CF Booth Limited v The Commissioners for HMRC

A taxpayer commits a deliberate inaccuracy where it knowingly gives HMRC a document containing an error and intends HMRC to rely on it as accurate. Dishonesty need not be pleaded or proved. An unappealed finding that the taxpayer knew its transactions were connected with VAT fraud establishes that it had no entitlement to the claimed input tax or zero rating, and may establish deliberate inaccuracy in the resulting VAT returns.

Although a tax penalty is a criminal charge for Article 6 purposes, the applicable guarantees depend on the proceedings viewed as a whole. Article 6 does not displace the tribunal’s civil case-management power to strike out an abuse of process where the taxpayer previously had a fair opportunity to contest the determinative factual issues.

HMRC imposed a penalty under Finance Act 2007, Schedule 24, on CF Booth Ltd for deliberate inaccuracies in VAT returns. The penalty followed an unappealed First-tier Tribunal decision, [2017] UKFTT 813 (TC), which found that the company knew that relevant transactions were connected with VAT fraud.

On the company’s penalty appeal, the FTT struck out grounds which sought to deny deliberate conduct or to re-open the earlier knowledge findings. It held that those grounds were an abuse of process: [2020] UKFTT 0035 (TC).

The company appealed to the Upper Tribunal. It argued that deliberate inaccuracy required further proof of a conscious and dishonest element, that Article 6 prevented reliance on the earlier findings, and that proportionality and special-circumstances arguments should continue.

1. Appeal dismissed. The FTT made no error of law in striking out the grounds which challenged deliberate inaccuracy. The earlier, unappealed findings that the company actually knew that its transactions were connected with VAT fraud established that it had never been entitled to the relevant input-tax deductions or zero rating.

2. The Tribunal approved the formulation in Auxilium Project Management Ltd v HMRC, [2016] UKFTT 249 (TC). A deliberate inaccuracy arises where a taxpayer knowingly provides HMRC with a document containing an error, intending HMRC to rely on it as accurate. The test is subjective, but it does not require HMRC to plead or prove dishonesty. The discussion of deliberate inaccuracy in Tooth was consistent with that conclusion.

3. The relevant knowledge was that of the corporate taxpayer. HMRC did not have to show that the individual who completed the VAT return knew of the inaccuracy. A VAT return is a self-declaration, and the declaration of correctness required by Regulation 25(1) of the Value Added Tax Regulations SI 1995/2518 established the necessary intention that HMRC should rely on it.

4. The FTT had applied the broad merits-based abuse-of-process approach in Johnson v Gore Wood, rather than issue estoppel. A Schedule 24 penalty is a criminal charge for Article 6 purposes, but tax penalties do not fall within the hard core of criminal law. The company had received fair hearings in both the 2017 substantive proceedings and the strike-out proceedings. Article 6 therefore did not displace the FTT’s strike-out power.

5. The Tribunal declined to determine new hearsay and “filing position” arguments. They had not been raised below and would have required an evidential inquiry which could not fairly be conducted for the first time on appeal. Permission to appeal did not itself require the Tribunal to entertain such new points.

6. Arguments on proportionality and special circumstances remained available only insofar as they concerned the quantum of the penalty. They could not re-characterise the penalty as one for careless conduct.

• Upper Tribunal (Tax and Chancery Chamber): dismissed the appeal and affirmed the FTT’s strike-out decision: [2022] UKUT 217 (TCC).

• First-tier Tribunal (Tax Chamber): struck out grounds of the Schedule 24 penalty appeal as an abuse of process, while preserving limited issues concerning reductions for disclosure and matters relevant to quantum: [2020] UKFTT 0035 (TC).

• First-tier Tribunal (Tax Chamber): previously found that the company knew that relevant transactions were connected with fraudulent VAT evasion. That decision was not appealed: [2017] UKFTT 813 (TC).