Companies had behaved dishonestly

The taxpayers were directors of two limited companies which failed to submit VAT returns for many periods between May 2016 and May 2019. They accepted estimated assessments issued by HMRC despite them significantly understating the true liability. The companies were later dissolved so penalties for dishonest conduct were transferred to the taxpayers by virtue of personal liability notices (VATA 1994 s 61). The penalties were based on the difference between the estimated assessments and the actual liability. The taxpayers said they always intended to submit returns so had not behaved dishonestly.

Since 2007 penalties for careless and deliberate behaviour have been based on the amounts of output tax underpaid or input tax overclaimed on a return ie by comparing the VAT declared with the ‘true amount of tax’ for each period and then making a judgment about the taxpayer behaviour that caused the underpayment (FA...