In Michael Robinson v HMRC [2020] TC7951, First Tier Tribunal (FTT) dismissed the penalties on Mr Robinson for his continued use of cash accounting basis after the withdrawal of cash basis on the grounds that this was not a deliberate behaviour.  

Mr Robinson was a director of PMR Limited (PMR) and two other related companies. PMR provided project management services to the related entities.

PMR used the Cash accounting basis for VAT as it was within the threshold for the cash basis and expected to remain so. The related entities used normal invoice accounting method.

  • In July 2007, PMR was engaged to carry out the project management of a development site in but as a result of the financial crisis in 2008, the lending institutions for the development withdrew.
  • PMR continued to use the cash accounting method whilst the companies were searching for refinancing alterative.
  • Related entities did not have sufficient cash resources to pay PMR but they continued to reclaim the input VAT on the invoices from PMR.
  • PMR did not, therefore, account for any output VAT because it was not receiving any cash.

In April 2014, HMRC commenced an enquiry as there was a disparity between the output VAT declared by PMR and the input VAT reclaimed by the related companies.

  • Over the period, HMRC sent seven letters to Mr Robinson stating that the cash accounting basis was to be withdrawn.
  • The first two letters had to be withdrawn as they purported to withdraw the cash basis retrospectively which is not permitted.
  • Mr Robinson believed that, through his constant communication with HMRC, PMR was being allowed to continue to use the cash accounting basis until a satisfactory refinancing had been achieved.
  • HMRC issued Personal Liability Notices to Mr Robinson for the VAT accounting on the grounds that he had continued to submit VAT returns on the cash accounting basis after HMRC had withdrawn permission to use that basis.  
  • Mr Robinson appealed to the FTT.
  • The FTT concluded that HMRC failed to demonstrate that Mr Robinson’s action amounted to a Deliberate inaccuracy which meant that no penalty for a deliberate inaccuracy was due and therefore the personal liability notice on Mr Robinson fell away. The appeal was allowed.  

Useful guides on this topic

Cash accounting
Under cash accounting instead of accounting for VAT on an invoice basis, you reclaim input VAT on amounts actually paid to suppliers and pay over output VAT on amounts actually received from customers.

Cash or accruals accounting toolkit
Since April 2013, unincorporated businesses can elect to use one of two different methods of accounting for tax: simpler accounting (cash basis) or accruals basis accounting.

How to appeal an HMRC decision  
What type of decision can you appeal? What are your different options when you disagree with HMRC? What are the key steps in making an appeal?

External links

Michael Robinson v HMRC [2020] TC7951  

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