Tribunal allows appeal in VAT penalty case

Background and Context

The First-tier Tribunal (Tax Chamber) recently delivered a decision in the case of Leonard Toye vs The Commissioners for His Majesty's Revenue and Customs ([2025] UKFTT 301 (TC)), addressing the issue of VAT penalties for deliberate inaccuracies. This case revolved around VAT returns submitted by Black Wolf Ltd, where Leonard Toye was a director. HMRC had issued a penalty liability notice (PLN) to Toye, asserting that he was liable for deliberate inaccuracies in the company's VAT returns from February 2019 to November 2021.

HMRC's Allegations

HMRC contended that Black Wolf Ltd had submitted VAT returns containing deliberate inaccuracies attributable to Toye's behaviour. The inaccuracies were primarily related to the company's claims for input VAT on motorbikes and double-glazing, which HMRC argued were not incurred for business purposes. Consequently, HMRC issued a PLN to Toye, holding him liable for 100% of the penalty amounting to £6,127.77.

The Tribunal's Consideration

The Tribunal, chaired by Tribunal Judge Nigel Popplewell and Miss Patricia Gordon, examined the evidence presented by both parties. HMRC's case relied on the testimony of Officer Kerry Dolby, who conducted the compliance check on Black Wolf Ltd. Dolby's evidence suggested that Toye had personally benefited from the inaccuracies, leading to the issuance of the PLN.

Toye's Defence

Leonard Toye, representing himself, argued that the inaccuracies were not deliberate. He explained that the motorbikes were initially purchased for business use, specifically for the company's fast response locksmith services. He also clarified that the double-glazing was installed at a customer's property to rectify damage caused by the company's employees. Toye emphasised his discomfort with handling paperwork and his reliance on accountants for VAT matters.

Tribunal's Findings

The Tribunal found Toye's oral testimony credible and accepted his explanations regarding the business use of the motorbikes and the double-glazing. The Tribunal noted that Toye's evidence was consistent and unchallenged, and it preferred his testimony over the resignation letter provided by Darren Chaston, Toye's nephew and former director of the company, which alleged financial impropriety.

Deliberate Behaviour and Decision

In assessing whether the inaccuracies were deliberate, the Tribunal concluded that HMRC had not established an intention to mislead in the VAT returns. The Tribunal acknowledged that Toye had made errors, such as not accounting for VAT on a motorbike used personally, but these did not amount to deliberate behaviour. Consequently, the Tribunal allowed Toye's appeal, overturning the PLN.

Implications for VAT Penalties

This decision highlights the importance of distinguishing between genuine errors and deliberate inaccuracies in VAT returns. It underscores the need for HMRC to provide clear evidence of intent when issuing penalties for deliberate behaviour. The Tribunal's ruling serves as a reminder that credible oral testimony can be pivotal in challenging such penalties.

Conclusion

The First-tier Tribunal's decision in Leonard Toye vs HMRC underscores the complexities involved in VAT penalty cases, particularly when assessing the intent behind inaccuracies. The case serves as a significant reference point for practitioners dealing with similar disputes, emphasising the importance of thorough evidence and credible testimony in Tribunal proceedings.

Learn More

For more information on VAT penalties and related issues, explore BeCivil's guide to UK Tax Law.