Penalties for a deliberate inaccuracy

HMRC said that the taxpayer knew or should have known that some of its transactions were connected to the fraudulent evasion of VAT. It raised assessments for output tax after refusing the company's zero-rating claim. For the same reason it denied the taxpayer’s input VAT claim.

After the First-tier Tribunal dismissed the taxpayer’s appeal (against which it did not appeal) HMRC imposed a penalty on the ground the taxpayer’s VAT return contained deliberate inaccuracies and had claimed input tax credits which it knew to be wrong.

The taxpayer appealed. The First-tier Tribunal dismissed the appeal but the taxpayer was given permission to appeal to the Upper Tribunal.

On the taxpayer’s argument that HMRC had to prove dishonesty before imposing penalties for a deliberate inaccuracy the Upper Tribunal said this was not the case. It referred to Auxilium (TC5024) in which the First-tier Tribunal said a deliberate inaccuracy occurred ‘when...