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	First-tier Tribunal (Tax)
You are here: BAILII >> Databases >> First-tier Tribunal (Tax) >> Toye v Revenue and Customs (VAT - company penalty for deliberate inaccuracy - PLN issued to the appellant) [2025] UKFTT 301 (TC) (06 March 2025) URL: http://www.bailii.org/uk/cases/UKFTT/TC/2025/TC09451.html Cite as: [2025] UKFTT 301 (TC)

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FIRST-TIER TRIBUNAL
TAX CHAMBER

		In public by remote video hearing
		Heard On: 28 January 2025 Judgment Date: 6 March 2025

VAT – company penalty for deliberate inaccuracy – PLN issued to the appellant – appeal allowed

DECISION

Introduction

1. This is a VAT case. HMRC have assessed Black Wolf Ltd ("the company") to a penalty for submitting VAT returns for the VAT periods 02/19 to 11/21 ("the periods in question") which in their view contained inaccuracies which were due to the deliberate behaviour of the company. HMRC also think that these inaccuracies were attributable to the behaviour of the appellant, and, accordingly, have specified in a written notice (the penalty liability notice or "PLN") that the appellant is liable to pay 100% of that penalty.
2. Following adjustment on review, the amount of the PLN is £6,127.77.

THE LAW

3. The legislation and case law which is relevant to the PLN is set out in the appendix. Words and phrases defined in the appendix bear the same meaning in the body of this decision. But briefly stated:

(1) Where a penalty for submitting an inaccurate return is payable by a company for a deliberate inaccuracy which was attributable to an officer of the company, the officer is liable to pay such portion of the penalty (which may be 100%) as HMRC may specify by written notice to the officer.

(2) For there to be a "deliberate" inaccuracy HMRC have to establish an intention to mislead HMRC on the part of the taxpayer as to the truth of the relevant statement.

(3) In the absence of an appeal against an assessment by a company where a PLN issued to a director is challenged on the basis that an underlying assessment is wrong, it is for HMRC to establish that the PLN was validly issued and, if that burden is discharged, the evidential burden is on the appellant to establish that the assessment should be discharged.

THE EVIDENCE AND THE FACTS

4. We were provided with a substantial bundle of documents which included authorities. Officer Kerry Dolby ("Officer Dolby") gave oral evidence on behalf of HMRC. Oral evidence was given by the appellant. From this evidence we make the following findings:

The company

(1) Throughout the periods in question, the appellant was a director of the company. He was also a shareholder. There was some uncertainty about the level of his shareholding (Companies House appear to record it as 75% yet the appellant's evidence was that during the periods in question, he owned 50%, his wife owned 1%, and 49% was owned by his nephew, Mr Darren Chaston ("DC")). However, these discrepancies are irrelevant to the issues which we need to address.

(2) The company's trade was that of a locksmith. The appellant was a master locksmith. The company was based in St Neots where it traded from its own premises. It also serviced customers, both domestic and commercial, at those customers' premises. It had contracts to supply services in London. These services included what were described as "fast reaction" services, which are required when customers had locked themselves out of their premises and needed a locksmith to let them in.

(3) In order to satisfy this fast reaction offering, the company purchased three BMW motorbikes ("the motorbikes"). At the time of purchase, they had three employees qualified to ride them, but shortly after the purchase, one of those employees left.

(4) The motorbikes were kitted out with specially designed boxes in which the appropriate tools could be kept and transported as required.

Background

(5) The company applied to be registered for VAT on 25 July 2013. That application was made by the appellant.

(6) On 11 May 2022, Officer Dolby, who had been asked to carry out a compliance check on the company, wrote to the company asking for business records for three VAT periods. Further requests were made in June and July 2022.

(7) On 18 July 2022, the appellant notified HMRC that the company had ceased trading.

(8) On 25 July 2022, HMRC issued an information notice to the appellant asking for information and documents.

(9) On 12 November 2022, HMRC issued a VAT assessment to the company for £12,496 ("the assessment").

(10) On 1 December 2022 HMRC issued a penalty explanation letter to the company notifying it that HMRC intended to charge penalties of £6,560.63. That letter stated that HMRC considered the inaccuracies to be based on deliberate behaviour, because "you have fully claimed VAT on fully private vehicles with no apportionment made for private usage. I consider that no reasonable person would believe this to be accurate and you have not taken any steps to verify the validity of your claims". It went on to say that the penalty percentage would be 52.5%, based on prompted disclosure, and on 11 January 2023 a notice of penalty assessment was issued to the company for £6,560.33 ("the penalty assessment").

