Massala Exotic Limited v The Commissioners for HMRC [2026] UKFTT 175 (TC)

[2026] UKFTT 00175 (TC)Case No TC09769
FIRST-TIER TRIBUNAL
TAX CHAMBER
Hearing Heard on: 12 January 2026Date Judgment date: 29 January 2026
In public by remote video hearing
Appeal references: TC/2021/19758
TC/2023/09866
VAT- suppressed takings – first appellant best judgement assessment? – yes - explanation that there were three card machines and takings from businesses run by relatives - explanation rejected - no overcharge - company penalty based on deliberate inaccuracies – upheld - personal liability notice imposing that penalty on the second appellant as an officer – upheld -appeals dismissed
Before
TRIBUNAL JUDGE NIGEL POPPLEWELLMRS SONIA GABLE
Between
MASSALA EXOTIC LIMITEDAppellantTHE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMSRespondentKHOSRU MIAHAppellantTHE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMSRespondentsMr MD Shahabuddin of S Uddin &Co for AppellantsMs Olivia Donovan litigator of HM Revenue and Customs’ Solicitor’s Office for RespondentsDECISION

INTRODUCTION

[1]This is a VAT case. The first appellant (or “the company”) ran an Indian restaurant between 2008 and 6 January 2020 when it ceased to trade. The second appellant (or “Mr Miah”) has, throughout the relevant periods, been a director (indeed the sole director) of the first appellant. HMRC think that the first appellant has underdeclared its takings for the periods 09/13 to 09/19 (“the relevant periods”) and so, on 22 November 2019, they issued a best judgement assessment to the company for VAT of £280,903 (“the VAT assessment”).[2]HMRC also considered that the under declaration was a result of deliberate behaviour by Mr Miah and so assessed the company to a penalty of 63% of the amount of VAT assessed, namely £176,966.37 (“the company penalty”). They then sought to impose that penalty on Mr Miah by giving notice to him to that effect (a personal liability notice or “PLN”) on 14 September 2020.[3]The company appeals against both the VAT assessment and the company penalty imposed on it. Mr Miah appeals against the PLN.[4]For the reasons given later in this decision, we have dismissed all three appeals.[5]We were very much assisted by the clear written and oral submissions of Mr Shahabuddin (for both appellants) and Ms Donovan (for HMRC). However, whilst we have considered the totality of the relevant evidence to which we were taken, we have not found it necessary to refer to each and every argument advanced or to all of the authorities cited in reaching our conclusions.

THE LAW

[6]There was no dispute about the relevant law. The law relating to the VAT assessment is set out in Appendix 1. The law relating to the company penalty and the PLN is set out in Appendix 2. Words and phrases defined in those appendices shall bear the same meanings in the body of this decision.[7]In a nutshell however the relevant law is this: (1). Where HMRC consider that a taxpayer has underdeclared VAT, they may assess that taxpayer to VAT. That assessment must be made to the best of HMRC’s judgement. The burden of establishing that an assessment has been made to best judgement rests with HMRC. (2). If HMRC can establish that, then the burden switches to the appellant to show that the assessment overcharges the appellant. (3). HMRC can also visit the penalty on a taxpayer who has submitted a return which underdeclares VAT. The amount of that penalty depends on the taxpayer’s behaviour. (4). 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. (5). 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.

