Pizza takeaway struggles to slice HMRC penaltiesby
A taxpayer’s lack of documentation was his undoing at the first tier tribunal, although it was not an entirely wasted day.
Prutish Gopaul was the sole director/shareholder of Gopaul Ltd trading as Milano Pizza (MP), a takeaway pizza business which had commenced in November 2012. At that time, Gopaul also had a job at Ladbrokes which involved training staff in the use of tills.
HMRC made an unannounced visit to MP’s premises in June 2016 and gathered information, including downloading till data.
The data for October 2012 to June 2016 was analysed and compared to till receipts.
HMRC wrote to Gopaul as it believed the VAT stated on previously submitted returns was incorrect and further that MP should have been registered from July 2013 rather than December 2015.
Assessments were issued totalling £74,141, followed by penalties of £9,128 for the underpaid VAT on the previously submitted returns. As the company was being liquidated, Personal Liability Notices (PLNs) were also issued to Gopaul.
Corporation tax assessment
The data extracted by HMRC similarly suggested not only significantly higher taxable profits throughout the years in question, but also that s.455 (loan to participator) tax should have been included. Additional corporation tax (CT) of £125,478 was therefore due, and penalties and PLNs of £70,268 were issued.
Gopaul appealed the PLNs to the first tier tribunal (FTT).
The FTT first asked itself if it had the jurisdiction to consider the assessments which led to the PLNs, even though they were not being directly appealed, and determined it did.
The FTT found Gopaul to be a less than reliable witness whose statements often contradicted evidence gathered by HMRC. For this reason, much of Gopaul’s statements provided when questioned were ignored in favour of contemporaneous HMRC evidence gathered.
Gopaul appealed on six grounds.
VAT assessments were too high
Gopaul had claimed that till errors and customers not paying for their food accounted for the additional amounts calculated by HMRC. The FTT found the former unlikely due to Gopaul’s background and extensive till experience, and Gopaul was unable to provide any evidence to support the latter.
The FTT therefore found that HMRC had made an “honest and genuine attempt” to assess the VAT payable.
Corporation tax assessments were too high
Gopaul argued that as the CT assessments had been based on the VAT assessments, they were similarly too high; however, the FTT had already found the VAT assessments to be reasonable as above.
Next, he argued that the s.455 liabilities were incorrect as HMRC could not provide any evidence demonstrating that a purported additional £227,936 had been withdrawn from the company. HMRC countered that the burden rested on Gopaul to disprove the assessment and he had refused to provide further evidence, including his personal bank statements.
The FTT agreed with HMRC that Gopaul had not displaced the assessment.
Invalid corporation tax assessments
Following a review in July 2018, HMRC had vacated the closure notices and related penalties for the 2013 and 2014 years, before immediately reissuing them as discovery assessments.
Gopaul argued that there were no new discoveries on which the assessment could be based; indeed, the same HMRC officer had vacated and reissued the assessments and penalties.
The FTT found that the vacated closure notices had not related to discoveries, therefore a single discovery assessment had in fact been made for both years and the assessments were valid.
Lack of deliberate action
The next two grounds were on the basis that Gopaul had not acted deliberately in respect of the inaccuracies. HMRC argued that the inaccuracies found far exceeded the level which could be caused by till errors and customers failing to pay, therefore they had to be deliberate.
Once again Gopaul’s lack of records led to the FTT agreeing with HMRC that he had failed to displace this conclusion.
However, Gopaul fared better with regard to the tax relating to the s.455 liability. The FTT found that although HMRC may have been able to show that Gopaul knew he had taken undeclared money from MP, it had not demonstrated that Gopaul understood this would lead to a tax liability. The penalties and PLNs were therefore reduced to remove the £40,138 relating to the s.455 tax.
Too little mitigation
Finally, Gopaul argued that the penalties charged should have been reduced further. The deliberate but not concealed band spans 35% to 70%; HMRC had used 56%.
The FTT found that HMRC had given suitable deductions in each of the possible mitigating areas and that the 56% penalty rate was appropriate.
All in all, Gopaul started the hearing owing £80,666 in PLNs and ended it owing £40,527. Not the outcome he no doubt wanted, but a significant reduction, especially when considering the sparse level of hard evidence he was able to produce.