[2009] UKFTT 304 (TC)

 

TC00248

 

Appeal Number: MAN/2007/0744

                               

FIRST TIER TRIBUNAL TAX

 

VAT – ZERO – RATING – Forty seven supplies of goods to a trader in Spain – the supplies formed part of a scheme of tax avoidance – Appellant did not know about the tax avoidance –– No persuasive evidence that the goods left the UK –– No commercial documentation evidencing removal (some of which were forgeries) –– Appellant did not take every precaution reasonably required in respect of the forty three supplies in quarters 03/06, 06/06, and 09/06. –– Appellant took every precaution reasonably required in respect of the four supplies in quarters 06/05 and 12/05 –– Appeal allowed in part

 

DECISION NOTICE

Rule 35(2) The Tribunal Procedure (First Tier Tribunal) (Tax Chamber) Rules 2009

 

 

                                          BRENDAN MacMAHON                         Appellant

t/a IRISH COTTAGE TRADING COMPANY

                                                                      - and -

 

         THE COMMISSIONERS FOR

                                    HER MAJESTY’S REVENUE and CUSTOMS Respondents

 

 

                                    Tribunal: MICHAEL TILDESLEY OBE    (Chairman)

                                                      ANTHONY HENNESSEY FCA

                                                           

 

Sitting in public at Belfast on 22, 23, 24, & 25 September 2009

 

Teddy Lavery  of E J Lavery & Co, solicitors, for the Appellant  

 

James Puzey counsel instructed by the Solicitor’s office of HM Revenue & Customs, for HMRC

 

 

 

© CROWN COPYRIGHT 2009

DECISION

The Appeal

1.     The Appellant was appealing against a Notice of Assessment in the sum of  £73,398 plus interest dated 18 December 2006, and a decision dated 13 December 2006 amending the return for 09/06 by reducing the amount for repayment to £32,722.88.

2.     The Appellant was a sole proprietor of a business which dealt with the wholesale distribution of food, beverages and wholesale goods. The Appellant traded under the name of Irish Cottage Trading from an office and barn located at his home in Newtownabbey, County Antrim.

3.     The dispute related to supplies of various goods including washing powder, soft drinks and confectionary on 47 different occasions between 24 June 2005 and 21 September 2006 to Enkay Marketing SL (hereinafter known as Enkay) based in Malaga, Spain. The Appellant had treated these supplies as zero-rated on the grounds that they had been dispatched to a customer based in another Member state. HMRC initially accepted that the supplies as being properly zero-rated but after further enquiries HMRC decided that the supplies did not meet the requirements for zero-rating resulting in the assessment dated 18 December 2006, and the amendment of the 09/06 return.

4.     The issues in this Appeal were:

(1)  Whether the Appellant complied with the legislative requirements for zero-rating supplies of goods, in particular regulation 134 of the VAT Regulations 1994 and HMRC Notice 725, parts of which had the force of law.

(2)  If non-compliance with the legislative requirements, whether the Appellant took every step which could reasonably be required of him to satisfy himself that the transaction which he was effecting did not result in his participation in tax evasion.

5.     The Appellant considered that he was the victim of a sophisticated fraud perpetrated by Mr Brown of Enkay. The Appellant suffered a loss of over £70,000 from his business with Enkay which defaulted with its payment for the last three consignments of goods from the Appellant. Further the Appellant would stand to lose another £100,000 if the Appeal went against him. The Appellant contended that he acted honestly throughout his dealings with Enkay. He had taken reasonable steps to confirm the bona fides of Mr Brown and Enkay. According to the Appellant he worked alongside HMRC Officers and co-operated with them in order to demonstrate the traceability of the transactions. He considered that there was persuasive evidence that the goods had been removed from the United Kingdom, albeit to the Republic of Ireland, rather than to Spain. In all the circumstances the Appellant asserted that the supplies to Enkay were properly zero-rated.

6.     HMRC considered that the Appellant had failed to demonstrate that the goods had been removed from the United Kingdom. The documents relied upon by the Appellant to prove removal were fraudulent. The fact that the goods may have ended up in the Republic of Ireland was irrelevant. The legal requirements for zero-rating the supplies to Enkay were only met if the Appellant established that the goods had been dispatched to Spain, which he had not. In those circumstances it was incumbent upon the Appellant to show that he took every step to avoid involvement with tax evasion through his transactions with Enkay. HMRC submitted that the Appellant must have been aware of certain features of his dealings with Enkay which raised real concerns about the purported removal of the goods. The Appellant carried out no effective checks on Mr Brown or Enkay.  He did not comply with the requirements of Notice 725. Instead the Appellant only produced documents when required to do so by HMRC Officers. He did not query the authenticity of the documents supplied by Mr Brown and Whelans (the hauliers of the goods) despite the blatant inconsistencies on the face of the documents. HMRC concluded that the Appellant had not taken all reasonable steps to ensure he did not become involved in tax evasion.  Thus the Appellant was liable to pay VAT on his supplies to Enkay.

The Hearing

7.     The hearing was conducted over four days. At the beginning of the hearing HMRC applied for the exclusion of the Appellant’s bundle from the evidence. Counsel for HMRC pointed out that the Appellant had not complied with any directions of the Tribunal, which included a direction on 21 April 2008 to file his list of documents. The Appellant’s bundle was presented to HMRC on the morning of the hearing, giving HMRC no opportunity to check its contents.  The Appellant submitted that the bundle contained no surprises to HMRC because at least 50 per cent of its contents were replicated in the trial bundle.

