Business as normal

The taxpayers were companies that operated in the “grey market” selling goods outside the normal authorised distribution channels.

They agreed to purchase razor blades from an independent wholesaler of which they had made enquiries and visited and sold the razor blades to a Spanish wholesaler. The taxpayers paid the wholesaler for the goods after they had been paid by the client in Spain.

The transactions gave rise to substantial input VAT claims but HMRC refused them on the basis the transactions were fraudulent and the taxpayers should have known they were connected with fraud.

The First-tier Tribunal dismissed the taxpayers’ appeal.

The Upper Tribunal said the taxpayers had checked the vendor and verified it was engaged in commercial activity. The fact it had approached the taxpayers was not an unusual occurrence in the grey market and the transactions were “entirely explicable as ordinary market transactions”.