In Darren Cresswell v HMRC [2017] TC06274, the First-Tier Tribunal (FTT) quashed a 'hopeless' Personal Liability Notice (PLN) which was out of time and not backed up by any evidence.

We Are Electricals Ltd (WL) sold electrical items online, it suffered from cash flow problems due to bad publicity onine.

The company entered administration and a new company WAE+ Limited took over the business and VAT number, with the same shareholder directors. WAE+ Limited eventually suffered from the same problems.

  • HMRC visited to discuss 5 missing VAT returns.
  • They could not reconcile the accounts for WL to VAT Returns and charged VAT Penalties of £416,414.
  • They issued a PLN to the taxpayer for 50% of the penalty on the basis that the errors were Deliberate and concealed and the company looked like it would become Insolvent.
  • They sent the PLN to the company address but by that time the taxpayer had resigned as Director. The delivery was refused and returned undelivered.
  • When the taxpayer received a PLN at his home address he appealed the penalty and provided more information.
  • HMRC advised that he could not appeal for the company as he was no longer a Director. They did though reissue a new PLN.

The FTT allowed the taxpayer’s appeal and quashed the PLN for a number of reasons. In relation to the assessment of VAT itself, on which the penalty was based:

  • HMRC assessed WL for VAT based on purchase invoices on which they believed had been sold and no output VAT had been paid on.
  • These sales had been reported in WAE+ Limited, according to the taxpayer. HMRC had therefore used WAE+ purchases in calculating WL VAT assessments. HMRC had no evidence to show that the taxpayers contention was incorrect.
  • HMRC said they could not reconcile accounts to VAT returns, but they were using draft accounts which were extended before submissions and with a few adjustments the FTT demonstrated that they would approximately reconcile.
  • HMRC also had no evidence that, where there were reconciliation problems, that the accounts were correct and the VAT returns were the incorrect document.

The FTT also went on to criticise HMRC for issuing a PLN:

  • A PLN can only be issued if there is an allegation of fraud or dishonesty which is backed up by primary facts.
  • There was no suggestion by HMRC of how the taxpayer acted dishonestly nor deliberately. HMRC justified the PLN on the claim that the errors were deliberate, concealed and he was involved in running the business. This was wholly inadequate.
  • HMRCs evidence was “hopeless”. There was nothing to show that the taxpayer was involved in the preparation of the VAT Returns nor that he knew they were inaccurate.

Finally, the FTT said, although by this stage it was irrelevant, HMRC had used the company address for the taxpayer’s PLN and it was returned undelivered. The original PLN had therefore not been received (or deemed to be received).

A PLN has to be received to be valid. The PLN that was eventually sent to the taxpayer’s home address was out of time. It was therefore invalid in any case.


Penalties (VAT)

Penalties: Deliberate Behaviour

Insolvency FAQs for directors

External link Darren Cresswell v HMRC [2017] TC06274


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