8.     The Tribunal was not impressed with the Appellant’s explanation and with his late delivery of the bundle. The Tribunal, however, concluded that the exclusion of the bundle would severely prejudice the Appellant’s case and unnecessarily complicate the hearing with the potential for constant argument about whether the Appellant’s evidence was caught by the exclusion order. The Tribunal decided to delay the calling of witnesses until the second day so as to give HMRC an opportunity to consider the contents of the Appellant’s bundle. The first day was spent on HMRC opening submissions. The parties had agreed to HMRC going first in the Appeal.

9.     HMRC called seven witnesses to give evidence. They were as follows:

(1)  Laura Bouma who conducted an assurance visit of Duffin Distribution Limited and gave evidence about the Appellant’s business dealings with Duffin.

(2)  Mark Lecky who carried out two VAT assurance visits of the Appellant’s business on 5 August 2005, and 3 February 2006.

(3)  Breige Laverty who gave evidence of her inspections of the Appellant’s business and the enquiries made of the Appellant’s customers and suppliers.

(4)  Helen Corr was the Officer who raised the assessment against the Appellant and conducted a series of VAT assurance visits on the Appellant.  

(5)  Sharon Spence who carried out a review of HMRC’s decisions in respect of the Appellant.

(6)  Marie Tracey, an authorised Officer of the Revenue Commissioners for the Republic of Ireland, who gave evidence of her visit to Whelans, a Dublin haulage firm, which according to the Appellant had transported the goods from his premises to Dublin for onward transmission to Spain.

(7)  David McGarel, the officer who attended the Appellant’s premises to observe a purported collection of goods by Whelans.

10.  Witness statements of Una Campbell and Rapinder Kaur were admitted in evidence. Ms Campbell investigated the Appellant’s dealings with Hannon Transport. Ms Kaur’s evidence dealt with the authenticity of the P & O Notes.

11.  The Appellant gave evidence. He called Sean Magee, owner of SMS Ltd, and  William Leslie Magill as witnesses to collection of goods by Whelans from the Appellant’s premises.

12.  The parties presented bundles of documents which were admitted into evidence.

The Law

13.  Under article 28c(A) of the Sixth Directive (77/388/EEC)[1]  intra-Community supplies between two Member states are exempted from VAT. The exemption, however, is subject to conditions which the Member states shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions, and for preventing any evasion, avoidance or abuse.

14.  The Sixth Directive established a scheme whereby supplies of goods which are dispatched or transported to another Member state are exempt from VAT in the Member state of dispatch. VAT, however, is payable on the supplies as acquisition tax in the Member state of destination.

15.  Section 30(8) of the VAT Act 1994 enacts the provisions of the Sixth Directive. Section 30(8) provides:

"Regulations may provide for the zero-rating of supplies of goods, or of such goods as may be specified in the regulations, in cases where--(a) the commissioners are satisfied that the goods have been or are to be exported to a place outside the Member states or that the supply in question involved both--(i) the removal of the goods from the United Kingdom; and (ii) their acquisition in another Member state by a person who is liable for VAT on the acquisition in accordance with provisions of the law of that Member state corresponding, in relation to that Member state, to the provisions of section 10; and (b) such other conditions, if any, as may be specified in the regulations or the commissioners may impose are fulfilled."

16.   Pursuant to the empowerment in section 30(8), regulation 134 of the Value Added Tax Regulations 1995 (SI 1995/2518) makes more detailed provision for the exemption of intra-Community supplies. Further details can be found in the Commissioners' Notice 725 which in part have legal force pursuant to section 30(8) of and paragraph 4 of Schedule 7 to the 1994 Act.

17.  Regulation 134 of the VAT Regulations 1995 lays down the requirements for zero-rating which are that

(1)  The goods shall have been removed from the United Kingdom.

(2)  The supply is to a person taxable in another Member state; and

(3)  The goods have been removed to another Member state.

18.  Additional conditions for zero-rating are found in HMRC Notice 725.  Paragraph 18.5 of Notice 725  provides that

“A supply from the UK to a customer in another Member state is liable to the zero-rate where you:

·        Obtain and show on your VAT sales invoice your customer’s EC VAT registration number, including the 2-letter country prefix code; and

·        Send or transport the goods out of the UK to a destination in another EC Member State; and

·        Obtain and keep valid commercial evidence that the goods have been removed from the UK within the time limits set out in paragraph 18.6”.

19.  Paragraph 18.6 specifies a time limit of three months for the obtaining of commercial evidence that the goods have been removed from the United Kingdom. Paragraph 18.7 advises the trader to charge the supply for VAT at the appropriate rate  if all the conditions in Notice 725 have not been met.