THE EVIDENCE AND THE FACTS

[8]We were provided with a substantial bundle of documents which included authorities. Officer Kevin Wells (“Officer Wells”) tendered a witness statement and gave oral evidence (on which he was cross examined) on behalf of HMRC. Mr Shahabuddin tendered a witness statement and gave oral evidence (on which he was cross examined) on behalf of the appellants.[9]From this evidence we find as follows: (1). The first appellant was incorporated on 14 July 2008, and its trade was operating as a licensed restaurant. It registered for VAT with effect from 1 October 2008. It ceased trading on 6 January 2020. (2). Throughout the relevant periods, the second appellant was the sole director of the first appellant. (3). Mr Jamal Miah (“JM”) is a cousin of the second appellant. Throughout the relevant periods, he was the director of two companies, namely Bayview Services Cardiff Ltd (“Bayview”) and Cardiff Bay Enterprises Ltd (“Cardiff Bay”) (together “JM’scompanies”). JM’s companies also operated licenced restaurants. (4). Mr Ana Miah (“AM”) is the uncle of the second appellant. Throughout the relevant periods he was the director of a company called Spice Master Trading Ltd (“Spice Master”). Spice Master also operated a licensed restaurant. (5). On 23 November 2018 Officer Wells, and a colleague from HMRC carried out an unannounced visit to the first appellant’s premises. They were unable to see the first appellant cashing up. They explained to Mr Miah the purpose of their visit. The notes of the meeting record that Officer Wells was told by the second appellant that 70 to 80% of their sales were by card payments. (6). Officer Wells saw a single card machine which enabled customers to pay for their meals by credit/debit card (“card machine”). He was told that the payments went into a Juboraj account. He was not able to conduct a detailed scrutiny of the card machine as it was bolted down. He also noticed a KUKD device which was inoperative. (7). After the visit, merchant acquirer data was obtained for the business for the period 1 July 2013 to 30 June 2016. This data recorded the card takings for that period. Officer Wells then compared those to the gross sales figures recorded on the first appellant’s VAT returns. Using the 09/13 as an example, the gross sales as declared on the VAT return was £86,208.73. The sales as per the merchant acquirer data was £268,256.15. The difference is £182,047.42. He had identified that 72% of the first appellant sales were credit card sales (from the till readings on the day of the visit), which was consistent with the 70-80% figure given to him by the first appellant at the meeting. (8). So if the credit card sales were £268,256.15, and that was 72% of the takings, then the remaining 28% (gross) taken in cash amounted to £104,321.84. (9). So the total takings were £372,577.99, which amounts to VAT of £17,386.97 when the appropriate VAT fraction is applied to that total. (10). Officer Wells conducted this exercise for each of the periods between July 2013 and June 2016. (11). For the relevant periods after June 2016 Officer Wells used the expected gross sales figure for the period 09/16 of £240,780.56 and calculated the VAT for each of those periods as being £11,236.43. (12). Following the unannounced visit in November 2018, Officer Wells asked the appellants and their agents to provide further information regarding the first appellant’s sales including sales information, information processed by other platforms, gross daily takings records including adjustments (for example deletions) and bank statements for the previous four years for bank accounts ending in 6568 and 3116. (13). No such information was voluntarily made available and so on 5 August 2019, HMRC issued an information notice to the first appellant to provide information and produce documents. Those had to be provided by 3 September 2019. They were not so provided, and so on 13 September 2019, HMRC issued a penalty notice for £300 for that failure and asked the first appellant to provide the information previously requested by 13 October 2019 in order to avoid further penalties. (14). A meeting of the relevant parties was arranged and held on 17 October 2019. Officer Wells and two colleagues were present, as was the second appellant, AM, and the appellants’ former adviser. (15). The meeting concerned the appellants and, too, companies operated by AM. (16). Mr Miah confirmed that there were no errors to disclose to HMRC regarding the company. In answer to a question as to why the merchant acquirer data appeared to have dropped off, Mr Miah explained that they had changed their merchant acquirer provider. He confirmed that only one card machine was used and the takings were paid into bank account 8140. He denied that he had a second account and he only had one account which was his business bank account. He also confirmed that he used the point of sale system to record his sales and those figures were provided to the accountant to prepare the VAT returns. (17). Officer Wells concluded the meeting by saying that he would write to record the information which was still outstanding and which he required from the appellants. (18). On 22 November 2019, Officer Wells sent a letter to the first appellant’s agent indicating that he had not received any of the requested information and have “now issued a VAT Assessment to your client a copy of which is attached along with VAT assessment schedule”. (19). The letter of even date therewith which comprises the VAT assessment was sent to the first appellant and set out, in a series of accompanying documents, details of Officer Wells’ calculations and