AAMRL Ltd & Anor v The Commissioners for HMRC

These are consolidated appeals brought by AAMRL LTD (“AAMRL”) and its sole director, Maria Rosa Loria (“Ms Loria”), against a series of decisions made by the Commissioners for His Majesty’s Revenue and Customs (“HMRC”).

The appeals concern five decisions:

AAMRL Limited (“AAMRL”) was incorporated in January 2020 and registered for VAT with effect from July 2020. It was at all material times under the sole directorship and ownership of Ms Maria Rosa Loria. The company’s stated business activities included wholesale and retail of electronic goods, with earlier references to online retail activity.

From late 2021 to early 2022, AAMRL’s trading profile changed. Reported turnover increased sharply from modest levels to multi‑million‑pound quarterly figures. By the VAT periods relevant to this appeal, the company’s activities were predominantly wholesale rather than retail.

During the VAT periods 02/22, 05/22, 08/22 and 11/22, AAMRL purchased large quantities of consumer electronic goods, principally games consoles and accessories. The goods were purchased to order and sold on almost immediately, typically without AAMRL taking physical possession.

The goods were commonly delivered directly from AAMRL’s supplier to its customer via third‑party freight forwarders, most notably Unicorn Shipping and Interken Freighters. AAMRL did not hold wholesale stock and did not materially alter, process or repackage the goods.

During the relevant periods, AAMRL’s wholesale purchases were predominantly from the following suppliers:

Each of these suppliers was subsequently identified by HMRC as a fraudulently defaulting trader or, in the case of Purple Mobile, as operating within tax‑loss supply chains. All were deregistered from VAT with retrospective effect.

AAMRL’s principal wholesale customer during the relevant periods was Estanza Ltd, to which the vast majority of AAMRL’s wholesale sales were made. In some periods, Estanza accounted for almost all of AAMRL’s sales by value. Estanza itself was later deregistered under the Ablessio principle and subject to VAT denials.

The goods sold by AAMRL were frequently onward‑sold by Estanza to further traders, including Deos Group, with no identified end‑user market. The transaction chains were therefore characterised by repeated wholesale movements of the same goods.

Across the four VAT periods in issue, AAMRL claimed input tax totalling approximately £7.43 million. HMRC traced £7.35 million of that amount to purchases from the above suppliers and denied the right to deduct that input tax on the basis that the transactions were connected with fraudulent VAT losses upstream.

The proportion of input tax denied ranged from approximately 95% to almost 100% of the total input tax claimed. Corresponding VAT assessments were raised, and repayment claims were refused or reversed.

From July 2022 onwards, HMRC engaged with AAMRL. This included requests for records, site visits (on 28 July 2022 and 12 April 2023), provision of guidance materials (including VAT Notice 726 and MTIC fraud guidance), and the issuing of multiple VETO and tax‑loss letters in respect of AAMRL’s suppliers and customers.

Despite these interventions, AAMRL continued to trade with successive suppliers who were later identified as connected to tax‑loss supply chains.

HMRC deregistered AAMRL and denied AAMRL’s claims to input tax on the basis that the transactions were connected with the fraudulent evasion of VAT. The total input tax claimed for the four periods was £7,429,784.31, of which £7,346,897 (approximately 98.9% of input tax claimed) was denied.

HMRC further concluded that AAMRL’s VAT registration had been used solely or principally for fraudulent or abusive purposes, and cancelled the registration with immediate effect under the principles derived from Ablessio. That decision was upheld on statutory review.

Following the denial of input tax, HMRC imposed a penalty on AAMRL under section 69C VATA. HMRC then issued a personal liability notice to Ms Loria under section 69D VATA on the basis that AAMRL’s actions were attributable to her as sole director. Representations were invited and considered before the penalties were confirmed.

AAMRL and Ms Loria appealed each of the decisions. AAMRL disputes the cancellation of its VAT registration, the denial of input tax, and the section 69C penalty. Ms Loria disputes her personal liability pursuant to section 69D.