20.  Paragraph 18.8 of the Notice which does not have the force of law specifies the type of evidence that the trader should produce to prove the removal of goods from the United Kingdom. Paragraph 18.8 is more commonly referred to as the basket of evidence. Paragraph 18.8 states that

“A combination of the documents shown below must be used to provide clear evidence that a sale has taken place, and the goods have been removed from the UK:

·        Customer’s order (including customer’s name, VAT number and delivery address for the goods);

·        Inter-company correspondence;

·        Copy sales invoice (including a description of the goods, an invoice number and customer’s EC VAT number etc.);

·        Advice Note;

·        Packing list;

·        Commercial transport documents from the carrier responsible for removing the goods from the United Kingdom;

·        Details of insurance or freight charges;

·        Bank statements as evidence of payments;

·        Receipted copy of the consignment note as evidence of receipt of goods abroad;

·        Any other documents relevant to the removal of the goods in question which would you normally obtain in the course of your intra-EC business.”

21.  Paragraph 18.9 which does have the force of law sets out the information that must be identified in the documents relied upon to prove removal. Thus:

“The documents you use as proof of removal must clearly identify the following:

·        The supplier

·        The consignor (where different from the supplier)

·        The customer

·        The goods

·        An accurate value the mode of  transport and route of movement of the goods; and

·        The EC destination”.

22.  Paragraph 18.9 warns that a supplier could become liable for the VAT due if the evidence is found to be false.

23.  Paragraph 18.11 deals with the situation where the customer arranges for the collection of goods, which was the case in this Appeal. Paragraph 18.11 does not have the force of law. Paragraph 18.11, however, emphasises that the standard of evidence required to substantiate the zero-rating of this type of transaction is high. The trader is advised to ascertain beforehand what evidence of removal of the goods from the United Kingdom will be provided by the buyer. Further the trader should consider taking a deposit equivalent to the amount of VAT from his customer, if he did not hold satisfactory evidence of the removal of goods from the United Kingdom.

24.  Paragraph 18.11 states that copies of transport documents alone would not be sufficient evidence to show that the goods have left the United Kingdom. The evidence of removal should include the following:

·        “a written order from the customer which shows their name, address and EC VAT number and the address where goods are to be delivered;

·        copies sales invoice showing customer’s name, EC VAT Number, a description of the goods and an invoice number;

·        a delivery address for the goods;

·        date of departure of goods from the premises and from the United Kingdom;

·        name and address of the haulier collecting the goods;

·        registration number of the vehicle collecting the goods and the name and signature of the driver;

·        name and address of the haulier, signature for the goods and registration number of the vehicle where the goods are to be taken out of the United Kingdom by the haulier or vehicle;

·        route for example, Channel Tunnel, port of exit;

·        copy of travel tickets; and

·        name of ferry or shipping company and date of sailing or airway number and airport”.

The Evidence

Background

25.  The Appellant had been in business for 22 years. He started his wholesale venture in 2001, having acquired an agency for crisps and chocolate which he supplied to retailers in Northern Ireland and the Republic of Ireland. Around 2003 the Appellant expanded his business by supplying goods to wholesalers principally in the Republic of Ireland.

26.  The Appellant was a one-man firm running his business from a warehouse (a converted barn) at the rear of his family home. He was responsible for sticking the stamps on letters, driving the forklift and managing the warehouse. On occasions the Appellant engaged a Mr Magill to help with the loading and delivery of the goods. The Appellant used his own van to make small retail deliveries. The Appellant, however, did not provide the transport for his bulk wholesale business. Generally his suppliers, and buyers arranged and paid for the transport of the goods to and from the Appellant’s warehouse.

Appellant’s Contact with Enkay 

27.   The Appellant first met a Mr Alan Brown of Enkay at the Paris Trade Show around 2003. He met Mr Brown again at the Birmingham Trade Show in 2005. Mr Brown informed the Appellant that he was supplying goods to Tescos in United Kingdom, and Dunnes, a well-known retailer in Ireland and Spain. Apparently suppliers for Tescos accompanied Mr Brown at the Birmingham Trade Show.

28.  Mr Brown contacted the Appellant on several occasions enquiring whether the Appellant would be interested in supplying him with bulk loads for the expatriate community in Spain. At first the Appellant declined the business because at the time he was not dealing in bulk loads. In June 2005 the Appellant decided to supply Mr Brown with two loads of washing powder on a trial basis. The Appellant insisted on payment up front for the goods. The Appellant did not do any further business with Enkay until December 2005. According to the Appellant, he deliberately delayed further transactions with Enkay until he had received clearance from HMRC. After December 2005 the Appellant supplied Enkay with goods on a weekly basis until September 2006.

29.  The Appellant applied a margin of five per cent on his sales to Enkay. The Appellant had low running costs which enabled him to operate on relatively small margins. The Appellant’s turnover for the year ending April 2007 was about £2 million of which Enkay’s sales constituted 25 per cent. The value of the Appellant’s individual transactions with Enkay was considerably higher than the value of transactions with his other customers.

30.  The Appellant had checked Enkay’s VAT registration number on the Europa website. This check confirmed the existence of the registration number but did not relate it back to Enkay. The Appellant did not contact HMRC advice centre regarding Enkay’s VAT registration number until 18 September 2006. HMRC advised him that the VAT registration number given was that of Enkay. The confirmation of the number, however, did not constitute authorisation on behalf of HMRC for the Appellant to enter into commercial transactions with Enkay.

31.  The HMRC Officers dealing with the Appellant were not aware of Enkay. On 13 June 2006 Mrs Laverty issued a mutual assistance request to the Spanish authorities about Enkay. On 6 December 2006 the Spanish authorities advised HMRC that Enkay could not be found and that they had de-registered Enkay from 16 October 2006. According to the Spanish Authorities Enkay was incorporated on 27 January 2005 with its main activity as the distribution of sweets and alcoholic drinks.  Further Enkay had submitted no VAT returns since its registration.