a summary of those calculations to justify the assessment for £280,903. (20). On 20 July 2020 HMRC sent a penalty explanation letter for the company penalty to the company. It describes the inaccuracy as follows “Output tax has been underdeclared for over a period of four years as MA Data exceeds every VAT Return you submitted. No sufficient explanation has been provided to account for these discrepancies identified. Therefore this action constitutes deliberate behaviour to suppress the true amount of sales”. (21). The penalty was based on prompted disclosure with an upper limit of 70% for which a 20% reduction was given for the quality of the disclosure resulting in a penalty percentage of 63%. HMRC said that they did not consider there were any special circumstances which would lead to a further reduction and that none of the penalty would be suspended. (22). In a letter dated 14 September 2020, HMRC issued the PLN. That letter recorded that the company penalty was a personal liability of the second appellant because the company penalty arose because of the actions of the second appellant. It went on to say that “you are personally liable to pay because we believe that the company is either insolvent or likely to become insolvent”. (23). Following further correspondence between the parties, in a letter dated 26 March 2021 from the appellant’s former agent, that agent enclosed a spreadsheet summarising the receipts and payments into bank account ending 6568, letters from JM and AM explaining their usage of that account, and Sage nominal activity for KUKD. (24). The letters from JM and AM explained that they had both had trouble getting card machines as their businesses were new and that KM had helped them to acquire card machines. Each therefore had a separate card machine which they had used in their respective businesses but the card income from those businesses had been credited to the Lloyds bank account ending 6568. (25). Their proportion of the takings were then transferred to their respective bank accounts. (26). Those letters went on to confirm that the amounts so credited in their respective bank accounts were included in the VAT returns for the relevant companies. (27). The covering letter says “as you can see, the letters from [AM] and [JM] are self explanatory. Both are using our clients Lloyds bank account for their own separate business purposes. This is detailed in the letters and can be confirmed against the spreadsheet summary and the bank statements”. (28). The spreadsheet summary, which is supplemented by breakdowns for each of the periods, covers four periods (01/05/13 to 31/03/14, 01/04/14 to 31/03/15, 01/04/15 to 31/12/16 and 01/01/17 to 30/09/19). (29). It records that during that period, total payments were made to Cardiff Bay of £473,885.17, and payments of £454,402.81 were made to Juboraj Group. (30). The accompanying breakdowns show that the payments made to those recipients were very largely rounded, and on very few occasions were there pence amounts paid over. (31). Either with that letter or certainly between March 2021 and July 2021, a document which was described as “bank statements”, which appears to be a printout an electronic bank statement, was sent by the appellants’ then agent to HMRC. This does not identify the account number nor the bank, and simply comprises a series of columns including the date, description, monies out and monies in. We were told by the appellant’s representative that this was the HSBC account into which the first appellant paid the takings received by it, and which was used exclusively by the first appellant (the Lloyds account being used as the account into which payments for the other two card machines were credited). (32). The entries in this document appear to cover the calendar years 2016, 2017 and 2018. We were not taken through it in detail. (33). In a letter dated 30 June 2021 to the former agent, Officer Wells reviewed the information provided in the letter of 26 March 2021. He noted that AM had stated in his 18 March 2021 letter that he had had difficulty opening a bank account but also noted that during the process of registering for VAT, AM had provided bank details for an account ending 7021. Furthermore, payments from a card machine had been paid into two bank accounts (ending 7954 and 4875) from November 2014, again contradicting AM’s statement. (34). As regards the letter from JM, who had also stated that he had had difficulty opening a bank account, Officer Wells pointed out that in the VAT registration application for Bayview, which HMRC had received in June 2014, details of a bank account ended 8994 had been provided by that company. (35). In his witness statement dated 1 April 2025, Mr Shahabuddin made the following points. (36). He had examined the “records and representations from Mr Miah…”. (37). Mr Miah trading as Juboraj Lakeside had opened an HSBC account ending 8140. The merchant provider was AIB who provided a card machine. This bank account was used by the first appellant. (38). At the same time the first appellant also had another bank account with Lloyds bank ending 6568, along with a card machine provided by Lloyds bank. (39). This Lloyds Bank card machine was not used by the first appellant. It was lent to Bayview. “Once [Bayview] had stopped using the PDQ machine, [Mr Miah] re-lent the PDQ machine to another limited company called [Spice Master]…”. (40). Mr Miah charged between £150 and £200 per month for the lending of the Lloyds bank card machine. After deducting those fees he would transfer the remaining amounts to the bank accounts of Bayview and Spice Master. DISCUSSION Who has to prove what