The power to deregister a taxpayer on the basis of abuse is based on jurisprudence of the Court of Justice of the European Union (“CJEU”). In the decisions of Valsts ieņēmumu dienests v Ablessio SIA Case C-527/11 (“Ablessio”) and Halifax plc, Leeds Permanent Development Services Ltd and County Wide Property Investments Ltd -v- Commissioners of Customs and Excise Case C-255/02 (“Halifax”) the CJEU, considered the ability to refuse registration to a taxpayer if it was using its VAT registration solely or principally for abusive purposes and the abuse principle more generally. The CJEU in Ablessio observed that what must be established is:

In Impact Contracting Solutions Ltd v HMRC [2025] EWCA Civ 623 (“Impact”) the Court of Appeal confirmed that:

The right of a taxable person to deduct input tax is contained within sections 24-29 of VATA 1994. In particular:

The evidential requirements to be satisfied by a trader wishing to exercise his right to deduct input tax are set out within the Value Added Tax Regulations 1995 (SI 1995/2518) (the “VAT Regulations”). In particular:

Those provisions reflect and transpose the corresponding European Community laws contained within Articles 167 and 168 of the VAT Directive.

The right to deduct input tax will be lost where a taxable person “knew or should have known” that his transaction was connected with the fraudulent evasion of VAT. This is a test that was originally laid down by the Court of Justice of the European Communities ("CJEU") in Kittel. There the CJEU stated:

The Kittel principle was elaborated on by Moses LJ sitting in the Court of Appeal in Mobilx Ltd v HMRC [2010] EWCA Civ 517; [2010] STC 1436 ("Mobilx") where he stated:

In Mobilx the Court of Appeal went on to sound a note of caution in relation to attempts to improve upon the principle laid down in Kittel:

In relation to the phrase “the only reasonable explanation” it is important to note, as confirmed by Proudman J. sitting in the Upper Tribunal in the case of GSM Export (UK) Ltd and another v HMRC [2014] UKUT 529 (TCC), that Mobilx does not purport to change the test in Kittel:

The Court of Appeal in Mobilx (at [83]) then affirmed guidance on the treatment of circumstantial evidence in cases of VAT fraud. In doing so the Court of Appeal quoted Christopher Clarke J. in Red 12 Ltd v HMRC [2009] EWHC 2563; [2010] STC 589 (“Red 12”), who had said:

Further, in AC (Wholesale) Ltd v HMRC [2017] UKUT 191 (TCC), the Upper Tribunal considered Mobilx concluding that the “only reasonable explanation” test is simply one way of showing that a person should have known that transactions were connected to fraud. On this, the Upper Tribunal went on to state that:

A taxpayer does not need to know specific details of the fraud being perpetuated. In Fonecomp Ltd v HMRC [2015] EWCA Civ 39; [2015] STC 2254 the Court of Appeal (Arden LJ) said:

It is dishonest for a person deliberately to shut their eyes to facts which they would prefer not to know. If he or she does so, they are taken to have actual knowledge of the facts to which they shut their eyes. See, for example, Beigebell Ltd (No.2) v HMRC [2023] UKFTT 363 (TC) and Cavendish Ships Stores v HMRC [2020] UKFTT 257 (TC). Such knowledge has been described as “Nelsonian” or “blind-eye” knowledge: see judgment of Lord Scott in Manifest Shipping Company Ltd v Uni-Polaris Shipping Company Ltd and others [2001] UKHL 1; [2003] 1 AC 469:

In Mobilx Moses LJ stated:

In Mahagében kft v Nemzeti Adó- és Vámhivatal Dél-dunántúli Regionális Adó Foigazgatósága; Dávid v Nemzeti Adó- és Vámhivatal Észak-alföldi Regionális Adó Foigazgatósága (Joined cases C-80/11 and C-142/11) [2012] STC 1934 the CJEU said the following with regard to due diligence:

The case law indicates that it is necessary to guard against over-compartmentalisation of relevant factors, and to stand back and consider the totality of the evidence: see Davis & Dann Ltd v HMRC [2016] EWCA Civ 142, [2016] STC 1236 (“Davis & Dann”) and CCA Distribution Ltd v HMRC [2017] EWCA Civ 1899; [2018] STC 206 (“CCA Distribution”).

In considering circumstantial evidence, the Tribunal should take care not to restrict itself to considering each piece of evidence alone and in isolation from the others. This is because circumstantial evidence is not a chain, where a break in one link breaks the chain, but is a cord: one strand of the cord might be insufficient to sustain the weight, but three strands together might be sufficient: see R v Exall (1866) 4 F&F 922, per Pollock CB, cited with approval by the Upper Tribunal CCA Distribution at [91]. Accordingly, the whole can end up stronger than the individual parts: see the decision of Judge Christopher McNall in Wholesale Distribution Ltd v HMRC [2024] UKFTT 514 (TC) at [49]

Further, it is necessary to consider individual transactions in their context, including drawing inferences from a pattern of transactions, and to look at the totality of the deals effected by the taxpayer (and their characteristics), and at what the taxpayer did or omitted to do, and what it could have done, together with the surrounding circumstances in respect of all of them: see Red 12 at [109] to [111]. In effect, as a facet of the guidance given in Red 12, it is necessary to guard against over-compartmentalisation of relevant factors, and to stand back and consider the totality of the evidence: Davis & Dann and CCA Distribution.

