Abnormal transactions

Missing trader fraud

The taxpayers operated in the ‘grey market’ selling goods outside the normal authorised distribution channels. They agreed to buy razor blades from an independent wholesaler B and sold them to a Spanish wholesaler. The taxpayers paid the wholesaler for the goods after they had been paid by the client in Spain.

The taxpayers claimed substantial input tax on the transactions. But HMRC refused 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 but the Upper Tribunal overturned that decision. HMRC appealed.

The Court of Appeal noted that HMRC had warned the taxpayers about missing trader intra-community fraud in the past but the Upper Tribunal had not taken this into account in its assessment of what a reasonable person should have known about any connection with fraud.

Further...