32.  The Appellant accepted that he did not carry out a credit check on Enkay or request copies of its accounts. The Appellant, however, did not consider those checks were necessary because Enkay had paid up front for large transactions. The Appellant’s bank statements recording payments purportedly from Enkay did not identify the name of the payer except the payment of £45,757.32 on 6 October 2006 which was from Management Solutions.  In a letter dated 10 November 2006, the Appellant provided Mrs Laverty with a copy of the payment advice from his bank for the consignments of Red Bull. The advice showed that a company called “Foodline H Rezaie” paid the sum of £126,489.60 into the Appellant’s account for the Red Bull consignments.  The Appellant knew nothing about the identity of Foodline H Rezaie and its connection with Enkay.

33.   The Appellant believed in the bona fides of Mr Brown because he had responded promptly to the Appellant’s requests for documentation regarding the purchase and the transit of the goods. Mr Brown also sent correspondence which was posted in Malaga, Spain.

34.  The Appellant’s correspondence with Mr Brown comprised two letters dated 8 August and 26 September 2006, and Mr Brown’s responses dated 10 August and 26 October 2006.  The Appellant’s letters to Mr Brown detailed HMRC’s concerns about the documentation evidencing removal of  goods from the United Kingdom. 

35.  In the letter of 8 August, the Appellant mentioned HMRC’s worries about the CMRs for the Red Bull consignment of 19 April 2006, and requested information and evidence about the transport of goods from Dublin to Malaga. Mr Brown’s responded by denying that the goods had been uplifted from Holland. According to Mr Brown,  he took advantage of a cheaper back fare to the continent filling up the container with lightweight goods from Whelans. Mr Brown supplied release documents for the goods from P & O Irish Ferries, and an invoice dated 25 April 2006 from Nedaris Shipping and Trading BV in the sum of 1815.58 Euros for the transport of the goods from Belfast to Malaga via Dublin and Calais.

36.  The Appellant’s letter of 26 September 2006 referred to HMRC’s letter dated 12 September 2006 which indicated that the P&O release documents for the Red Bull consignments were not authentic documents. The Appellant requested Mr Brown to provide confirmation that he had received all goods sent to him and to forward the original documentation for a container of Capri-Sonne which was dispatched on 21 September 2006. Finally the Appellant advised Mr Brown that he would be unable to supply Enkay with any further goods VAT free until all the necessary documentation was supplied. Mr Brown replied on 10 October 2006 stating that he was a busy man and could not waste time dealing with queries on the paperwork. Mr Brown confirmed that Whelans in Dublin collected the loads from the Appellant.

37.  The Appellant submitted records of his telephone bills which showed that he contacted the number given for Enkay on its headed notepaper on 31 March 2006; 10, 11, 19, 29, and 30 May 2006; 11, 17, 20, 21, 24, and 28 July 2006; 8, 9 and 24 August 2006; 5, 18, 19, 21, and 26 September 2006; 12 and 20 October 2006; 1, 2, 8, 12, 14, and 16 December 2006.

38.  The Appellant’s evidence of contact with Mr Brown and Enkay showed that it occurred as a reaction to HMRC’s enquiries. The majority of the contact happened from May 2006. The Appellant adduced no evidence of making enquiries with Enkay about the documentation and the route for transporting the goods at the time a transaction was struck.  The Appellant only warned Mr Brown about not supplying goods free of VAT at the end of the Appellant’s dealings with Mr Brown in September 2006.

The Appellant’s Contact with Whelans

39.  Under the conditions of sale Enkay arranged the carriage of goods from the Appellant’s warehouse.  On most transactions Enkay engaged Whelans of Dublin to collect and transport the goods. The Appellant performed no checks on Whelans because he knew that the Whelans was a long established haulage firm used by reputable retailers which included Dunnes. The Appellant did not initially receive confirmation from Whelans that the goods had been delivered to Dublin. On advice from Mr Lecky the Appellant produced delivery notes in the name of D Coughlan in respect of the washing powder supplies on 24 June 2005. The delivery notes stated that the goods were collected on behalf of Enkay. The notes did not mention Whelans.

40.  As a result of visits from Mrs Corr and Mrs Laverty, the Appellant arranged with Mr Brown for Whelans to send him faxes confirming collection of the goods. The first fax dated 31 July 2006 on the headed notepaper of Whelans simply confirmed that on 28 April 2006 it received three loads from the Appellant on behalf of Enkay Limited signed by a Dave Coughlan.  The second fax dated 27 October 2006 also signed by a Dave Coughlan stated that Whelans collected loads on 36 separate dates between 24 June 2005 and 21 September 2006 and taken to its Dublin warehouse except on the 28 July 2006 and 24 August 2006. The loads were carried on Whelan’s lorries registration numbers 02D 7801 and 02C 2126. The signature for a Dave Coughlan on the first fax was markedly different from that on the second fax.