(11) On the same date, the PLN was issued to the appellant at his home address for the same amount.

(12) Following a review request from the appellants, on 21 March 2023 HMRC issued a statutory review conclusion letter in which they varied the PLN to £6,127.77.

(13) The appellant appealed against this conclusion on 23 March 2023.

(14) A notice of amended penalty assessment was issued to the company for the revised amount on 20 June 2023, and a revised PLN for that amount was issued to the appellant at his home address on the same date.

The assessment

(15) During the summer of 2022, Officer Dolby sought information and documents relating to purchased vehicles, leased vehicles, hire purchase vehicles and fuel receipts in relation to the company. She also wants to see the company's VAT records. On 1 August 2022, the appellant emailed Officer Dolby stating, amongst other things, "None of the motorcycles should have gone through on the company accounts". It also records that he was unable to provide receipts for clothing purchases as they had been made by DC and receipts had not been kept. The Audi Q5 had been returned when DC abruptly left the company in 2021.

(16) Following an email dated 9 August 2022 to Pauline Bird of Cowley Holmes accountants, from Officer Dolby in which she asked whether Ms Bird had spoken to her client regarding the records requested (by the information notice) Ms Bird responded that she had "contacted the client and he has told us not to do any work on this".

(17) During August 2022, Officer Dolby carried out more investigative work into the affairs of the company. She made contact with DC who, by 26 August 2022, was a named director of the company as recorded at Companies House. She had a telephone conversation with DC during which he made various allegations about financial impropriety by the appellant.

(18) On 8 September 2022, Officer Dolby received a copy of DC's resignation letter ("the resignation letter") in which, once again, DC made various allegations of financial impropriety by the appellant.

(19) On 7 September 2022, Officer Dolby sought information from the company's former accountants, Whitings LLP ("Whitings") to which they responded on 14 September 2022 ("the Whitings email"). Included with that email was an email trail in October 2020 in which (in response to a comment made by Paul Jefferson, of Whitings, to the appellant that "… please be aware that the VAT on the van should be included on the August return…") the appellant responded by email saying "please can you leave the van out this period until we have sorted out all the paperwork".

(20) Also attached to the Whitings email was a letter to Whitings dated 26 September 2019 ostensibly authored by the appellant in which he indicated that the motorbike "we discussed cannot be in the company name as we would not be able to obtain insurance. Insurance companies insist that the vehicle needs to be in the riders name and garage and secured any time that is not in use".

(21) Also enclosed with that email was an email to Whitings dated 1 April 2020 electronically signed by the appellant, in which the appellant confirmed that the "work carried out by classic is for a property used by [the company] in connection with the business and [the company] is responsible for the repair and upkeep of this property I take full responsibility for my instruction to you to enter the full VAT portion of all invoices".

(22) Officer Dolby issued the assessment for three broad reasons. Firstly, the company failed to account for VAT road fuel scale charges or keep detailed mileage records for company vehicles in respect of which it deducted VAT charged on the fuel as input tax. Secondly, it claimed an input tax deduction for VAT charged by suppliers on supplies that she considered had not been incurred in the course or furtherance of the business of the company, the main supplies in question being those of the motorbikes and double-glazed windows. Thirdly, the company had claimed a deduction for input VAT without any supporting tax invoices or acceptable alternative evidence.

The penalty assessment

(23) Officer Dolby's evidence was that she had issued the penalty assessment, based on deliberate behaviour, for the following reasons.

(24) Firstly, the email that she had received from the appellant on 1 August 2022 stating that "he did not know that the motorcycles had gone through the business…" was contradicted by the attachments to the Whitings email (which confirmed that he knew they had gone through the business and provided an explanation regarding insurance and garaging).

(25) Secondly, the email dated 1 April 2020 about the double-glazed windows being included in the business accounts notwithstanding that the works were undertaken to a residential property.

The PLN

(26) In her oral evidence, Officer Dolby said that she had decided to issue the PLN as she believed that the appellant was an officer of the company, that the company was about to go insolvent, and that he had benefited personally from the VAT which she believed was deliberately claimed in error.

