Judgment summary
Vani Enterprises Limited appealed against a VAT assessment issued under s 73 VATA 1994 for periods 02/16 to 11/17, and against corporation tax discovery assessments issued under para 41(1), sch 18 FA 1998 for accounting periods ending 23/11/16, 30/11/16 and 30/11/17 (1). Both assessments had been reduced following correspondence, leaving £22,400 (VAT) and £84,701.66 (CT) under appeal (2). The two appeals were consolidated for hearing (3). Related penalties were not under appeal (4).
The Tribunal heard evidence from Vani's accountant, Mr Ganeshamoorthy of APT Accountants LLP, and from HMRC Officers Jellis and Cousins (7, 8). The Tribunal found that the VAT Assessment had been made to HMRC's best judgment, using estimated missing sales figures compared to declared sales, and that Vani had not proved, on the balance of probabilities, that it was incorrect (81, 82, 85). The Tribunal also found that the CT Assessments had been raised correctly and that Vani had not demonstrated they were incorrect, particularly because the CT position depended on the VAT position and no adequate reconciliation of invoices, spreadsheets and bank statements had been supplied (87 to 89). Both appeals were dismissed (86, 93).
Background
Vani operates two convenience stores, Uncle Ben's and Colvills Newsagents, and is registered for VAT (12). HMRC opened a VAT enquiry in September 2018, carried out a compliance visit and requested further information and documents (13). Following correspondence with Vani and APT (who were appointed in November 2018), HMRC issued a pre-assessment letter on 4 July 2019 and the VAT Assessment on 18 August 2019 (14 to 18, 7). Inaccuracy penalties were issued on 10 December 2019 (19).
Prompted by the VAT check, HMRC requested information relating to Vani's CT position on 21 June 2021, including expenses and directors' loan accounts (21). On 18 November 2021, HMRC informed Vani that CT assessments were being issued based on undeclared sales of £219,676.21 from one store between 1 December 2015 and 30 November 2017 (23). This was treated as an appeal following an email from APT dated 29 November 2021 (24).
Over the following years, correspondence continued between HMRC, Vani and APT regarding further information and possible reductions, leading to adjustments to both the VAT Assessment and the CT Assessments (26 to 32). Vani appealed the CT Assessments to the Tribunal on 23 August 2023 and the VAT Assessment on 12 January 2024, the latter being accepted despite being out of time (33, 35). An unsuccessful ADR process concluded on 24 February 2024, though HMRC agreed to consider further evidence for VAT periods 11/16 and 02/17 (36). Further correspondence and provision of invoices, spreadsheets and bank statements followed into 2025, without HMRC being able to reconcile the material supplied (37 to 42).
Core dispute
Vani argued that the VAT Assessment failed to include certain input VAT invoices and that the purchase invoices and input VAT should be included, reducing the assessment (55). Vani also argued that HMRC and previous accountants had not taken all purchases and expenses into account for CT purposes and that the CT Assessments should be recalculated based on a revised VAT figure (56).
At the hearing, Vani additionally submitted that the CT Assessments were incorrect because they had been based on turnover rather than exempt sales, which would not give rise to a s455 Corporation Tax Act 2010 charge, and that around £100,000 already paid through a debt management process should cover the directors' loan account so that no s455 charge should apply (72, 74, 75).
HMRC's position was that the VAT Assessment had been made to best judgment, that HMRC had engaged with and reduced the assessment where evidence was provided, but that the information ultimately supplied by Vani for periods 11/16 and 02/17 was unreconciled and insufficient to justify further reductions (76). HMRC submitted that the CT Assessments depended entirely on the VAT position and had been raised correctly, and that the directors' loan account and s455 points were unsupported by evidence (77 to 79).
Court findings
The Tribunal found that HMRC's VAT Assessment for periods 02/16 to 11/17 was correct and had been made to the best of HMRC's judgment, using an appropriate methodology of estimating missing till receipts and comparing them to declared sales (81). The Tribunal found that Vani had not met the burden of proving, on the balance of probabilities, that the VAT Assessment was incorrect (82).
The Tribunal accepted that APT faced difficulties due to late instruction, bereavement and the Covid-19 pandemic, but found that the information provided by APT was unwieldy, disorganised, included duplications, and that bank statements supplied were not in Vani's name (82, 83). Despite HMRC's ongoing engagement and multiple requests, no reconciliation of invoices and payments was ever produced, even though Mr Ganeshamoorthy said this could be done within minutes (83). The Tribunal found that Vani had been repeatedly and clearly asked for information over several years, contrary to submissions that HMRC had failed to respond or that further information requirements were unclear (84).
On the CT Assessments, the Tribunal found there was no challenge to their validity and that they had been raised correctly (87). Because Vani had not shown the VAT Assessment to be incorrect, there was no basis for a corresponding adjustment to the CT Assessments (89). The Tribunal noted that Mr Muthulingam's additional submissions on turnover versus exempt sales and the s455 charge had not been raised before the hearing and were unsupported by evidence (90). The Tribunal found that Vani had sufficient opportunity, including under Tribunal directions dated 1 May 2025 and following an earlier adjournment, to provide evidence but had not done so (91, 92).
Outcome
The appeal against the VAT Assessment was dismissed (86). The appeal against the CT Assessments was dismissed (93). The parties were informed of the right to apply for permission to appeal under Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009, within 56 days of the decision being sent (94).
Major issues / areas of contention
- Whether HMRC's VAT best judgment assessment under s 73 VATA 1994 for periods 02/16 to 11/17 was correctly made and to the best of HMRC's judgment.
- Whether Vani discharged the burden of proving, on the balance of probabilities, that the VAT Assessment was incorrect.
- Whether the CT discovery assessments under para 41(1), sch 18 FA 1998 were validly raised, including the applicable careless conduct and time limits.
- Whether Vani demonstrated that the CT Assessments were incorrect, including arguments concerning turnover versus exempt sales and the s455 Corporation Tax Act 2010 charge on the directors' loan account.
- Whether the reconciliation of invoices, spreadsheets and bank statements supplied by Vani's accountants was sufficient to support reductions to the VAT Assessment and consequential adjustments to the CT Assessments.