Colm Brendan Malone v The Commissioners for HMRC
[2023] UKFTT 98 (TC)
Mauheed Johngir & Anor v The Commissioners for HMRC
27 March 2024
[2024] UKFTT 274 (TC)
First-tier Tribunal
Two restaurant owners were hit with big tax bills because they didn't keep proper records and didn't report all their sales. A tax court agreed with the taxman, saying the owners deliberately hid money and had to pay penalties, although the final amount was a little lower after some negotiations.
Key Facts
- •Two Bros Restaurant Brands Limited (Two Bros), operated by appellants Mauheed Johngir and Waqas Babar (directors and shareholders), faced HMRC VAT penalties.
- •HMRC's VAT visit revealed discrepancies in till data, leading to a VAT assessment for 10/14 to 01/18.
- •Two Bros went into liquidation on 16 July 2018.
- •Personal liability notices (PLNs) were issued to the appellants on 16 April 2019 for deliberate inaccuracies in VAT returns.
- •The Tribunal reviewed extensive evidence (over 40,000 pages) including till reports, bank statements, invoices and witness statements.
- •HMRC's assessment was based on a best judgment approach due to insufficient records.
- •Significant discrepancies were found between card sales and declared sales, and between old and new till data, suggesting cash sales suppression.
- •HMRC initially assumed no zero-rated sales, but later made adjustments based on takeaway sales analysis.
- •Input tax claims were also challenged due to missing purchase ledgers; HMRC relied on data from a related company (3KH).
- •The appellants argued insufficient pleading of deliberate behaviour and challenged the evidence supporting HMRC's assessments and penalty calculations.
Legal Principles
Best judgment assessments in VAT cases require reasonable consideration of available material, not exhaustive investigation.
Van Boeckel v Customs and Excise Commissioners [1981] STC 290; Rahman (t/a Khayam Restaurant) v CEC [1998] STC 826; Customs and Excise Commissioners v Pegasus Birds Ltd [2004] EWCA Civ 1015
Allegations of deliberate behaviour (tantamount to dishonesty) must be properly pleaded and particularised, specifying primary facts justifying the inference.
Three Rivers District Council v Governor and Company of the Bank of England [2001] UKHL 16; Jinxin Inc v Aser Media Pte Ltd [2022] EWHC 2988 (Comm); Gerko v Seal [2023] EWHC 63 (KB)
Deliberate inaccuracy in VAT returns requires knowledge of the inaccuracy and intent to mislead HMRC.
Tooth [2021] UKSC 17
Outcomes
Appeal dismissed.
The Tribunal found HMRC's assessments were made using best judgment, based on available evidence, and that the appellants had failed to maintain adequate records. The discrepancies in sales data and the inconsistencies in the appellants' testimony supported the findings of deliberate inaccuracies in VAT returns.
Personal liability notices upheld.
The Tribunal found that the allegations of deliberate behaviour were properly pleaded and that the appellants' actions led to deliberate inaccuracies in the VAT returns. The evidence supported HMRC's conclusion that the appellants knew of, and intended, the inaccuracies in the returns.
Penalty amount reduced.
The penalty was reduced to reflect the amendments made to the VAT assessments following the Alternative Dispute Resolution (ADR) process.
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