In Gekko & Company Ltd v HMRC [2017] TC06029 the First Tier Tribunal (FTT) heavily criticised HMRC’s handling of the (VAT) case and went so far as to award costs against HMRC.

  • HMRC conducted a compliance review and found three issues
    • Input tax on motoring expenses (£88) (careless, prompted)
    • Late (3 years) declaration of output tax on a property sale (deliberate, unprompted)
    • Query about input tax on purchases in relation to a second property (£59) (careless)
  • Various correspondence occurred, “highlights” of which are:
    • HMRC saying that records they had not asked for did not exist
    • HMRC giving the taxpayer three days to respond
    • Explanation/clarification requested by taxpayer not provided
  • Taxpayer asked for an internal review
  • This broadly supported HMRC
  • It suggested that consideration be given to reclassifying the property sale as careless
  • This meant the penalty notices should be withdrawn and reissued
  • HMRC went along with this, but additionally reclassified the disclosure about the property sale as “prompted”

The FTT found

  • Firstly, although the original penalty notice was withdrawn, no new notice was issued (and HMRC were now out of time).
  • HMRC did not properly consider the legislation and VAT regulations (particularly in relation to the fuel).
  • The disclosure regarding the property was clearly unprompted; as indicated in the letter reclassifying it.
  • Without the reclassification, the amounts at stake were below the level that is HMRC policy to pursue.
  • HMRC did not behave reasonably in relation to the Tribunal case so would have to bear the costs.


The full case is worth reading for the exact details; it is not practical to replicate thirty pages here. 

It was the view of the Tribunal that the HMRC SOLS should have overruled Local Compliance over pursuing the case; the lawyer present (who they did not criticise) said that she was told to defer to Local Compliance.

The FTT also noted that it looked like the decision to reclassify the Output tax as Prompted was purely to keep the dispute open.

“There are a number of disturbing factors about the way the case has been conducted by [HMRC]”

“The other reason we find what happened disturbing is that when the appellant spotted the change they were given an explanation which simply beggars belief as an appropriate response.”


Gekko & Company Ltd v HMRC [2017] UKFTT 0586 (TC)

Our guide on VAT penalties

VAT on business fuel