Mauheed Johngir & Anor v The Commissioners for HMRC
[2024] UKFTT 274 (TC)
BJ Shere Khan Star City Limited & Anor v The Commissioners for HMRC
18 July 2024
[2024] UKFTT 639 (TC)
First-tier Tribunal
A restaurant owner and his company were hit with big tax bills and penalties. The tax authorities claimed they hid profits and ran a second restaurant. The court mostly sided with the restaurant owner, saying the tax authorities didn't have enough proof. The penalties were reduced because the mistakes weren't intentional, just sloppy record-keeping.
Key Facts
- •Mr. Saddiq was the sole director and shareholder of BJ Shere Khan Star City Ltd (BJSKSCL), which operated a restaurant called Shere Khan.
- •HMRC alleged BJSKSCL also operated a restaurant called Oodles N'Oodles (Oodles), which the appellants denied.
- •Disputed VAT assessment included understated sales from Shere Khan, omitted sales from Oodles, and overstated zero-rated sales.
- •Disputed corporation tax (CT) assessments related to understated profits from Shere Khan and omitted sales from Oodles.
- •HMRC issued penalties to BJSKSCL and personal liability notices (PLNs) to Mr. Saddiq for both VAT and CT.
- •The Tribunal examined whether BJSKSCL traded as Oodles, whether there was profit suppression at Shere Khan, the accuracy of zero-rating claims, and the validity of input tax deductions.
Legal Principles
Best judgment assessment for VAT under s73(1) of the Value Added Tax Act 1994 (VATA) requires an honest and genuine attempt to make a reasoned assessment. The tribunal's focus should be on determining the correct amount of tax.
Van Boeckel v Customs and Excise Commissioners [1981] STC 290, Rahman (trading as Khayam Restaurant) v Customs & Excise Commissioners (No 2) [2003] STC 150, Pegasus Birds Ltd v Customs and Excise Commissioners [2004] EWCA Civ 1015, Fio’s Cash and Carry Ltd v HMRC [2017] UKFTT 346 (TC)
For discovery assessments under Schedule 18 of the Finance Act 1998, an officer must subjectively believe and objectively demonstrate a reasonable belief that there is an insufficiency of tax. The discovery involves a change in mind, not necessarily new information.
Anderson v HMRC [2018] UKUT 159 (TCC), HMRC v Tooth [2021] UKSC 17, Sanderson v Revenue and Customs Comrs [2016] STC 638, Charlton v Revenue and Customs Comrs [2012] UKUT 770 (TCC)
The burden of proof for deliberate behaviour in relation to penalties lies with HMRC. Deliberate behaviour requires proof that the taxpayer knowingly provided an inaccurate document intending HMRC to rely on it.
CPR Commercials Ltd v HMRC [2023] UKUT 61
Personal liability notices (PLNs) under paragraph 19(1) of Schedule 24 to Finance Act 2007 require deliberate inaccuracy.
Schedule 24 FA 2007
Outcomes
Appeal allowed in part.
The Tribunal found insufficient evidence to support HMRC's claim that BJSKSCL traded as Oodles or suppressed profits at Shere Khan. The zero-rating assessment and input tax deductions were upheld, but the profit suppression claims were rejected. The CT discovery assessments were deemed invalid as they were based on the rejected profit suppression claims. VAT penalties were reduced due to the finding of careless, not deliberate, behaviour. The personal liability notice was discharged.
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