving rise to this penalty is wholly attributable to your dishonesty and in accordance with section 61 of th4e VAT Act 1994 they give notice that a penalty of £313,193 being the whole of the penalty imposable on the company, is assessed on you." The followed a table showing how the penalty assessment was reached with a formal wording about how to effect payment or contest the imposition of the penalty. The second notice was again address to Mr Sawyer and was headed : "NOTICE OF A LIABILITY TO A PENALTY UNDRT SECTION 60(1) VAT ACT 21994 AND THE RECOVERY OF THAT PENALTY UNDER SECTION 61 VAT ACT 1994" The first page of the letter read as follows : "It has been reported to the Commissioners of Customs and Excise that J L Distribution Services Limited has failed to account for the full amount of Value Added Tax which was due for the period from 1st September 1997 to 31st August 2000. In respect of this matter the Commissioners consider that J L Distribution Services Limited has rendered itself liable to a penalty under section 60(1) of the VAT Act 1994 for an evasion, through dishonesty, of Value Added Tax in the sum of £417,597 (Four hundred and seventeen thousand five hundred and ninety seven pounds) for the period from 1st September 1997 to 31st August 2000. The penalty, of an amount equal to the tax believed to be evaded, may under section 70(1) of th4 VAT Act 1994, be reduced by the Commissioners, to an amount as they think proper. On appeal a Value Added Tax Tribunal, may reduce a penalty assessment or cancel the whole or any part of the reduction made by the Commissioners. On this occasions, the Commissioners, after giving full consideration to the extent of the disclosure and co-operation given by J L Distributions Services Limited to their officers, have decided to reduce the penalty to £313,193 (Three hundred and thirteen thousand, one hundred and ninety three pounds). This reduction takes into account the invitation given by J L Distribution Services Limited on 23rd October 2000 to assist when it was told the Commissioners were able, in recognition of the assistance given, to reduce the penalty and of the fact that in the course of their investigations it partially assisted. The Commissioners consider that the conduct giving rise to this penalty is wholly attributable to your dishonesty and they propose, under the powers granted to them by section 62(2) of the VAT Act 1994, to recover such portion as is specified below from yourself." Then followed a table identical to the one in the first letter and there was a final line which stated : "A copy of this notice has been sent to J L Distribution Services Limited". On 3 December 2002 Mcbride Wilson & Co Solicitors acting for Mr Sawyer wrote to Customs acknowledging that their client and Services had received the two notices. Reasons for the decision on the preliminary point 23. Mr Barlow referred the tribunal to the judgment of Keane J in Nidderdale Building Limited v Customs and Excise Commissioners [1997] STC 800 (Nidderdale). There was another linked appeal involving Mr John Lofthouse who was the Director of Nidderdale upon whom a s61 notice had been served. The case involved the validity of a s61 notice. Keane J gave his view of the general character and implications of s61 in p803 c and d. He said "Like s60 it is setting out conditions to be met before liability to a penalty arises. A notice has to be served both on the body corporate and on the named officer if the latter is to be made liable for all or part of the penalty to which the former appears liable under s60. However, a notice of assessment under s76 of the 1994 Act will still be required, either in respect of the body corporate or the named officer or (if only a portion of the penalty is to be recovered from the named officer) both."
5 10 15 20 25 30 35 40 45 10 15 20 25 30 35 40 45	(2) The reference in subsection (1)(a) above to the evading VAT includes a reference to obtaining any of the following sums - (a) a refund under regulations made by virtue of section 13(5); a VAT credit; (c) a refund under section 35, 36 or 40 of this Act or section 22 of the 1983 Act; and (d) a repayment under section 39 in circumstances where the person concerned is not entitled to that sum. (3) The reference in subsection (1) above to the amount of VAT evaded or sought to be evaded by a person's conduct shall be construed – in relation to VAT itself or a VAT credit as a reference to the aggregate of the amount (if any) falsely claimed by way of credit for input tax and the amount (if any) by which output tax was falsely understated; and in relation to the sums referred to in subsection (2)(a), (c) and (e) above as a reference to the amount falsely claimed by way of refund or repayment. (4) Statements made or documents produced by or on behalf of a person shall not be inadmissible in any such proceedings as are mentioned in subsection below by reason only that it has been drawn to his attention – that in relation to VAT the Commissioners may assess an amount due by way of a civil penalty instead of instituting criminal proceedings and, though no undertaking can