41.  Ms Tracey, an authorised Officer of the Revenue Commissioners for Republic of Ireland, conducted an investigation of Whelans pursuant to a mutual assistance request issued by Mrs Laverty. Padraig Whelan, the Financial Director of Whelans since 2001, denied that Whelans collected goods from the Appellant on behalf of Enkay. Mr Whelan had no knowledge of Enkay. The registration numbers of lorries cited in the fax dated 27 October 2006 did not belong to lorries owned by Whelans.

42.  Ms Tracy interviewed a Dave Coughlan who admitted that he sent the fax dated 31 July 2006 but not the fax dated 27 October 2006. In a subsequent statement Mr Coughlan stated that he sent the fax dated 31 July 2006 in response to a request from the Appellant who had referred in his telephone conversation with Mr Coughlan three loads over the past two months. Mr Coughlan recalled the three loads, which according to Mr Coughlan had been admitted into Whelans’ warehouse in error and subsequently collected by another firm, SMS Ltd. In those circumstances Mr Coughlan sent the fax because he believed that he was helping the Appellant. He did not consider that there was a problem. Apart from this one instance, Mr Coughlan had no dealings with the Appellant. Mr Coughlan was adamant that he never knowingly admitted goods into Whelans’ warehouse from the Appellant or Enkay in order to facilitate onward movement. Ms Tracey told the Tribunal in cross-examination that the interview with Mr Coughlan was informal and that she did not confirm his identity.

43.  Ms Tracey’s impression of Mr Padraig Whelan was that he wanted time to find out what was going on in his firm. He co-operated with the enquiry and obtained the subsequent statement from Mr Coughlan. Whelans was an established firm in Dublin which was involved in the distribution of foods and textiles exclusively to Dunnes’ Stores. The business, however, was in financial difficulties and ceased trading in May 2007.

44.  The Appellant did not agree with the statements of Messrs Whelan and Coughlan that Whelans did not transport the goods destined for Enkay. The Appellant pointed out that he had been present at most of the collections by Whelans.  Mr Magill who worked for the Appellant confirmed on oath that on several occasions he loaded goods for Enkay onto Whelans’ lorries. Mr Magee of SMS Ltd recalled an incident in November 2006 when the Appellant used his loading bay to load goods onto a Whelans’ lorry. The Appellant produced his telephone bills which showed that he made three calls to Mr Coughlan’s phone number between January and September 2006.

45.  After the Appellant was informed about HMRC’s concerns about the authenticity of the documents, he arranged for another order from Enkay to be collected by Whelans, so as to give HMRC an opportunity to witness the collection. The collection took place on 21 September 2006 at which Mr McGarel of HMRC attended. Mr McGarel observed the Appellant driving a forklift loading pallets onto a lorry which had Whelans’ livery painted on the side. The Appellant told Mr McGarel that the lorry was late because the driver had got lost. Mr McGarel did not speak with the driver because the Appellant told him that the driver’s understand of the  English language was poor. Mr McGarel requested a copy of the purchase order for the consignment but none was available. The Appellant undertook to supply one later. Mr McGarel was not authorised to follow the lorry and left the site after the lorry was loaded.

46.  The Appellant was disappointed with HMRC’s response to his invitation to attend the collection. The first Officer, Mr Stevenson, was unable to wait for the arrival of the lorry in view of personal commitments. Mr McGarel attended at short notice at the request of Mr Stevenson. The Appellant was surprised that HMRC did not follow the lorry, which in his view, would have given HMRC concrete proof as to what was happening to the goods apparently destined for Enkay.

Appellant’s dealings with HMRC Officers

47.  Mr Lecky of HMRC visited the Appellant on two occasions, 5 August 2005 and 3 February 2006. On his visits he concentrated on repayment periods 6/05 and 12/05. The Appellant informed Mr Lecky that the reason for the increased repayments was due to the larger volume of sales to the Republic of Ireland. Mr Lecky found regular errors in the Appellant’s records. Mr Lecky was unsure whether these errors were deliberate or due to poor record-keeping. Mr Lecky investigated sales of alcohol to the Republic of Ireland which generated VAT issues.

48.  Mr Lecky noted that the Appellant was selling regularly to Enkay.  Following his first visit Mr Lecky issued a letter dated 24 October 2005 reminding the Appellant about his promise to send documents evidencing the removal of the loads of washing powder to Enkay on 24 June 2005. Mr Lecky advised the Appellant that if the documents were not forthcoming he would be left with no alternative but to raise an assessment. On 28 October 2005 the Appellant provided Mr Lecky with a purchase order and copies of delivery notes for the Enkay transactions.

49.  At his second visit Mr Lecky checked the sales to Enkay on 8 and 12 December 2005, which he verified against the basket of evidence. The evidence for each sale consisted of a purchase order, an invoice, a P&O release note and a CMR. Mr Lecky considered the evidence satisfactory, although he forwarded copies of the invoices to HMRC Missing Trader section for further verification..

50.  Mr Lecky had not heard of Enkay until he visited the Appellant. At the time of his second visit he was unaware of any grounds challenging the bona fides of Enkay. Mr Lecky accepted that he told the Appellant that his paperwork in respect of the Enkay sales appeared satisfactory. Mr Lecky, however, could not recall discussing with the Appellant about the need for fax numbers on purchase orders. Mr Lecky emphasised that he educated the Appellant about the basket of evidence required for sales to persons in other Member states. Mr Lecky referred to his second letter dated 24 October 2005 advising the Appellant of the requirements of HMRC Notice 725.

