In Promo International Limited [2017] UKFTT 0161, the First-Tier Tribunal (FTT) reduced the taxpayer’s penalty from deliberate to careless: a member of staff hid HMRC's correspondence from the Directors.

  • The business was of the supply of high volume, low value, promotional products.
  • The husband and wife directors hired a chartered accountant to deal with the company’s accounting functions.
  • The directors were distracted by a $1m fraud from one of their suppliers and were dealing with a civil claim.
  • The accountant was given full financial control and prepared monthly ‘packs’ of financial information for the Directors and discussed cash flow with them on a daily basis.

The accountant arranged with a major client to supply goods direct to their Poland location from Germany to save postage and the company registered for VAT in Germany.

HMRC conducted several VAT visits following a large repayment claim and noted some considerarable errors. The accountant did not inform the directors of the severity of the problems.

HMRC raised penalty assessments for deliberate error. The company appealled on the basis that:

  • There was no potential loss of revenue relating to the German VAT that was recoverable in Germany
  • The company took reasonable care to comply by hiring a qualified accountant
  • None of the errors were deliberate
  • HMRC should have informed the Directors directly
  • The penalties should be reduced for special circumstances
  • The penalties should have been suspended.

The FTT decided that the penalties should be imposed for careless.

There were no special circumstances to mitigate the penalties. HMRC are unable to suspend a penalty for deliberate behaviour, since that was downgraded to careless behaviour, they might consider suspension.

Calculation of potential lost revenue

The FTT  confirmed that HMRC cannot be expected to take account of tax that is payable or recoverable in other countries and the definition of potential lost revenue cannot include the German VAT which the company was entitled to reclaim.


Penalties (VAT)

Penalties: Errors in Returns and Documents (subscriber version)

Place of supply: goods

Case reference: Promo International Limited [2017] UKFTT 0161

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