Reasonable explanation

Missing trader intra-community fraud

AC was a wholesaler of consumer electronic products. In 2009 and 2010 it entered into six deals in which it bought televisions from UK suppliers and immediately sold them to customers. Most of the sales were to customers registered for VAT in other EU countries or in Jersey and most of the televisions were exported.

The appeal concerned purchases traced back to defaulting traders who charged VAT but then disappeared without accounting for it.

HMRC refused to repay the input tax claimed by AC on the ground that the transactions were connected to fraud and that AC knew or should have known that this was the case. The First-tier Tribunal agreed with HMRC so AC appealed. It said the First-tier Tribunal had erred in law in concluding that the ‘should have known’ test did not require HMRC to eliminate all other reasonable explanations...