Wholesaler loses £148k missing trader VAT case

Wholesaler loses £148k missing trader VAT case

Apr 28, 2023

A wholesale trader of promotional merchandising has failed to overturn a VAT bill for £148,000 after HMRC said it was the result of carousel fraud

Beigebell Limited appealed against two decisions relating to its VAT return for the period 10/15 at the First Tier Tribunal (FTT) after failing to persuade the Upper Tribunal at an earlier hearing.

HMRC refused a VAT repayment claim for £144,628.40 in October 2016 and issued a separate penalty charge for £3,647.68 under section 73 of the Value Added Tax Act 1994 (VATA).

Between 1 September 2015 and 8 September 2015, the appellant made six purchases of up to 1,000 memory cards from a single supplier, Online Distribution Limited, and sold these on in five deals to Hi View Trading SL. Each of these transactions was connected to a fraudulent defaulting trader or contra trader.

However, this was a departure from its normal business of selling creative merchandise, including branded products such as pens, t-shirts and mugs.

Beigebell was a growing company with a steady increase in turnover, from £250,000 to £400,000 in the three quarters prior to 10/15, then it spiked to nearly £1,060,000 in period 10/15.

HMRC’s case was that the appellant had actual knowledge that its transactions were connected with the fraudulent evasion of VAT.

The output tax was more than double any other quarter in the previous three years at period 10/15 and the input tax was significantly higher than in previous quarters, the FTT said.

In all the transaction chains, Hi-View as the EU acquirer never took delivery of any of the goods, which were delivered by Beigebell’s freight forwarder, Flight Logistics, direct to another freight forwarder in Poland, D&D Trading. However, they never passed through Beigebell’s depot.

Two company directors attended the tribunal, Jack Orton and Marcus Griffiths, both directors of Beigebell.

HMRC officer Rehman said Orton had ‘readily admitted that they had done no real checks on customers or suppliers but were content because money was paid up front’. The Judge said that that the quality of due diligence was ‘woefully inadequate’.

HMRC argued that this was ‘a classic MTIC (missing trader intra-community) fraud with a zero-rated despatch so that there can be a reclaim of VAT from HMRC’.

Beigebell was brought in as a new party not ‘tainted’ by previous tax losses, HMRC said, but that did not mean that they were an ‘innocent dupe’.

The appellant said that there was ‘no direct evidence on which the Commissioners can rely to prove its knowledge of the transactions being connected with fraud’, and ‘vehemently denied the accusation’.

The deals were arranged in informally with Ricky Patel, a friend of Orton, with no detailed documentation, and were followed by a payment for each transaction as a percentage of the sale value.

Patel gave evidence at the tribunal but his testimony was cut short, which HMRC said was ‘to limit the damage’ to the case.

The Judge said: ‘The complete absence of any contemporaneous documentation to evidence any deal (or deals) having been set up is not just a lacuna in the body of evidence adduced for the appellant, but represents a gaping hole in the edifice of factual matrix upon which the appellant is trying to construct its case of innocence.’

Judge Poon added that ‘the deal chains in question were all back-to-back in nature, with high volume of goods in exact quantity and exact stock description being moved down the chains in quick succession’.

The refusal by HMRC to allow the input VAT claimed by the appellant was based on the Kittel judgment by the European Court of Justice (ECJ), which said that the trader either knew or should have known he was involved with fraudulent transaction.

‘This is a case where there was an orchestrated scheme to defraud the Revenue, and Beigebell acted as the broker in these deal chains,’ said the Judge. ‘We do not find Mr Orton’s assertion of ignorance of MTIC fraud credible.’

‘We consider Mr Orton to be a competent, knowledgeable, and experienced businessman. It is probable that Mr Orton, on the basis of having been introduced to these deals by Patel, found the pretext to put the telescope to the blind eye, and ignored all signs that warned him of anomalies. Even if Mr Orton had no actual knowledge of the transactions being connected with fraud, he had blind-eye knowledge of such connection,’ the Judge ruled.