(27) In the PLN, Officer Dolby said that "Evidence shows that you have personally benefited from the inaccuracy by claiming personal expenses through the company. As in my previous letter we consider this to be deliberate behaviour".

Mr Toye's evidence

(28) Mr Toye gave the following evidence.

(29) He has been in business for over 30 years. He has never had any problems paying tax and VAT, and those issues only arose in relation to the company when he brought DC into the business in 2015. He gave DC 49% of the shares and made him a director. He trained him up to be a locksmith.

(30) In 2017 he suffered a heart attack and had a stent inserted. Shortly thereafter he had quadruple heart bypass for which he was detained in hospital for several months. On discharge he was unable to participate fully in the activities of the company's business for 6 to 12 months, although he was at the end of the phone and was able to answer queries on an ad hoc basis.

(31) In 2020, during the Covid pandemic, Mr Toye, as a vulnerable person, was unable to attend the business premises.

(32) Whilst he was incapacitated by his operation and then again during the pandemic, DC was in effective operational charge of the business of the company.

(33) It was his uncorroborated evidence that during this period DC sought to establish a parallel business to that of the company and benefit from contracts which should have benefited the company. It was for this reason that the company found itself in financial difficulties and had to be wound up in 2022. As DC was a member of the family, he took matters no further. In his view DC was the "guilty party" and he couldn't understand why HMRC had not pursued him for the penalty instead of himself.

(34) He also said that he was unable to provide HMRC with the records for which they were asking because they had been removed by DC. The electronic records were on a software package called Xero which he did not fully understand and did not fully trust.

(35) As regards the van, he accepted that he had told Whitings that the VAT should not be accounted for in the August return but that was because the company had not been paid for the van in that period, and he wanted to pay the VAT only once he had been paid by the purchaser.

(36) He explained that the double-glazing for which an input tax deduction had been claimed, was a result of damage caused by the company's employees when they had been installing window locks to a customer's residential premises. He did a deal with the customer pursuant to which he agreed to replace the double-glazing.

(37) He explained that the motorbikes were used for the fast response offering. He accepted that one of the motorbikes which had originally been purchased for this reason, had subsequently not been so used and had been used by himself. He accepted that the input VAT for this bike should not have been recovered.

(38) He accepted that he could not provide documentary evidence for the business use. The question is what evidence he could have supplied. How could he have shown, he asks rhetorically, that the motorbikes or the van had been used for business purposes. It was his evidence that they had been so used. The same is true of the double-glazing.

(39) He is uncomfortable with providing information and dealing with HMRC, by way of email. Information never comes across well in emails. In the past when he has had enquiries, he sat down with the HMRC officers and has discussed the matters with them face to face. Officer Dolby has not attempted to do this. If she had asked for a meeting with him and they had discussed things, he would have told her everything that he had told us today.

(40) He is not good with paperwork. He employs secretaries and accountants to deal with that. He is not educated and prefers to tell people things face to face rather than in correspondence.

(41) He did not appeal against the assessment as he thought that was something that should have been done by his accountant. He employed his accountant to ensure that his VAT affairs were correct. As far as VAT returns were concerned, he would send the information to the relevant accountant for the relevant period. The accountant would compile the VAT return which would be returned to him for signing off and subsequently it was submitted to HMRC by the accountant.

(42) He was not strong on paperwork. Even though some of his emails might have ostensibly had his name at the bottom of them, that did not mean that he had written them. They were probably written by his secretary to whom he delegated much of the paperwork, and she may well have got things wrong as she did not understand the position.

(43) He denied that he had personally benefited from any inaccuracies in the VAT return and had never behaved dishonestly. He rejected all of the allegations made in the resignation letter.

DISCUSSION

Submissions

5. In summary, Mr Cameron submitted as follows:

(1) He accepts that in challenging the PLN the appellant is entitled to challenge the underlying VAT assessment and penalty assessment issued to the company.

(2) Officer Dolby's evidence demonstrates that she made a valid best judgment assessment under section 73 of the VAT Act 1994 ("VATA"), as that phrase is interpreted in Pegasus Birds Ltd v HMCE [2004] EWCA Civ 1015.

