VAT – Failure to Register in time - penalty on director not upheld as no dishonest conduct

09 October 2013

The First-Tier Tribunal ('FTT') has upheld an appeal by the director of a company against the imposition of a penalty under sections 60 and 61 of the Value Added Taxes Act ('VATA 1994')1 in the case of Mrs G. Candy v HMRC [2013] UKFTT 146 (TC) 02544.


The First-Tier Tribunal ('FTT') has upheld an appeal by the director of a company against the imposition of a penalty under sections 60 and 61 of the Value Added Taxes Act ('VATA 1994')1 in the case of Mrs G. Candy v HMRC [2013] UKFTT 146 (TC) 02544.

Although on the face of it this is a routine decision relating to failure by the company, Seen 2B Clean Limited, ('the Company') to register for VAT when its turnover exceeded the registration threshold, it does contain some interesting observations about how the relevant legislation should be applied and the question of what amounts to dishonest conduct in this context.


The Company was incorporated in the course of June 2006 and commenced trading on 1 August 2006. The principal trading activity of the Company was commercial and domestic cleaning. The business was conducted from the house of the directors, Mrs Glenda Candy (the 'Appellant') and Mr Brett Candy. The Appellant was also company secretary and made all important decisions regarding the business. The business turnover was heavily reliant on a few large contracts.

In March 2011, during an inspection by HMRC, it was found that the Company should have been registered for VAT at an earlier date, since its turnover exceeded the VAT registration threshold. The accounts showed the following turnover:

for the period 14 June 2006 to 30 June 2007 - £93,133;

for the period 1 July 2007 to 30 July 2008 - £132,385; and

for the period 1 July 2008 to 20 June 2009 - £160,568.

G. Suttle & Co Limited audited the Company's accounts and advised that the date of registration for VAT should have been 1 June 2007. However, this was only apparent when it prepared the Company's accounts in March 2008. It was not anticipated by the directors that the Company would have to be VAT registered in 2007 since a number of major contracts were lost and it was thought that the turnover would decrease accordingly. In fact, turnover increased and the effective VAT registration date was 3 November 2008.

The subsequent completed VAT registration form was dated 1 December 2008 with the expectation that the turnover would exceed £130,000 for the 12 months from November 2008.

On 23 March 2011, at a meeting held between HMRC, the Appellant and the Company's advisors, it was agreed that the VAT registration should have taken place around June 2007. In July 2011 an assessment was raised for under-declared VAT and on 15 December 2011, a Civil Evasion Penalty Notice of Assessment was issued. The appeal related to the Civil Evasion Penalty against the Appellant.


Section 60(1) VATA 1994 provided:

"60 VAT evasion: conduct involving dishonesty

(1) In any case where –

(a) for the purpose of evading VAT, a person does any act or omits to take any action; and

(b) the conduct involves dishonesty (whether or not it is such as to give rise to criminal liability),

he shall be liable … to a penalty equal to the amount of VAT evaded or, as the case may be, sought to be evaded, by his conduct".

At the relevant time, section 61 VATA 1994 enabled HMRC to allocate the section 60 penalty imposed on a company to a director or managing officer of that company where the conduct giving rise to the penalty was in whole, or in part, attributable to the dishonesty of the director or managing officer.

FTT's decision

Judge Khan noted (at paragraph 61) that the standard of proof required as in all civil cases was on the balance of probabilities. However, as dishonesty was being alleged by HMRC, the evidence must be compelling. He referred to Ghandi Tandoori Restaurant (1989) VATTR 39, in which the concept of "dishonesty" had been considered in the context of civil fraud. In that case, the tribunal had considered that:

"It seems to us clear that in such a context, where a person has, ex hypothesi, done, or omitted to do, something with the intention of evading tax, then by adding that the conduct must involve dishonesty before the penalty is to attach, Parliament must have intended to add a further element in addition to the mental element of intending to evade tax. We think that that element can only be that when he did, or omitted to do, the act with the intention of evading tax, he knew that according to the ordinary standards of reasonable and honest people that what he was doing would be regarded as dishonest".

The Judge also referred to the two-stage test, set out in the leading criminal case of R v Ghosh [1982] 3 WLR 110, for establishing dishonesty, which had clearly informed the approach of the tribunal in the Ghandi case. In Ghosh, the Court of Appeal stated that, in considering whether a person has been dishonest, the following two questions must be considered:

  • Would the person concerned be regarded as dishonest according to the standards of reasonable and honest people? If not, he should be acquitted.
  • If the above is answered in the affirmative, then it becomes necessary to ask did the person realise that his conduct would be regarded as dishonest by the ordinary standards of reasonable and honest people? He should be convicted only if he had this realisation.

In allowing the appeal, Judge Khan said (at paragraph 77) that the Appellant had not deliberately and intentionally failed to register for VAT but rather, she fell into the category of a person who had a casual approach to compliance. However, a casual attitude is not the same as a reckless or dishonest approach.  The Judge was of the view that a reasonable person would not think that the Appellant was trying to avoid charging her customers VAT.  The FTT could find no clear evidence that the Appellant intended to evade tax either by the standards of a reasonable person or a subjective intention on the part of the Appellant herself.  The fact that the Company registered when advised to do so by its accountant did not support an inference of dishonesty


Readers may recall that we commented on the FTT's decision in Simple Solutions GB Limited v HMRC in last week's blog, a case in which HMRC were ordered to pay the taxpayer's costs following serious and unsubstantiated allegations of fraud made by HMRC against the taxpayer.

This is another litigated matter in which HMRC alleged dishonest conduct on the part of a taxpayer and which submission has not been upheld. It remains to be seen whether these are isolated cases or the start of a trend. It is to be hoped that there is adequate oversight and sufficient checks and balances in place within HMRC to ensure that inappropriate allegations of dishonest conduct are not being made routinely and that cases in which dishonest conduct is at the heart of HMRC's case are only commenced after a full and thorough analysis of all the relevant facts by those with appropriate expertise.

1 Sections 60 and 61 VATA have been repealed for certain purposes, but the provisions continue to have effect with respect to conduct involving dishonesty which does not relate to an inaccuracy in a document or a failure to notify HMRC of an under-assessment by HMRC.

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