Wholesale Distribution Limited v The Commissioners for HMRC
[2024] UKFTT 514 (TC)
Gary Turner v The Commissioners for HMRC
6 June 2024
[2024] UKFTT 495 (TC)
First-tier Tribunal
A company director was fined for his company's involvement in a VAT fraud. The court decided the director should have known his company was dealing with dodgy suppliers and didn't do enough to check. Even though he didn't directly commit the fraud, he was responsible because he was in charge of the company and knew or should have known what was going on.
Key Facts
- •Mr. Gary Turner appealed a company officer's liability penalty of £107,306.55 (originally £110,127.60).
- •The penalty related to Loy Commodities Limited ('Loy'), a scrap metal trading company where Mr. Turner was the sole director.
- •HMRC denied Loy's input tax claim on Kittel grounds (knowledge or should have known of connection to VAT fraud).
- •HMRC alleged Loy's actions were attributable to Mr. Turner.
- •Loy was in creditors' voluntary liquidation and played no part in the appeal.
- •HMRC conducted multiple visits to Loy between 2018 and 2019, raising concerns about its dealings with various suppliers.
- •HMRC identified multiple suppliers involved in fraudulent VAT evasion schemes.
- •Mr. Turner did not challenge the evidence of HMRC's witness statements but argued the evidence was insufficient.
- •The appeal focused on whether Loy knew or should have known about the fraudulent evasion and if Loy's actions were attributable to Mr. Turner.
Legal Principles
Company officer liability for VAT penalties if company's actions attributable to officer.
Value Added Tax Act 1994, sections 69C and 69D
Kittel principle: Denial of input tax deduction if taxable person knew or should have known of connection to VAT fraud.
Axel Kittel v. Belgian State & Belgium v. Recolta Recycling (Joined cases C-439/04 and C-440/04) [2008] STC 1537
HMRC's burden of proof is on the balance of probabilities.
The Commissioners for Her Majesty’s Revenue and Customs v Citibank NA, E Buyer UK Limited [2017] EWCA 1416 (Civ), [2018] 1 WLR 1524
To establish knowledge, HMRC must show that the only reasonable explanation for the transactions was connection to VAT fraud.
Mobilx Ltd (in admin) v HMRC [2010] STC 1436
Objective factors are necessary to determine knowledge or means of knowledge. HMRC's opinion on indicators doesn't make them subjective.
S & I Electronics plc v HMRC [2015] UKUT 162 (TCC)
Knowledge of an overall scheme to defraud, even without knowledge of specific facts underpinning it, suffices.
Fonecomp Ltd v Revenue & Customs Commissioners [2015] STC 2254
Outcomes
Appeal dismissed.
The Tribunal found Mr. Turner knew or should have known Loy's transactions were connected to VAT fraud due to a range of factors (lack of due diligence, lack of price negotiation, non-commercial arrangements, ignoring red flags, and continued trading with known problematic suppliers). His actions were attributable to him as the sole director and controlling mind of Loy.