PERSONAL LIABILITY NOTICES

CTM has succeeded in 2 recent Tribunal appeals regarding the issuing by HMRC of Personal Liability Notices (“PLN’s”) to company directors because it was alleged that tax returns were submitted inaccurately and that this was deliberate.

CTM is now the most successful firm in overturning such decisions at Tribunal.

The first case involved an executive chauffeur business where the director had failed to declare his true income and had failed to register for VAT, resulting in over £300,000 in tax assessments.

We took an unusual approach to this appeal and decided that the director should not attend the hearing and provide oral evidence.

In the case of an allegation of deliberate conduct, it is for HMRC to prove their case, not for the taxpayer to do so. In this case, it was decided that HMRC had not sufficiently proved their case and that, if the director was cross-examined by HMRC’s legal team, it may complicate matters unnecessarily.

Neither CTM, nor the client attended the hearing but, as we had predicted, the appeal was successful due to HMRC having a lack of evidence to prove the VAT/CIS returns were deliberately inaccurate.

This is obviously not how all cases should be managed and the decision not to attend was undertaken only after a careful analysis of the evidence.

In the second appeal, just one month later, we showed how well-manged appeals can succeed even in very challenging circumstances.

A Romanian builder operated a business fitting windows a facades in large apartment projects.

It was found that the company VAT and CIS returns were inaccurate to the tune of £250,000. HMRC relied on notes exhibited that detailed what had been said during 2 VAT visits. The notes made it clear that the director had confessed to deliberately completing inaccurate VAT and CIS returns.

HMRC decided the evidence was so strong that the Officers who attended the VAT visits did not need to give oral evidence at the hearing. CTM made it clear to the Tribunal that the burden of proof was on HMRC to evidence their case. When the HMRC allegation is either deliberate, or fraudulent, it is for them to prove their case.

We presented a very robust defence with evidence that cast doubt on the accuracy of some parts of the notes exhibited, which in turn cast doubt on the confession itself. The Tribunal agreed with CTM that insufficient evidence had been submitted by HMRC and the appeal was successful.

The full decision is below:

BETWEEN

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The hearing took place on 10 October 2022. We heard Liban Ahmed of CTM Tax Litigation Limited for the Appellant and Olivia Donovan, Litigator of HM Revenue and Customs’ Solicitor’s Office, for the Respondents.

The documents to which we were referred were a document bundle in electronic form of 276 pages, plus a witness statement made by the Appellant.

Prior notice of the hearing had been published on the gov.uk website, with information about how representatives of the media or members of the public could apply to join the hearing remotely in order to observe the proceedings. As such, the hearing was held in public.

DECISION

1. The Tribunal decided that the appeal would be ALLOWED.

Summary findings of fact and reasons for the Decision

2. This appeal concerns two Personal Liability Notices (“PLNs”) issued to the Appellant and dated 23 December The underlying penalties were imposed on Gosvenor London Limited (“GLL”) of which the Appellant was a director from 1 January 2013 until 1 April 2015, and from 1 April 2017 until 1 July 2019. The penalties were:
   • in respect of inaccuracies in GLL’s VAT returns during the five VAT accounting periods from 1 March 2014 to 31 May 2015, the three accounting periods from 1 March

2016 to 30 November 2016 and the accounting period from 1 March to 31 May 2017. The penalties imposed totalled £43,092.63 and the notice of penalty assessment was

16 October 2019; and

• in respect of inaccuracies in GLL’s CIS returns for the tax years ended 5 April 2014, 2015, 2016, 2017 and 2018. The penalties imposed totalled £92,140.12, in respect of which an amended notice of penalty assessment was issued dated 14 October 2019.

3. The PLN’s issued to the Appellant imposed personal liability on him in respect of 50% of each penalty, on the basis that he was “equally culpable with Mr Swallow for the inaccuracies”.
4. There was no dispute before us about the validity or amount of the penalties imposed on GLL, which went into liquidation on 28 November The sole issue was whether the PLNs had been validly issued to the Appellant. In terms of paragraph 19 of schedule 24 Finance Act 2007, the relevant question was whether the penalties imposed on the company were “for a deliberate inaccuracy which was attributable to” the Appellant.
5. HMRC relied mainly on the content of two notes of visits made to GLL in advancing their case on this issue.

