Taking company money is not deliberate behaviour for s.455

In Prutish Gopaul v HMRC [2023] TC8917, the First Tier Tribunal (FTT) found that a company's suppression of turnover meant that the sole shareholder/director was personally liable for penalties. However, having taken the missing funds from the company was not enough to prove a s.455 charge had been deliberately unaccounted for.

• Mr Gopaul ran a takeaway pizza business, through his company Gopaul Limited.
• In 2017, HMRC issued 'Best judgement' assessments against the company for outstanding VAT due to a systematic suppression of turnover.
• Penalties were issued to the company for Deliberate behaviour. A Personal Liability Notice (PLN) was also issued to Mr Gopaul on the basis that the inaccuracies were attributable to him. The PLN made him 100% liable for the company's penalty.
• Corporation Tax enquiries were then started and Closure Notices were issued on the basis that undisclosed profits had not been included and there were s.455 charges arising from loans to participators.
• Again penalties were raised and a PLN was issued to Mr Gopaul in respect of the s.455 charges.
• In 2018, the company went into liquidation and was struck off in 2020.
• Mr Gopaul appealed to the FTT with regard to the PLNs for both the VAT and Corporation Tax penalties.

The FTT found that Mr Gopaul was not a credible witness and had failed to provide information requested by HMRC under a Schedule 36 notice. This included business records and personal bank statements. They also found that:

• Having previously worked for Ladbrokes as an Area Training Manager, he was aware of the processes involved in operating tills and record keeping. The failure to properly handle this in his own business was not due to carelessness.
• The discrepancies in the till data and the VAT returns were significant and could not be explained as an occasional oversight.
• The company had acted deliberately by suppressing its turnover for both VAT and Corporation Tax.
• A statement from the liquidator saying that Mr Gopaul, because of his previous employment, 'knew or ought reasonably to have known' about his duties to keep records and about the company's liabilities to tax, was not the same as the company intending to mislead HMRC.
• Taking money from the company was also not the same as knowing about the liability to s.455 and intentionally omitting it from the tax return. A lack of financial information from Mr Gopaul in a personal capacity led HMRC to assume that the missing income had been appropriated by him from the company. This was then deemed to be debited from the Director's Loan Account. This, in turn, gave rise to the s.455 charge for loans to participators. The FTT refused to accept that this meant that there was knowledge of the s.455 charge by Mr Gopaul and the company.
• Penalties for deliberate but not concealed behaviour are between 35% and 70%. Mitigation can be given for telling/giving information (30%) and helping (40%). Whilst Mr Gopaul did give some information and did help, information or help was not always forthcoming. HMRC's additional mitigation of 15% for each was confirmed. The penalties were issued at 56%

The penalties and PLN for VAT were upheld. The penalties and PLN in respect of the understated Corporation Tax were also upheld but reduced for the lack of deliberate behaviour in relation to the s.455 liabilities.

The appeal was dismissed in part.

Useful guides on this topic

Assessments: Best judgements & time limits
What is a 'best judgement' assessment for VAT? When can HMRC raise one? What are your rights of appeal? How do you displace a best judgement assessment? What are the time limits for a VAT assessment?

Penalties (VAT)
When do penalties apply for VAT? What penalties are charged and how can they be mitigated?

Close company loans toolkit (loans to participators)
What is the Corporation Tax treatment when a close company makes a loan to a participator (director-shareholder)? How do the 'bed and breakfasting' rules work?

Closure Notices 
When does HMRC issue a Closure Notice? Can a taxpayer demand one? Are there appeal rights? 

Adviser's Tax Penalty Planner
A guide to the key direct and indirect tax penalty regimes for returns and payments, excluding VAT.

Personal Liability Notices (PLNs)
A Personal Liability Notice (PLN) may be issued by HMRC in the event of a company's or a Limited Liability Partnership's (LLP's) failure to pay its tax debts or tax penalties to HMRC. A PLN will transfer all or part of the liability to pay the debt to one of its officers.

Penalties: Deliberate Behaviour
What penalties apply to deliberate behaviour? What is deliberate behaviour?

Penalties: Errors in Returns and Documents
What penalties apply if you make an error or mistake? Is there a penalty if you fail to tell HMRC about an under-assessment? How are penalties calculated? How do you check penalties? What can you do if you receive a penalty?

External link

Prutish Gopaul v HMRC [2023] TC8917