In P Gopaul v HMRC [2023] UKFTT 728 (TC) (23 August 2023), the FTT allowed in part the taxpayer’s appeal against personal liability notices (PLNs) made in respect of VAT and corporation tax (CT) penalties owed by a company of which he was the sole shareholder and director, upholding the PLNs except in so far as they related to penalties in respect of tax under CTA 2010 s 455 (loans to participators) charged as a result of treating the company’s undisclosed profits as loans to the taxpayer.
The taxpayer’s company operated as a pizza takeaway. Following an unannounced visit, HMRC concluded that the company had systematically suppressed its turnover and issued assessments charging additional VAT, CT and amounts due under CTA 2010 s 455. In addition, HMRC issued penalties under FA 2007 Sch 24 on the basis that the company’s behaviour had been deliberate. The company entered liquidation without appealing against the assessments and penalty notices and HMRC issued PLNs to the taxpayer in respect of the penalties. He appealed.
The FTT approached the appeal on the basis that it could consider whether the assessments and penalties issued to the company were correct. On the VAT assessments, the FTT held that they were made to the HMRC officer’s best judgement, and it rejected the taxpayer’s challenges to the figures. The FTT also upheld the CT and s 455 assessments and confirmed the VAT and CT penalties.
However, the FTT allowed the taxpayer’s appeal in respect of the penalties charged on the s 455 assessments. As with the other penalties, it had been charged on the basis of deliberate behaviour. The FTT rejected HMRC’s argument that it could meet its burden of proof on this issue by relying on the fact that the taxpayer knew he had taken money from the company. HMRC needed to prove that he knew that the company had a s 455 liability and had intentionally omitted it from the CT return. There was no evidence that this was the case, or even that he knew that extraction of money from the company could trigger a charge. There was nothing in the correspondence discussing his knowledge or understanding and HMRC did not cross-examine him on this point at the hearing. HMRC had therefore failed to meet its burden to show that the company deliberately omitted the s 455 liabilities.
Why it matters: In some ways this is a straightforward case in which the company failed to disclose its profits. The FTT’s decision on penalties in respect of the s 455 charge is, however, important. Many taxpayers do not understand the s 455 charge, particularly as it applies when there has been suppression of profits. If the decision on the penalty stands it could have a significant impact on the way that HMRC deal with penalties in investigation cases. Interestingly, whether the company had been careless was not raised.
In P Gopaul v HMRC [2023] UKFTT 728 (TC) (23 August 2023), the FTT allowed in part the taxpayer’s appeal against personal liability notices (PLNs) made in respect of VAT and corporation tax (CT) penalties owed by a company of which he was the sole shareholder and director, upholding the PLNs except in so far as they related to penalties in respect of tax under CTA 2010 s 455 (loans to participators) charged as a result of treating the company’s undisclosed profits as loans to the taxpayer.
The taxpayer’s company operated as a pizza takeaway. Following an unannounced visit, HMRC concluded that the company had systematically suppressed its turnover and issued assessments charging additional VAT, CT and amounts due under CTA 2010 s 455. In addition, HMRC issued penalties under FA 2007 Sch 24 on the basis that the company’s behaviour had been deliberate. The company entered liquidation without appealing against the assessments and penalty notices and HMRC issued PLNs to the taxpayer in respect of the penalties. He appealed.
The FTT approached the appeal on the basis that it could consider whether the assessments and penalties issued to the company were correct. On the VAT assessments, the FTT held that they were made to the HMRC officer’s best judgement, and it rejected the taxpayer’s challenges to the figures. The FTT also upheld the CT and s 455 assessments and confirmed the VAT and CT penalties.
However, the FTT allowed the taxpayer’s appeal in respect of the penalties charged on the s 455 assessments. As with the other penalties, it had been charged on the basis of deliberate behaviour. The FTT rejected HMRC’s argument that it could meet its burden of proof on this issue by relying on the fact that the taxpayer knew he had taken money from the company. HMRC needed to prove that he knew that the company had a s 455 liability and had intentionally omitted it from the CT return. There was no evidence that this was the case, or even that he knew that extraction of money from the company could trigger a charge. There was nothing in the correspondence discussing his knowledge or understanding and HMRC did not cross-examine him on this point at the hearing. HMRC had therefore failed to meet its burden to show that the company deliberately omitted the s 455 liabilities.
Why it matters: In some ways this is a straightforward case in which the company failed to disclose its profits. The FTT’s decision on penalties in respect of the s 455 charge is, however, important. Many taxpayers do not understand the s 455 charge, particularly as it applies when there has been suppression of profits. If the decision on the penalty stands it could have a significant impact on the way that HMRC deal with penalties in investigation cases. Interestingly, whether the company had been careless was not raised.
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