51.  On 26 April 2006 Mrs Laverty visited the Appellant with Mr Stevenson to carry out a pre-credibility check on the 03/06 return which involved a higher than usual repayment claim of £39,267. Mrs Laverty held reservations about the Appellant’s supplies to Enkay. She asked the Appellant for an explanation of the supposed route of goods to Enkay. Mrs Laverty could not understand why goods would go to Spain from Northern Ireland when they had travelled from Rotterdam to England and then to Warrenpoint where they were collected and taken to Dublin for onward journey to Spain. The Appellant could not at the time supply an explanation.

52.  On 13 June 2006 Mrs Laverty issued a mutual assistance request to the Spanish authorities about Enkay to which a reply was not received until December 2006. She also sent mutual assistance requests to the Republic of Ireland authorities regarding Irish companies with which the Appellant traded.

53.  Mrs Laverty reluctantly authorised the repayment of £39,267 after being advised to do so by her line manager because the withholding of the repayment claim was affecting the Appellant’s cash-flow. Mrs Laverty, however, arranged for the Appellant to receive a copy of HMRC Notice 725, in which Mrs Laverty highlighted the sections relating to basket of evidence to show the removal of goods from the United Kingdom.

54.  Mrs Laverty confirmed in cross-examination that she was told not to issue assessments in respect of the Appellant’s supplies to traders in the Republic of Ireland. The Republic of Ireland authorities wished to deal with this aspect of the Appellant’s business by pursuing the Irish traders. Also Mrs Laverty’s line manager told her that the goods sold to these traders had been delivered to them in the Republic of Ireland.

55.  Mrs Corr conducted a series of VAT assurance visits of the Appellant’s business on 24 July 2006, 11 August 2006, 2 and 24 November 2006.  

56.  Mrs Corr’s visit on the 24 July 2006 was prompted by a repayment claim of £68,920.70 for accounting period 06/06. The Appellant’s explanation for the large repayment was that he sold three container loads of Red Bull to Enkay. The Appellant sourced the Red Bull from GB Beverages Ltd. The goods had been transported from Rotterdam to Belfast and stored at premises at 8 Nicholson Road Mallusk from where Whelans took them to Dublin for onward movement to Spain.

57.  According to Mrs Corr, the Appellant told her that  HMRC had advised him that it was not possible to move the goods directly to Spain from Rotterdam for legal reasons. Mrs Corr found no record of a call by the Appellant to HMRC concerning an enquiry of this nature. The Appellant disputed Mrs Corr’s recollection of their conversation. Instead he insisted that he informed Mrs Corr that supplies of Red Bull within Spain were controlled by a single agent who inflated the wholesale price of Red Bull. This was why Mr Brown of Enkay had contacted him for supplies of Red Bull. In her testimony Mrs Corr stood by her account of the conversation with the Appellant.

58.    At the 24 July 2006 inspection the Appellant was unable to produce documentary evidence of the removal of the Red Bull consignments from Northern Ireland. Mrs Corr advised the Appellant that she was not prepared to authorise the repayment claim for 06/06.

59.  When Mrs Corr returned on 11 August 2006 the Appellant told Mrs Corr that Enkay had made the transport arrangements from Belfast to Spain. He produced Mr Brown’s fax dated 10 August 2006 and release documents from P&O Irish Ferries to support his contention.  Mrs Corr accepted the documents as evidence of removal of the goods from the United Kingdom. She, therefore, decided to release the repayment of £68,920.70. In addition she advised the Appellant that his returns would continue to be monitored.

60.  Mrs Corr reinforced her advice with a letter  to the Appellant dated 14 August 2006 telling him to

(1)  Retain all documentation relating to the transportation of goods, which should include proof of dispatch as outlined in HMRC Notice 725.

(2)  Note registration numbers of vehicles used to collect goods from his premises.

(3)  Retain copies of bank drafts.

(4)  Carry out due diligence checks to ensure his suppliers and customers were bona fide traders. This should include contacting the National Advice Service to verify VAT registration numbers.

61.  Mrs Corr carried out further checks on the validity of documents supplied by the Appellant in respect of the Enkay transactions. Mrs Corr’s enquiries revealed that P&O Ferries had been unable to authenticate the release documents, and that there were doubts with the CMRs. Mrs Corr also found problems with some of the Appellant’s supplies to traders in the Republic of Ireland. On 12 September 2006 Mrs Corr informed the Appellant of her concerns, advising him that she was minded to raise an assessment in the sum of £184,175. On 19 October 2006 Mrs Corr issued an assessment in the lower sum of £153,401.

62.  On 20 October 2006 the Appellant appealed against the assessment. Following receipt of the Appeal Mrs Corr had two further meetings with the Appellant on 2 and 24 November 2006, at which the Appellant was unable to provide further proof that the goods sold to Enkay had left the United Kingdom.

63.  On 18 December 2006 Mr Murray, the line manager for Mrs Laverty and Mrs Corr, advised the Appellant’s solicitors that the assessment issued on 19 October 2006 had been reduced by £80,003 leaving a balance of  £73,398. The balance related solely to the purported supplies to Enkay. The reason given for the reduction of the assessment was as follows:

“I can confirm that following enquiries carried out on our behalf by our counterparts in the Republic of Ireland, we have now accepted that goods shown as having been supplied to Dublin Wholesale have been removed from the United Kingdom even though the VAT registration number and other documentation supplied by Mr McMahon’s customer have been shown to be false. The authorities in the Republic of Ireland are now dealing with that matter. I can advise that the assessment raised by Mrs Corr in the sum of £153,401 has already been reduced by £80,003.”

