Cheon Fat Limited v The Commissioners for HMRC [2025] UKUT 00287 (TCC)

[2025] UKUT 00287 (TCC)Case No UT/2024/000087
UPPER TRIBUNAL
(Tax and Chancery Chamber)
Hearing Heard on: 04 July 2025
By remote video hearing
Before
JUDGE RAMSHAW
Between
CHEON FAT LIMITEDAppellantTHE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMSRespondentMr Thomas Chacko instructed by Doshi and Co Accountants for AppellantMs Hickey, Litigator HMRC Solicitor’s Office for RespondentsDECISIONDate 2025-08-20

Introduction

[1]The Appellant seeks permission to appeal against a decision (the ‘Decision’) of the First-tier Tribunal (Tax Chamber) (the ‘FTT’) released on 29 February 2024 [2024] UKFTT 180. The FTT dismissed the Appellant’s appeal against VAT and Corporation Tax assessments and penalties. The Tribunal held that the Appellant had understated its takings across the relevant period. The Tribunal also held that a section 455 CTA 2010 charge on advances to participators could be imposed and that the Appellant was guilty of deliberate conduct.[2]The Appellant applied to the FTT for permission to appeal against the Decision and on 13 June 2024 permission to appeal was refused. On 15 July 2024, the Appellant made an in-time application to the Upper Tribunal (Tax and Chancery) (‘UT’) for permission to appeal against the Decision. On 06 October 2024 the UT refused permission to appeal on the papers. The Appellant requested an oral hearing of the application for permission to appeal. The application for permission to appeal was heard on 04 July 2025 by way of a remote video hearing. The Appellant was represented by Mr Chacko. Ms Hickey represented the Respondents. Mr Chacko provided a written skeleton argument which he amplified during oral submissions. References to paragraphs below are to paragraphs in the FTT decision unless the context indicates otherwise.

Jurisdiction of the Upper Tribunal

[3]An appeal to the Upper Tribunal lies only on ‘any point of law arising from a decision’ of the First-tier Tribunal (section 11(1) of the Tribunals, Courts and Enforcement Act 2007 (‘the 2007 Act’)). A party’s right of appeal may be exercised only with permission (section 11(3) of the 2007 Act). The Upper Tribunal will generally give permission to appeal if there is a realistic prospect of success in demonstrating that the First-tier Tribunal materially erred in law in making its decision, in other words that it is arguable that the decision was wrong in law. A material error in the decision means that any error must have had the potential to change the outcome of the case.[4]Normally, findings of fact by the FTT cannot be the subject of an appeal. Findings of fact, whether primary facts or factual inferences, can be an error of law where the facts found are such that no person acting judicially and properly instructed as to the relevant law could have come to the determination under appeal (Lord Radcliffe in Edwards v Bairstow [1956] AC 14 at 36). If, in making its factual finding, the FTT ignored relevant considerations, took into account irrelevant considerations, or came to a conclusion that could not be supported by the available evidence, its determination can be set aside.[5]The approach to this kind of appeal is a well-trodden path. The following principles (See Volpi & Anor v Volpi [2022] EWCA Civ 464 (05 April 2022) are well-settled: i) an appeal court should not interfere with the trial judge's conclusions on primary facts unless it is satisfied that he was plainly wrong, ii) the adverb "plainly" does not refer to the degree of confidence felt by the appeal court that it would not have reached the same conclusion as the trial judge. It does not matter, with whatever degree of certainty, that the appeal court considers that it would have reached a different conclusion. What matters is whether the decision under appeal is one that no reasonable judge could have reached. iii) an appeal court can therefore set aside a judgment on the basis that the judge failed to give the evidence a balanced consideration only if the judge's conclusion was rationally insupportable[6]Further the weight to be attributed to evidence is matter for the FTT and the evaluation of the reliability of witness evidence is the quintessential function of the First-tier Tribunal judge who has seen and heard the witnesses.

The Appellant’s grounds of appeal against the FTT Decision

[7]The Appellant initially advanced 9 grounds of appeal. Mr Chacko, in his written skeleton argument, indicated that only grounds 1, 3 and 4 in the application for permission to appeal were now pursued. The other grounds were no longer maintained. The UT’s earlier refusal of permission to appeal is appended to this decision.[8]I refer to the three grounds of appeal that are now advanced as 1, 3 and 4 following the numbering in the Appellant’s skeleton to avoid confusion.[9]The three grounds of appeal are: Ground 1. The FTT erred in its approach to section 455 CTA 2010 Ground 3. The FTT failed to apply the correct time limit Ground 4. It was procedurally unfair for the FTT to permit documents relating to a key part of the case to be produced during the hearing

Ground 1 – s455 Corporation Tax Act 2010 (‘CTA 2010’)

