HMRC’s burden

The taxpayer company was a distributor of computer equipment. It entered into two pairs of transactions selling mobile phones with IH Ltd in April 2006.

The taxpayer accounted for the transactions in its VAT return and sought repayment of input tax.

HMRC refused the claim on the ground that the transactions had been part of a scheme to defraud HMRC and that the taxpayer should have known that this was the case.

The taxpayer appealed claiming that it had no means of knowledge of any fraud. The VAT tribunal decided that the due diligence exercise carried out by the company was insufficient to protect it from risk of involvement in fraud.

The taxpayer should have realised by its purchases that it had been participating in transactions connected with the fraudulent evasion of VAT. The appeal was dismissed.

The taxpayer appealed to the High Court.

Sir Andrew Morritt said that...