Omission of sales invoices from return was deliberate

The taxpayer raised three sales invoices to a customer T Ltd in June 2014. However it said it had not submitted the invoices nor supplied the goods because the customer had cash flow problems – and later became insolvent. The taxpayer made a manual adjustment to reverse the output tax of £50 641 on these invoices from its June 2014 return.

HMRC disputed this action. It obtained evidence in the form of credit notes that partly reduced the invoices. Given that the credits were for damaged goods HMRC concluded T Ltd must have received the invoices and goods. There was also evidence of payment having been made. The officer’s enquiries with T Ltd confirmed it had received the goods. HMRC imposed a penalty on the taxpayer.

The First-tier Tribunal had to decide whether the 35% penalty charged by HMRC for a deliberate not concealed error (prompted...