[10]Mr Chacko argued that both the respondents and the FTT appear to have approached this case on the incorrect basis that loans to directors fall within s 455. Shareholders are not the only “participators” as defined in s 454, but they are the typical example. It was not alleged that Mr Chan was a participator on any of the more unusual bases, e.g. as a loan creditor, and it was not alleged that he was an associate of a participator. The FTT uses the phrase “participants (directors or shareholders)”. Given that the FTT held that he was not a shareholder (and therefore, prima facie, not a participator), and did not find he qualified as a participator or associate of a participator for any other reason, loans to him would not fall within s 455. Directors are not participators simply by virtue of being directors.[11]The FTT’s decision at [97] – [100] is on the basis that HMRC were right to assume that a s 455 charge arises whenever profits have been suppressed on the basis that they are likely to have been extracted by the participants: i.e. there is no need to identify any particular amount lent to any particular participator. This is wrong for the reasons given in Stirling Jewellers [2019] UKFTT 44 at [357]:
“The statute is not a useful 'fall-back' which engages where a close company is found to have made an under-declaration. The statutes are clear that an assessment can only be raised where a close company can be shown to have loaned or advanced any money to an individual.”
[12]The FTT described HMRC’s s 455 argument at [14] as that “the suppressed takings had been for the benefit of the participants (directors or shareholders) and had not been correctly recorded in the directors’ loan account…”[13]Mr Chan denied taking cash from the business. The FTT did not make any finding that Mr Chan’s evidence on this was false. Moreover, his evidence that he had not taken money from the business was not rejected.[14]Mr Chacko submitted that it is hard to see how a s455 charge can arise where the FTT found that the individual HMRC accused of withdrawing money was not a shareholder and did not find that he had withdrawn money. Further, it is clearly not fanciful that the Upper Tribunal could endorse the approach in Stirling Jewellers.

Discussion

[15]The FTT summarised the Respondents’ s455 argument at [14] and concluded at [97] – [99]:97. We were told, and accept, that it is HMRC’s practice to assume that where the takings of a limited company are suppressed they have been extracted by the participants (be that the shareholders or the directors). HMRC do not undertaken any tracing activity or look to establish which participants have benefitted on the basis that it is a reasonable assumption to have made.98. The Appellant contends that HMRC were not able to identify Mr Chan as the person in charge on any of the covert visits and it is therefore unreasonable to impose a section 455 charge.99. That argument completely misses the objective underpinning section 455. That section taxes the participants on the basis of extracted profits. No corporation tax assessment is raised where suppression is as a consequence of theft from the company by someone other than a participant. Where there is no evidence of such theft and no alternative explanation provided there is no evidence on which to set aside HMRC’s assumption and the section 455 aspects of an assessment should stand.[16]This point argued in this ground of appeal was not raised before the FTT other than on the basis that Mr Chan was not the person in charge on any of the covert visits. As I set out in my refusal of permission to appeal on the papers: 9…An appeal to the UT is not an opportunity to argue a different case, i.e. to have a second bite of the cherry by pursuing arguments that ought to have been put but where not pleaded at first instance. That said on a purely legal point that the FTT ought to have considered but did not permission to appeal may be granted. In this case the issue is one of mixed fact and law. The legal point (for the avoidance of doubt it should not be inferred that I consider it correct) only arises if the factual position is ascertained to be as now asserted in the grounds of appeal. It appears that the FTT did not consider the points raised in this ground of appeal because the arguments appear to have been simply that Mr. Chan was not in charge on any of the covert visits. The Appellant was professionally represented. I note that there is no factual finding by the FTT that Mr. Chan was not a participator. Paragraph 5 of the decision simply records that he was the sole director from 1 February 2015 and that he did not own shares in it…[17]However, I am now just persuaded that it is arguable that the FTT may have erred in its approach to s455. I was not taken to any authorities on the particular issue raised i.e. that an individual/s must be identified. Mr Chacko relied on the FTT decision in Stirling Jewellers. This decision was appealed to the UT by both parties, but the Respondents did not appeal against the s455 aspect of the decision.[18]In proceeding on the basis that it is correct to assume that a participator must have extracted the profits without identifying an individual appears to be at odds with the FTT Sterling Jewellers’ decision. In the instant case no finding was made (because the point was not raised) that the under-declarations were extracted by an individual. I note that the passage relied on by Mr Chacko ought to be read in the context of the factual findings in that appeal which differ considerably from the instant case.[19]The FTT also appears to have proceeded on the basis that a director is a participator. Again, this point was not raised before the FTT but if as a matter of law that is incorrect it is arguable that permission to appeal should be granted. I was not provided with any substantive argument on this issue by either party but consider that it at least arguable that the FTT ought to have engage with the basis on which Mr Chan was a participator.[20]For the above reasons permission to appeal is granted on Ground 1.

