Attribution of agent’s behaviour to business owners

The taxpayers were in business together as a partnership that dealt in primary metals. They used an agent who was authorised to buy and sell on behalf of the partnership. But unknown to the taxpayers he was knowingly a party to fraud. HMRC disallowed the partnership’s claim for input VAT on the basis the transactions were fraudulent. The First-tier Tribunal dismissed the taxpayers’ appeal but exonerated them saying they did not know the transactions were connected to the fraudulent evasion of VAT nor could they have had any means of knowing.

The taxpayers appealed to the Upper Tribunal.

The judges said there could be ‘no doubt that at least in certain circumstances if an agent has knowledge of particular matters the agent’s principal is also to be treated as having that knowledge’. However this had to be considered in the legal context arising from the...