Minstrell Recruitment Limited & Ors v The Commissioners for HMRC

19 January 2024

[2024] UKFTT 82 (TC)

First-tier Tribunal

A recruitment company (MRL) tried to deduct VAT it paid to three dodgy supplier companies. The tax office (HMRC) said MRL knew the suppliers were cheating on their taxes and refused to let MRL deduct the VAT. A court found that MRL's directors were closely connected to the suppliers and were aware of the tax fraud. MRL lost the case because it knew or should have known it was participating in a tax scam.

Key Facts

•Minstrell Recruitment Limited (MRL) claimed input tax deductions on labour purchases from three supplier companies (Crystal Clear Contract Services Limited, Crystal Clear Contracts Limited, and Clarity All Trades Limited).
•HMRC denied the deductions, alleging the transactions were connected to fraudulent VAT evasion and MRL knew or should have known.
•HMRC refused VAT registration for Minstrell Recruitment (South) Limited (MRSL) and Minstrell Recruitment (North) Limited (MRNL), classifying them as phoenix companies facilitating VAT fraud.
•The three supplier companies were subsequently deregistered for VAT and had significant unpaid VAT liabilities.
•The Tribunal found close links between MRL and the three supplier companies, with overlapping directors and shareholders.
•The Tribunal found evidence of significant unrecorded loans and payments, primarily to Andrew Parish, a director of MRL and major shareholder of the supplier companies.

Legal Principles

A taxable person who knew or should have known that purchases were connected to fraudulent VAT evasion loses entitlement to deduct input tax.

Axel Kittel v Belgian State and Belgian State v Recolta Recycling SPRL (C-439/04 and C440/04)

The 'should have known' test includes those who failed to deploy available means of knowledge, ignoring obvious inferences.

Mobilx Limited v The Commissioners for Her Majesty’s Revenue and Customs [2010] EWCA Civ 517

HMRC doesn't need to prove the taxpayer knew fraud details or fraudulent trader identities; nor that those involved in transactions were dishonest.

Megtian Ltd v HMRC [2010] EWHC 18 (Ch) and The Commissioners for HM Revenue and Customs v Citibank NA, E Buyer UK Ltd [2017] EWCA 1416 (Civ)

The Tribunal must consider the totality of evidence, avoiding over-compartmentalisation, applying the 'no other reasonable explanation' standard.

Davis & Dann v HMRC [2016] EWCA Civ 142

A company acts through its directors (formal, de facto, or shadow).

Case law summary

Dishonesty is determined by a two-stage process: ascertaining the individual's actual state of mind (subjectively) and assessing whether it's honest by objective standards.

Ivey v Genting Casinos (UK) Ltd [2017] UKSC 67

VAT registration can be refused if the Commissioners believe registration would be used solely or principally for fraudulent purposes.

Value Added Tax Act 1994, Schedule 1, paragraphs 9 and 13; Valsts ieņēmumu dienests v Ablessio SIA Case C-527/11; Halifax plc v HMRC Case C-255/02

Outcomes

Appeals dismissed.

The Tribunal found fraudulent tax losses and that MRL, through its directors, knew or should have known of the connection to fraud. The close links and common control between MRL and the supplier companies indicated deliberate involvement in a VAT evasion scheme.

Minstrell Recruitment Limited & Ors v The Commissioners for HMRC

Key Facts

Legal Principles

Outcomes

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