be given as to whether the Commissioners will make such an assessment in the case of any person, it is their practice to be influenced by the fact that a person has made a full confession of any dishonest conduct to which he has been a party and has given full facilities for investigation, and, that the Commissioners or, on appeal, a tribunal have power under section 70 to reduce a penalty under this section, and that he was or may have been induced thereby to make the statements or produce the documents. (5) The proceedings mentioned in subsection (4) above are – any criminal proceedings against the person concerned in respect of any offence in connection with or in relation to VAT, and any proceedings against him for the recovery of any sum due from him in connection with or in relation to VAT. … (7) On an appeal against an assessment to a penalty under this section, the burden of proof as to the matters specified in subsection (1)(a) and (b) [ubsection 60(4) of the Act contemplates that certain matters may be drawn to the attention of a person potentially liable to a penalty. The Commissioners' practice is to do so by means of the Notice 730. Two passages in that Notice appear to be relevant. At page 1 appear the words : "Under [Value Added Tax Act 1994 section 60(1)] a penalty may be imposed in a case where : for the purpose of evading tax, a person does any act or omits to take any action; and (b) that person's conduct involves dishonesty (whether or not is it such as to give rise to criminal liability). The penalty which the law imposes is an equal amount to the tax evaded, but the Commissioners or a VAT tribunal have the power to mitigate (lessen) the penalty as they think proper. The Commissioners will not normally under criminal proceedings where a person has been invited to co-operate but, where applicable, they reserve the right to do so." At pp4 and 5 appear the words : "Reductions from the penalty figure will normally be made for three reasons, to the maximum percentages specified, as follows : An early and truthful explanation as to why the arrears arose and the extent of them – Up to 40% Co-operation in establishing the true amounts of arrears – Up to 25% Attending the interviews and producing records and information as required Up to 10% In most cases therefore, the maximum reduction obtainable will be 75% of the tax underdeclared. In exceptional circumstances however, consideration will be given to a further reduction, for example where you have made a full and unprompted voluntary disclosure. If there are any other matters whatsoever which you consider may affect the level of penalty, you should inform the officer accordingly." The emphasis appears in the Notice. 9. The Human Rights Act 1998 in section 3 so far as it is possible to do so, provides that United Kingdom primary legislation and subordinate legislation must be read and given effect in a way which is compatible with the European Convention on Human Rights. The First Protocol to the Convention provides : "Every natural legal person is entitled to the peaceful enjoyment of his possessions. No-one should be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law. The preceding provision shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties. The issues 10. The notice of assessment by which Customs endeavoured to assess the penalty on Services although address to the Appellant and Services referred in the body of the notice letter to another company with which Services did business known as J L Distribution Limited (JLDL). It was argued by the Appellant that this error invalidated the Assessment as it became defective and, ipso facto, the other Assessment served on the same day on the Appellant (as a named officer of Services) relying on the service of the Assessment on Services could not be sustained on its own. The Commissioners maintained the error was a typographical omission and the intention of both penalty assessments was quite clear. The body corporate was Services and the Appellant the named officer. 11. Both Counsel accepted that there were three basic questions which the tribunal must address when considering the main issues. What responsibility did Mr Sawyer have for the running of Services ? (ii) Was he dishonest in running the company ? Thirdly, if he wad dishonest, did that dishonesty give rise to the overclaim of input tax ? 12. In the defence filed on his behalf, Mr Sawyer also pleaded that, if his denial that he acted dishonestly failed, alternatively the penalty attributed to him was excessive and unreasonable given his responsibilities and role within Services. The evidence 13. A bundle of documents was produced by Customs and a red file containing five written statements by the Appellant. 