[2011] UKFTT 422 (TC)
TC01275
Appeal
number: TC/2009/14961
&
TC/2010/03131
Income
tax –National Insurance contributions- PAYE-whether assessments made to best of
HMRC’s judgment –whether returns by Appellant were correct and business returns
records accurate -whether liable to penalty
FIRST-TIER TRIBUNAL
TAX
St
Peter’s Travel Limited (1) Appellant
St
Peter’s Executive Travel Limited (2)
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
AND CUSTOMS Respondents
TRIBUNAL: Barbara King (Tribunal Judge)
Warren
Snowdon (Lay Member)
Sitting in public at North
Shields on 11 April 2011
Simon Doherty, company director of both appellant
companies for the Appellant
William Kelly, an officer of HMRC, for the Respondents
© CROWN COPYRIGHT
2011
1. The
Tribunal decided that
2. In
respect of St Peter’s Travel Limited
(1)
the amended total additional liability due is as follows
|
|
2003-04
|
2004-05
|
2005-06
|
2006-07
|
2007-08
|
|
Income Tax
|
7398.20
|
7590.70
|
7627.62
|
8982.10
|
8765.30
|
|
Class 1 NIC
|
7159.17
|
7337.26
|
7280.25
|
9086.91
|
8831.44
|
|
Total
|
14558.11
|
14927.96
|
14907.87
|
18069.01
|
17596.74
|
(2)
Penalties arise from the assessments for the years 2003-04, 2004-05,
2005-06 and 2006-07 and are to be calculated at 45%. The total penalty amounts
to £28,107.
3. In
respect of St Peter’s Executive Travel Limited
(1)
The amended total liability due is as follows
|
|
2003-04
|
2004-05
|
2005-06
|
2006-07
|
2007-08
|
|
Income Tax
|
|
8447.70
|
11017.72
|
12641.92
|
12564.86
|
|
Class 1 NIC
|
|
6587.03
|
8478.15
|
9163.48
|
8619.86
|
|
Total
|
|
15034.73
|
19495.87
|
21805.40
|
21184.72
|
(2)
Penalties arise from the assessments for the years 2004-05, 2005-06 and
2007-08 and are to be calculated at 45%. The Total penalty amounts to £25,350.
The appeal is therefore
allowed in part
Background
4. The
Appellant companies were involved in the provision of passenger transport by
contract or private hire. St Peter’s Travel was incorporated on 4 October 2000
and St Peter’s Executive Travel Limited on 30 March 2004. Mr Doherty was a
company director of both appellant companies.
5. HMRC
began an Employer Compliance Review into the business records of St Peter’s
Travel Limited on 14 November 2007 and into St Peter’s Executive Travel Limited
on 16 January 2008.
6. HMRC
considered that Tax and National Insurance contributions had been underpaid by
each company because they had failed to declare all payments made to Directors
and employees. HMRC issued determinations and decisions on 15 December 2009 assessing
the amounts of tax and national insurance contributions which they considered
were due. Penalty notices were issued to each company on 14 February 2010.
Appeals have been lodged by both companies against the assessments and the
penalties. The grounds of appeal were that there have been no PAYE failings by
either company
7. Mr
Doherty complained that he would have liked Mr Ward to have been called as a
witness. Mr Ward had, for a time, been a fellow director of St Peter’s
Executive Travel Limited. The onus of tracing Mr Ward and calling him as a
witness lay with Mr Doherty.
The evidence
8.
The evidence produced by HMRC included observations which they had
carried out in October 2007. They observed that on some of the school runs an
escort had been on the buses in addition to the drivers. Interviews had also
been conducted with various people who said that they had been paid in cash by
Mr Docherty for work done as drivers. There were records of interviews held
with Mr Docherty.
9.
HMRC had also obtained information about the mortgage payments paid by
Mr Doherty which amounted to approximately £18,000 per annum. HMRC doubted that
these payments could be funded out of the income of approximately £7000 per
annum declared by Mr Doherty even if combined with the further £7,000 declared
by his partner Diane Cameron. Mr Docherty told the interviewing officer that he
has been helped by his father to fund the mortgage. At the hearing Mr Docherty
told the Tribunal that he had funded the mortgage payments out of savings. He
produced no evidence of any other bank accounts held by him personally. He
produced no evidence showing any payments from his father.
10. There was
evidence of amounts of between £1500 and £2000 being transferred from the
business bank account of St Peter’s Travel Limited into a personal account
belonging to Mr Doherty. Over a seventeen month period these amounted to over
£32,000. Mr Doherty stated that this was done by him in order that he could
then take cash from his personal account to pay wages to his employees. He
produced no documentation for this personal account. We did not credit that
these sums were transferred solely for the purpose of enabling Mr Doherty to
pay his employees.
