CPR COMMERCIALS LIMITED v THE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMS

For a deliberate inaccuracy penalty under Finance Act 2007, Schedule 24, the taxpayer must knowingly provide HMRC with a document containing an error, intending that HMRC rely on it as accurate. Blind-eye knowledge may satisfy that test where there is a firmly grounded and targeted suspicion, followed by a deliberate decision to avoid confirming the facts. Mere unreasonableness, failure to take reasonable care or recklessness does not, without more, establish actual or blind-eye knowledge. Where the findings support carelessness but not deliberateness, the Upper Tribunal may remake the decision and substitute a careless penalty if the facts permit.

CPR Commercials Limited treated supplies of used commercial vehicles to Irish VAT-registered customers as zero-rated exports. HMRC assessed VAT and penalties under Schedule 24 to the Finance Act 2007, alleging deliberate inaccuracies because CPR did not hold sufficient evidence of export.

The First-tier Tribunal found that CPR lacked the necessary evidence and had acted at least recklessly when submitting its returns. It dismissed CPR’s appeal against the penalties. CPR appealed to the Upper Tribunal on whether those findings established a deliberate inaccuracy and whether the FTT had applied the correct subjective test.

Appeal allowed. The FTT’s decision concerning the penalties was set aside and remade.

1. Under paragraph 1 of Schedule 24 to the Finance Act 2007, read with paragraph 3, a deliberate inaccuracy requires a subjective finding that the taxpayer knowingly provided HMRC with a document containing an inaccuracy, intending that HMRC rely on it as accurate. The agreed formulation was drawn from Auxilium Project Management Ltd v HMRC [2016] UKFTT 249 (TC) and had been expressly approved in CF Booth Ltd v HMRC [2022] UKUT 217 (TCC).
2. Blind-eye knowledge can satisfy the test where the taxpayer suspects that the document contains an inaccuracy and deliberately, without good reason, avoids confirming the true position. The suspicion must be firmly grounded and targeted on specific facts. A speculative or untargeted suspicion is insufficient. The caution in Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd [2001] UKHL 1 was applied.
3. The FTT found that CPR could not reasonably have concluded that it possessed sufficient export evidence and that it was at least reckless as to whether it had that evidence. Those findings established unreasonable conduct or a failure to take reasonable care, but did not establish actual knowledge or blind-eye knowledge of an error in the returns. The FTT therefore erred in law in treating the inaccuracies as deliberate.
4. It was unnecessary to decide whether recklessness alone can constitute a deliberate inaccuracy. CPR was liable for careless inaccuracies. Remittal was inappropriate because the Upper Tribunal could apply the statutory provisions to the existing findings without further expense or delay. The decision was remade accordingly, with liberty to apply on quantum within 28 days if required.

1. First-tier Tribunal (Tax Chamber) In [2021] UKFTT 408 (TC), the FTT found that CPR lacked appropriate export evidence, upheld the VAT assessments and dismissed the appeal against deliberate inaccuracy penalties.
2. Upper Tribunal (Tax and Chancery Chamber) The appeal was allowed. The penalty decision was set aside and remade as a careless inaccuracy penalty.