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VAT Tribunal: Big Brother is watching you

VAT Tribunal uses Google Street View to prove fraud

Today I’m going to tell you the tale of a taxpayer, whose claim of not actively trading was blown out of the water by Google’s watchful eye, leaving him personally liable for VAT of £65,801.

Zakir Hashmi was the sole director and only shareholder of Apollinaire Ltd, trading as Benny Hamish, which was formed on 6th October 2015 and which also registered for VAT from that date. Hashmi had been involved in several other companies in the prior decade, most of which were behind with their HMRC submissions and payments.

VAT Tribunal: The first VAT Return

Apollinaire’s accountant submitted the first VAT return to 31 January 2016, showing a repayment due of £98,191.21. HMRC wrote to Apollinaire for documentary evidence in support of the repayment claim. The accountant sent in six invoices totalling £584,001 for women’s clothing, all dated 11th November 2015 from Snow Whyte Ltd, a company of which Hashmi had until recently been a director. Further information was enclosed, including a statement that Apollinaire and Snow Whyte were 2 entirely different businesses.

Discussions then took place and Hashmi told HMRC that he had sold Snow Whyte, along with the trading name Benny Hamish, to a Mr Singh for £25,000 in October 2015. Singh had apparently traded for one month and then sold the company’s stock to Apollinaire who claimed the VAT on their first VAT return.

HMRC carried out further investigations and in March 2018, issued VAT assessments covering both the first and second VAT Returns, showing overclaimed VAT of £127,437.89. In addition, Hashmi was issued with a Personal Liability Notice (PLN) for £65,801, which he appealed against to the first-tier tax tribunal.

The VAT Tribunal

The key issue before the tribunal was whether or not deliberately inaccurate VAT returns had been submitted and whether or not there had been any intentional actions by Hashmi as part of those submissions.

Regardless of who owned Apollinaire and Snow Whyte at any particular time, the tribunal accepted HMRC’s contention that Hashmi had always been in control of both companies and therefore his actions and intentions were those of the companies.

The mysterious Mr Singh

The existence of Singh was a matter of debate throughout the hearing, as scant information had been put forward regarding him and statements involving him frequently changed or were contradicted by other witnesses. No one could provide contact details for him, and his address on Companies House was that of Hashmi’s (former) accountant.

Hashmi had stated that the clothes covered by the six invoices had originally been on a sale-or-return basis, such that Singh would be paid cost price for the items only once they had been sold. The tribunal found this arrangement highly unlikely, as it would have left Singh with no profit. Regardless, this seemingly never came to fruition as Singh apparently tried to change the arrangement before allegedly “disappearing”.

Mr Google makes his appearance

As all companies had traded from shop premises at 20 Dunlop Street, this became critical as it transpired that a new lease for these premises had been taken out in the name of Benny Hamish, on 2nd April 2015. Hashmi had claimed that no trading activity took place at Dunlop Street between the lease starting in April 2015 and Apollinaire commencing to trade there in late November 2015. However, HMRC provided the tribunal with a Google Street View image taken in October 2015 showing the shop with stock in the windows and customers in the background and a large neon sign saying “Open”!

The tribunal concluded that a transfer of a going concern had occurred between Snow and Apollinaire, as the trade of one became the trade of the other with no perceptible break and with the same employees, premises and trading name (Benny Hamish) used throughout. The transfer of the stock as shown on the six invoices was therefore outside the scope of VAT and no VAT should have been charged or reclaimed.

VAT Tribunal decision

Hashmi had been involved in a significant number of other companies, most of which had outstanding returns and/or debts owed to HMRC and the tribunal considered that neither of Hashmi’s companies in this case had any realistic ability to meet the assessments.

In light of the misleading and contradictory evidence Hashmi provided throughout both HMRC’s investigation and the tribunal hearing, the judge agreed that his actions could be said to be deliberate, or at the very least that he had deliberately failed to take appropriate advice.  In view of Hashimi’s level of control, his deliberate inaccuracies and the probability that Apollinaire would not be able to pay the VAT assessment, the tribunal upheld the PLN and dismissed the appeal.

Tax Accountant’s view

This case had a string of contradictions throughout and it is no wonder that the tribunal without actually stating that Hashmi had lied, dismissed his appeal and found for HMRC. In my opinion, Hashmi is very lucky that HMRC did not decide to prosecute him for deliberate fraud.