Input tax claims were deliberately overstated

The taxpayer submitted VAT returns between August 2017 and July 2019 where the inputs figure in box 7 exceeded the outputs declared in box 6 by £154 863. The director claimed that this excess of expenditure over sales had been funded by capital introduced to the business. He could not produce tax invoices to support many input tax claims so HMRC issued an assessment for £25 272 which was later reduced to £11 400. A separate penalty for £7 281 was issued for ‘deliberate not concealed’ behaviour and this debt was transferred to the director by issuing a personal liability notice (PLN).

The legislation at reg 29 of the VAT Regulations 1995 gives an officer the power to accept alternative evidence to show that VAT has been on a business expense that relates to a VATable supply of goods or services and HMRC gave the director every chance...