September 2024 – VATWatch

A tribunal ruling has determined that VAT errors based on underdeclared takings made by owners of a convenience store were careless rather than deliberate, leading to a significant reduction in penalties imposed by HMRC. 

Jagtar Singh Rai and Sukhdev Singh Rai trading as Bursha Foods bought a Costcutter convenience store in 2014 and retained the VAT number of the previous owner.  The store’s main supplier, Costcutter, installed two tills at the premises which operated an automatic ordering system. One was used throughout the day, the second only during peak hours.

HMRC had issued assessments in respect of output VAT which they believed had been under-declared for the quarters ended November 2014 to November 2015. In respect of two of the periods, HMRC had issued a penalty based on the behaviour of the taxpayer being careless. For three of the periods, the penalty was based on deliberate error.

The first tier tribunal (FTT) case looked at the reliability of data, and considered when an error is careless and when it is deliberate.

Mr J Rai gave evidence that he had provided the details of daily takings from the tills to their external accountant in order for the accountant to prepare the VAT returns. Neither partner was familiar with accounting procedures, and they were relying on their accountant to ensure they complied with their obligations.

HMRC bears the burden of establishing that the output tax assessments were made to their best judgement, and they had visited the store premises and obtained till transaction data in detailed reports. The tax authority then used specialist software to analyse the data.

The tribunal described this approach as more than reasonable and found that HMRC had established that the assessments were issued to the best of their judgement but the tribunal also concluded that there was no change in the taxpayers’ behaviour throughout the periods in question. Neither was the Tribunal satisfied that the appellants knew that the VAT returns submitted were incorrect. As such, the penalties should all be based on the behaviour being careless (up to 30%) rather than deliberate (up to 70%).

Read the full article here – Convenience store’s underdeclared VAT was careless | AccountingWEB