The Court of Appeal has agreed with HMRC that Davis & Dann Ltd and Precis (1080) Ltd should have known that their trades in “grey market” Gillette razor blades were connected with fraud. HMRC disallowed more than £4 million in input VAT claimed by the taxpayers and, on appeal, the First-tier Tribunal concluded that, taken as a whole, the evidence surrounding these deals indicated that the only credible explanation for them was that they were connected with fraud and that the appellants should have known that.
The Upper Tribunal overturned the First Tier Tribunal decision. While it agreed that some of the circumstances were indicative of fraud, other terms were consistent with transactions ordinarily conducted in the market. Therefore the Upper Tier Tribunal disagreed that the only reasonable explanation for the circumstances surrounding its transactions was that they were connected with fraud. The Court of Appeal decided that the Upper Tier Tribunal had been wrong to focus on individual aspects of the deal and should have considered it “in the round” as the First Tier Tribunal had done. They also said that the taxpayer had paid too little attention to the warnings given by HMRC which indicated that transactions were linked with fraud.
The decision suggests that businesses need to be cautious about transactions, even when they have the appearance of “typical” transactions that they enter into, if there are circumstances that might suggest a link to fraud (HMRC’s measure is ‘if it’s too good to be true, it probably is!’). For further information about the case and ways in which you might seek to minimise the risk of being caught up in fraudulent supply chains, please get in touch today.
