Key Facts
- •C F Booth Limited (CFB) appealed against £1,444,813.71 in VAT penalties under Schedule 24, Finance Act 2007.
- •Penalties were for deliberate (but not concealed) inaccuracies in VAT returns from 2012-2014, relating to input tax (Kittel inaccuracies) and zero-rating of output tax.
- •Prior litigation established the inaccuracies were deliberate, stemming from CFB's knowledge of fraudulent VAT evasion in its supply chains.
- •Penalty percentages were reduced to reflect CFB's disclosure, but CFB disputed the quantum of the penalties.
- •The appeal focused on whether the penalty reductions adequately reflected the quality of disclosure, whether the penalties were disproportionate, and whether special circumstances warranted further reduction.
Legal Principles
Schedule 24, Finance Act 2007, governs penalties for VAT inaccuracies. Penalties vary based on the nature (careless or deliberate) and concealment of inaccuracies, and the quality of disclosure.
Schedule 24, Finance Act 2007
The principle of proportionality is a fundamental principle of EU VAT law and must be considered in relation to VAT penalties.
European VAT law, CJEU case law (EN.SA Srl v Agenzia delle Entrate, Farkas)
HMRC has a wide discretion to reduce penalties under Schedule 24 for 'special circumstances', interpreted broadly as uncommon or exceptional circumstances.
Barry Edwards v HMRC [2019] UKUT 131 (TCC), Advanced Scaffolding (Bristol) Limited v HMRC [2018] UK FTT 744 (TC)
In assessing penalties for deliberate inaccuracies, the knowledge of the corporate entity, not just individual employees, is relevant.
CF Booth v HMRC [2022] UKUT 00217 (TCC)
The Kittel principle disallows input tax where the recipient knew the transaction was connected to fraudulent VAT evasion.
Axel Kittel v Belgium [2008] STC 1537
Outcomes
Appeal dismissed; penalties affirmed.
The Tribunal found that the penalty reductions adequately reflected the 'so-so' quality of CFB's disclosure. The penalties were not disproportionate, and there were no special circumstances justifying further reduction. HMRC's decision-making process was not flawed.