Tribunal must decided contested facts, not agreed ones

A company (K) claimed input VAT on purchases and sales of several consignments of alcohol. It also claimed to have sold the alcohol to another company and declared output tax due on those supplies.

HMRC said the transactions were connected to fraudulent evasion of VAT and K knew this to be the case. It therefore disallowed the input VAT claim.

Further the inaccuracies were deliberate and concealed with the result that a 100% penalty applied (VATA 1994 Sch 24 para 19). This made the penalty recoverable from the taxpayer in his capacity as a director of K.

The First-tier Tribunal found that the taxpayer was in principle liable for a penalty but the amount depended on whether the supplies had taken place.  If they had not the penalty would be nil because the overstated input tax claim would be cancelled by the overstated output tax – which was...