Key Facts
- •Revive Corporation Limited (RCL) appealed HMRC's denial of input tax totaling £1,012,500.90 related to purchases from Product Placement Sales and Marketing Consultants Limited (PPSM).
- •HMRC alleged the purchases were connected to missing trader intra-community (MTIC) VAT fraud, and RCL should have known.
- •The Upper Tribunal (UT) remitted the appeal to the First-Tier Tribunal (FTT) to determine if RCL should have known of the connection to fraud.
- •The FTT considered RCL's historical background, contacts with HMRC, and transactions with PPSM.
- •The Challenged Deals involved 20 purchases of goods (SD cards, software, etc.) from PPSM and onward sales to GECX Group.
- •RCL's directors had prior experience at Prism Leisure Corporation Limited and were aware of MTIC fraud risks.
- •HMRC had multiple contacts with RCL between 2005 and 2012, including visits, verifications, and warnings about MTIC fraud.
- •RCL's due diligence procedures were initially inadequate but were improved in 2013-2014.
- •RCL relied heavily on Peter Wildman (PPSM's owner) and GECX's apparent connection to Al Rajhi Group, despite numerous red flags.
- •The FTT examined the commercial viability of the transactions and found several aspects to be suspicious.
Legal Principles
A trader 'should have known' of a connection to VAT fraud if the circumstances surrounding their transactions indicate a connection to fraudulent evasion, and if the only reasonable explanation is that it was connected to fraud.
Kittel and Mobilx jurisprudence
In determining what a taxpayer knew or ought to have known, the tribunal can consider the totality of deals, actions/omissions, and surrounding circumstances.
Mobilx, endorsing Red 12 v HMRC
The burden of proving that the taxpayer 'should have known' of the connection to fraud lies with HMRC.
UT's direction remitting the matter
Outcomes
Appeal dismissed.
The FTT found that RCL should have known the Challenged Deals were connected to fraudulent evasion of VAT due to numerous red flags and insufficient due diligence, despite RCL's explanation. The commercial rationality of the transactions from GECX's perspective was questionable, and RCL failed to adequately investigate.