Case: Director’s penalty appeal can go ahead

In Parish TC 10021, the First-tier Tribunal refused HMRC’s application to strike out part of an appeal against a £3m personal liability notice issued to a company director. HMRC had denied the company’s input tax on Kittel grounds and imposed a penalty under FA 2007, Sch. 24, calculating it at 63% of the overclaimed VAT and then holding the director fully liable under para. 19. The director argued that, for periods after 16 November 2017, HMRC should have used the specific Kittel penalty regime in VATA 1994, ss. 69C and 69D (30% penalty, with director liability under s. 69D), and that FA 2007, Sch. 24 was displaced by s. 69C(21ZA).

The FTT dismissed some grounds (including the contention that there were no inaccuracies in the returns) but held that the statutory‑basis argument had a realistic prospect of success. It noted that the interaction between Sch. 24 and s. 69C had not been tested in the courts and that it had not heard sufficient argument to decide the point at this stage. Accordingly, the strike‑out was refused and a substantive hearing will determine whether HMRC can apply Sch. 24 where s. 69C could apply.

The case underlines that, even in fraud‑related appeals, the precise statutory basis for penalties matters. Holding companies and directors should check whether HMRC has used the correct penalty power, particularly where Kittel denials span the introduction of ss. 69C/69D.