Always Back Up Your Digital Financial Records – Tax Tribunal Cautionary Tale


Business owners who store financial records on a single computer, without backups, create a hostage to fortune. A company director whose laptop was stolen amidst the chaos accompanying the onset of the COVID-19 pandemic found that out to his cost when confronted with an HM Revenue and Customs (HMRC) inspection.

The man became the company’s sole director when its founder resigned. The latter gave him paper copies of the business’s financial and tax records. He scanned them onto a laptop and then proceeded to destroy the paper records. In failing to ensure that the records were sufficiently backed up so that they could be retrieved if needed, he admitted that he should have known better.

He was abroad on business when the pandemic hit. As lockdowns started to be imposed across the world, he managed to book a flight home to the UK amidst scenes that bordered on panic. He had to leave behind his car, which had the laptop inside it. Both were subsequently stolen. Shortly after his return, an HMRC officer conducted a scheduled inspection of the company’s VAT records going back to the date of its incorporation.

In the absence of satisfactory documentation, most of which was on the laptop, the officer concluded that the company’s returns in respect of eight VAT periods were inaccurate. The company was issued with a ‘best judgment’ VAT assessment of £29,586 and a substantial inaccuracy penalty. The director received a personal liability notice (PLN) on the basis that he bore responsibility for inaccuracies.

Ruling on his and the company’s appeal against the penalties, the First-tier Tribunal concluded that they were justified in respect of three of the VAT periods. It found, however, that HMRC had failed to establish that the other five VAT returns were inaccurate at the time they were submitted. Given the director’s unchallenged account of the laptop’s theft, a further reduction in the penalties was merited.

The director’s PLN was reduced from £17,097 to £3,417 and the company’s penalty from £21,457 to £10,251. A PLN imposed on the company’s founder was also adjusted. There was no appeal against the VAT assessment.

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