DISCUSSION

[10]It is for HMRC to prove, on the balance of probabilities, that they issued a valid in time best judgement assessment to the company and notified the company of that assessment.[11]If they establish that, then the burden shifts, and it is up to the company to show, on the balance of probabilities, that the assessment overcharges it.[12]It is for HMRC to show, on the balance of probabilities, that they have issued a valid in time penalty notice in respect of the company penalty. It is therefore for HMRC to establish that the company was “guilty” of submitting incorrect VAT returns based on deliberate behaviour.[13]It is also for HMRC to show, on the balance of probabilities, that the company penalty can be visited on Mr Miah as the company penalty is attributable to his behaviour.

Submissions

[14]In summary Ms Donovan submitted as follows: (1). The VAT assessment was made to best judgement. It was based on a comparison of the declared sales with the sales evidenced by the merchant acquirer data. This revealed a substantial difference between the two. (2). The method used by Officer Wells to generate the assessable amount of sales was an appropriate and valid method. (3). His use of 72% as the proportion of sales paid for by card, as evidenced by the proportion on the date of the unannounced visit, is an appropriate percentage. It is in line with the 70% to 80% figure given by the second appellant at the unannounced visit. (4). There was no evidence of either the first appellant or JM or AM using different card machines, nor of a second bank account into which payments from those machines used by Spice Master, or JM’s companies at the time of the VAT assessment. (5). The information relating to the ostensible use of the card machines by others was provided only in March 2021. There is no evidence of any family agreement regarding the use of the card machines. No contracts for the procurement of the card machines and subsequent lending have been supplied. (6). There is no credible evidence to support the appellants’ submission of the use of these card machines by others. (7). The first appellant was responsible for providing the sales figures to its accountant who compiled the VAT returns. In turn, those figures were provided through the agency of the second appellant. Both the first appellant and the second appellant, therefore, knew that those figures were wrong. This demonstrates deliberate behaviour. (8). Furthermore, the errors in the returns have been repeated over an extended period of time. (9). The adjustments to the company penalty for telling helping and giving access are reasonable and proportionate.[15]In summary Mr Shahabuddin submitted as follows: (1). The VAT assessment was not made to best judgement. HMRC’s case is based on the fact that the payments into the Lloyds bank account ending 6568 stemmed from the first appellant’s trading. The evidence shows that this is not correct. There were three card machines. The statement by JM and AM make it clear that the first appellant helped them each to acquire a card machine which they, respectively, used in their businesses. Although the takings, therefore, went into the Lloyds bank account, they were paid out to the businesses as evidenced by the Lloyds bank schedule. The only takings which are attributable to the first appellant are those in the HSBC bank account ending 8140. (2). Officer Wells was aware of the fact that there were three card machines when he made the VAT assessment. (3). HMRC have accepted in their statement of case that the bank statements show that those payments were paid out to the two businesses owned by the director’s family members. (4). The Lloyds bank account schedule and the HSBC bank statements corroborate the appellants’ version of events. (5). Corroboration is also provided by the statement of JM and KM each dated 18 March 2021 in which they both say that having tried to obtain card machines from various banks, in which venture they were unsuccessful, the second appellant assisted them to acquire a credit card machine. The statement also confirmed that the monies were transferred from the Lloyds bank account to their respective business bank accounts, and that their businesses had paid VAT on the amounts so transferred. (6). HMRC, therefore, will recover VAT twice on the same amounts if we uphold the VAT assessment (once in the hands of the first appellant and subsequently in the hands of Spice Master and JM’s companies). (7). HMRC have not established deliberate behaviour. (8). The appellant acted in good faith and did not benefit personally. (9). HMRC’s letter of 14 September 2020 which imposes the liability for the company penalty on the second appellant (i.e. the PLN) states that “you are personally liable to pay because we believe that the company is either insolvent or likely to become insolvent”. This is not the law. HMRC cannot impose a PLN based on the insolvency of the first appellant. There must be a deliberate inaccuracy by the company and an officer who was knowingly responsible for that deliberate inaccuracy. This means that the PLN is unlawful and should be cancelled. (10). The PLN should be mitigated as the second appellant has suffered financial hardship and mental distress. He has provided documents as and when requested and has not been obstructive. (11). HMRC are rejecting the evidence provided in March 2021 simply because it was supplied 16 months after the assessments. This is wholly inappropriate. (12). There has never been no deliberate behaviour. HMRC have not established that any errors were deliberate. Indeed, there have been no errors because the first appellant has accounted for the sales which it made and is not responsible for VAT on the sales made by Spice Master and JM’s companies. It was those companies, and not the first appellant, which made those sales (by the use of the card machines procured and lent to them by the second appellant). (13). There is no statutory requirement for the appellants to provide contractual documentation to evidence the use of the card machines. Our view The VAT assessment – best judgement