14. Mr Barnes for the Commissioners called two Customs Officers namely Mr Lawrence John Wootten (Mr Wootten) and Mr Mark Stephen Atchurst (Mr Atchurst). He also called Mr Dilip Vora (Mr Vora) who was a chartered accountant and partner in the firm of Jackson Feldman who were the Accountants acting for Services at the relevant time. Witness Statements by three further Customs Officers, Mr Stehen Laurence Farrow, Mr John Jamee Mitchell and Mr Renford Coleman were not objected to by Mr Barlow and so were admitted in evidence at the hearing as evidence if the facts stated in them. 15. Mr Barlow called the Appellant and three other witnessed who were : Mrs Irene Margaret Jones (Mrs Jones) who was the accounts clerks at Services from 1997 until May 2001. Mrs Katrina Thompson (Mrs Thompson) who was the accounts clerk and general administrator for Motorway Transport Limited and two associated companies from 1996 until March 1999. Mr Leonard George Norman (Mr Norman) who was the general manager of Nighthire Limited from 1997. The Preliminary Issue 17. As a result of investigations by Customs Officers including Mr Atchurst, a letter wad sent to him to Services dated 22 March 2001 indicating that an assessment for £407,957 would be forwarded shortly as incorrect claims to input tax had been made by Services. he added finally in his letter. "The assessment has been issued without prejudice to any action under Section 60 of the VAT Act 1994 or any other enactment." 18. The assessment was issued on 27 March 2001 and eventually Services paid the whole amount due by instalments. The false invoices giving rise to the input tax claim had been issued by two associated companies known as J L Distribution Limited and Scotfish Distribution Limited. 19. Mr Athurst with other officers continued investigations into the circumstances out of which the assessment arose. There was an exchange of letters with Kidd Rapinet Solicitors to Services at the time in May 2001. Subsequently, he asked Mr Sawyer's legal representative a Mr P Sanders if he would voluntarily make a statement to Customs Officers, but he declined to do so. However, Mr Chrisdulas Partelli (Mr Partelli) who was a Director of Services between July1999 and 16 February 2001 and then from 1 June 2001 did attend an interview with Customs Officers Mr Atchurst and Mr Coleman on 26 September 2001. It was made clear to Mr Partelli that the Customs investigation was being conducted with a view to the imposition of a civil penalty for fraudulent conduct as a result of the assessment served on Services for the repayment of input tax. 20. Services was therefore fully aware that a penalty for VAT evasion was being considered against both Services and one or more of its Directors and officers. 21. Two Notices of Penalty Assessments were sent by letters to Mr Sawyer and J L Destination Services Limited [at 70 Jeffreys Road, Brimsdown, Enfield, Middlesex on 25 November 2202. The first was addressed to Mr Sawyer and headed : "NOTICE OF AN ASSESSMENT UNDER SECTION 76 VAT ACT TO A PENALTY UNDER SECTION 60(1) VAT ACT 1994 APPORTIONED TOP A DIRECTOR OR MANAGING OFFICER UNDER SECTION 61 VAT ACT 1994" The opening two paragraphs read as follows : "The Commissioners of Customs and Excise consider that J L Distribution Limited has, by its failure to account for the full amount of tax which was due for the period from 1st September 1997 to 31st August 2000 made itself liable, under section 60 of th4e VAT Act 1994 to a penalty of £313,193 (Three hundred and thirteen thousand one hundred and ninety three pounds). They also consider that the conduct giving rise to this penalty is wholly attributable to your dishonesty and in accordance with section 61 of th4e VAT Act 1994 they give notice that a penalty of £313,193 being the whole of the penalty imposable on the company, is assessed on you." The followed a table showing how the penalty assessment was reached with a formal wording about how to effect payment or contest the imposition of the penalty. The second notice was again address to Mr Sawyer and was headed : "NOTICE OF A LIABILITY TO A PENALTY UNDRT SECTION 60(1) VAT ACT 21994 AND THE RECOVERY OF THAT PENALTY UNDER SECTION 61 VAT ACT 1994" The first page of the letter read as follows : "It has been reported to the Commissioners of Customs and Excise that J L Distribution Services Limited has failed to account for the full amount of Value Added Tax which was due for the period from 1st September 1997 to 31st August 2000. In respect of this matter the Commissioners consider that J L Distribution Services Limited has rendered itself liable to a penalty under section 60(1) of the VAT Act 1994 for an evasion, through dishonesty, of Value Added Tax in the sum of £417,597 (Four hundred and seventeen thousand five hundred and ninety seven pounds) for the period from 1st September 1997 to 31st August 2000. The penalty, of an amount equal to the tax believed to be evaded, may under section 70(1) of th4 VAT Act 1994, be reduced by the Commissioners, to an amount as they think proper. On appeal a Value Added Tax Tribunal, may reduce a penalty assessment or cancel the whole or any part of the reduction made by the Commissioners. On this occasions, the Commissioners, after giving full consideration to the extent of the disclosure and co-operation given by J L Distributions Services Limited to their officers, have decided to reduce the penalty to £313,193 (Three hundred and thirteen thousand, one hundred and ninety three pounds). This