A Margate director has lost a First Tier Tribunal appeal against a failure to notify penalty related to unpaid VAT on gadget sales via online platforms
GB-Gadgets Ltd appealed against the penalty, which totalled £46,726.79, issued by HMRC on the basis that they had unpaid VAT from 1 September 2013 to 31 March 2018.
The business, which imported goods for resale online, also appealed against an inaccuracy penalty of £8,588 related to the VAT that was due for the periods 06/18 to 01/20. This penalty was suspended.
On 27 December 2017, Kashif Waseem transferred all of the ordinary shares of the business to Zubair Hussain and later appointed him as sole director on 10 January 2018.
According to Hussain, Waseem had told him that GB-Gadgets opened its first bank account in September 2016. It registered for VAT with effect from 1 April 2018.
On 21 February 2020, HMRC began a VAT compliance check on the business, requesting further information. This was not supplied at the time, however, leading HMRC to issue an information notice under Schedule 36 of the Finance Act 2008.
It also issued eBay with a joint and several liability notices under section 77B of the Value Added Tax Act 1994 (VATA) which related to GB-Gadgets. Having received this notice, eBay blocked the business from trading on its platforms, causing it to cease to trade entirely.
On 17 December 2017, HMRC issued a VAT assessment for £208,173 for the relevant period. The assessment was calculated based on sales records supplied, including from eBay.
It also sent GB-Gadgets a ‘penalty explanation letter’ setting out the penalties they intended to charge. This included the failure to notify the penalty that was the subject of the appeal.
Appearing at the First Tier Tribunal (FTT), GB-Gadgets’ grounds of appeal were solely that the penalty should be reduced due to special circumstances.
Hussain also argued that GB-Gadgets’ turnover had not exceeded the VAT registration threshold until April 2018. This was an entirely new ground of appeal, however, which the FTT rejected.
It did so on the principle that there was no reason why Hussain could not have raised such a ground at an earlier stage.
He was an accountant by training and should have been aware that a failure to notify penalty would be due if the business had exceeded the VAT registration threshold.
Related to the initial appeal, Hussain said that the assessment was not based on records from 1 September 2013 to 31 March 2018.
But rather was estimated based on information provided to HMRC by the business relating to 2018, which he submitted was not an accurate basis for an assessment dating back to 2013.
HMRC argued that the assessment of £208,173 was not estimated, but was based on actual records provided by eBay, and possibly also by other third parties.
The tribunal noted that GB-Gadgets provided limited evidence that would suggest that the statements were wrong, or that HMRC had calculated it any other way.
Hussain explained that he had ‘not challenged the assessment’ because the business could not afford the accountancy fees that would be required to demonstrate its turnover and the amount of any unpaid VAT in the relevant period.
Judge Rachel Gauke said: ‘We are satisfied that GB-Gadgets was liable to a penalty for failing to notify HMRC of its liability to be registered for VAT with effect from 1 September 2013.
‘Hussain explained that he was relying on his agent to supply HMRC with the information they had requested and that the coronavirus pandemic had made it difficult for his agent to comply with these requests.
‘We accept that this was the case but observe that there are no provisions allowing a greater reduction for disclosure in circumstances where there is a reasonable excuse for a failure to provide information.’