Our view

[16]We start by considering whether the VAT assessment was made to best judgement. This is a low bar. All HMRC need to do is show that Officer Wells fairly considered all the material which was before him and came to a decision which was reasonable and not arbitrary. They need to show that the assessment is consistent with an honest and genuine attempt to make a reasoned assessment of the VAT payable. Indeed, an assessment which appears to be unreasonable or wholly unreasonable may still be the result of an honest and genuine attempt to assess the VAT properly due.[17]We therefore need to consider the information which was used by Officer Wells at the date of the VAT assessment (22 November 2019) and the way which he used or processed that information in order to reach the numbers set out in his assessment.[18]In summary: (1). He had attended the first appellant’s premises at an unannounced visit on 23 November 2018. (2). He had seen from the till receipts that the proportion of sales made by card was 72%. (3). He had been told by the second appellant that the proportion of card sales was between 70% and 80%. (4). He saw that only a single card machine was in use. (5). He acquired merchant acquirer data (reflecting payments made by card) for the period 1 July 2013 to 30 June 2016. (6). He compared these amounts with those declared on the first appellant’s VAT returns and undertook the process set out at [9(7)-11)] above. (7). He sought further information from the appellants and those advising them. He followed this up with an information notice. No further information was forthcoming. (8). He attended a meeting on 17 October 2019 at which the second appellant and AM were both present. The notes of that meeting made no mention that AM was using a card machine procured by the second appellant. (9). At that meeting, the second appellant denied that a second bank account was in use and he only had a single business bank account. He also denied that there were any errors. (10). He had been told that the second appellant was responsible for providing the information regarding turnover to the company’s agent who was in turn responsible for taking that information and putting it into the company’s VAT return.[19]We have no hesitation in concluding that the VAT assessment was made to best judgement by Officer Wells.[20]It was based on empirical evidence. He had the evidence of the VAT returns. He had the evidence from the merchant acquirer data which provided evidence of card sales. He grossed those up at an appropriate rate. For those years in which he did not have the merchant acquirer data, he simply used the sales figure for the last year in which he did have that data. He could have uplifted this by RPI but didn’t (thus benefitting the first appellant).[21]He had not been told, either in correspondence when seeking information from the appellants, nor at the unannounced visit, nor at the meeting on 17 October 2019, that there was more than one card reader.[22]We find this as a fact. Notwithstanding the submission by Mr Shahabbudin that he was in possession of the knowledge that there were three card readers, we can find no evidence corroborating that this was the case on the date on which the VAT assessment was made. The first time (on the evidence presented to us) that HMRC were made aware of the appellants’ story that there were three card readers, was on 26 March 2021 when the statements made by JM and AM of 18 March 2021 were sent to HMRC.[23]And while this information is relevant to whether the first appellant can displace the VAT assessment on the basis that it overcharges it, it is not relevant to the issue of best judgement which must be tested at the date on which the assessment was made.[24]The unannounced visit took place on 23 November 2018. The VAT assessment was issued on 22 November 2019. This is within one year. The basic time period for issuing the assessment is one year after evidence of facts sufficient in the opinion of HMRC to justify making the assessment, comes to their attention. It was not until the merchant acquirer data was procured that those facts were sufficient. This must have been after 23 November 2018 (we do not have evidence of the precise date). So this was well within HMRC’s one-year period.[25]The general rule is that assessments must then be made within four years after the end of the relevant accounting period, but this is extended to 20 years where deliberate behaviour is established.[26]We discuss deliberate behaviour below and have decided that the first appellant’s behaviour through the agency of the second appellant, in failing to accurately record and disclose its sales in the VAT returns for the relevant periods is based on deliberate behaviour.[27]We have therefore concluded that the VAT assessment is a valid in time best judgement assessment which has been properly notified to the appellants.