11. HMRC had
contacted St Peter’s Travel Limited in November 2007 indicating that they
wished to visit the company to look at records. Mr Doherty asked that the visit
be delayed until 8 January 2008 because the intervening period was extremely
busy for the Appellant companies. At the meeting on 8 January 2008 Mr Doherty
then told the visiting officers of HMRC that various records, including
tachographs, had been stolen from company premises on 2 January 2008 but that
this had not been reported to the police. We found that, knowing he had to
produce information on 8 January 2008; it was extremely suspicious that Mr
Doherty had not reported the theft. The tachographs for the period from 2
January 2008 showed that the vehicles had been driven by drivers who Mr Doherty
claimed had not been employed until after that date.
12. We read the
note, prepared by officers of HMRC, of the meetings which Mr Doherty had had
with them and we also read the comments which Mr Doherty had made about those
notes. On balance we did not find that Mr Doherty had been open and honest or
that he had given a full and frank account of the activities of either of appellant
companies, either in respect of the number of vehicles involved or as to the
number of personnel involved. If Mr Doherty had genuinely believed that some of
the personnel were ‘volunteers’ and therefore did not require payment we would
still have expected that he would have kept accurate records of their
involvement and that he would have disclosed this to the HMRC when asked.
13. If Mr Doherty
believed that some drivers were self employed we would have expected him to
keep accurate records of their involvement. If someone was working in order to
repay a debt we would have expected a record of the debt and the hours worked
to repay it. None of this was produced.
14. We did not find
Mr Doherty to be a credible witness. On balance we find that the records
submitted by Appellant companies to substantiate the tax returns for each
company were not accurate.
15. Mr Doherty
asserts that those who have been interviewed have been lying. Without accurate
records we find that it has not been shown if and to what extent the statements
of others are not accurate.
Findings and conclusions
16. It is for the
Appellant companies to satisfy us that HMRC have not used their best judgment
to calculate the assessments which they made on 15 December 2008.
17. HMRC have
amended their estimates in a letter dated 9 March 2011. They now accept that
the assessment should not include earnings in respect of Mr Michael Ditchburn
for the years 2003-04, 2004-05 and 2005-06 as they accept that the evidence
does not support that Mr Ditchburn was an employee of the Appellant companies
in those years.
18. The Assessments set
out in the letter of 9 March 2011 stand unless the Tribunal is satisfied by
evidence that they ought to be reduced or set aside. It is accepted that the
earnings for each of the drivers/escorts for each of the Appellant companies
has been estimated. No better estimate has been produced by Mr Doherty on
behalf of either Appellant company.
19. On balance we
find that the returns produced by both Appellant companies are not accurate. We
find that HMRC have used their best judgment to produce figures of income which
should have been accounted for. The onus of proving that any figures, other
than those produced by HMRC, are more likely to be accurate, lies on the
Appellant companies and we find that this burden has not been discharged other
than in respect of the following two areas.
(1)
We accept that St Peter’s Executive Travel was not incorporated under that
name until 30 March 2004 and that the operator’s licence for the company, in
that name, was not obtained until 29 June 2004. At the hearing HMRC agreed that
the whole of the figures for 2003-04 should be deleted from their figures of
assessment.
(2)
We find that for St Peter’s Executive Travel Limited, 25 per cent of
the figures for 2004-05 should be deleted, as only 9 months (and not 12) would
have occurred between the end of June 2004 and 5 April 2005.
20. We find that
there is no evidence to show that the presumption of continuity should not
apply for earlier years.
Penalties
21. The burden of
showing that a penalty should be imposed lies on HMRC. They have imposed a
penalty of 45%.
22. We have found
that both companies failed to keep proper records and this amounted to more
than mere carelessness. We find that the Appellant was negligent in its failure
to keep records.
23. We have the
power to confirm reduce or increase a penalty. In this case we consider that
the abatements for disclosure at 5%, cooperation at 35% and size and gravity at
15% were generous but on balance we find that an overall penalty of 45% is appropriate
and we do not therefore reduce the abatements. Mr Doherty was initially
prepared to meet and correspond with HMRC and offered some cooperation. One
firm of accountants was initially instructed, followed by a firm of solicitors.
A further firm of accountants was instructed but in June 2009 it was no longer
acting. There was an indication that further disclosure would be made but
between June 2009 and the hearing date on 11 April 2011 no further disclosure
was made by Mr Doherty.
Decision
24. Our decisions
are as recorded in paragraphs 2 and 3 above. These set out the amendments
accepted by HMRC in their letter of 9 March 2011, the reduction agreed by HMRC at
the hearing and the further reduction found by us as mentioned in paragraph 19(2)
above.
25. This document
contains full findings of fact and reasons for the decision. Any party
dissatisfied with this decision has a right to apply for permission to appeal
against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal)
(Tax Chamber) Rules 2009. The application must be received by this Tribunal
not later than 56 days after this decision is sent to that party. The parties
are referred to “Guidance to accompany a Decision from the First-tier Tribunal
(Tax Chamber)” which accompanies and forms part of this decision notice.
Barbara J King
TRIBUNAL JUDGE
RELEASE DATE: 28 June 2011
