The First-tier Tribunal accepted that HMRC were still in time to raise VAT assessments, but otherwise sided with the taxpayer on a range of issues relating to liabilities, best judgement, deliberate errors, etc. in Georgiou v HMRC [2022] UKFTT 455 (TC). Many of the FTT comments suggest that HMRC fell woefully short of proper standards on this case.
For example:
- The figures were more consistent with the taxpayer’s contention than with HMRC’s view.
- HMRC had not taken account of the fact that some of the deposits to the bank account were rent rather than sales.
- When the figures were reworked to take account of various factors, “the alleged cash shortfall was very much reduced”.
- The FTT found the HMRC approach to be flawed in a variety of respects: “We do not consider that the criteria for best judgement have been met. In particular, we do not consider that all the information provided was properly considered, there were flaws in the arithmetic and importantly, the sampling technique was far from representative. Having calculated the figures for the assessment, Mr Beard then failed to consider whether they were credible and whether the business could actually have underdeclared that amount of tax.”
- “Having taken all the above into account, we conclude that the VAT assessment was not to best judgement and the assessment is accordingly invalid and cannot stand.”
- “HMRC have not shown, on the balance of probabilities that Mr Georgiou knowingly, that is, deliberately provided HMRC with an inaccurate document.”
- “As regards the reductions in the penalties for “telling”, “helping” and “giving”, we consider that HMRC failed to take account of the high level of co-operation and provision of information by Mr Georgiou and his accountant during the enquiry.”
- “There is also a question as to the basis on which the whole of the PLN was assessed on Mr Georgiou. This can only be done if Mr Georgiou personally gained from the deliberate inaccuracies. There is no evidence that this is the case.”
- “Ms O’Connor might have come to the subjective conclusion that there was a loss of tax based solely on the VAT assessment, but for the reasons set out above, that conclusion was not objectively reasonable and, accordingly, she did not make a “discovery” within paragraph 41 of schedule 18.”
- “HMRC have not actually proved that, on the balance of probabilities, the VAT returns were inaccurate.”
- “Although the alleged omitted sales were significantly less than the previous years, Ms O’Connor assessed significantly increased profits. She admitted that with hindsight it was, perhaps, ‘on the high side’. … For the reasons set out above in relation to the discovery assessments, we do not consider that Ms O’Connor’s assessment of the tax payable for year ended 2017 constituted a best judgement determination.”
- “Even if sales were undeclared (and HMRC have not proved this on the balance of probabilities) HMRC have not produced a shred of evidence that any money was taken by Mr Georgiou for his own use. Ms O’Connor admitted that she did not look at Mr Georgiou’s lifestyle or carry out any sort of credibility check, such as an examination of personal bank statements for suspicious deposits, to consider whether he had taken the money. She had taken the view that the money from the assumed omitted sales as calculated in the VAT assessment must have gone somewhere and by default, she assumed that the director took it for his own use. … This does not discharge the burden of proof and the assessment made under section 455 Corporation Tax Act 2010 must fail.”
https://www.bailii.org/uk/cases/UKFTT/TC/2022/TC08660.html
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Value Added Tax, written by Ciaran McGee MA (Oxon), FCA, CTA, is an extensive volume (over 1,000 pages), written primarily for non-VAT specialist accountants and tax advisers.