The VAT assessment – overcharge?

[28]The burden now switches to the first appellant to establish that, on the balance of probabilities, that assessment overcharges it.[29]The case, in a nutshell, is set out in the submissions above. Namely that there were three card machines, only one of which was used by the first appellant, the other two having been procured by the second appellant and lent to AM and JM for use in their businesses. Card receipts from those two other machines were credited to the Lloyds bank account ending 6568 and then paid to accounts in the names of those other businesses.[30]The evidence for this is twofold. Firstly, the written statements provided to HMRC by AM and JM on 18 March 2021. Secondly, the bank account details including the Lloyds bank spreadsheet and the HSBC statements.[31]We first consider the more direct evidence, namely the written statements referred to above, and the oral evidence given by Mr Shahabuddin.[32]When considering this evidence, we note the following: (1). Directions issued by Judge Bailey on 2 March 2024 directed that witness statements should be exchanged and that any party wishing to rely on witness evidence should call that witness to be available at the hearing. (2). A letter to the appellant’s representative dated 18 October 2024 from the tribunal stated that “you have stated that… neither appellant will [not] be calling any witnesses. Please note that if Mr Miah does not file a witness statement then he cannot tell the Tribunal of any facts that have occurred. Therefore as matters currently stand, the appellants have neither documentary evidence not spoken evidence to support their appeal…”. (3). Mr Miah did not attend to give oral evidence, nor did he file a witness statement. (4). Neither AM or JM attended to give oral evidence, nor did they file witness statements. (5). Their letters of 21 March 2021 contain no statement of truth. (6). No application under the Civil Evidence Act 1995 was made for the admissibility of hearsay evidence. (7). In his statement, JM says that he used the card machine procured by the second appellant from February 2013 to September 2017. (8). In his statement, AM says that he had started trading in 2014. It clearly implies that he started using the card machine procured by the second appellant at around that date. (9). Mr Shahabuddin, in his submissions, said that there were three card machines. Yet in his witness statement, which he says is based on records and representations from the second appellant, he says that a card machine had been procured by the second appellant which was initially lent to Bayview, and “Once [Bayview] stopped using the… machine, [the second appellant] re-lent the… machine [Spice Master]”. (10). In other words, his witness evidence is that there were only two machines (and not three as he had submitted and which is clearly implicit in the statements from AM and JM) and the second machine was used sequentially by the businesses owned by those two gentlemen (which is in direct contradiction to their statements which were that they were used in their businesses during the relevant period, and which, in their view, is evidenced by the Lloyds bank account schedule). (11). The Lloyds bank schedule shows payments out being made throughout the relevant periods. (12). AM and JM are blood relations of the second appellant. (13). KM had said to Officer Wells, at the meeting on 17 October 2019 that he had only one bank account. This is clearly not the case. At that stage he had both the Lloyds bank account and the HSBC bank account. (14). The assertion in Mr Shahabuddin’s evidence that the bank account information showed that the second appellant charged between £150-£200 per month lending “his PDQ machine” (note the singular). We were not taken to any such entries, and we could see no evidence in the bank account information with which we were provided of these payments. (15). The inconsistencies regarding bank accounts for AM and JM as set out in the letter dated 30 June 2021 and recorded at [9 (33)-(34)] above.[33]When considering the totality of the relevant evidence, we can take into account hearsay evidence. The statements by JM and AM fall into that category. The Civil Evidence Act (section 4) sets out that when considering the weight (if any) to be given to hearsay evidence, we can have regard to any circumstances from which any inference can reasonably be drawn as to the reliability or otherwise of the evidence. It further sets out a number of specific factors which we may have regard to. These include; whether it would have been reasonable and practical for the evidence to be given in person; whether it was made contemporaneously; and whether any person had a motive to conceal or misrepresent matters.[34]It is clear that Mr Shahabuddin and the appellant’s previous advisers have taken, at face value, the information provided by JM and AM.[35]We have not. We attribute no weight to their statements. There are clearly inconsistencies between what they say and the oral evidence given by Mr Shahabuddin regarding the number of card machines and their use. There are inconsistencies regarding bank accounts. No mention is made of there being more than one card machine at the meeting on 17 October 2019. We understand that they might wish to assist the second appellant, but they clearly have a motive in doing so. They are related by blood. There is no reason why they could not have attended and given evidence in person. The same is true of the second appellant. He did not even tender a witness statement which contained the statement of truth. The best we have are his submissions set out in the grounds of appeal. Mr Shahabuddin, on his own admission, has based his evidence on what he was told by the second appellant. He only became instructed in 2024 long after the relevant periods.[36]We now turn to the bank evidence.[37]Firstly, the summary and schedules relating to the Lloyds bank account ending 6568.[38]This records that during the relevant periods, payments were made out of that account of £473,885.17 to “Cardiff Bay” and £454,402.81 were made to JUBORAJ group.[39]The only explanation we have had for these payments is set out in the appellants’ submissions and in the statements of AM and JM.[40]There is nothing in schedules themselves which suggests that these are payments which were made for meals supplied by those recipients. This is filled in by those explanations, and we have rejected the veracity of those explanations.[41]We also note, as mentioned by HMRC, that the schedule supporting the summary which evidence the payments do so in mainly round terms and do not record pence. This is something which seems too pat. It is likely that the sales would have been in pounds and pence, and if pence were recorded on some occasions, why were they not recorded on others.[42]There could be any number of reasons why those payments were made, and not that they were payments for meals supplied by anyone other than the first appellant.[43]What we were told were the HSBC bank statements tell us, effectively, nothing. There are entries which we were told reflected takings, but we were told that by Mr Shahabuddin. There was no oral evidence from the second appellant that this was the case.[44]The documents that we saw did not identify an account number, or name. We are being asked to take, effectively on faith, the fact that the receipts into that account were the only receipts reflecting sales made by the first appellant.[45]We therefore place little weight on the bank documents which have been provided as corroboration for the appellants’ story regarding the multiple card machines, and that the payments set out in the Lloyds bank schedule reflected payments for meals provided by businesses run by AM and JM.[46]Finally, we have undertaken a modest verification exercise. The period in which the Lloyds bank schedule records payments to Cardiff Bay and JUBORAJ starts on 1 May 2013 and ends on 30 September 2019. That is approximately 2,340 days. The payments out total £928,287.[47]That is approximately £396 per day. The seating capacity of the restaurant operated by the first appellant was 90. It is, to our minds, entirely reasonable that a restaurant of that size could have taken an additional £396 per day.[48]Mr Shahabuddin submits that HMRC have accepted those payments from the Lloyds account are payments to businesses run by JM and AM by dint of a “concession” to that effect in HMRC’s statement of case. We reject this submission. All HMRC are recording in that element of their statement of case is the appellants’ case. It reflects no such concession.[49]The burden of establishing that the VAT assessment overcharges the first appellant rests with the first appellant. It must demonstrate that on the balance of probabilities it has been overcharged. Its case is that there were three card machines, two of which were used by AM and JM and only one of which was used by the first appellant. The takings from the businesses owned by AM and JM were paid into a Lloyds bank account and redistributed.[50]We have rejected this story. There is no compelling admissible evidence which supports it.[51]From the primary facts, we have drawn the inference that there was only a single card machine used by the first appellant in its business and the payments out of the Lloyds account were not payments for the supply of meals by businesses run by JM and AM. We find this as a fact.[52]In drawing this inference, we have adopted the test set out by Arden LJ in Barlow Clowes International Ltd v Henwood [2008] EWCA Civ 577, in which she said at [68]: “… The ultimate fact in issue was Mr Henwood’s intention. This had to be a matter of inference from all the relevant facts, giving such weight to Mr Henwood’s declarations as to his own intention as the law allows. An inference of this kind must be drawn on the balance of probabilities, and thus the judge had to be satisfied that the inference that he drew as to Mr Henwood’s intention was more likely than not on all the relevant and proved facts”.[53]We therefore uphold the VAT assessment in the amount assessed.

