Thomas Hanlon v The Commissioners for HMRC
[2024] UKFTT 175 (TC)
Universal Flooring (Contractors) Limited & Anor. v The Commissioners for HMRC
9 March 2023
[2023] UKFTT 282 (TC)
First-tier Tribunal
A company didn't pay the right amount of VAT because they messed up their paperwork. The boss said he was too busy to notice the mistake, and the judge believed him. The taxman had to prove the boss knew he was cheating, which they couldn't do, so the penalties were cancelled.
Key Facts
- •Universal Flooring (Contractors) Limited failed to submit VAT returns from 2010-2016.
- •HMRC issued centrally estimated assessments, which the company paid, but significantly understated the actual VAT due (£371,739).
- •HMRC alleged that the director, Mark Mackley, knew the assessments understated the VAT and acted dishonestly.
- •The director claimed he was unaware of the underpayment due to his workload and lack of attention to VAT matters.
- •The company went into a creditors voluntary arrangement in 2017.
- •The director had a background in banking but did not have extensive tax knowledge.
- •The company's accounts showed an increasing tax liability over the years, which the director claimed he did not notice.
Legal Principles
The test for dishonesty in civil proceedings is Lord Nicholls' test in Royal Brunei v Tan, as clarified by Lord Hoffmann in Barlow Clowes.
Byers v HMRC [2019] UKFTT 310
The burden of proof for dishonesty and evasion lies with HMRC (on the balance of probabilities).
Section 60(7) VATA 1994
Outcomes
Appeals allowed.
HMRC failed to prove the director acted dishonestly. The Tribunal found the director's actions were careless and reckless, but not dishonest. He did not deliberately close his eyes to the underpayment, nor did he have the knowledge or intent required to meet the legal threshold for dishonesty.