Correct test applied

The taxpayer company had for many years been in the business of refining and recycling electronic equipment.

It began exporting mobile phones and other electronic products in May 2005 following an approach from one of its main suppliers of second-hand mobile phones.

HMRC refused the taxpayer’s claim for input tax of £234 442.39 – in relation to five transactions for the periods 07/06 and 08/06. The department said the deals were connected with the fraudulent evasion of VAT and the taxpayer should have been aware of the deception.

The First-tier Tribunal dismissed the taxpayer’s appeal accepting that the company had not known about the fraud but holding that the firm should have known.

The taxpayer appealed to the Upper Tribunal claiming the First-tier Tribunal had applied the wrong test.

The Upper Tribunal decided that the First-tier Tribunal had applied the correct test. Some aspects of reasoning were...