The company penalty

[54]We now consider the penalties. For the company penalty, it is for HMRC to demonstrate that the inaccuracies in the VAT returns for the relevant periods were caused by the deliberate behaviour of the first appellant (through the agency of the second appellant).[55]The test for deliberate behaviour, set out in Tooth and confirmed in CF Booth Ltd v HMRC [2022] UKUT 217 is straightforward. HMRC need to show an intention to mislead HMRC on the part of the first appellant as to the truth of the relevant statement. This essentially means that in this case they must show that the first appellant has knowingly provided HMRC with documents (the VAT returns for the relevant periods) which contained errors (the failure to account for VAT on the true sales of meals) with the intention that HMRC should rely upon them as accurate documents.[56]We have found as a fact that there was only one card machine and that the payments purportedly made out of the Lloyds bank account were not takings from businesses run by JM or AM. And that the VAT assessments reflect additional takings by the first appellant.[57]Throughout the relevant periods, the second appellant was the sole director of the first appellant. It is recorded that it was he who supplied the information regarding the first appellant’s takings to the agent who then put them into the relevant VAT return.[58]When doing this, the second appellant knew that the takings he reported were inaccurate. They did not include the payments made into the Lloyds bank account.[59]These inaccuracies persisted over a number of years.[60]The penalty explanation letter describes the inaccuracy as being output tax underdeclared over a period of four years as evidenced by the merchant acquirer data; no explanations have been given for this; this is deliberate behaviour to suppress the true amount of sales.[61]We agree. The first appellant through the agency of the second appellant knew the level of sales to be incorrect. The second appellant passed this on to the agent to be included in the first appellant’s VAT returns with the intention that HMRC would rely upon those returns as accurate documents. This is deliberate behaviour.[62]We therefore find that the company penalty is a valid in time penalty.

The PLN

[63]In order to visit a valid PLN on the second appellant, HMRC must show that the company penalty is a result of a deliberate inaccuracy which is attributable to an officer of the company.[64]This is clearly the case here. The deliberate inaccuracy in the VAT returns is attributable to the second appellant who was responsible for providing information about the level of sales, to the agent.[65]Mr Shahabuddin submits that the PLN is invalid because the notice of it, visiting personal liability on the second appellant, dated 14 September 2020, states that the reason for personal liability was because the company is either insolvent or likely to become insolvent. And this is not a statutory prerequisite to issuing a PLN.[66]We certainly agree that it is not a statutory prerequisite. However, all that HMRC have to show is there was a deliberate inaccuracy which is attributable to an officer of the company. They have done this.[67]That is a question of fact for us to decide. If we were being asked to review the reasonableness of the PLN, then the ostensible reason given by Officer Wells, in the PLN, might be relevant and might affect the reasonableness of his decision (having said that, in the PLN itself it says “you are personally liable to pay [the company penalty] because we have charged it because of your actions”).[68]This is not a case about the reasonableness of HMRC’s decision. It is a case which concerns whether the prerequisites for the issue of a PLN have been made out and made out to us. They have been. Summary[69]We have found that the VAT assessment is a valid in time best judgement assessment. We have rejected the evidence submitted by the appellants that there were three card machines, two of which were used by businesses run by JM and AM. We have found as a fact that there was only a single card machine and that all monies that were paid into the Lloyds bank account were takings from the first appellant’s business and did not reflect takings from businesses run by JM and AM.[70]The appellants have not displaced the VAT assessment and demonstrated that it overcharges the first appellant.[71]We have found that the VAT returns during the relevant periods understated the takings of the first appellant, and that was a result of deliberate behaviour by the second appellant. He provided inaccurate information to the agent knowing that the agent would include it in the VAT returns and that HMRC would rely on it. The company penalty is valid.[72]We have found that those deliberate inaccuracies were attributable to the actions of the second appellant.

DECISION

[73]Accordingly, we dismiss the appeals.

RIGHT TO APPLY FOR PERMISSION TO APPEAL

[74]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: 29 January 2026 APPENDIX 1 The VAT assessments

