Prompted and unprompted disclosure – an FTT decision

The case of United European Gastroenterology Federation (UEGF) [2013] UKFTT 292 (TC), illustrates how difficult it will generally be to claim that a disclosure is unprompted when it is made at a time when HMRC has already booked a verification visit.

UEGF is a Swiss not for profit organisation, which organised a UK congress in 2009. It did so with the assistance of a third party. As regards previous congresses, the third party had invoiced the delegates in that third party's own name (ie as principal). However, for the 2009 congress, the third party invoiced the delegates on behalf of UEGF.

Deloitte UK submitted UEGF's VAT return for the relevant period on 26 February 2010 claiming a repayment of just over £150,000. HMRC agreed a visit with Deloitte for 27 April 2010, which was then postponed until 21 May 2010.

In the meantime, Deloitte Austria spotted that there was a VAT issue relating to the 2009 congress and contacted Deloitte UK. They did so two days before the scheduled visit, ie on 19 May 2010. There was then a subsequent telephone conversation between the two branches of Deloitte on 20 May 2010.

On that date, Deloitte UK telephoned HMRC to explain that the VAT return might need to be amended in light of certain additional information, and a new date was agreed for the visit (1 July 2010). A few days before the date of that visit – ie on 28 June 2010 – Deloitte UK sent HMRC a fax explaining the outline of the mistake that had been discovered.

HMRC subsequently assessed for VAT and penalties on the basis that the disclosure was prompted, and the careless inaccuracy therefore generated a penalty at 15%, ie approximately £104,000.

At the material time, paragraph 9 of schedule 24 FA 2007 provided that a disclosure is 'unprompted' if 'made at a time when the person making it has no reason to believe that HMRC have discovered or are about to discover the inaccuracy… and otherwise is 'prompted''.

UEGF argued that the disclosure would have been made irrespective of any planned visit by HMRC, and the Appellant had no reason to believe (on the facts) that at the time it made the disclosure, that HRMC were about to discover the error.

On the facts, the Tribunal found that at the time when this disclosure was made (whether that was 20 May or 28 June) UEGF was aware that there was a major problem with its VAT returns (ie it hadn't included the output VAT charged on its behalf to the delegates). It was also aware that HMRC had arranged a visit to verify the repayment claim and the visit was to take place imminently. 

To quote from the Tribunal's judgement:

'In those circumstances, could it be said that the Appellant had 'no reason to believe' that HMRC were about to discover the inaccuracy?

'This is clearly a much higher hurdle for the Appellant than if it had to establish, for example, that there was a reasonable possibility (or even a likelihood) that the inaccuracy would have escaped undetected. It is a hurdle which, in the circumstances, we consider the Appellant cannot clear. Whether or not it knew of the level of enquiry that HMRC would undertake during the course of the visit, it is quite clear to us that it had at least some reason to believe that the inaccuracy would be discovered as a result of it. 

'It must therefore fail the 'no reason to believe' test and this is fatal to the appeal. We should emphasise that this is the case, on our interpretation of the statutory test, even though we fully accept the Appellant's evidence that the disclosure would have been made even if no HMRC visit had been arranged.'

The Tribunal also made clear that where in paragraph 9, reference is made to 'a person' disclosing an inaccuracy, that refers to the taxpayer (where an agent is involved), and references to the 'person making [the disclosure]' are, where a disclosure is made by an agent, to the principal on whose behalf it is made.

Tax partner Nigel Popplewell recalls attending a working together meeting in 2006 to discuss the proposed penalty regime which was introduced in FA 2007. There was a feeling at that meeting, certainly amongst those with a Customs and Excise background, that a taxpayer could never plead unprompted disclosure where it was made against the background of an already diarised control visit. The UEGF decision seems to support that view.