VAT and Section 455 penalties: Our summary of the Gopaul case
By Chris Campbell, Head of Tax (Tax Practice and Owner Managed Business Taxes)
27 November 2023
We summarise recent developments in the Gopaul case, which explored the interaction of VAT assessments on other taxes, resulting in an interesting outcome on penalties.
Liquidation proceedings commenced in 2018 before the company was struck off in 2020.
Background to the case
In June 2017, HMRC raised a VAT assessment under section 73(1) of the Value Added Taxes Act (VATA) 1994, charging VAT of £74,170 because HMRC believed the company had understated its turnover. This was followed by a penalty charged to the company of £9,128 under schedule 24 Finance Act 2007 as HMRC considered that the VAT error was deliberate. Mr Gopaul received a personal liability notice under schedule 24, paragraph 19 Finance Act 2007, as it was argued that he was responsible for the error - this meant that he was 100% liable for the penalty.
Taking account of the additional income to be taxed, enquiries were opened into the corporation tax returns for 2016 and 2017 in order to collect the additional corporation tax on the under-declared profits as well as section 455 tax on the additional director’s loan account arising. Discovery assessments were also raised for the 2014 and 2015 years.
Penalties were charged by HMRC on the additional corporation tax and section 455 tax. Personal liability notices were once again issued to Mr Gopaul as HMRC argued that the behaviour was deliberate. Mr Gopaul appealed these penalties.
Outcome of the case
The first tier tribunal upheld the VAT personal liability notice. Given the 80% difference between what was included in VAT returns and till figures, it would have been difficult for Mr Gopaul to argue otherwise.
However, the tribunal took a different view in respect of the personal liability notice on the section 455 tax liability. The tribunal felt that HMRC had not proved that there had been a deliberate under-declaration of section 455 tax liabilities. Mr Gopaul would not have necessarily been aware that extracting money from the company would have given rise to a corporation tax liability. The penalty and personal liability notice for corporation tax was reduced accordingly.
Given the potential impact on other companies who have under-declared income, it is likely that HMRC will appeal. Further developments in the case are yet to unfold, we will cover them once they’re known.
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