New Claire Wine Limited v The Commissioners for HMRC

For tax purposes, a deliberate inaccuracy does not necessarily involve dishonesty. It requires intentional conduct, including an intention to mislead HMRC as to the truth of the relevant statement. HMRC must clearly plead and prove the deliberate inaccuracy and put the material allegation to relevant witnesses, but need not plead or prove dishonesty unless dishonesty is expressly alleged. A tribunal is not required to apply the common-law test for dishonesty or explain how deliberate conduct might nevertheless be honest. The statutory distinction between careless and deliberate inaccuracies must be applied according to the ordinary meaning of those terms.

The appellant appealed against the First-tier Tribunal’s decision dismissing its appeals against corporation tax discovery assessments, VAT assessments and a penalty for deliberate inaccuracies in VAT returns. The FTT found that the appellant had understated sales and that the conduct was deliberate, with carelessness established in the alternative.

The Upper Tribunal granted permission on the question whether the FTT was entitled to find deliberate conduct when HMRC had not alleged or proved dishonesty, and whether the FTT had to explain how the conduct might not have been dishonest. The central issue was the relationship between deliberate conduct and dishonesty in the statutory regimes governing discovery assessments, VAT time limits and penalties.

1. Appeal dismissed. The FTT had applied the correct test and was entitled to find that the appellant’s returns contained deliberate inaccuracies.
2. Under paragraph 43 of Schedule 18 to the Finance Act 1998, section 77(4B) of the Value Added Tax Act 1994 and paragraph 3 of Schedule 24 to the Finance Act 2007, deliberate conduct requires intentional conduct. In the case of a deliberate inaccuracy, the taxpayer must have intended to mislead HMRC as to the truth of the relevant statement. The Supreme Court’s guidance in HM Revenue & Customs v Tooth [2021] UKSC 17 was applied.
3. Deliberate inaccuracy may involve dishonesty, but dishonesty is not an essential element. The statutory language was intended to have its ordinary meaning. The provisions distinguish deliberate conduct from carelessness and introduce a separate concept of concealment. The Upper Tribunal followed the reasoning in CF Booth Limited v HM Revenue & Customs [2022] UKUT 217 (TCC) and applied the approach in Citibank NA and E Buyer UK Ltd v HM Revenue & Customs [2017] EWCA Civ 1416.
4. HMRC had to plead and prove the deliberate inaccuracy clearly and put the relevant case to the witness. It was sufficient that HMRC alleged that the directors knew the returns were inaccurate, knew they understated tax and intended to mislead HMRC. It was unnecessary to put separately that the conduct was dishonest under the objective limb of Ivey v Genting Casinos (UK) Ltd [2017] UKSC 67.
5. The FTT did not need to explain how the conduct might not involve dishonesty. Brett v The Solicitors Regulation Authority [2014] EWHC 2974 was distinguishable because it concerned disciplinary proceedings in which the tribunal had expressly disavowed dishonesty while finding knowing misleading conduct. Here, the FTT correctly treated dishonesty as irrelevant to the statutory question.

• Upper Tribunal (Tax and Chancery Chamber): Appeal against the First-tier Tribunal’s decision dismissed. The FTT’s findings on deliberate inaccuracies, the extended assessment time limits and the penalty were upheld.
• First-tier Tribunal (Tax Chamber): Appeals against corporation tax and VAT assessments and the penalty were dismissed in a decision released on 4 January 2024.