Visit date 10 May 2017

6. This was the first visit made to GLL after HMRC had selected it for investigation following the discovery of an apparently significant discrepancy between its VAT returns and its reported turnover for corporation tax purposes.
7. The visit took place at GLL’s stated principal place of business, the office of its accountants Abell Morliss International (“AMI”) (in which GLL’s other director, Mr Swallow, was a partner). At the visit, the only representative for GLL was Inga Zavadska (“IZ”), a newly appointed accounts assistant at The visit note is unsigned and does not even bear the name of the visiting officer, although it appears from subsequent email correspondence that this was Sarah Nunn-McLaughlin. No copy of any contemporaneous notes of the meeting were included in our bundle, nor was the officer proffered to give evidence.
8. The visit note records that the Appellant apparently prepared and issued sales invoices and agreed “the fees”, but that AMI prepared the VAT returns and financial accounts (at that stage, it was only VAT that was under investigation). Reference was also made to the fact that IZ had only joined AMI in November 2016 and taken on GLL since doing so; prior to that its affairs had been looked after by a number of different IZ said she had noticed some payments coming into the bank statements for which she had no corresponding sales invoices and had requested the missing invoices from the Appellant but he had told her that “as he had recently changed accounting packages he did not have them as he had not backed up the invoices before changing accounting packages.”

Visit date 20 March 2019

9. This note records that the meeting, again held at AMI’s premises, was attended by Amanda West (Employer Compliance/Construction Industry) and Sarah Nunn-McLaughlin (VAT Assurance) on behalf of HMRC and by IZ and the At the foot of the note, the sentence “Written from notes and memory” appears, but the note is not signed nor is it clear who prepared it and no copy of any of the notes referred to were in our bundle.
10. Ms Donovan relied particularly on the following paragraph in this note:

AW said she was of the opinion his behaviour was deliberate, as he knowingly filed incorrect returns and often made NIL returns, when he had made payments to sub-contractors and made CIS deductions. IP accepted this and said his actions weren’t fraudulent, he just wasn’t coping well with the amount of paperwork, as he had so much going on with managing the projects.

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11. The visit notes were sent, addressed to the Appellant, to GLL at AMI’s business address on 5 April, with a covering letter from officer West inviting him to set out any disagreements he had with Subsequently they were sent again under cover of a letter dated 27 June 2019 addressed to IZ at AMI. In that letter, Officer West said “I note that you and your client have not yet agreed to my notes of the meeting. Please note if I do not receive your agreement or comments disagreeing with the content by 12 July 2019, I will assume you are both in agreement with them.” Ms Donovan submitted these letters strengthened her case in reliance on the paragraph set out above. There is no record however of the notes ever having been sent to the Appellant at the time, and he denied having seen them until they were produced in the context of this appeal. We accept his evidence on this point.
12. In her submission, the visit notes showed that the Appellant had accepted that the various returns had contained deliberate inaccuracies attributable to him, indeed he had delivered the returns himself.

Further evidence

13. The Appellant gave evidence that apart from managing GLL’s operations on site, he effectively managed the relationships with customers and subcontractors, including establishing the correct VAT treatment of supplies (many of its supplies were zero rated for VAT purposes), agreeing stage payments and He sent the invoices to AMI and they had full access to GLL’s bank accounts. AMI were responsible for compiling and submitting the VAT and CIS returns. He did his best to ensure that the information he supplied to AMI for this purpose was accurate, and believed that it was. He would not have had the expertise to compile the returns himself. At the meeting on 20 March 2019 he did not follow the detail of everything discussed, but had been told simply to indicate his agreement with whatever IZ said, which he had done. He had no reason to believe that AMI prepared and submitted inaccurate returns based on the information he had supplied to them. Since that time, it had come to light that there was some kind of software error in the software used by AMI which could have explained the discrepancy between the reported turnover for corporation tax purposes and for VAT purposes.
14. HMRC did not advance any further evidence in support of their assertion that the Appellant was responsible for compiling and submitting the returns or that deliberate inaccuracies in them were attributable to the Having seen the Appellant give evidence (which we accept as true), we do not consider, on a balance of probabilities, that any deliberate inaccuracy in the returns was attributable to the Appellant.

Conclusion

15. The burden lies on HMRC to prove, on a balance of probabilities, that GLL’s returns contained deliberate inaccuracies which were attributable to the They have failed to discharge that burden and accordingly the appeal must be ALLOWED.
16. This document contains a summary of the findings of fact and reasons for the A party wishing to appeal against this decision must apply within 28 days of the date of release of this decision to the Tribunal for full written findings and reasons. When these have been prepared, the Tribunal will send them to the parties and may publish them on its website and either party will have 56 days in which to appeal. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

KEVIN POOLE TRIBUNAL JUDGE

RELEASE DATE: 17 OCTOBER 2022