(3) As regards the penalty assessment, Officer Dolby's evidence also demonstrates why she considered the company's behaviour, through the agency of the appellant, to be deliberate. He had told his accountants to pay output tax on the van in a later period, against the advice of those accountants. He had sought to recover VAT on double-glazing which had been fitted into a residential property. He sought to recover input VAT on the acquisition of the motorbikes which had been used for private use.

(4) At the hearing, the appellant had provided some explanations regarding the motorbikes and the double-glazing. But he had ample opportunity to provide these explanations before and failed to take them. He could have appealed against the assessment and the company penalty assessment but did neither. Furthermore, no corroborative evidence has been provided by the appellant regarding either item. We should, therefore, treat this evidence with caution and should not accept it.

(5) It is clear from the resignation letter that the appellant has been guilty of financial impropriety. In particular the appellant used company money and claimed VAT for his own personal benefit including claiming VAT back on the motorbikes and private rental properties. He went against the advice given by the company's professional advisers. We should accept the evidence in the resignation letter, (given that DC had also threatened the appellant, by way of a solicitor's letter, to bring an action against him), as evidence of that impropriety.

(6) The assessment, the company penalty assessment, and the PLN have all been served on the appellant and were issued within the statutory time limits.

(7) It is therefore up to the appellant to explain to the tribunal why the assessment overcharges the company or why the company's behaviour was not deliberate. He has done neither.

(8) We should not accept that documents which contain the appellant's electronic signature, or his signature block, were not authored by or sent by the appellant. There is no corroborative evidence of this. It is more likely that the information in those documents was provided by the appellant and signed off by him.

(9) Ultimately the responsibility for checking that the VAT returns were correct lay with the company through the agency of the appellant who was, at all times, the controlling mind or guiding hand of the company. He was the majority shareholder. He was a director. He was in operational control throughout. The correspondence clearly shows him dealing with the accountants and instructing them in respect of VAT matters.

(10) It was only at the hearing that the appellant gave evidence of his medical situation. We only have his word regarding the operation of the company during his incapacitation, and subsequently during Covid.

(11) The Xero software which contained the appellant's electronic records had been transferred from Whitings to his subsequent accountants well before August 2022 when the appellant, on behalf of the company, told HMRC that he did not have access to those documents.

(12) The appellant's evidence about the van clearly shows dishonesty. He was asking his accountant to account for VAT in a later period, knowing that it should be accounted for in an earlier period. Even though HMRC have not issued an assessment in relation to the van, this behaviour still demonstrates that he was knowingly misleading his advisers for his personal benefit in his role as a director of the company.

(13) HMRC can impose 100% of the penalty on the appellant. There is no obligation on them to impose any part of it on DC.

6. In summary, the appellant submitted as follows:

(1) Throughout the periods in question, he was incapacitated, and DC was responsible for the day-to-day running of the company.

(2) He repeated the submissions made during his evidence regarding the use to which the motorbikes were put and the reason why input VAT was claimed on the purchase of the double-glazing.

(3) He has explained in his evidence why he did not tell HMRC of this, nor of his personal medical situation, until now.

(4) He has never sought to defraud HMRC nor to obtain a personal benefit from knowingly submitting incorrect VAT returns.

(5) The trading and tax problems have all been caused by DC.

Our view

Who has to prove what

7. Mr Cameron accepts that it is open to the appellant to challenge the PLN on the basis that the assessment was not a valid in time best judgment assessment, and/or, the company penalty assessment was incorrect as the company's behaviour was not deliberate. It is also open for him to challenge it on the basis that any such deliberate behaviour was not attributable to him as an officer of the company.
8. The evidence of Officer Dolby clearly reflects this position. And this is correct on the authority of Zaman.
9. Although the appellant did not mount a specific challenge to the assessment nor to the company penalty assessment, we, as have HMRC, treated the appellant as having made such a challenge.
10. So, it is up to HMRC to show that they have made a valid in time best judgment assessment under section 73 VAT Act 1994. They also have to show that the company penalty assessment was validly issued and served, in time, and to do this they must demonstrate that the inaccuracies in the returns were due to deliberate behaviour by the company. They must also show that the deliberate inaccuracy was attributable to the appellant.
11. If HMRC have shown that they are made a valid in time best judgment assessment, then the burden of proof shifts, and it is up to the appellant to show that the assessment overcharges him.

