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HMRC refused the taxpayer company’s claim for a refund of VAT on the export of mobile phones on the grounds that the company knew or should have known that its transactions were connected with fraud.
The business’s appeal to the VAT tribunal was allowed; the Revenue appealed on the basis that the tribunal had not given adequate reasons for its decision. The appeal was remitted, by which time the VAT tribunal had been replaced by the First-tier Tribunal, which decided that earlier decision was correct.
HMRC appealed to the Upper Tribunal (Tax and Chancery Chamber), which reviewed the First-tier Tribunal’s conclusions that the company had been part of a clean chain before it became involved in fraud.
This was a vitally important point because, to withhold the VAT claimed, HMRC had to prove that the taxable person, at the time of his transaction, knew or should have known that the transaction was fraudulent. An innocent trader could not know about a fraud before it happened.
In this case, every member of the clean chain dealt with its VAT correctly. The First-tier Tribunal’s findings, that the taxpayer company had done all it could to ensure it was dealing with reputable companies, were reasonable and contained no error of law.
The burden of proof had lain with HMRC to prove the company had knowledge, but the department had failed to do this.
The taxman’s appeal was dismissed.
