Stolen laptop did not cancel £10k VAT penalty

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Two directors of a management consultancy have lost an appeal at the First Tier Tribunal (FTT) over VAT penalties totalling £21,400 after its records were stolen abroad

The appellant, Aizio Associates Limited, made an appeal against a penalty issued by HMRC for £21,457.24 for the VAT accounting periods 02/20 and 03/20, made under Schedule 24 of Finance Act 2007.

At the FTT, the current and former directors of Aizio, Timothy Campbell and David Billard, disputed personal liability notices (PLNs) of £17,097.72 and £4.359.83, respectively.

Following his resignation as director, Billard provided Campbell with paper copies of Aizio’s statutory company records and other information including VAT records.

He did not retain any copies of these documents and ceased to have any further involvement with the company.

Billard had scanned some of these documents onto a laptop and provided these electronically to Campbell. That laptop was later ‘wiped clean’ when he left the company.

Campbell then completed the task of scanning all of the documents provided to him following Billard’s resignation. Having done so, as all of the company’s records were stored on the laptop, Campbell destroyed the paper records.

On 1 March 2020, Aizio filed a VAT return for its 02/20 accounting period, claiming repayment of £4,433.71. HMRC checked the return form before authorising any payment.

This check was to be done with a visit to Campbell’s home address to undertake a review of the company’s records.

However, Campbell, having been told during a telephone call that HMRC would be checking the records from the date of Aizio’s registration, was concerned that he would not be able to produce records for earlier periods as they were no longer in his possession.

In March 2020, Campbell had been in Slovakia on business. He had driven there in his Range Rover and in addition to his other luggage and belongings, had taken the laptop with the company information stored on it with him.

Due to Covid-19 restrictions being imposed during this time, Campbell booked a flight to the UK and travelled home carrying a ‘minimum amount of luggage’ leaving almost everything, including the laptop, in his vehicle in Slovakia.

It was later revealed that the vehicle, with all its contents, was stolen. Because of the imposition of national lockdowns and prohibition on travel, Campbell was unable to return to Slovakia to retrieve the vehicle.

Although Campbell provided HMRC with Aizio’s records for the 01/20 and 02/20 VAT accounting periods during the visit, he was unable to provide any earlier records.

On 6 October 2020, HMRC issued a ‘best judgment’ VAT assessment, made under section 73 of the Value Added Tax Act 1994 (VATA), against Aizio.

The tax authority also issued Aizio with a penalty on 21 January 2021, for £21,717.24. The following day, HMRC then issued the PLNs against Campbell and Billard.

During the FTT, the tribunal had to address whether Aizio, Campbell and Billard were liable to penalties and, if so, whether this was because of the ‘deliberate but not concealed’ or the careless behaviour of the individual or individuals concerned.

It also questioned whether the quantum of the penalties handed to the company and its directors was appropriate.

HMRC argued that Aizio submitted inaccurate VAT returns which was brought about by the ‘deliberate but not concealed’ behaviour of its directors.

The periods 11/18, 05/19 and 12/18 were inaccurate, according to HMRC, as Aizio did not provide ‘satisfactory evidence’ for the deduction input tax for £15,099.

In addition, HMRC argued that the 08/19, 11/19 and 01/20 returns were inaccurate as they ‘omitted to declare’ any output tax totalling £15,893.

In their defence, Campbell explained that it was ‘not possible to provide evidence’ to support the deduction of input tax as this was on the laptop that was stolen.

However, the tribunal found that neither he nor Billard were able to explain the absence of output tax on 08/19, 11/19 and 01/20 returns.

Judge John Brooks said: ‘In our view, it is clear that the 08/19, 11/19 and 01/20 returns, which contained claims for input tax but did not declare any corresponding output tax, contained an inaccuracy amounting to an understatement of liability to VAT.

‘We consider that it must have been known by whoever submitted those returns that output tax should have been declared and its omission, knowing HMRC would rely on the return as being accurate, was deliberate.

‘However, there was no attempt to conceal that inaccuracy which was therefore deliberate but not concealed with the result that Aizio is liable to a penalty.’

The FTT allowed Aizio’s appeals against the penalties for the periods 11/18, 05/19, 12/19 and 02/20.

However, it dismissed the appeals for the periods 08/19, 11/19 and 01/20 but ruled that the penalties of £10,251.62 had to be paid.

For more information on dealing with theft in the workplace, visit BrAInbox today where you can find answers to questions like When can I dismiss for gross misconduct?

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