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    Property Investment Company Pays for 'Deliberate' VAT Return Default

    Almost every business owner understands that feeling of desperation arising from cashflow problems. As a case concerning VAT due on a commercial property sale showed, however, treating tax liabilities as a can to be kicked down the road is never a sensible way out of such difficulties.

    On its sale of a warehouse, a property investment company raised an invoice which correctly included £370,000 in VAT. The sale was, however, not declared on its next quarterly VAT return, nor on the one after that. After HM Revenue and Customs (HMRC) made inquiries, the company belatedly made the required declaration and asserted that its delay in doing so arose from an error.

    HMRC, however, took the view that the company's default was deliberate and levied a stiff financial penalty. Suggesting a motive, HMRC pointed out that the company's sole director was at the time experiencing cashflow difficulties in his wider business due to the impact of Brexit on the sterling exchange rate.

    Those difficulties were said to have been eased by the presence of £370,000 in the company's bank account for months after it should have been paid to HMRC. The director's explanations for the default were, HMRC asserted, unconvincing and inconsistent. His attitude to the VAT return process was said to have been casual at best in that he had not checked the relevant return either before or after it was submitted.

    Rejecting the company's appeal against the penalty, the First-tier Tribunal (FTT) acknowledged that the director was at the time under great strain, both at home and at work. His various businesses had for many years filed their VAT returns correctly and on time. The FTT nevertheless found on the balance of probabilities that the company's default went beyond carelessness and was deliberate.

    The sale of the warehouse was very significant to the company's business and it was not plausible to assert that it had simply been forgotten. The amount of excess cash in the company's account was too substantial to have been overlooked. The director was aware that VAT was due on the sale and did not investigate the company's excess bank balance because he knew that the VAT return had been submitted incorrectly.

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