64.  Mr Murray then went onto deal with the Enkay supplies stating that

“The remainder of that assessment refers to supplies to have been made to a customer in Spain, namely Enkay. We have advised Mr McMahon that we are not satisfied that these supplies have taken place as described since documentation produced by him has shown to be false. I would respectfully draw your attention to section 18.9 of Notice 725 which advises that, where evidence is found to be false, the supplier can become liable for the Vat due. Mr McMahon  is aware of false documentation provided in this case and our enquiries in that area will continue. Mr McMahon knows also that the Spanish authorities have now confirmed that Enkay are missing and accordingly they have been de-registered for tax purposes.  I would add that when I met with Mr McMahon recently I pointed out that I found it alarming that he should have such problems with such a relatively small range of non-UK customers. He also appears to find nothing at all unusual in the fact that he receives payments for supplies to some of those customers from a diverse range of sources. This is not normal commercial practice in my view”.

65.  From June 2007 Mrs Spence handled the Appeal on behalf of HMRC in her capacity as Review Officer. On 7 August 2007 she wrote to the Appellant’s solicitors requesting:

(1)  Evidence to show that the Appellant performed checks to verify the bona fides of Enkay before he entered into business with it.

(2)  Copies of the supporting invoices from Duffin, Geest, IWT, who had been engaged to transport goods from the Appellant’s premises to Whelans.

66.  Mrs Spence met the Appellant’s solicitors on three occasions, 18 October 2007, 9 November 2007 and 29 April 2008. Following the meetings Mrs Spence concluded that the Appellant had not demonstrated that he undertook commercial checks on Enkay before entering into business. She pointed out that the Appellant had supplied goods worth around £500,000 without even checking the VAT registered status of  Enkay beforehand. Further the Appellant was unable to show an audit trail of the transactions despite being given several opportunities to provide the required documentation.  The Appellant did adduce further evidence which concerned the transport of goods by three independent hauliers to Whelans for onward transmission to Enkay. The names of the hauliers were Duffin Distribution Ltd (Duffin), Geest Ireland Ltd (Geest), and International Warehousing & Transport BV Ireland Ltd (IWT).

67.   The Appellant stated that he had used Duffin, IWT and Geest  to transport the goods out of Northern Ireland to another Member State. According to the Appellant he had used these haulage companies on three occasions when Enkay did not arrange for the collection of the goods. HMRC made enquiries of the haulage companies.

68.  The Appellant supplied two invoices from Duffin dated 12 January 2006 and 28 February 2006 respectively for carriages of loads. The first invoice was for a delivery of a load to Dublin. It contained no specific reference to Whelans of Dublin. The business records for Duffin indicated that the second invoice was connected to an order from SMS Ltd which traded from the same town as the Appellant. The Appellant contested the result of HMRC’s enquiries pointing out that there were purchase orders from Enkay of the same dates which specified Duffin as the haulage contractor.

69.   HMRC’s enquiry of Geest revealed that the invoice dated 31 May 2006 had no connection with the Appellant’s supplies to Enkay. The invoice related to the Appellant’s supplies to another customer, CSM Essentials of Dublin. The Appellant accepted in cross examination that he had made a mistake when he originally produced this invoice as evidence of a supply to Enkay.

70.  The Appellant supplied an invoice dated 21 July 2006 from IWT which charged the Appellant for the costs of transporting thirteen pallets of Capri-sonne from Rotterdam to Whelans in Dublin. HMRC’s enquiries with IWT showed that the Appellant had received a credit note for the invoice issued on 21 July 2006, which was re-directed to another company ECW Logistics for payment.  Although IWT’s business records showed that it had delivered goods on behalf of third party suppliers to the Appellant’s premises on various occasions, there was only one entry that it had transported goods to Whelans which was the disputed supply of 21 July 2006. The issue of the credit note suggested that the Appellant was not involved with the supply on 21 July 2006, which was reinforced by the absence of an invoice to Enkay of the same date.

71.  Mrs Spence concluded that the documentation relating to the three hauliers was seriously flawed. The Appellant produced this documentation to support his contention that goods destined for Enkay had been delivered to Whelans in Dublin. Mrs Spence decided that the documentation failed to establish the clear link with Whelans or Enkay as asserted by the Appellant.  In her view this failure undermined the Appellant’s bona fides because he had brought the documentation to her attention to demonstrate the truth of his assertion.

Appeal Proceedings

72.  The Appellant did not comply with Tribunal directions regarding exchange of evidence. He produced his bundle of documents on the day of the Appeal hearing. The Appellant submitted his second Notice of Appeal on 5 July 2007, and had over two years in which to prepare his Appeal. Counsel for HMRC submitted that the Appellant’s dilatory approach was a relevant fact when assessing the evidence for this Appeal.