The reliability of the appellant's evidence

12. The penalty assessment and PLN were based on Officer Dolby's view that the motorbikes were for personal use, and input VAT should not have been recovered on their purchase (and fit out); and the input tax on the double-glazed windows should not be recovered either, as they were installed in a residential property.
13. We can fully understand why she came to this view, given that the appellant had provided no explanation for these ostensible errors.
14. However, in his oral testimony, he provided comprehensive explanations. The motorbikes were used in the business (initially, but then one was used by him personally); and the double-glazed windows were installed at a residential property where his employees had botched things up.
15. HMRC say that we should treat this evidence with considerable suspicion given the opportunities that the appellant has had to provide it to HMRC both during the enquiry and in the context of an appeal against the penalty assessment. We should draw an adverse inference from his failure to do so and not accept what he says now. On the other hand, we should accept the evidence set out in the resignation letter provided by DC, as evidence of the appellant's financial impropriety when running the company.
16. It is true that the appellant might have been better advised to provide an explanation earlier in the conduct of these proceedings, and during the VAT enquiry. But he has provided it to us now.
17. The appellant gave his evidence clearly, respectfully, and convincingly. We accept that he is more comfortable with communicating through oral communication, preferably by face to face meetings, than by the written word. In our view he is a tradesman who is more comfortable speaking to customers and potential customers to generate work, (and then carrying it out) than with paperwork.
18. We think it is reasonable, therefore, that he only provided these explanations to us, when he had the opportunity to make his case orally.
19. We also accept that there is no clear corroboration for his explanations by dint of any contemporaneous paperwork. But there was no real challenge to the appellant's evidence concerning business use of both the motorbikes and the double-glazing, other than to suggest that we should disregard it.
20. Instead, it was submitted that we should accept the information provided to HMRC in the resignation letter, as supplemented by the letter before action sent by DC's solicitors.
21. We are not prepared to do so. We attach little, if any weight, to the information provided in the resignation letter. We suspect that it was self-serving, and in any event is untested by cross-examination (something which cannot be said of the appellant's oral evidence which was the subject to cross-examination at the hearing). We also attach little weight to the letter before action. Solicitors will draft such a letter on instructions from a client. Seldom do they forensically test the veracity of those instructions.
22. We therefore far prefer the oral testimony of the appellant. We found him to be a reliable and credible witness and accept his evidence regarding the use for which the motorbikes were originally purchased and fitted out, and regarding the fitting of the double-glazing.

Deliberate behaviour

23. With this in mind, we now turn to a consideration of whether HMRC have established that the inaccuracies (if any) in the VAT returns for the period in question, were submitted by the company knowing that they were inaccurate (and whether Mr Toye, too, knew that when these returns were submitted, they were inaccurate).
24. HMRC need to show that the company (and Mr Toye in respect of the PLN) knew that there were inaccuracies in the returns.
25. We have accepted Mr Toye's evidence that the motorbikes were originally purchased and fitted out for business use. Therefore, it was perfectly proper for the company to seek to recover the input VAT which it was charged in that respect. There is, therefore, no inaccuracy on those original claims for VAT recovery, and thus there is nothing on which a penalty can bite.
26. We have also accepted Mr Toye's evidence that the input VAT incurred on the double-glazing was also for business purposes as it was fitted to a customer's house in order to settle a dispute about damage to that house caused by the company's employees. Once again, that was a perfectly proper claim for recovery, and thus there is nothing on which a penalty can bite.
27. We accept HMRC's submission that, as regards the van, Mr Toye knew that the company did not account for VAT on a cash basis, and therefore it was wrong of him to insist to his accountant that the company should only account for output tax on the sale of the van when it received the cash. Output tax for that sale should have been accounted for (as suggested by his accountant) in the quarter in which the sale took place. And to our mind that is evidence of dishonesty and is something for which HMRC could visit a deliberate penalty on the company and a PLN on Mr Toye.
28. But HMRC have not assessed the company to a penalty in respect of late payment for this output tax. So, although evidence of dishonesty on this specific issue, there is no financial consequence to either the company or Mr Toye of this.
29. And simply because Mr Toye might be dishonest as regards this matter does not cause us to reconsider our view that he was an honest and truthful witness. Indeed, he now recognises that he was wrong in asking his accountant to defer accounting for output tax.
30. So, the only issue which we have, concerns the company's failure to account for VAT when the third motorbike became used by himself personally. It is clear that he knows now that VAT should have been so accounted (or VAT should not have been recovered in the first place). And knowing this, it was dishonest of him not to have accounted for VAT once the third motorbike became used by himself personally. And we agree with HMRC that he has, therefore, benefited, personally, from the original input tax recovery for that motorbike.
31. However, we are not sure where this leaves HMRC. We were not addressed on this point. Our view is that the company should have accounted for output tax at the point at which the third motorbike was taken into private use. HMRC should then have assessed the company to output tax once the company had failed to do so. We appreciate the difficulties HMRC face in this respect since, as far as they were concerned, none of the bikes were used for business purposes in the first place.
32. But we do not think that we can simply say that because such failure to account for output VAT by the company was due to deliberate behaviour by both the company and the appellant, to that extent, his appeal against the PLN must fail. The penalty assessment and the PLN are both predicated on an over recovery of input tax and not a failure to account for output tax.
33. The issue we have to decide is the behaviour of the company and of the appellant at the time at which the returns claiming recovery of input tax on the motorbikes and the double-glazing were submitted. And this is a decision for us, and not for the appellant (who appears erroneously to accept that input VAT should not have been recovered on the motorbike which subsequently became used by him personally).
34. We have found that the company correctly sought to recover input tax at that stage. There is nothing, therefore, on which either a deliberate penalty assessment against the company, or the PLN can bite. And even if there was, we have found that there was no deliberate behaviour either by the company or by the appellant in making the input tax recovery claims in those returns.