reduction takes into account the invitation given by J L Distribution Services Limited on 23rd October 2000 to assist when it was told the Commissioners were able, in recognition of the assistance given, to reduce the penalty and of the fact that in the course of their investigations it partially assisted. The Commissioners consider that the conduct giving rise to this penalty is wholly attributable to your dishonesty and they propose, under the powers granted to them by section 62(2) of the VAT Act 1994, to recover such portion as is specified below from yourself." Then followed a table identical to the one in the first letter and there was a final line which stated : "A copy of this notice has been sent to J L Distribution Services Limited". On 3 December 2002 Mcbride Wilson & Co Solicitors acting for Mr Sawyer wrote to Customs acknowledging that their client and Services had received the two notices. Reasons for the decision on the preliminary point 23. Mr Barlow referred the tribunal to the judgment of Keane J in Nidderdale Building Limited v Customs and Excise Commissioners [1997] STC 800 (Nidderdale). There was another linked appeal involving Mr John Lofthouse who was the Director of Nidderdale upon whom a s61 notice had been served. The case involved the validity of a s61 notice. Keane J gave his view of the general character and implications of s61 in p803 c and d. He said "Like s60 it is setting out conditions to be met before liability to a penalty arises. A notice has to be served both on the body corporate and on the named officer if the latter is to be made liable for all or part of the penalty to which the former appears liable under s60. However, a notice of assessment under s76 of the 1994 Act will still be required, either in respect of the body corporate or the named officer or (if only a portion of the penalty is to be recovered from the named officer) both." 25. He also clarified what is required of a valid notice stating at p808 g and h : "Applying that approach to s61(2) it seems to me that a valid notice under that provision has to make reasonable clear three things : (i) the amount of the basic penalty; (ii) the identity of the named officer; and (iii) that the commissioners propose in accordance with s61 to recover from that officer the whole or part of the basic penalty and, if only a part, how much of the basic penalty. Providing that the notice does those things reasonably clearly, it will be valid without the need to use any particular formulation or choice of words. Clearly, in addition, by virtue of s61(1), the notice must also be served on the both the body corporate and the named officer". The tribunal accepts the interpretation as set out in this paragraph and the preceding paragraph 24 as being the correct course to take. 26. Mr Barnes for the Commissioners submitted that Keane J in his judgment had said at p808 " … The approach that is necessary for the taxpayer to be informed in reasonably clear terms but if he is so informed that is also sufficient." He maintained that the notice did comply with the three conditions laid down by Keane J and there was scope for the tribunal to find the notice was valid. The error was clearly a typographical error. 27. For the Appellant, Mr Barlow argued that the purpose of hearing technical rules for Government departments to follow is that, by following them, they give accurate information to the people against whom they are exercising their powers. He pointed out that the second letter created the problem as this was the means whereby Customs purported to assess the penalty on the company. The first letter under s76 transferred the liability for the assessment to Mr Sawyer as a director. 28. Mr Barloe further asserted that it was not just a technicality. The wording of the second letter by stating "The Commissioners of Customs and Excise consider that J L Distribution Services Limited has, by its failure to account for the full amount of tax which wad due … made itself liable … to a penalty …" This would, in his opinion, be more apt to refer to the output tax which would be J L Distribution's tax not the input tax which was attributable to Services. 29. He referred again to the judgment of Keane J in Niddersdale where the principle was established that the notice has to make whatever is required reasonably clear and pointed out that one cannot make something reasonably clear by addressing a letter to one company and then referring in the body of the letter to a different company. 30. In our view, it is necessary to look at the overall picture created by both notices. Each notice is addressed to the same person, Mr Sawyer and Company (Services). The amount of the penalty is exactly the same (£313,193).. The Commissioners make the same statement in both that the conduct giving rise to the penalty was wholly attributable to Mr Sawyer's dishonesty. 