Kuldip Bachra v The Commissioners for HMRC
[2023] UKFTT 91 (TC)
Anandpreet Singh Powar v The Commissioners for HMRC
17 May 2024
[2024] UKFTT 415 (TC)
First-tier Tribunal
A company director was held personally liable for his company's VAT problems. The company claimed VAT deductions linked to a massive fraud. The judge ruled that the director should have known the deals were dodgy, making the mistakes deliberate. The director's appeal failed.
Key Facts
- •Drinks 4 Less (UK) Limited (the "Company"), an alcohol wholesaler, was liquidated on 16 November 2023.
- •Mr. Anandpreet Singh Powar was the sole director and shareholder of the Company.
- •HMRC issued a Personal Liability Notice (PLN) against Mr. Powar for £83,019.70 (later reduced to £74,823.63) for deliberate inaccuracies in the Company's VAT returns.
- •The inaccuracies related to input tax deductions claimed on transactions connected to fraudulent VAT evasion.
- •The Company's appeals against HMRC's decisions were withdrawn following its liquidation.
- •Mr. Powar appealed the PLN to the First-Tier Tribunal (Tax Chamber).
Legal Principles
Right to deduct input tax is derived from Articles 167 and 168 of Council Directive 2006/112/EC and ss 24-26 of the Value Added Tax Act 1994. This right is denied if the trader knew or should have known their purchase was connected to fraudulent VAT evasion (Kittel).
Council Directive 2006/112/EC, Value Added Tax Act 1994, Axel Kittel v Belgium & Belgium v Recolta Recycling SPRL, Mobilx Ltd v HMRC
The 'should have known' test from Kittel considers the totality of evidence, including circumstantial and similar fact evidence, and doesn't require due diligence focus (Mobilx, Red12). It requires knowledge that the only reasonable explanation for the transaction is its connection to fraud (Mobilx).
Mobilx Ltd v HMRC, Red12 v HMRC
Lack of knowledge of the fraud's specifics doesn't negate liability if the trader knew or should have known of its connection to fraudulent VAT evasion (Fonecomp).
Fonecomp Limited v HMRC
HMRC bears the burden of proof (balance of probabilities) to show inaccuracies in VAT returns, that they were deliberate, attributable to the officer, and that the penalty is correctly calculated (AC (Wholesale) Ltd v HMRC).
AC (Wholesale) Ltd v HMRC, Re S-B (Children)
Schedule 24 of the Finance Act 2007 details penalties for careless or deliberate inaccuracies in VAT returns. 'Deliberate' requires intention to mislead HMRC as to the accuracy of the statement (HMRC v Tooth).
Finance Act 2007, Schedule 24, HMRC v Tooth
Paragraph 19 of Schedule 24, Finance Act 2007, establishes officer liability for a company's deliberate inaccuracies attributable to them.
Finance Act 2007, Schedule 24, paragraph 19
A company's mere failure to meet the 'should have known' test, without actual knowledge, does not automatically make an inaccuracy deliberate (Bachra v HMRC)
Bachra v HMRC
Outcomes
Appeal dismissed.
The Tribunal found that Mr. Powar, as sole director, knew or should have known that the Company's transactions were connected to fraudulent VAT evasion, making the inaccuracies in the VAT returns deliberate and attributable to him. The PLN calculation was deemed correct.