In Blue Sphere Global Ltd v HMRC [2009] EWHC 1150 (Ch) (“Blue Sphere Global”), Sir Andrew Morritt C identified at [29] the four questions which the FTT must consider and answer in such cases:

In Mobilx, the Court of Appeal agreeing with the analysis of Sir Andrew Morritt C, made clear at [81] that in Kittel appeals the burden of proving all four elements of the Blue Sphere Global test rests on HMRC.

As the CJEU underscored at paragraph [47] of Kittel, the right to deduct is “an integral part of the VAT scheme [which] in principle may not be limited”. Accordingly, the Tribunal must, before allowing that right to be interfered with, be satisfied that HMRC have proved each element of the Kittel test in relation to each purchase that they seek to deny input tax on.

It is not enough for HMRC to prove that the appellant's purchases might have been connected with fraudulent evasion of VAT: see Hira Company Ltd v HMRC [2011] UKFTT 450 (TC) at [111], per Judge Poole. Rather, HMRC have to prove, on the balance of probabilities, that the appellant's purchases were connected with fraudulent evasion of VAT.

Similarly, it is not enough for HMRC to prove that the appellant knew or should have known that its purchases might be connected with fraudulent evasion of VAT, were probably connected with fraud or were likely connected with fraud. Rather, HMRC have to prove, on the balance of probabilities, that the appellant knew or should have known that its purchases were connected with fraudulent evasion of VAT.

The standard of proof is the civil standard of the balance of probabilities. As confirmed by Lord Hoffman in Re B [2008] UKHL; 35 [2009] 1 AC 11:

So far as is relevant, s 69C VATA 1994 specifies:

So far as is relevant, s 69D VATA 1994 specifies:

The Tribunal’s task is therefore to determine attribution and quantum independently of the underlying denial decision, albeit by reference to the same factual matrix.

With the agreement of Ms Loria, we invited HMRC to present its case first, so that Ms Loria could better present her own case.

For HMRC, we heard live evidence from Carmelina Mankad (“Officer Mankad”), a Fraud Investigation Service (“FIS”), Organised Crime, Civil Investigations Higher Officer at HMRC at Croydon.

For her own case, Ms Loria gave evidence.

We also considered the evidence contained within the electronic hearing bundle of 5,668 pages (as counted by PDF viewing software), including the index.

Officer Mankad dealt with the background to the case, the progress of the investigation and procedural matters. None of those matters were in dispute. The evidence was presented in a straightforward and balanced manner and was not undermined by any questioning or internal inconsistency. We accepted the evidence presented by HMRC as both reliable and credible.

Ms Loria was the only witness in her own case. Her evidence was critical to the most important matters of fact for the Tribunal to decide.

Throughout her evidence, Ms Loria was asked to describe what AAMRL actually did in relation to wholesale supplies of games consoles and similar products. A consistent feature of her evidence on all such issues was vagueness. We take for an example her answer to what research she did to transition the business into the wholesale trade of games consoles etc. Consistently, her answers amounted to no more than “you know, researching how to do wholesale business”.

Ms Loria was asked what searches she made on the internet to understand a new area of business. She was not able to answer save in only the vaguest of terms.

Ms Loria was asked how, as a new player in the field, AAMRL was able to secure substantial deals with suppliers and purchasers. Her answers were entirely vague.

Ms Loria was asked how the business conducted due diligence and her answers about that were equally vague.

We observed that when taken to more difficult areas or even simply when asked to provide detail, Ms Loria defaulted to a number of apparently safe positions:

We concluded that Ms Loria was able to answer matters about the wholesale business in only the broadest or vaguest of terms. Taking the content of her answers, we concluded that she was an unreliable and incredible witness and we concluded that we simply could not give any weight to her evidence, save on two matters alone, to which we now turn.

We did not conclude that Ms Loria’s evasion or vagueness was in any way sophisticated. We were satisfied that Ms Loria was out of her depth. The first point on which we found her credible and reliable was that she did not understand the case against her.

