‘Deliberate’ Conduct, Inaccurate Returns and Penalties
A taxpayer’s “deliberate” conduct in filing inaccurate tax returns does not require proof of dishonesty, the Upper Tribunal has confirmed. Knowing that transactions were linked to fraud amounted to deliberate conduct on the part of the appellant company, which has lost its appeal against HM Revenue & Customs. The appeal was dismissed1 as an abuse of the tribunal’s process.
Under schedule 24 Finance Act 2007, HMRC can impose a penalty on a taxpayer who provides an inaccurate document; the inaccuracy is careless or deliberate (whether or not concealed); and it leads to an understatement of tax liability or a false or inflated claim for a tax repayment.
What’s the background?
Here, the taxpayer’s VAT returns contained deliberate inaccuracies relating to two periods. It appealed a penalty assessment – totalling more than £3.1m – on the basis that the inaccuracies were not ‘deliberate’ within the meaning of sch 24.
Notably, the taxpayer – a scrap metal and recycling company - had not challenged the factual findings made it by the FTT - which had concluded that it knew or should have known that a number of its transactions (for which it was claiming input tax and zero-rating) were connected to fraudulent VAT evasion. The UT upheld that finding of fact and refused the appeal as an abuse of process – it was an attempt to relitigate issues already decided.
The UT agreed with the approach already established by the courts: deliberate inaccuracy occurs when a taxpayer knowingly provides HMRC with a document containing an error , intending that HMRC should rely upon it as an accurate document. This is a subjective test - ‘deliberate’ required the taxpayer to have intentionally mislead [HMRC] “as to the truth of the relevant statement or, perhaps…recklessness as to whether it would do so”.
The appeal court had previously confirmed (in 2017) that it is not necessary for HMRC to prove dishonesty to establish that the taxpayer “knew or should have known” the transactions were connected to fraud. In the present case, the UT confirmed that a dishonesty finding was not an essential element of deliberate inaccuracy.
Nor was it was necessary for HMRC to prove that the person completing the return (or other document) had knowledge that the information was inaccurate. The relevant knowledge is that of the appellant as a corporate entity. Otherwise, a business could avoid a penalty simply by keeping the individual completing the returns in the dark.
The appeal – if not the original claim itself – seemed doomed to failure on the facts. Even so, the outcome is useful in its clarification of the meaning of ‘deliberate’ under sch 24.
1CF Booth Limited v HMRC [2022] UKUT 00217
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