DECISION

35. Accordingly, we allow the appeal.

RIGHT TO APPLY FOR PERMISSION TO APPEAL

36. This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to "Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)" which accompanies and forms part of this decision notice.
Release date: 06^th MARCH 2025
APPENDIX

VAT PENALTIES

37. Pursuant to s 97 of the Finance Act 2007, provisions imposing penalties on taxpayers who make errors in certain documents, including VAT Returns, are contained in schedule 24 of that Act. All subsequent references to paragraphs, unless otherwise stated, are to the paragraphs of that schedule to the Finance Act 2007.
38. Paragraph 1 provides:

(1) A penalty is payable by a person (P) where—

(a) P gives HMRC a document of a kind listed in the Table below [which includes a VAT Return] and

(b) Conditions 1 and 2 are satisfied.

(2) Condition 1 is that the document contains an inaccuracy which amounts to, or leads to—

(a) an understatement of a liability to tax,

(b) a false or inflated statement of a loss, or

(c) a false or inflated claim to repayment of tax.

(3) Condition 2 is that the inaccuracy was careless (within the meaning of paragraph 3) or deliberate on P's part.

39. Paragraph 3 provides:

(1) For the purposes of a penalty under paragraph 1, inaccuracy in a document given by P to HMRC is—

(a) "careless" if the inaccuracy is due to failure by P to take reasonable care,

(b) "deliberate but not concealed" if the inaccuracy is deliberate on P's part and P does not make arrangements to conceal it, and

(c) "deliberate and concealed" if the inaccuracy is deliberate on P's part and P makes arrangements to conceal it (for example, by submitting false evidence in support of inaccurate figures).

(2) An inaccuracy in a document given by P to HMRC, which was neither careless or deliberate on P's part when the document was given, is to be treated as careless if P—

(a) discovered the inaccuracy at some later time, and (b) did not take reasonable steps to inform HMRC.

40. The amount of a penalty, payable under paragraph 1, is set out in paragraph 4. In so far as it applies to the present case, paragraph 4(2) provides that the penalty for careless action is 30% of the potential lost revenue; for deliberate but not concealed action, 70% of the potential lost revenue; and for deliberate and concealed action 100% of the potential lost revenue.
41. The "potential lost revenue" is defined in paragraphs 5 – 8 but for present purposes it is only necessary to refer to paragraph 5(1) which provides:

… the additional amount due or payable in respect of tax as a result of correcting the inaccuracy or assessment.

42. Paragraph 9 provides:

(1) A person discloses an inaccuracy, a supply of information or withholding of information, or a failure to disclose an under-assessment by—

(a) telling HMRC about it,

(b) giving HMRC reasonable help in quantifying the inaccuracy, the inaccuracy attributable to the supply of false information or withholding of information, or the under-assessment, and

(c) allowing HMRC access to records for the purpose of ensuring that the inaccuracy attributable to the supply of false information or withholding of information, or the under-assessment is fully corrected.

