In HMRC v Laurence Donnelly [2021] UKUT 0296, the Upper Tribunal (UT) determined that a point agreed between the taxpayer and HMRC was not open to review by the First Tier Tribunal (FTT). The FTT decision which ignored this agreed fact was overturned, VAT penalties were due and the proprietor was personally liable for them.

  • Korum Wholesale Ltd (Korum) claimed input tax on purchases of alcohol.
  • VAT invoices were issued to a customer for the onward supply of that alcohol.
  • HMRC contended that under EU law, Korum was not entitled to claim input tax on the purchases as it knew the transactions were connected to the fraudulent evasion of VAT.
  • HMRC raised a penalty of £379,864, 100% of the lost revenue, on the basis that the inaccuracy included in the applicable returns was deliberate and concealed.
  • There was agreement between HMRC and the taxpayer that the supply had taken place.
  • A director of Korum, Mr Donnelly, was made personally liable for the penalties.
  • Mr Donnelly appealed against the penalties.

The FTT allowed the appeal concluding that:

  • Mr Donnelly was liable for a penalty, but the amount of penalty depended on the lost revenue.
  • Despite the taxpayer and HMRC agreeing the supply had taken place, the FTT concluded that it had not. As no supply had taken place there was no lost revenue.
  • The penalty was therefore nil.

HMRC’s appeal to the UT was allowed as:

  • It was not within the remit of the FTT to determine that facts agreed between the parties were incorrect.
  • It was agreed that the supply of goods had taken place and it followed that the penalty of £379,864 was due.

Useful guides on this topic

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.

Penalties: Deliberate Behaviour
What penalties apply to deliberate behaviour? What is Deliberate Behaviour?

Joint & Several Liability of Company Directors etc
When can Company Directors or LLP Members become jointly and severally liable for company or LLP tax liabilities and penalties? Finance Act 2020 has provided HMRC with wide-ranging new powers. What are the conditions and what are the rights of appeal?

External links

HMRC v Laurence Donnelly [2021] UKUT 0296

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