Judgment summary
HMRC issued Mr Gill with a Personal Liability Notice (PLN) of £1,825,818.08, later reduced to £1,781,474.60, for VAT periods 01/15 to 06/19, on the basis that deliberate inaccuracies in VAT returns filed by PS Gill Construction Ltd (PSGCL) were attributable to him as an officer of the company (1). The only issue before the Tribunal was whether Mr Gill had acted deliberately (2, 12).
The Tribunal heard evidence from HMRC Officer Emma Evans, whom it found wholly honest and credible (15), and from Mr Gill, whose evidence on key issues it found lacked credibility, including evasive answers and a late, rejected account that his brother and nephew had assisted him in running the business (16-23).
The Tribunal drew an adverse inference from Mr Gill's failure to call the company's accountant, Mr Gary Foster, who prepared and filed the VAT returns (26-31).
Having reviewed the operation of the business, the Construction Industry Scheme, the invoicing arrangements with the main client Houlihan & Co (Excavations) Ltd, and the discrepancy between invoices issued and VAT declared, the Tribunal found that Mr Gill was fully aware throughout the relevant period that VAT was understated by around £65k per month and intended to mislead HMRC (72). The appeal was refused and the PLN upheld (77).
Background
Mr Gill incorporated PSGCL in 2008 and was its sole shareholder; he and his wife, Mrs Gill, were directors, but he had day to day control of the company (13, 34). The business supplied construction workers, principally to Houlihan & Co (Excavations) Ltd, and grew rapidly, from 50-60 workers in its first year to around 350 workers by 2012, of whom around 300 were managed by Mr Gill personally during the relevant period (33-37).
Mr Gary Foster acted as the company's accountant from soon after incorporation, preparing and submitting the VAT returns, with his office, computer and software paid for by PSGCL (24, 35).
On 8 July 2020, an HMRC officer reviewing Houlihan's records found a discrepancy between invoices Houlihan recorded from PSGCL and the sales PSGCL had declared on its VAT returns (48). Further checks by HMRC found that only some of the invoices issued to Houlihan had been used to prepare the VAT returns (50-52), leading to an assessment for underdeclared VAT of £3,477,749 (53), a penalty on the company of £1,825,818.09 (later reduced to £1,781,474.60), and the PLN against Mr Gill (54).
The company entered voluntary liquidation on 10 June 2019 (47). It was common ground that VAT of £3,477,749.00 had been underdeclared consistently throughout the relevant period, averaging around £65k per month (55).
Core dispute
The sole issue was whether HMRC had met the burden of proving that Mr Gill had acted deliberately in relation to the VAT under-declaration, for the purposes of attributing a Schedule 24 penalty to him as an officer of PSGCL under paragraph 19(1) of Schedule 24 to FA 2008 (2, 12, 57-60, 64).
Mr Gill did not appeal on the basis that the underlying VAT assessment or the company penalty was incorrect (12). HMRC's case was that Mr Gill, as the controlling mind of the company who prepared and issued the invoices, must have known that only some invoices were being used to file the VAT returns, given the sustained, substantial and regular nature of the under-declarations over more than four years (65). Mr Gill's case was that HMRC had not proved deliberate conduct, pointing to the absence of independent third-party evidence, the possibility that invoices had been lost, his engagement of an accountant as evidence of an intention to comply, and his health issues (66).
Court findings
The Tribunal found that only two people were involved with the invoices, Mr Gill and Mr Foster, and that there was no reason for Mr Foster to suppress invoices unless acting on Mr Gill's instructions, since Mr Foster had no financial interest in the business (67).
The Tribunal found that Mr Gill checked the company's bank statements regularly and therefore saw both the amounts received from Houlihan and the VAT sums paid to HMRC, making it not credible that he was unaware for four years that VAT leaving the account was around £65k per month less than it should have been (68).
The Tribunal rejected the suggestion that lost invoices explained the shortfall, given the lack of evidence of disorganisation and the systematic, sustained nature of the suppression over more than four years (69). It found that Mr Gill's health issues began only after the company's failure and so could not explain the errors during the relevant period (70). It also found that appointing Mr Foster showed only that Mr Gill recognised he needed help filing returns, not an intention to ensure correct VAT was reported (71).
The Tribunal made an adverse inference from Mr Gill's failure to call Mr Foster as a witness, finding that his evidence would not have supported Mr Gill (30-31). It also found Mr Gill to be a competent and successful businessman who managed many different roles and responsibilities (45), and disregarded his post-lunch evidence about assistance from his brother and nephew as untruthful (23).
The Tribunal concluded that Mr Gill was fully aware throughout the relevant period that VAT on the returns was understated by around £65k per month and that he intended to mislead HMRC as to the VAT due from the company (72).
Outcome
The Tribunal found that Mr Gill acted deliberately and upheld the Personal Liability Notice of £1,781,474.60 (73, 77). The appeal was refused (2, 77).
The Tribunal also found that the penalty mitigation applied by HMRC, including reductions for 'helping' and 'giving' due to the liquidator's assistance, and no reduction for 'telling', was not challenged and was accepted, and that the penalty was properly attributable to Mr Gill under Schedule 24, paragraph 19 (74-76).
Major issues / areas of contention
- Whether HMRC had met the burden of proving that Mr Gill acted deliberately in filing incorrect VAT returns, for the purposes of attributing a Schedule 24 FA 2008 penalty to him as an officer of PSGCL (2, 12, 64).
- Whether an adverse inference should be drawn from Mr Gill's failure to call the company's accountant, Mr Gary Foster, as a witness (26-31).
- Whether Mr Gill's late evidence about assistance from his brother and nephew during a lunch adjournment should be accepted (17-23).
- Whether Mr Gill's autism spectrum disorder diagnosis was relevant to his conduct, given no medical evidence was filed and Mr Gill's representative did not rely on it (8-10).
- Whether the discrepancy between invoices issued to Houlihan and sales declared on PSGCL's VAT returns was attributable to lost invoices or deliberate suppression (66, 69).
- Whether the penalty mitigation percentages applied by HMRC under Schedule 24 were correctly calculated (74-76).