(2) Disclosure

(a) is "unprompted" if made at a time when the person making it has no reason to believe that HMRC have discovered or are about to discover the inaccuracy, the supply of false information or withholding of information, or the under-assessment, and

(b) otherwise is "prompted".

(3) In relation to disclosure "quality" includes timing, nature and extent.

43. Under paragraph 10(1) HMRC "must" reduce the standard percentage of a person who would otherwise be liable to a penalty. However, the table in paragraph 10(2) sets out the extent of any reduction which must not exceed the minimum penalty which for a prompted deliberate and not concealed error is 35% of the potential lost revenue and for a prompted careless error is 15%.
44. HMRC may also reduce a penalty because of "special circumstances" under paragraph 11 although the ability to pay or the fact that a potential loss from one taxpayer is balanced by a potential payment from another are precluded from being special circumstances by paragraph 11(2).
45. Paragraph 19(1), which provides for the imposition of a PLN on a director, states: Where a penalty under paragraph 1 is payable by a company for a deliberate inaccuracy which was attributable to an officer of the company, the officer is liable to pay such portion of the penalty (which may be 100%) as HMRC may specify by written notice to the officer. An "officer" of a company includes a director and a shadow director (paragraph 19(4)(a)). Also, HMRC are precluded from collecting more than 100% of a penalty (paragraph 19(2)).
46. It is clear from the decision of the Upper Tribunal in Zaman v HMRC [2022] UKUT 252 (TCC) ("Zaman") at [23] that in the absence of an appeal against a s 73 VATA assessment by a company where a PLN on its director is challenged on the basis that an underlying assessment is wrong, it is for HMRC to establish that the PLN was validly issued and, if that burden is discharged, the evidential burden is on the appellant to establish that the assessment should be discharged in the same way as it would have been on the company to establish that it had been overcharged by the assessment if it had decided to bring an appeal against that assessment.
47. On an appeal against a decision that a penalty is payable the Tribunal may, under paragraph 17(1), affirm or cancel HMRC's decision. However, where the appeal is against the amount of a penalty paragraph 17(2) allows the Tribunal to substitute HMRC's decision for another decision provided that it was within HMRC's power to make the substituted decision.
48. With regard to a reduction of a penalty in relation to special circumstances (pursuant to paragraph 11), under paragraph 17(3), the Tribunal may only substitute its decision for that of HMRC if it "thinks that HMRC's decision in respect of the application of paragraph 11 was flawed." If so, paragraph 17(6) provides that:

"Flawed" means flawed when considered in the light of the principles applicable in proceedings for judicial review.

49. The Supreme Court considered the meaning of "deliberate" in relation to whether there was a deliberate inaccuracy in a document in HMRC v Tooth [2021] 1 WLR 2811 in which it said:

"42. The question is whether it means (i) a deliberate statement which is (in fact) inaccurate or (ii) a statement which, when made, was deliberately inaccurate. If (ii) is correct, it would need to be shown that the maker of the statement knew it to be inaccurate or (perhaps) that he was reckless rather than merely careless or mistaken as to its accuracy.

43. We have no hesitation in concluding that the second of those interpretations is to be preferred, for the following reasons. First, it is the natural meaning of the phrase "deliberate inaccuracy". Deliberate is an adjective which attaches a requirement of intentionality to the whole of that which it describes, namely "inaccuracy". An inaccuracy in a document is a statement which is inaccurate. Thus the required intentionality is attached both to the making of the statement and to its being inaccurate".

50. Although this was said in relation to a different statutory provision (s 29 of the Taxes Management Act 1970) the Supreme Court recognised, at [33] and [45], the alignment of the language used with that of the schedule 24 penalty provisions. Accordingly, for there to be a "deliberate" inaccuracy HMRC have to establish an intention "to mislead the Revenue on the part of the taxpayer as to the truth of the relevant statement" (see Tooth at [47]).
51. The Supreme Court also recognised that deliberate behaviour is akin to fraud (see Tooth at [83] "it is typically only in relation to what amounts to fraud or is akin to fraud that the time limit becomes as long as 20 years….".