APPENDIX 2

[1]By virtue of section 73(1) Value Added Tax Act 1994 (“VAT Act”), where it appears to HMRC that tax returns made by a taxpayer are incomplete or incorrect, HMRC may assess the amount of VAT due from him to the best of their judgment and notify it to him.[2]Under section 73(6) VAT Act an assessment must be made not later than either 2 years after the end of the prescribed accounting period or 1 year after evidence of facts, sufficient in the opinion of the Commissioners to justify the making of the assessment, comes to their knowledge (whichever is the later).[3]This is, however, subject to the general rule that the time limit for making an assessment is capped at 4 years after the end of the relevant accounting period. This is found in section 77(1) VAT Act 1994.[4]This time limit is extended by virtue of section 77 (4) and (4A) VAT Act where deliberate or deliberate and concealed behaviour is established. In these circumstances, the assessment period is 20 years after the end of the prescribed accounting period.[5]Section 83 VAT Act provides: “Subject to section 84, an appeal shall lie to a tribunal with respect to any of the following matters...”.[6]There is then set out a series of actions, decisions, and other matters arising under the Act listed under paragraphs (a) to (z). Paragraph (p) is as follows: “An assessment- (i) under section 73(1) or (2) in respect of a period for which the appellant has made a return under this Act.... or the amount of such an assessment”. (i) under section 73(1) or (2) in respect of a period for which the appellant has made a return under this Act....[7]In Van Boeckel v Customs and Excise Commissioners [1981] AER 505 (“Van Boeckel”) the High Court (Woolf J as he then was) considered the application of best judgment. “...It should be recognised...that the Commissioners should not be required to do the work of the taxpayer in order to form a conclusion as to the amount of tax which, to the best of their judgement is due. In the very nature of things frequently the relevant information will be readily available to the taxpayer, but it will be very difficult for the commissioners to obtain that information without carrying out exhaustive investigations. In my view, the use of the words ‘best of their judgment’ does not envisage the burden being placed on the commissioners of carrying out exhaustive investigations. What the words ‘best of their judgement’ envisage, in my view, is that the commissioners will fairly consider all material placed before them and, on that material, come to a decision which is one which is reasonable and not arbitrary as to the amount of tax which is due”.[8]In the Court of Appeal decision of Customs & Excise Commissioners v Pegasus Birds Ltd [2004] EWCA Civ 1015, that court approved the approach of Woolf J. It went on to add that the tribunal’s primary task is to find the correct amount of tax on the basis of the material before it and in all but very exceptional cases this should be the focus of the hearing; any mistake which I consider that HMRC has made in its assessment may still be to best judgment if it is consistent with an honest and genuine attempt to make a reasoned assessment of the VAT payable; and an assessment which appears to be unreasonable or wholly unreasonable may still be the result of an honest and genuine attempt to assess the VAT properly due.[9]As regards time limits, these were considered in the High Court decision of Pegasus Birds ([1999] BVC 56) in which Mr Justice Dyson set out the legal principles to be applied as follows: “1. The Commissioners' opinion referred to in section 73(6)(b) is an opinion as to whether they have evidence of facts sufficient to justify making the assessment. Evidence is the means by which the facts are proved. 2. The evidence in question must be sufficient to justify the making of the assessment in question: C & E Commissioners v Post Office [1995] STC 749, 754G. 3. The knowledge referred to in section 73(6)(b) is actual, and not constructive knowledge: C & E Commissioners v Post Office at p755D. In this context, I understand constructive knowledge to mean knowledge of evidence which the Commissioners do not in fact have, but which they could and would have if they had taken the necessary steps to acquire it. 4. The correct approach for a Tribunal to adopt is(i) to decide what were the facts which, in the opinion of the officer making the assessment on behalf of the Commissioners, justified the making of the assessment, and(ii) to determine when the last piece of evidence of these facts of sufficient weight to justify making the assessment was communicated to the Commissioners. The period of one year runs from the date in (ii): Heyfordian Travel Ltd v C & E Commissioners [1979] VATTR 139,151; and Classicmoor Ltd v C & E Commissioners [1995] V &DR 1, 10.I.27. 5. An officer's decision that the evidence of which he has knowledge is insufficient to justify making an assessment, and accordingly, his failure to make an earlier assessment, can only be challenged on Wednesbury principles, or principles analogous to Wednesbury: Classicmoor paras 27 to 29; and more generally John Dee Ltd v C & E Commissioners [1995] STC 941, 952D-H. 6. The burden is on the taxpayer to show that the assessment was made outside the time limit specified in section 73(6)(b) of VATA”.[10]Generally, the burden lies on the taxpayer to establish the correct amount of tax due:
“The element of guesswork and the almost unavoidable inaccuracy in a properly made best of judgment assessment, as the cases have established, do not serve to displace the validity of the assessments, which are prima facie right and remain right until the taxpayer shows that they are wrong and also shows positively what corrections should be made in order to make the assessments right or more nearly right." (Bi−Flex Caribbean Ltd v Board of Inland Revenue (1990) 63 TC 515, 522−3 PC, per Lord Lowry)”
. APPENDIX 2 Penalties[1]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.[2]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.[3]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.[4]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.[5]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.[6]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.[7]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%.[8]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).[9]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)).[10]It is clear from the decision of the Upper Tribunal in Zaman v HMRC [2022] UKUT 252 (TCC) 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.[11]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.[12]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.[13]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”.[14]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]).