Ground 3 – failure to apply the correct time limit

[21]Mr Chacko argued that the FTT proceeded on the basis at [72] that if they found deliberate error then the VAT assessments were automatically made in time. The FTT therefore erred, in relation to each VAT assessment, by failing to deal with the question whether s 73(6) was satisfied. This was in fact an issue before the FTT dealt with in the Respondents’ statement of case. This is a question that therefore should have been dealt with at first instance. The outcome is not certain. The FTT held that HMRC’s conclusion that cash receipts were being suppressed followed their visits to the premises (the final one on 27 July 2017) which is more than 12 months before the assessments were made on 26 November 2018. Jonathan Beard, in his witness statement admitted that the assessments had been made more than 12 months after obtaining the relevant information but that this was because HMRC were hoping that the Appellant would provide further information. The question whether the meetings and correspondence between the Appellant and HMRC in the course of 2018 should extend time for these purposes is a difficult one that could be decided either way - Rasul v HMRC [2017] UKUT. Mr Chacko argued that the issue of fairness in respect of a failure to put issues to a witness is a matter for the appeal not for the permission threshold stage. Discussion[22]This was not an issue raised before the FTT. The points I set out above re an appeal to the UT apply. The FTT set out the issues in dispute at [17]. I do not accept that this was an issue that the FTT was required to deal with. As Mr Chacko pointed out the issue was dealt with in the Respondents’ statement of case and by its witness Mr Beard. A full explanation of the factual basis as to why the assessment satisfied the requirement in s73(6) was provided including reference to the Rasul case relied on by Mr Chacko. Mr Beard was called as a witness. It does not appear that any issue was taken with his witness statement in this regard. The FTT found him to be an honest witness. Time limits are an issue that accountants deal with routinely. In the absence of any dispute as to the facts set out by the Respondents it was not incumbent on the FTT, in my view, to go behind the undisputed facts.[23]Permission to appeal is refused on Ground 3

Ground 4 – Procedural unfairness

[24]The Respondents were seeking to prove deliberate error, and the lack of records for test purchases were a key part of that. Therefore, it was procedurally unfair to allow such an important part of their case to be produced during the hearing preventing the Appellant’s witness from dealing with it adequately. The taxpayer’s representative was not a lawyer. Accountants regularly represent taxpayers in the FTT and can be expected to explain the taxpayer’s case as a matter of the taxing provisions. However, on matters of procedural fairness and the approach to evidence, it matters whether or not the taxpayer is legally represented. The courts have acknowledged that non-legal representatives cannot be expected to deal with evidential and procedural matters in the same way that lawyers would be: see the Court of Appeal in Serene Construction v Barclays Bank [2016] EWCA Civ 1379 at [32] and [38], and the Equal Treatment Bench Book at 124-126.[25]It was confirmed at the hearing before me by Ms Hickey that the documents handed up contained 5 sheets that had been omitted from the bundle of documents that should have been included behind the first page that was included in the bundle. These sheets that contained a detailed analysis - referred to as the meal ticket analysis. Mr Doshi informed me that the primary issue that he took issue with was the lack of documents underlying the analysis. The detailed analysis of the whole days’ takings was new data. There was an objection made in written submissions made following conclusion of the hearing. Ms Hickey referred to her notes of the hearing which noted that the FTT Judge checked with the Appellant’s representative regarding the admission of the evidence and that no objection was raised by the representative. In light of that information Mr Chacko agreed that the admission of the evidence was not properly objected to. The meal ticket analysis was provided to the Appellant during a meeting in 2018. Mr Chacko argued that the witness would not have been able to remember detail from so long ago.

Discussion

[26]Whilst there may be some distinction to be drawn between legal representatives and non-legal representative in relation to dealing with procedural and evidential issues in this case the FTT specifically raised the admission of the evidence with the Appellant’s representative. He did not raise an objection. Accountants regularly deal with appeals before the FTT. Mr Doshi had raised issues regarding evidence – in respect of this particular evidence he had argued that the lack of the source documents undermined the analysis and invited the FTT to draw an adverse inference against the Respondents for failure to produce the underlying evidence referring to authority in support – see [22]-[29]. I do not consider that there was any procedural unfairness. In any event as I set out in my earlier refusal the meal ticket analysis was not the only evidence the FTT considered in reaching its conclusions on the evidence – see paragraph 66. The evidence of HMRC regarding the meal tickets is consistent with the other evidence of suppression of sales including Mr. Chan’s evidence of the percentage of cash sales.[27]Permission to appeal is refused on Ground 4.

Conclusion

[28]Permission to appeal is GRANTED in respect of Ground 1 only. Permission to appeal is REFUSED on Grounds 3 and 4. JUDGE PHYLLIS RAMSHAW Release date: 20 August 2025