Anandpreet Singh Powar v The Commissioners for HMRC
[2024] UKFTT 415 (TC)
Kuldip Bachra v The Commissioners for HMRC
30 January 2023
[2023] UKFTT 91 (TC)
First-tier Tribunal
HMRC said a company's director was responsible for inaccurate tax returns because the company *should have known* better. The court said that's not enough; the company had to actually *know* it was doing something wrong to be penalized. The director won.
Key Facts
- •Kuldip Bachra (Appellant) appealed against a £1,177,422.96 Personal Liability Notice (PLN) issued by HMRC (Respondents) for deliberate inaccuracies in OWD Ltd's VAT returns.
- •OWD Ltd, of which Bachra was the sole director, was assessed for VAT due to disallowed input tax deductions on Kittel grounds (transactions connected with fraudulent VAT evasion).
- •HMRC's position was that OWD's inaccuracies were wholly attributable to Bachra and issued a PLN for 100% of the penalty.
- •HMRC later reduced the potential lost revenue (PLR) and the penalty to £928,551.20.
- •The appeal challenged the inaccuracies, their deliberateness, their attribution to Bachra, and the PLN's calculation.
- •OWD's appeal against the initial assessment was withdrawn by its liquidator.
Legal Principles
Right to deduct input VAT is lost if the taxable person knew or should have known of the connection to fraudulent VAT evasion (Kittel principle).
Council Directive 2006/112/EC, Axel Kittel v Belgium and Belgium v Recolta Recycling SPRL (C-439/04 and C-440/04)
For a deliberate inaccuracy penalty, an intention to mislead the revenue or recklessness as to whether it would do so, needs to be demonstrated.
HMRC v Tooth [2021] UKSC 17
A deliberate inaccuracy occurs when a taxpayer knowingly provides HMRC with a document containing an error intending HMRC to rely on it as accurate.
Auxilium Project Management v HMRC [2016] UKFTT 249 (TC)
Determining 'should have known' depends on the circumstances. The only reasonable explanation for the transactions must be a connection to fraud.
Mobilx Ltd v HMRC [2010] EWCA Civ 517, Davis and Dann Ltd v HMRC [2016] STC 126, AC (Wholesale) Limited v HMRC [2017] UKUT 191 (TCC)
Outcomes
Appeal allowed.
While OWD should have known about the connection to fraudulent VAT evasion, it was not proven that OWD actually knew. Therefore, the inaccuracies were not deliberate, and the PLN could not be issued.