Not diligent enough

The taxpayer traded in second-hand mobile phones and computer processing units.

Following investigations by HMRC it was found that all its supply chains had been traced back to defaulting traders.

The department informed the taxpayer of this and acknowledged that the taxpayer was not involved. The taxpayer offered to help combat the fraud and further incidents of fraud were uncovered.

However HMRC refused the taxpayer’s claim for repayment of input tax in its returns for April May and June 2006.

They accepted that the taxpayer had carried out due diligence into its suppliers and customers but said that it should have known that the transactions were connected with VAT fraud.

On appeal to the tribunal the taxpayer acknowledged that on the balance of probabilities it should have known that traders preceding it in the supply chains had not accounted for VAT.

However it was...