Alex Harries t/a Glam Tanning and Beauty v The Commissioners for HMRC

15 October 2024

[2024] UKFTT 909 (TC)

First-tier Tribunal

Alex's business claimed VAT back on fake invoices from a builder. She knew, or should have known, the invoices were dodgy because it happened before. HMRC said no VAT back and fined her. The judge agreed with HMRC.

Key Facts

•Alex Harries (Appellant) traded as Glam Tanning and Beauty.
•HMRC denied input tax deductions for VAT accounting periods 12/20, 04/21, 05/21 (£221,499) and 07/21 (£27,400).
•HMRC imposed penalties under s 69C VATA (£66,450) and Schedule 24 Finance Act 2007 (£15,755).
•The Appellant claimed she had little involvement in Glam Tan, blaming her sister for fraudulent activities.
•HMRC determined the Appellant was the sole proprietor of Glam Tan and Glam Tanning and Beauty.
•The Appellant made substantial payments to Aware Limited, a company directed by Marc Simpson, for building work.
•Aware Limited's VAT returns significantly understated output tax, indicating fraudulent VAT evasion.
•Invoices provided by Aware Limited lacked necessary details, rendering them invalid under Regulation 29.
•The Appellant had prior experience with fraudulent invoices when trading as Glam Tan.
•The Appellant provided a falsified invoice for the 07/21 VAT period.

Legal Principles

Right to deduct input tax is derived from Articles 167 and 168 of Council Directive 2006/112/EC and ss 24-26 VATA.

Council Directive 2006/112/EC, ss 24-26 VATA

Input tax deduction is precluded if the trader knew or should have known their purchase was connected to fraudulent VAT evasion (Kittel).

Axel Kittel v Belgium & Belgium v Recolta Recycling SPRL (C-439/04 and C-440/04)

The 'should have known' test considers if the only reasonable explanation for the transaction was its connection to fraud (Mobilx).

Mobilx Ltd (in Administration) v HMRC

A trader must hold a valid VAT invoice or other evidence to claim input tax deduction (Regulation 29).

Regulation 29, Value Added Tax Regulations 1995

HMRC's decision not to exercise discretion under Regulation 29 is subject to a supervisory review; the Appellant must show the decision was unreasonable (Kohanzad).

Kohanzad v Commissioners of Customs and Excise

Penalties under s 69C VATA are applicable for denied input tax deductions due to knowledge or should have known of a connection to fraudulent VAT evasion.

s 69C, Value Added Tax Act 1994

Penalties under Schedule 24 Finance Act 2007 apply for careless or deliberate inaccuracies in VAT returns, including concealed inaccuracies through false evidence.

Schedule 24, Finance Act 2007

Outcomes

Appeal dismissed regarding denial of input tax deductions (Kittel Decision).

Transactions with Aware were connected to fraudulent VAT evasion, and the Appellant should have known this given her prior experience and the circumstances.

Appeal dismissed regarding denial of input tax deduction (Regulation 29 Decision).

The provided invoice was invalid, and HMRC's refusal to exercise discretion was reasonable.

Appeal dismissed regarding s 69C VATA penalty.

The penalty was correctly imposed due to the denial of input tax deductions based on the Kittel Decision.

Appeal dismissed regarding Schedule 24 Finance Act 2007 penalty.

The 07/21 VAT return contained a deliberate and concealed inaccuracy using a false invoice; the penalty calculation was appropriate.

Alex Harries t/a Glam Tanning and Beauty v The Commissioners for HMRC

Key Facts

Legal Principles

Outcomes

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