The second point on which we found her credible and reliable was that she is now in receipt of benefits which we accepted on the basis that it was a matter within her knowledge and experience and which was not challenged or contradicted.

For similar reasons, we also concluded that Ms Loria was not proved to have responsibility for every apparent action of AAMRL. For example, HMRC relied on AAMRL’s business plan. Having regard to Ms Loria’s evidence and, in particular, her inability to answer questions with any particularity or in any way that demonstrated knowledge of her own business, we concluded that it had not been established that she had produced that document herself.

We concluded that HMRC had not established that Ms Loria was the guiding force of AAMRL’s wholesale activities.

We also considered the extent to which we were satisfied that HMRC had established that Ms Loria knew what was going on and what her business was being used to achieve. We found Ms Loria to be unsophisticated and lacking any material knowledge about the wholesale business of AAMRL. That conclusion was supported by the evidence of HMRC visits to the business in which HMRC were told by Mr Abbasi that he, Mr Abbasi, was responsible for the wholesale side of the business.

In the light of the conclusions we reached about the evidence of Ms Loria, we gave most weight to the documentary evidence. We took into account Ms Loria’s evidence as relevant only to the question of her level of involvement. We concluded that her ability to answer questions (whether truthfully or not or reliably or not) was relevant to our determination about the level of her involvement in or connection to or knowledge of the underlying VAT fraud.

On behalf of HMRC, Miss Udom argued that we should consider the evidence holistically and we agreed with that approach.

In that sense, HMRC relied on (among other things):

It is for HMRC to establish matters of fact on which the assessments and penalty decisions are based. The standard of proof is the balance of probabilities and there is no “sliding scale” – the standard is the same regardless of value or seriousness.

We considered the Blue Sphere Global questions:

In respect of the first three questions, there was no material challenge. Nevertheless, we considered all of the evidence in the round. In the round, it was clear from the evidence that the material transactions were fraudulent in the broadest sense and connected with the transactions of the Appellants.

Our decision required us to consider what AAMRL knew or should have known and what Ms Loria knew or should have known.

On the facts of this case, the knowledge of AAMRL includes the knowledge of Ms Loria. HMRC did not seek to establish that any other person contributed to AAMRL’s knowledge as a legal entity. It was clear that Mr Abbasi was involved in the day-to-day functioning of the business of AAMRL but neither party asked him to give evidence. We concluded that we could only safely conclude that AAMRL’s knowledge was the same as Ms Loria’s knowledge.

Did AAMRL know or should it have known that the transactions in question were connected to VAT fraud. As we have said, we relied on two parts of the evidence, being the firm ground of the documentary evidence (considered holistically) and Ms Loria’s lack of sophistication or apparent knowledge.

Ms Loria was trading in cosmetics on a small or retail scale. She had sufficient knowledge and ability to do that (noting that doing so would have been facilitated by the technology of the online platform involved which largely automates much of the processes involved, including connecting buyers to sellers).

Ms Loria had no experience of wholesale trading. Ms Loria had no contacts in wholesale trading. AAMRL’s wholesale activity went from nothing to multi-million pounds per annum in materially no time at all and with no, or close to no, research or marketing.

We had regard to the statutory duties of a company director.

We considered whether HMRC had established that a reasonable trader in Ms Loria’s position and with her knowledge should have known that AAMRL was facilitating a VAT fraud.

A principal element of HMRC’s case is that the transactions in question simply make no commercial sense. We agree. AAMRL added no commercial value. On every occasion, it happened upon a customer requiring a set amount of product and a supplier offering exactly that. The customer could as easily have transacted with the supplier as it did with AAMRL. AAMRL and Ms Loria presented no credible evidence of commercial effort to establish itself as a procurer of goods that a customer might wish to secure and the pattern of transactions did not support that, indeed, quite the opposite.

We could find no credible way in which Ms Loria could have arranged the transactions in question unless someone had presented them to her as an already complete package. No other scenario was credible.

In the face of such a transaction being advanced with no groundwork having been done, we conclude that any reasonable person in Ms Loria’s position (at the very least) should have known that the transaction was fraudulent in some way or connected to fraud in some way.

However, we had regard to our finding of fact that Ms Loria was clearly unsophisticated. We do not conclude that Ms Loria knew or should have known in what way the transaction was fraudulent or connected to fraud but the fact that it was in some way fraudulent or connected to fraud would or should have been apparent to anyone in her shoes.

We were satisfied that a reasonable person would have been suspicious and to the extent that not scrutinising the transaction(s) as Ms Loria (on her own evidence) did not, the most favourable and plausible explanation was the wilful decision not to ask uncomfortable questions.

