A director has lost a First Tier Tribunal (FTT) appeal against penalties charged by HMRC for VAT and corporation tax inaccuracies, which totalled £80,666.31.

The appellant, Prutish Gopaul, appealed against personal liability notices (PLN) for penalties charged for VAT and corporation tax inaccuracies in respect of his company, Gopaul Ltd, which traded as a takeaway pizza business.

HMRC had determined that Gopaul, acting as a director and sole shareholder, had deliberately suppressed sales resulting in inaccuracies in VAT and corporation tax returns.

The tax authority treated the omitted sales as company funds misappropriated by the shareholders, in this case, Gopaul, with a tax liability, known as a section 455 charge, which can arise to a company when a loan is made to one of its shareholders.

According to HMRC, the behaviour for the inaccuracies was deliberate, resulting in the associated penalties of £80,666.31 being transferred from the company to Gopaul.

On 15 June 2016, HMRC officer Mel Bennett, on the systems evasion and audit team, made an unannounced visit to Gopaul Ltd.

Bennett proceeded to download data from the tills, leaving a copy of the data stuck with Gopaul. Later that month, their accountants, Cromwell Accountants Ltd, ceased acting for the company.

Cromwell was responsible for preparing the company’s VAT and corporation tax returns, as well as payslips for Gopaul’s employment within the company. Gopaul’s contact at the firm was Chet Haria.

HMRC issued VAT charges totalling £75,170, as in their view, Gopaul had ‘systematically suppressed’ its turnover. This was under best judgement assessments made under the Value Added Tax Act 1994 (VATA).

The tax authority also opened enquiries into the company’s corporation tax returns, resulting in closure notices and amended assessments being issued for the tax years 2016-17.

On 30 June 2017, the company filed its corporation tax return for the year ended 30 September 2016 showing a profit of £11,184, and corporation tax of £2,236.

HMRC submitted that there was an ‘enormous difference’ between the till data and the figures on the company’s returns.

Gopaul was also handed a personal penalty of £9,128.56 for the periods 02/16 to 08/16, on the basis that his behaviour had been deliberate.

Appealing to the FTT, Gopaul’s case centred on whether he had deliberately underreported amounts on the company’s tax returns.

Officer Ann Patton of HMRC calculated the company’s VAT underpayment and issued the relevant assessments and penalties.

She submitted that the company had reached the VAT threshold on 31 May 2013, with sales of £80,779.16, and should have registered from 1 July 2013.

As a result, VAT of £57,839 was due for sales during the long VAT period ending on 30 November 2015 and the turnover and VAT for the following quarters had been significantly understated.

In his reply of 5 April 2017, Gopaul responded that all the information about cash takings had been ‘communicated to the accountant’ but Haria had only returned the bank statements to Gopaul.

When asked to detail his procedure for cashing up every night, and how he arrived at his daily gross-taking figure, Gopaul said he recorded the cash every day on ‘a piece of paper’ and called his accountant, Haria, each week. Having done so, he then destroyed the paper on which the cash had been recorded.

It was common ground that when completing the VAT returns, Haria was given the company’s bank account information. There was however conflicting evidence as to what information had been given to Haria about the cash received.

HMRC argued that the actual cash figures were not given to Haria by Gopaul every week by phone and that the amount of cash takings included in the VAT returns was instead estimated as a percentage of sales recorded in the company’s bank account.

Its case was that the company had acted deliberately, based on the very significant difference of some 80% between the sales as shown by the till analysis and the turnover declared on the company’s VAT returns.

In HMRC’s submission, this was far more than could be accounted for by the overring explanations given by Gopaul. There is also no evidence to back up Gopaul’s explanations, no record of cancelled orders, orders not collected, or other errors.

Judge Anne Redston said: ‘We find that Patton made an ‘honest and genuine attempt’ to make a reasoned assessment of the VAT payable. She used the till data which had been adjusted for reprints and duplicates, and she asked Gopaul to provide supporting evidence for his assertions, but none was provided.

‘Gopaul provided us with no reliable evidence. In particular, we found his statements that turnover was overstated because of staff training to lack credibility. He failed to show that as a result of overrings and/or other errors the figures used by HMRC should be reduced.’

As a result of the foregoing, the total amount due from Gopaul under the PLNs had reduced from £80,666.31 to £40,527.87.

For answers to questions on disciplinary processes, visit BrAInbox today where you can find answers to questions like Do I have to hold a disciplinary hearing to give someone a warning?

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