A businessman who allowed his company’s finances to descend into chaos received stern criticism from a tax tribunal – but succeeded in overturning crushing penalties on the basis that his disorganisation did not make him a dishonest tax evader.
The planning adviser was good at his job but less proficient when it came to keeping his books in order. He had been engaged in a lengthy dispute with HM Revenue and Customs (HMRC) in respect of VAT under-payments and he and his company had ultimately been hit with civil evasion penalties totalling £62,837.
The First-tier Tribunal (FTT) acknowledged that it was ‘completely unacceptable’ that the businessman had neglected the financial and administrative requirements of running a business over an extended period. In failing to get a grip on his tax affairs, he had been the author or his own misfortune.
However, in allowing his appeal, the FTT noted that penalties imposed under Section 60 of the VAT Act 1994 were designed to punish dishonesty, not disorganisation. HMRC had failed to establish on the evidence that the businessman had deliberately under-stated VAT liabilities in a dishonest attempt at evasion.