Key Facts
- •Mini-umbrella companies (MUCs) used a model to employ temporary workers, supplying their labor to intermediaries and end-users.
- •MUCs charged VAT at the standard rate, utilizing the VAT Flat Rate Scheme (FRS) and claiming the Employment Allowance (EA).
- •HMRC de-registered MUCs for VAT, removed their FRS authorization, denied EA claims, and issued assessments for under-declared tax.
- •The case involved four lead appellants (Elphysic, Phyarreidon, Rosscana, Zraytumbiax) and numerous related cases.
- •HMRC alleged an organized structure designed to defraud the revenue by claiming tax benefits the MUCs were not entitled to.
- •The case involved extensive evidence, including witness testimonies from HMRC officers, MUC directors, and other involved parties.
- •A significant number of nominee directors were used, often without their full knowledge or understanding of their role.
Legal Principles
VAT deregistration: Member States can de-register taxable persons if their VAT numbers are used for fraudulent purposes, but measures must be proportionate and not undermine the right to deduct VAT.
Valsts ieņēmumu dienests v Ablessio SIA Case C-527/11
FRS authorization: HMRC can terminate FRS authorization if necessary for revenue protection or if false statements were made in the application.
Value Added Tax Act Regulations 1995
Employment Allowance: An employer cannot qualify for EA if they would qualify due to avoidance arrangements. The burden of proof lies on HMRC.
National Insurance Contributions Act 2014
Pleading fraud: Fraud or dishonesty must be specifically alleged and sufficiently particularized. The facts alleged must not be consistent with innocence.
Three Rivers District Council v Governor and Company of the Bank of England (No.3), Sofer v Swissindependent Trustees SA
Outcomes
Appeals allowed in part.
The Tribunal found the MUCs were involved in a fraudulent scheme, leading to their VAT deregistration. However, the Tribunal upheld HMRC's decisions to remove FRS authorization and deny EA claims due to the fraudulent nature of the overall scheme.
MUCs were properly de-registered for VAT.
The Tribunal found sufficient objective evidence that the MUCs’ VAT numbers were used for fraudulent purposes, despite the directors' lack of knowledge.
HMRC's decision to remove FRS authorization was reasonable.
The Tribunal found that the MUCs’ association with others and misleading information in their applications justified the removal. The directors’ lack of knowledge did not negate the scheme's overall fraudulent nature.
MUCs were not entitled to the EA.
The Tribunal found that the MUCs' entitlement to EA stemmed from avoidance arrangements, making them ineligible.