Having regard to our findings about Ms Loria’s evidence and her evident lack of sophistication, we concluded that HMRC had only been able to establish that Ms Loria (and therefore AAMRL) should have known that AAMRL was facilitating fraud of some kind and that she had knowledge that the transactions were in some way illegitimate. We were not satisfied that she knew or should have known how the transactions were illegitimate, but we were satisfied that she was deliberately blind to the fact. She did not ask questions that she, as a company director, should have asked.

The test set out in Kittel does not require us to be satisfied that a person needs to understand the mechanics or precise features of a fraud in order to satisfy the Kittel test, the required state of knowledge remains knowledge (actual or constructive) of a connection with VAT fraud. The authorities do not support the proposition that general suspicion of wrongdoing, dishonesty, or illegitimacy in a transaction chain is sufficient of itself. Nor do they impose on a trader who harbours such suspicions a duty to identify the legal nature of the fraud at their peril. The question remains whether, on the balance of probabilities, the trader knew or should have known that the transactions were connected with the fraudulent evasion of VAT. For the reasons we have expressed already, we found that HMRC had failed to establish that.

In reaching this conclusion, we are not suggesting that VAT fraud was inherently unknowable before 28 July 2022, but that HMRC bore the burden of proving that it was more likely than not that Ms Loria should have known of the VAT dimension of the fraud, and on the evidence before us that burden was not discharged.

Matters changed materially during the assurance visit of HMRC Officers Nigel Pounds and Lawrence Smith. During that visit, the role of the FIS in the prevention of VAT fraud was expressed in clear terms. From that moment on, Ms Loria (and therefore AAMRL) should have known that the transactions in question related to VAT fraud specifically.

We have concluded that AAMRL should have known that the transactions in question were related to VAT for only the period following 28 July 2022. HMRC must also establish that the step of deregistration is proportionate.

We note that the extent of the transactions following 28 July 2022 remained substantial. Further, those transactions occurred after an assurance visit after which AAMRL did not materially change any of its processes.

We are satisfied that the step of deregistration was proportionate and appeal one is dismissed.

The outcome of this appeal rests on the same question; did AAMRL (and on our findings of fact, Ms Loria) know or should have known that AAMRL had entered into transactions connected with the fraudulent evasion of VAT.

The purpose of the test is clear: to deny input tax is onerous and can only be justified with a certain level of knowledge.

For the reasons expressed already, we are satisfied that AAMRL should have known that it had entered into transactions connected with the fraudulent evasion of VAT but only for the period following 28 July 2022. For transactions up to that date, we are not satisfied that AAMRL should have known that the transactions in question related to VAT fraud.

Appeal two is allowed in relation to transactions up to 28 July 2022. Appeal two is dismissed in relation to transactions after 28 July 2022.

HMRC must recalculate the amount of input VAT denied to AAMRL.

All transactions relating to appeal three were after 28 July 2022. For the reasons expressed already, appeal three is dismissed and on the same basis.

This appeal turns on the same point: what did AAMRL know or should have known about its involvement in transactions and their relation to VAT fraud.

For the reasons already expressed, appeal four is allowed in relation to transactions up to 28 July 2022. Appeal four is dismissed in relation to transactions after 28 July 2022.

We note that the decision letter of 4 July 2024, HMRC assessed the S69C penalty at 30% of the input tax denied. We find no reason to interfere with that percentage. HMRC must therefore recalculate the penalty on the basis of 30% of the input tax denied for transactions following 28 July 2022.

This appeal introduces a further element that is not present for appeals one to four: whether “… the actions of the company which gave rise to th[e VAT] liability were attributable to [Ms Loria]…”

For the purpose of appeals one through to four, it was sufficient for us to ask what AAMRL (and therefore, Ms Loria) knew or should have known that the transactions related to fraud and specifically, VAT fraud. We found that the question presented to us for appeal five was more difficult.

HMRC presented evidence that Mr Abbasi accepted full responsibility for the wholesale side of AAMRL’s business. Mr Abbasi was not a witness (though he was present throughout the hearing) and HMRC could not have challenged him on the point. HMRC could have elected to present a case against Mr Abbasi but did not do so. We do not seek to look behind that decision.

Likewise, Ms Loria could have called Mr Abassi as a witness. She did not and we do not seek to look behind her decision to not to call him. We decide the case on the evidence that we have, drawing appropriate inferences and avoiding speculation.

