In Daniel O'Doherty v HMRC [2021] TC08193, the First Tier Tribunal (FTT) rejected the appeal of a sole director of a company who was issued with a Personal Liability Notice (PLN) for the VAT penalties raised by HMRC on his company. He was unable to provide any evidence to show the underlying assessments were wrong.

  • On 30 September 2013 GS Estates Ltd was incorporated and obtained the freehold of the Chesterfield Hotel. The appellant became sole director of this company on 18 October 2013. It was his claim that this company was non-trading during the period in question.
  • The appellant was also the sole director and owner of GS VI Limited (GS VI), incorporated in December 2013 in order to Take over the trade of the Chesterfield Hotel. There is no mention of any other company being involved in the running of the hotel.
  • The company never Registered for VAT, nor was it registered for PAYE/NICs even though the hotel had employees. There were no Invoices addressed to GS VI produced as evidence until August 2014. Most invoices were addressed to the Chesterfield Hotel. There were also invoices to and dealings with other companies but it was unclear to what extent they were involved in running the hotel from the evidence produced.
  • In August 2013, the manager of the hotel at that time was under investigation by HMRC. This brought GS VI to their attention. They were also aware that the appellant was the owner of another company that also ran a hotel, with a significant amount of VAT owed.
  • The appellant claimed that he had instructed this manager to register for VAT although he never checked this nor did he ever attempt to file a VAT return.
  • GS VI ceased to trade and the hotel shut on 31 January 2015. The appellant blamed this on a dispute with the original owner/director of GS Estates Ltd and claimed it had affected the trading of the company severely. Again, there was very little evidence produced to support this.
  • In May 2015, HMRC raised an assessment for output VAT, for the period from December 2013 to January 2015, of £274,685. Although it was possible within the Time limits, the company did not file a VAT return and did not challenge or appeal the assessment.
  • In April 2016, GS VI was notified of a 61% penalty of £168,244. Subsequently, a PLN was issued to the appellant for the penalty. HMRC believed that he had Acted deliberately, so the PLN was for 100% of the penalty.
  • Upon review, the VAT due by GS VI, and therefore the penalty, was reduced. This reduced the PLN to £130,257, which was appealed to the FTT.

In his Appeal, the appellant did not argue that he should not be liable, that GS VI should not have been registered for VAT or that the penalty was too high. Instead, he argued that the assessment was too large and that the input VAT would have significantly reduced the liability.

Unfortunately, in his witness statements and accompanying documents, he produced very little evidence that GS VI had incurred much input VAT, whether through invoices or bank statements. Much of the evidence related to other companies, whose ownership and links to the appellant and/or the hotel were never explained.

Due to the lack of evidence needed to discharge the appellant's burden of disproving HMRC's figures the FTT dismissed the appeal. As it was only the level of the VAT assessment and the penalties imposed that was appealed, the PLN for the penalty still stands on this basis.

Useful guides on this topic

Registering for VAT
When should a business register for and charge VAT? What are the VAT registration limits and VAT rules after Brexit? What penalties might HMRC issue for late notification of registration?

Penalties (VAT)
When do penalties apply for VAT? What penalties are charged and how can they be mitigated?

Appeals: VAT 
The process of making a VAT appeal largely follows that of direct taxes, however, there are some differences. How do I appeal an HMRC decision?  How do I appeal a penalty?  How can I request a Statutory Review? 

External link

Daniel O'Doherty v HMRC [2021] TC08193

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