Mohammad Ameen Mirza v The Commissioners for HMRC

A taxpayer may in principle have a reasonable excuse for a VAT default where incorrect professional advice was genuinely relied upon. The taxpayer must nevertheless prove, on the evidence, both that the advice caused the non-payment and that reliance on it was objectively reasonable in the taxpayer’s circumstances.

The absence of directions about witness evidence does not itself make a tribunal hearing procedurally unfair. Where a professionally represented party has considered and declined to call evidence, the tribunal is not ordinarily required to advise that party to alter that course.

Mohammad Ameen Mirza appealed against the First-tier Tribunal’s decision, reference TC/2019/05125, dismissing his appeal against a VAT default surcharge of £3,701.55 for the 02/19 period.

The First-tier Tribunal held that the VAT liability could not be discharged by set-off against claimed VAT repayments or cash previously seized by HMRC. That conclusion was not challenged before the Upper Tribunal. Permission was granted only on two grounds: whether procedural unfairness prevented Mr Mirza from giving evidence, and whether the First-tier Tribunal wrongly treated reliance on incorrect professional advice as incapable of amounting to a reasonable excuse.

1. Appeal dismissed. The absence of directions regulating witness evidence was regrettable and had the potential to create unfairness. It did not, however, amount to a procedural irregularity in this case.

   Mr Mirza was professionally represented. His representative had considered witness evidence and indicated that no evidence would be called. The Tribunal accepted that this position was confirmed at the video test hearing. The First-tier Tribunal was not obliged to tell the representative that evidence from Mr Mirza might assist a reasonable-excuse case, particularly when HMRC had been told that he would not give evidence.

2. The Upper Tribunal held that reliance on incorrect professional advice is capable of constituting a reasonable excuse under Value Added Tax Act 1994, section 59(7)(b). Incorrectness alone does not make reliance unreasonable.

   The taxpayer must establish that the advice was genuinely relied on and caused the default. The Tribunal must then assess objectively whether that reliance was reasonable, taking account of the taxpayer’s relevant knowledge, experience and circumstances.

3. There was insufficient evidence before the First-tier Tribunal that advice about set-off had caused Mr Mirza not to pay the VAT, or that reliance on such advice would have been reasonable. Any error in the First-tier Tribunal’s apparent approach to its earlier authority could therefore not affect the outcome. The Upper Tribunal did not endorse all aspects of the First-tier Tribunal’s reasoning, including its finding concerning the scale of outstanding liabilities relative to the seized cash.

4. The validity of the asserted set-off and the repayment claims were outside the permitted grounds of appeal. The First-tier Tribunal’s dismissal of the surcharge appeal accordingly remained in force.

• Upper Tribunal (Tax and Chancery Chamber): dismissed Mr Mirza’s appeal on the two grounds for which permission had been granted.
• First-tier Tribunal (Tax Chamber): dismissed the appeal against the VAT default surcharge in decision TC/2019/05125.