In the absence of denial by Ms Loria, we accept the hearsay evidence of the statement made by Mr Abbasi that it was he who was materially in control of the side of the business that gives rise to this appeal. In effect, it was a statement against his own interests and so a hearsay statement to which we felt able to give some weight.

Our conclusion does not absolve Ms Loria. She has statutory duties as a director of a limited company.

The approach we took was to ask what was the minimum involvement and knowledge that HMRC could prove on the balance of probabilities.

In addressing appeals one, two, three and four, we have already set out our findings of fact as they relate to what Ms Loria knew or should have known. After 28 July 2022, Ms Loria should have known that the transactions in question related to VAT fraud.

Given that we accept that Mr Abassi was materially in control of the transactions in question we find as a fact on the balance of probabilities that after 28 July 2022, Ms Loria allowed her company to be used for those transactions when she should have known that they were connected to some form of VAT fraud.

We noted the difference in language adopted by Parliament between sections 69C and 69D and we asked Miss Udom to help us navigate that difference. She referred us to the dictionary definition of “attributable”. The online Merriam Webster dictionary includes the definition of the word “attribute” (as a verb) as “to explain (something) by indicating a cause”.

Further, we had regard to the purpose of the legislation. The purpose of the section is clearly to allow a personal penalty to apply to an officer of a company if they bear some material responsibility for the VAT loss.

Taking the dictionary definition of the word, together with the purpose of the legislation and the statutory responsibilities of a director of a limited company, we concluded that the meaning of “attributable to” must include turning a blind eye or permitting the use of the company when one should have known of the connection to VAT fraud. To that extent and to no more than that extent, we find that the transactions in question were attributable to Ms Loria personally.

We do not treat ‘should have known’ as sufficient of itself to establish attribution. What renders the company’s actions attributable to Ms Loria is her continuing authorisation of the company’s use for those transactions after the point at which she should have known of the VAT fraud risk, in circumstances where she retained legal control as director.

Appeal five is dismissed. However, we are able to consider the amount of the penalty and in the light of the limited findings of fact, we do so.

Section 83(nb) VATA grants to the Tribunal power to review the amount of the penalty attributable to an officer of a company in pursuance of section 69D.

We have concluded that Ms Loria is far from a sophisticated businessperson. We accept that HMRC have proved that she was a person who owned a business and allowed that business to be used for transactions she should have known were related to VAT fraud. We have concluded that it has not been proved that she knew what those fraudulent purposes or methods were. We conclude that HMRC have established the lowest level of knowledge to meet the test but no higher.

In terms of benefit, there was no evidence that AAMRL (or Ms Loria) benefitted from the underlying VAT frauds other than from the slender margins allowed for AAMRL’s involvement.

Attribution of a section 69D penalty involves an element of discretion. We conclude that a 100% attribution would be appropriate for a guiding mind behind the underlying VAT fraud. The evidence has not allowed us to find facts to that extent.

Having regard to our findings of Ms Loria’s marked lack of sophistication, together with Mr Abassi’s material control over the transactions in question and further in the light of very limited benefit, we accept that Ms Loria and her company were used by others with far more sophistication than hers. As we have said, we accepted Ms Loria’s confusion about the reason for her being before the Tribunal.

Of course, a lack of commercial sophistication does not absolve a director of responsibility, but we conclude that it is relevant to the extent of culpability and the proper scope of attribution and discretion regarding penalty.

We started at a notional penalty of £1. We concluded that such a penalty would have no deterrent effect on people in Ms Loria’s position (and that is a clear purpose of the personal penalty regime). Further, a penalty at such a notional level has the effect (intended or otherwise) of criticism of the imposition of the penalty itself. Company directorship is an important undertaking and society expects and requires company directors to act with probity and vigilance. Ms Loria fell short of those standards and so a notional penalty would not have been proportionate. In other words, we agreed with HMRC that the imposition of a personal penalty met the purposes of the section and was appropriately imposed.

We next considered what percentage of the company penalty (as must be recalculated) appropriately met the purpose of the penalty regime. We had regard to our finding that Ms Loria is unsophisticated, was taken advantage of by others who were more sophisticated but also that she had important statutory duties as an officer of a limited company.

We regarded a penalty of 10% of the company penalty as being the lowest amount that reasonably meets the purpose of section 69D.

In all of the circumstances, we conclude on appeal five that the penalty should be upheld but reduced to 10% of the company penalty, as recalculated.

We made the following decisions:

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.