The First Tier Tribunal (FTT) has granted a restaurant its application for hardship related to a VAT penalty of £280,903, which it could not afford to pay
The decision of this case is related to two applications. The first was made by the company, Massala Exotic Limited, on the grounds that it should be permitted to prosecute its appeal without having to pay the VAT in question.
In this case, the company had been assessed for VAT of £280,903 by way of an assessment dated 22 November 2019. It had claimed that it was unable to pay or deposit that VAT with HMRC and had applied for hardship.
This was denied, and accordingly, the company made an application to the tribunal, under Section 84 of the Value Added Tax Act 1994 (VATA), which states that the tribunal ‘decides that the requirement to pay or deposit the amount determined would cause the appellant to suffer hardship’.
The second application was made by Khosru Miah, who had acted as director of Massala Exotic Limited. Following the assessment, HMRC issued a personal liability notice (PLN) to Miah alleging that he was personally liable to pay the penalty, which amounted to £176,966.37.
Miah appealed against the PLN, but both HMRC and the FTT considered that his appeal had been made late.
Two working days before the date of the hearing, the appellants’ accountants, Alps Accountants, made an application for the hearing to be postponed because their representation had ‘suffered a medical emergency’ and was unavailable. No medical evidence was provided at the time of the application, but a suitably qualified medical practitioner had sent a letter on the morning of the hearing detailing that they were suffering from mental health issues.
The postponement application was opposed by HMRC and later rejected by the Tribunal, meaning that the hearing continued.
Following an enquiry into the company’s VAT position, HMRC issued the assessment on 22 November 2019, related to VAT periods falling between September 2013 and September 2019.
In January 2020, the company ceased trading. According to Miah, the business had been ‘struggling before that’ and he had been considering ceasing to trade before it did so.
Whilst at the date of cessation the company had a bank account, it no longer received income since it stopped trading in January 2020.
The unaudited financial statements for the company for the year ending 30 September 2018 showed a profit for that year of £1,565. They also showed that the company made a loss in the year to 30 September 2017 of £9,630. The draft financial statements for the year ended 30 September 2019 showed that the company made a loss of £11,020.
On 14 September 2020, HMRC issued the PLN to Miah, explaining that he had until 14 October 2020 to ask for a review of the decision. By way of a letter dated 13 October 2020, Miah’s accountants requested a review of the decision to issue the PLN.
The appellants via their agent submitted several further documents to HMRC, who, on 30 June 2021, wrote to those accountants with the letterhead ‘Massala Exotic Ltd’ - that letter was written in response to a letter from the accountants dated 26 March 2021.
On 13 October 2021, HMRC wrote to the accountants telling them that, as far as they were concerned, the accountants had no authority to request a review on behalf of Miah.
About the first application, the burden of establishing hardship lies with the company. It had to show that it would suffer hardship if it were required to pay £280,903 to HMRC.
Judge Nigel Popplewell said: ‘It is clear from the evidence that the company has no such resources. Its financial position in 2019 was parlous and this is no doubt the reason why Miah had considered closing the business before he did so in January 2020.
‘At the date of the hearing, the company has no resources. It is not, therefore, so much a question of hardship. The company simply has nothing from which it can pay the VAT at stake in its appeal.
‘It is our decision therefore that the company would suffer hardship if it were required to pay that VAT, and we therefore allow the company’s application for hardship.’
The FTT then turned to Miah’s application that he should be permitted to submit a late appeal against the PLN.
Miah submitted his notice of appeal on 23 December 2021. But as a matter of law, once had asked for an independent review, he had no right of appeal against the PLN until HMRC had notified the conclusions of that review to him.
Judge Popplewell added: ‘We conclude that the most straightforward way of dealing with this is for us to direct that HMRC issue a review conclusions letter in respect of the independent review sought by the appellant’s accountants on 13 October 2020. This will generate an appeal right for Miah which he can then take up if he so chooses.
‘I, therefore, direct that within 30 days from the date of the release of this decision, HMRC will notify Miah of their conclusion of the review of their decision to issue him with the PLN as requested by his accountants on 13 October 2020.’