Architect loses £10k VAT penalty appeal

An architect has lost a First Tier Tribunal (FTT) appeal against penalties related to false VAT assessments

Max Austin, Reporter, Accountancy Daily

The appellant, Paul Evans, appealed against a decision issued by HMRC to raise VAT assessments on the basis that they had found ‘evidence of false invoices’.

It also issued penalties totalling £10,340.76 for the 06/14 tax period as HMRC considered that Evan’s actions were a result of ‘deliberate and concealed’ behaviour.

Evans was sole director of Maxxim Residential Design Ltd, which was incorporated on 29 February 2008, and provided architectural services.

Acting as director, Evans submitted repayment returns for the relevant tax periods in question, which totalled £11,179.22 and were submitted on 8 July 2014.

On 23 July 2014, officer Sandberg of HMRC contacted Evans, requesting records to verify the 06/14 VAT return. They also asked for copies of purchase listings and invoices.

Two days later, HMRC received an email from Evans attaching the purchase listing spreadsheet. There were no details about the suppliers and each entry gave a ‘generic description’ of each supplier but no name. On the same day, HMRC requested via e-mail the purchase invoices.

Sandburg queried the purchase invoices that he had received, and requested clearer copies, as both the company address and VAT numbers were illegible.

Later, on 6 August 2014, Sandberg contacted Evans to request five specific invoices. However, he received no information or correspondence.

HMRC then issued a penalty of £300, with a notice enclosed stating that to avoid further penalties, the appellant ‘should provide the information requested’ by no later than 23 January 2015.

However, no further contact was made by Evans and all previous addresses used by him were no longer in use, and thus he was registered as a ‘missing trader’.

Eventually, on 28 October 2015, HMRC disallowed all the VAT claimed on the 06/14 return and issued an assessment disallowing all VAT claimed on VAT returns from 03/13 to 03/14.

The errors on the appellant’s VAT return were also deemed to be deliberate and because they were discovered during an HMRC check, concealed.

As a result a penalty of 92.5% of the VAT was issued, but it was reduced from the maximum of 100% in recognition that the appellant had admitted the overclaims and provided HMRC with some limited access to its records.

Section 73 Value Added Tax Act 1994 (VATA) requires HMRC to issue assessments within either two years of the end of the VAT accounting period or within one year of HMRC having evidence of the facts to justify making an assessment.

Evans later appealed to the tribunal on the basis that the penalty ‘should not have been issued’ and that his behaviour was neither deliberate nor concealed.

HMRC argued that his behaviour was considered deliberate as Evans had made errors in the input tax claim and two invoices provided in support of the input tax claim were found to be false.

As it stood, the penalty percentage chargeable was 92.5%, with the potential lost revenue standing at £11,179.20, meaning that the penalty charged was £10,340.76.

Siobhán Brown, a litigator at HMRC’s solicitor’s office, referred to Sch 24 on the basis that although it did not define ‘deliberate and concealed’ it did give examples of ‘submitting false evidence in support of an inaccurate figure’.

Judge Geraint Williams said: ‘Mr Evans submitted that insufficient weight had been given to the fact that he had disclosed the errors and, on that basis, the penalties should be dismissed. Ms Brown submitted that sufficient weight had been given to the limited disclosure and assistance provided by the appellant and that was reflected in the reduction given or the absence of a reduction.

‘We agree with Ms Brown. We found that the disclosures were prompted as Mr Sandberg had already identified the errors and no further details were provided by the appellant as to what the ‘errors’ were.’

The tribunal confirmed the assessments and the appeal was dismissed.