A textile and clothes seller has lost a First Tier Tribunal (FTT) appeal against a tax demand relating to inaccurate VAT returns as transactions were deliberately concealed
The appellant, Mohammed Naseem Dost attended the tribunal hearing and appealed against a personal liability notice issued by HMRC for £271,251.60 related to inaccuracies in the VAT returns for his company, Aglow Fashions Limited, over a three-year period.
HMRC raised the penalties against Aglow, attributable to Naseem Dost as an officer of the company, for deliberately undeclaring VAT for the period 04/09 to 04/12.
Naseem Dost argued that there were no deliberate inaccuracies on his VAT returns.
Aglow was incorporated on 18 April 2001 and manufactured and sold clothing. It went into creditors’ voluntary liquidation on 24 January 2014.
HMRC first visited Aglow’s premises on 19 October 2010 and inspected its business records for the periods 01/10, 04/10 and 07/10.
During the visit, Naseem Dost explained that he had previously manufactured clothing himself but that there was a fire in 2009 which meant that a lot of equipment and stock had been lost.
He further added that he ‘did not keep stock records’ as it would be ‘too much work for little gain’ and he knew everything was in his warehouse without the need for records.
HMRC examined purchase invoices and sales invoices for the VAT periods from 01/10 to 07/10.
According to Naseemdost, a garage next to his business premises caught fire and caused extensive damage, with most of his stock other than fabric being destroyed.
The stock was allegedly valued at £1,000,000 and Aglow’s final insurance payment was approximately £240,000 for stock and £360,000 for building repairs.
In a letter dated 26 September 2012, HMRC notified Aglow of errors valued at £321,017 for the relevant periods. This included duplicate input tax claimed for £25,046 over the periods 01/11, 04/11 and 07/11.
Recording errors when comparing sales invoices and listings were also discovered, resulting in an additional charge for output tax for £9,337.
After further correspondence, HMRC sent notices of assessment for the relevant periods to Aglow in a letter dated 18 February 2013. The total VAT due was £319,911.
HMRC then issued a penalty assessment for £276,546.90 on the basis that Aglow’s behaviour was deliberate and concealed.
During the hearing, Naseemdost provided a schedule listing sales from 7 February 2009 to 24 April 2012 on a laptop computer.
He argued that this was ‘produced a long time ago’ by his then accountants, Sagheer and Co, and that this was from invoices which he had given to them. Naseem Dost’s position was that the 2020 schedule, which HMRC relied upon, was corrupted.
Judge Richard Chapman KC said: ‘We do not accept that the 2020 schedule is itself corrupted. It appears to be a complete document and the information is legible. We find as a matter of fact that it is an uncorrupted document which was prepared on behalf of Mr Naseemdost and purports to be a list of Aglow’s sales apparently by reference to Aglow’s sales invoices.
‘We find that the inaccuracies in the VAT returns were deliberate for the following reasons. In reaching these conclusions, we refer to the actions of Mr Naseemdost but this is of course him acting on behalf of Aglow.
‘Mr Naseem Dost’s evidence was that he had a clear knowledge of his goods, his sales and his stock. Indeed, his reasoning for not conducting a stock take was that he did not need to because he knew what stock he had. It was also clear that he prepared all invoices and knew the details and volumes of his sales.
‘Although the VAT returns were prepared by Aglow’s accountants, Naseemdost provided the information and documents to the accountants and signed the returns. As such, we find that he was in a position to know if invoices had not been declared on the VAT returns and, on the balance of probabilities, did know that the sales had been omitted.’