In Sylvia Hook v HMRC [2023] TC08859, the First Tier Tribunal (FTT) found that a dog breeder deliberately under-declared puppy sales. Recorded sales of cockapoos, poodles and French bulldogs, each fetching £1,000 per puppy, were shown at a maximum of 194 a year, vastly understating the actual 297 sales of one particular year.

  • Mrs Hook started breeding puppies in 2003.
  • She operated as a Sole Trader through Sylml Puppies and as part of a Partnership with her husband, as Pedigree or Pinetree Puppies.
  • She had a licence to own 43 breeding bitches.
  • She claimed that the two businesses were distinguishable as they sold different types of puppies:
    • Sylml sold French bulldogs, Boston terriers and King Charles spaniels.
    • Pinetrees sold Cocker spaniels, Spaniels, Poodles and Cockapoos.
  • Amongst other things, one sold predominantly pedigrees and the other, cross-breeds.
  • In 2017, the partnership was dissolved, around the same time that the sole trade (Sylml) Registered for VAT.
  • HMRC opened an enquiry into Mrs Hook's Self Assessment return for 2015-16. This prompted the checking of business records. HMRC believed these were insufficient and as a result, took a customer sample, cross-referencing the sales to the values submitted on the free Petplan Insurance that was associated with each sale.
  • As a result of their investigations, HMRC issued a Closure Notice for Mrs Hook's 2015-16 Self Assessment return, Discovery Assessments for 2012-13 through to 2017-18 for the businesses, penalties (based upon Deliberate Behaviour) and also changed the effective date of VAT registration for both businesses alongside VAT penalties.
  • Mrs Hook appealed all of the above.

The FTT heard that:

  • There was little evidence to show that the businesses were distinct.
  • In 2015, there was a sharp increase in puppy sales by the partnership and almost no sales by the sole trader business in the corresponding period. On further examination, it appeared that the sole trader business was approaching the threshold for VAT registration.
  • The bookkeeper provided evidence that Mrs Hook often could not remember the details of who the puppy buyers were and so these details were often made up. This made establishing the exact number of sales and values difficult.
  • Cash book entries showed:
    • That puppies were transferred to the partnership for sales whenever it looked like the sole trader business seemed to be approaching the VAT threshold.
    • That sales made did not correspond to the turnover declared for either business.
    • Not all sales were deposited within the business bank accounts, but there were unexplained cash deposits within personal bank accounts.
  • In 2017, the sole trader business registered VAT. In the same year, the partnership was dissolved.
  • Each puppy was sold with the offer of four weeks of free insurance. Most buyers took this offer and the value of the puppy was recorded with either Petplan or Buddies, the insurers. 
    • Mrs Hook claimed that the value of the puppies sold was often inflated for the insurance.
    • On examination, 13 out of 21 buyers confirmed that they had paid the value as recorded on the insurance.
    • Mrs Hook claimed that she would have been able to breed a maximum of 194 puppies a year due to the licence.
    • Insurance policies showed a total of 210 puppies in 2012-13 increasing to 297 by 2016-17.

The FTT decided that based on the evidence put before the court:

  • Due to the insufficient financial records, the analysis of the Petplan records was reasonable and a discovery was made.
  • Sales had been knowingly under-declared, although HMRC's assessments were revised down.
  • Penalties based on deliberate behaviour were due.
  • Mrs Hook had clearly allocated sales between the two businesses to prevent having to register for VAT.
  • The registration threshold for both businesses had been passed. Sylml passed this in 2011 and Pinetrees in  2015.

The appeals were dismissed.

Useful guides on this topic

Which trading structure is best for me?
What are the key tax and legal differences between the different trading structures of self-employed, a partnership or a company?

Registering for VAT
When should a business register for and charge VAT? What are the VAT registration thresholds? What penalties might HMRC issue for late notification of registration? When do you need to file a VAT return?

Discovery Assessments
When can HMRC issue an assessment outside of the normal statutory time limits? What conditions must be met? Can HMRC issue two alternative assessments for the same period? What are your rights of appeal and defences?

External link

Sylvia Hook v HMRC [2023] TC08859

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