A director from Margate has experienced an unfavourable outcome in a First Tier Tribunal appeal concerning a failure to notify penalty linked to outstanding VAT from gadget sales through online platforms. GB-Gadgets Ltd, the business in question, contested an HMRC-issued penalty of £46,726.79, asserting that they had unpaid VAT spanning from September 1, 2013, to March 31, 2018.
The company, primarily involved in importing goods for resale online, also sought to appeal an inaccuracy penalty of £8,588 related to VAT obligations between June 2018 and January 2020, which was ultimately placed on hold.
Ownership Shift: Margate Business Sees New Director
On December 27, 2017, Kashif Waseem transferred all ordinary shares of the business to Zubair Hussain and subsequently appointed him as the sole director on January 10, 2018. According to Hussain, Waseem informed him that GB-Gadgets established its first bank account in September 2016 and registered for VAT as of April 1, 2018.
On February 21, 2020, HMRC initiated a VAT compliance review, requesting additional information. Unfortunately, this information was not provided at the time, prompting HMRC to issue an information notice under Schedule 36 of the Finance Act 2008. Additionally, HMRC issued eBay with joint and several liability notices under Section 77B of the Value Added Tax Act 1994 (VATA) pertaining to GB-Gadgets. In response, eBay suspended the business from trading on its platforms, leading to its cessation of operations.
On December 17, 2017, HMRC issued a VAT assessment of £208,173 for the relevant period. This assessment was computed based on sales records, including data from eBay. HMRC also sent GB-Gadgets a 'penalty explanation letter,' outlining the intended penalties, including the failure to notify penalty in question.
Legal Battle Unveiled: First Tier Tribunal Hears GB-Gadgets' Appeals
During the First Tier Tribunal (FTT) hearing, GB-Gadgets' appeal was solely based on the request for a reduction in the penalty due to special circumstances. Hussain argued that GB-Gadgets did not surpass the VAT registration threshold until April 2018. However, this argument was rejected by the FTT because it was not raised at an earlier stage. Hussain, who had an accounting background, should have been aware of the potential failure to notify penalty once the business exceeded the VAT registration threshold.
Regarding the initial appeal, Hussain contended that the £208,173 assessment was not based on records from September 1, 2013, to March 31, 2018, but rather was an estimate derived from information provided to HMRC by the business in 2018. He claimed this was an inaccurate basis for assessing a period dating back to 2013. HMRC countered this by asserting that the £208,173 assessment was not an estimate but relied on actual records provided by eBay and possibly other third parties.
The tribunal observed that GB-Gadgets presented limited evidence to challenge these statements or HMRC's calculation methods. Hussain explained that he had not contested the assessment because the business couldn't afford the necessary accounting fees to demonstrate its turnover and any unpaid VAT during the relevant period.
Verdict Delivered: Judge Rachel Gauke's Ruling on VAT Penalty Case
Judge Rachel Gauke concluded, "We are convinced that GB-Gadgets was subject to a penalty for failing to notify HMRC of its VAT registration requirement beginning September 1, 2013.
While we acknowledge that Hussain relied on his agent for supplying requested information and that the COVID-19 pandemic created difficulties for the agent in complying with these requests, there are no provisions for a more lenient reduction based on disclosure, even when there's a valid excuse for failing to provide information." Consequently, the appeal was dismissed.
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