31. Clearly a typographical omission occurred when the word "Services" was missing from the name of the company in the second letter. However, we do not find this misled the Appellant. His Solicitors wrote to Customs on 3 December 2002 and the heading to that letter read as follows : "Notice of an Assessment under Section 76 VAT Act 1994 to a Penalty under Section 60(1) VAT Act 1994 Apportioned to a Director or Managing Officer under Section 61 VAT Act 1994" 32. This letter opens by stating "We act on behalf of Mr David Sawyer who has passed to us a copy of your letter dated 25 November 2002 and also a copy of a notice to J L Distribution Services Limited of 25 November 2002." No mention is made of the error in the copy notice and indeed it is quite clear that it was accepted the notice was sent to Services. 33. We agree that there is a two stage process. First, there has to be a notice unders76 purporting to impose the penalty on the company and then it has to be apportioned to the director. However, when the two required notices are sent out on the same day to the same person (Mr Sawyer) and body corporate (Services), the totality of the phraseology makes it reasonable clear that the three conditions laid down by Keane J have been met. The one error in the name of the company does not, in these circumstances, invalidate the notice under s76. In our judgment, the technicality is not sufficiently serious to make the s76 notice ineffective. 34. In this respect, the appeal fails.
5 10 15 20 25 30 35 40 45	above shall lie upon the Commissioners." 5. Section 61 requires to be set out in full (except for subsections (4) and (5)(a) which only apply to a body corporate) It provides : "(1) Where it appears to the Commissioners – that a body corporate is liable to a penalty under section 60, and that the conduct giving rise to that penalty is, in the whole or in part, attributable to the dishonesty of a person who is, or at the material time was, a director or managing officer of the body corporate (a "named officer") the Commissioners may serve notice under this section on the body corporate and on the named officer. (2) A notice under this section shall state – the amount of the penalty referred to in subsection (1)(a) above ("the basic penalty") and, that the Commissioners propose, in accordance with this section, to recover from the named officer such portion (which may be the whole) of the basic penalty as is specified in the notice. (3) Where a notice is served under this section, the portion of the basic penalty specified in the notice shall be recoverable from the named officer as if he were personally liable under section 60 to a penalty which corresponds to that portion; and the amount of that penalty may be assessed and notified to him accordingly under section 76. … (5) No appeal shall lie against a notice under this section as such but – … (b) where an assessment is made on a named officer by virtue of subsection (3) above, the named officer may appeal against the Commissioners decision that the conduct of the body corporate referred to in subsection (1) (b) above is, in whole or part, attributable to his dishonesty and against their decision as to the portion of the penalty which the Commissioners propose to recover from him. (6|) In this section a "managing officer", in relation to a body corporate, means any manager, secretary or other similar officer of the body corporate of any person purporting to act in any such capacity or as a director; and where the affairs of a body corporate are managed by its members, this section shall apply in relation to the conduct of a member in connection with his functions of management as if he were a director of the body corporate."
5 10 15 20 25 30 35 40 45	6. Section 70 permits reductions of penalties in the following terms : "(1) Where a person is liable to a penalty under section 60, 63, 64 or 67, the Commissioners or, on appeal, a tribunal may reduce the penalty to such amount (including nil) as they think proper. (2) In the case of a penalty reduced by the Commissioners under subsection (1) above, a tribunal, on an appeal relating to the penalty may cancel the whole or any part of the reduction made by the Commissioners. (3) None of the matters specified in subsection (4) below shall be matters which the Commissioners or any tribunal shall be entitled to take into account in exercising their powers under this section. (4) Those matters are – the insufficiency of the funds available to any person for paying any VAT due of for paying the amount of the penalty; the fact that there has, in the case in question, or in that case taken with any other cases, been no or no significant loss of VAT; The act that the person liable for the penalty or a person acting on behalf had acted in good faith." 7. The Commissioners' power to impose a penalty is regulated by section 76 of the Act, the relevant part of which reads : "(1) where any person is liable – to a surcharge under section 59, or to a penalty under any of sections 60 to 69, or for interest under section 74, The Commissioners may, subject to subsection (2) below, assess the amount due by way of penalty, interest or surcharge, as the case may be, and notify it to him accordingly; and the fact that any conduct giving rise to a penalty under any of sections 60 to 69 may have ceased before an assessment is made und