The First-tier Tribunal have allowed the appeal against a personal liability notice (PLN) in the case of Bachra v HMRC [2023] UKFTT 91 (TC).
Mrs Bachra was the sole director of OWD Ltd (OWD), which operated a cash and carry in Birmingham. HMRC had denied claims for input VAT under Kittel, i.e. the VAT was incurred in transactions connected with fraudulent evasion and OWD knew, or should have known, of this. An inaccuracy penalty of £1,177,422.96 was calculated on the grounds that the behaviour was deliberate and disclosure was prompted, with some reduction for quality of disclosure. The company was in liquidation, so HMRC sought to impose a PLN on Mrs Bachra for 100% of the penalty on the basis that they believed she had personally gained or had attempted to gain from the inaccuracy.
The tribunal considered Mrs Bachra’s evidence concluding that it was “not helpful, but not reaching a conclusion that it was untruthful”. The tribunal judged that while there was insufficient evidence to establish that OWD “knew” that it was party to fraud “taking account of all of the evidence before us, we have no doubt that OWD should have known that all of the transactions which are the subject of this appeal were connected with the fraudulent evasion of VAT”. Under Kittel that was sufficient to deny the company the input VAT claim. There was therefore an inaccuracy and an associated penalty.
However, as a PLN may only be issued where a penalty is payable by a company “for a deliberate inaccuracy which was attributable to an officer of the company”, the issue was now whether this constituted a “deliberate” inaccuracy. The tribunal decided that, while knowing of the fraud would indeed constitute a deliberate inaccuracy, an inaccuracy based on a finding that OWD should have known of it would not.
The tribunal therefore allowed Mrs Bachra’s appeal.
Although now academic, the tribunal considered the calculation of the PLN. HMRC were now seeking a different amount based on a revised calculation of potential lost revenue. The tribunal stated “Our preliminary view, reached without the benefit of any submissions, is that it is not open to HMRC to seek to impose an increased amount by way of penalty (or PLN) for any particular VAT period in circumstances where they have not re-issued the penalty (or PLN) accordingly, as this is not only necessary for the issuance of the penalty of that (higher) amount but also is required as a matter of fairness to enable the taxpayer to know the case they need to answer.”
https://www.bailii.org/uk/cases/UKFTT/TC/2023/TC08719.html
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