Trader Caught Out By Google Street View

December 14, 20220

A taxpayer’s claim of not trading was scuppered by Google’s watchful eye, leaving him personally liable for VAT of £65,801 as his company’s purchase of a trading name and stock was not subject to VAT, and the refund was invalid.

Apollinaire Ltd, trading as Benny Hamish, was incorporated and registered for VAT on 6 October 2015. The company had a single director/shareholder, Zakir Hashmi. A lease in the name of Benny Hamish for 20 Dunlop Street commenced on 2 April 2015.

Hashmi had been involved in several other companies in the prior decade, most of which were seemingly behind with their HMRC submissions and payments.

First 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 further details of this repayment and received a response from the accountant enclosing six invoices totalling £584,001 and dated 11 November 2015 from Snow Whyte (Snow), a limited company of which Hashmi had until recently been a director. Five of these invoices were for standard-rated clothing totalling £573,756 including VAT.

Further information was enclosed, including a statement that Apollinaire and Snow were two entirely different businesses.

Discussions took place and Hashmi told HMRC that he had sold Snow, along with the trading name Benny Hamish, to a Mr Singh for £25,000 (though at other times, £20,000) in October 2015. Singh apparently traded for a month and then sold stock to Apollinaire via the invoices above.

HMRC carried out further visits and discussions until March 2018 when they issued assessments covering the period to 31 January 2016, plus the period 1 May 2016 to 31 January 2017, for £127,437.89 of net overclaimed VAT. Hashmi was also issued with a Personal Liability Notice (PLN) for £65,801.50, making him personally liable for over half of the total.

Hashmi appealed against the PLN to the first tier tribunal (FTT) (TC 8648).

Deliberate inaccuracies?

The key issue was whether deliberately inaccurate VAT returns had been submitted. If there was deliberate action by Hashmi the PLN should stand.

Regardless of who owned Apollinaire and Snow at any particular time, the FTT agreed with HMRC that Hashmi had always been in control of both, 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 FTT found this arrangement unlikely, as it would have left Singh with zero profits. Regardless, this seemingly never came to fruition as Singh apparently tried to change the arrangement before “disappearing”.

Google images

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 FTT with Google images taken in October 2015 showing the shop at Dunlop with stock in the windows and customers in the background. As a final nail in the coffin there was also a large neon sign saying “Open” outside!

Going Concern

The FTT concluded that a transfer of going concern had occurred between Snow and Apollinaire, as the trade of one became the trade of the other with no perceptible break and 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 as such no VAT should have been charged or reclaimed.

Personal liability notice

Hashmi had been involved in a significant number of other companies, many of which had outstanding returns and/or debts owed to HMRC. Its ability to meet the assessments was therefore questionable.

In light of the misleading and/or contradictory evidence Hashmi provided throughout the enquiry and hearing, the FTT agreed that his actions could be said to be deliberate, or at the very least that he had deliberately failed to take appropriate advice.

The FTT therefore found that a deliberate inaccuracy was attributable to Hashmi, who at all material times controlled both of the relevant companies. There was also reasonable doubt as to whether Apollinaire would meet the assessed amount. The PLN was thus correctly issued, and the appeal was dismissed.

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