The Documentary Evidence

73.  The Tribunal conducted an analysis of the documents provided in the parties’ bundles in respect of each transaction. The results of the analysis are set out in Appendix 1 to the decision.  The analysis showed that:

(1)  41 transactions did not have a delivery note;

(2)  39 transactions were not evidenced with an invoice to the Appellant from a supplier of the goods purportedly sold to Enkay;

(3)  34 transactions were not evidenced with commercial transport documentation showing the route taken[2];

(4)  31 transactions did not incorporate a purchase order from Enkay.

74.  Each transaction was supported by copies of the Appellant’s sales invoice sequentially numbered. Each invoice was addressed to Enkay, citing its VAT registration number and containing a description and price of the goods sold. 26 of the 47 invoices specified that the goods were to be collected by Whelans, six invoices specified Hannon Transport, three invoices specified other hauliers, whilst 12 invoices were silent about the collection of the goods. The Appellant acknowledged in cross-examination that the reference to Hannon Transport was a mistake. The Appellant explained that one of his former employees was named Hannon, and for some inexplicable reason he wrote down the name of Hannon instead of Whelans on the invoices.  

75.  Seventeen transactions were evidenced by purchase orders from Enkay. The orders were dated and addressed to the Appellant. They provided details of the ordered goods and price. The orders were headed with the name of Enkay Marketing followed by an address in Malaga Spain, a VAT registration number and a combined telephone and fax number. Only one purchase order supplied full details of a delivery address for the goods.

76.  The Appellant provided invoices from three suppliers covering eight transactions. There were five invoices from Epoipo[3], which contained details of the goods sold, their price, and delivery arrangements. Epoipo also incorporated on its invoices details of its bank account, VAT registration number and payment terms. Of the three remaining invoices, two were issued by Bunzl and the other by GB Beverages Ltd. These invoices contained similar details to that found in the Epoipo’s invoices.

77.   The commercial documentation relating to the transport of goods fell into three categories. The first was a copy of a delivery note which was issued by the Appellant to the driver collecting the goods from the Appellant’s premises. The delivery notes were sketchy in detail, usually providing a brief description of the goods, and a delivery address of either Enkay or Whelans. Three delivery notes had details of the registration number of the vehicle collecting the goods.

78.  The second category comprised a release note issued by P&O Irish Sea Ferries, which was supplied in five of the 47 disputed transactions. The Appellant obtained copies of the release notes from Mr Brown of Enkay in response to HMRC’s concerns about the absence of evidence demonstrating removal of the goods from the United Kingdom. The notes were dated with a booking reference. The notes contained information of the sailing route, the haulier, the identity of the driver and the registration number of the vehicle. In the Appellant’s case the notes recorded sailing as DOCA, which stood for the Dover Calais crossing.   The notes also bore the date stamp of P&O European Ferries and Enkay Marketing. The latter stamp recorded the goods as received.

79.  The P&O release notes on their own did not demonstrate that the goods had left the United Kingdom because they contained no reference to the goods transported. The notes were linked to a CMR by means of a shipping reference which was recorded in the top right hand section of the CMR.  Thus the CMR together with the release note provided the documentary evidence of the removal of the goods from the United Kingdom.

80.  Following enquiries with P&O Ferries Holding Limited in September 2006, HMRC concluded that the P&O release notes were not authentic. Ms Kaur, the Tax Compliance Manager for P&O Ferries testified in her witness statement dated 10 December 2008 that  the three release notes dated 23 April 2006 were not documents issued by P&O Ferries (Irish Sea) Limited because:

(1)  There was not a 7.15 Dover to Calais sailing on 23 April 2006 which was the date stated on the release notes.

(2)  The booking reference and the vehicle registration number  quoted on the release notes could not be located on the P&O computer system.

(3)  P&O European Ferries (Irish Sea) Ltd would not issue release notes for the Dover to Calais route.

(4)  The P&O European Ferries Dover Kent GD date stamp which appeared on the release notes and CMRs was not a stamp used by any of the P&O Ferry companies.

81.  The third category of transport documentation was the CMR, which was a consignment note drawn up in accordance with the provisions of the Convention on the Contract for the Internal Carriage of Goods by Road.  Mr Brown of Enkay provided the Appellant with copies of a CMR for six of the 47 transactions. The CMRs supplied in evidence specified the Appellant and Enkay as the sender and recipient of the goods respectively. The CMRs named Malaga Spain as the place of delivery of the goods and Dover as the place of the take over of the goods. The CMRs gave details of the goods transported, and the registration number of the vehicle carrying the goods. The CMRs contained three stamps: Nedaris BV of Rotterdam, the sender of the goods; P&O Ferrymasters, the haulier, and Enkay as the recipient. Enkay’s stamp included the words goods received.

82.  HMRC investigated Nedaris BV which revealed that no company bearing the name of Nedaris existed at the address given.

83.  The Appellant also relied on the faxes sent 31 July and 2 November 2006  from Whelans, as evidence that the goods had been transported out of the United Kingdom. Mr Coughlan of Whelans denied sending the fax of 2 November 2006. The Appellant provided copies of his bank statements for the period covering the disputed supplies. He was unable to identify the payments made and received for each and every transaction in dispute.

84.  The Appellant was a sole trader virtually running the business himself. He considered the paperwork requirements for exports onerous for a sole trader and contrary to normal business practice. Previously he never insisted upon a purchase order until the goods had been delivered. The Appellant considered that more weight should be given to what actually happened. He knew that the goods had been collected by Whelans because they were loaded onto Whelans’ lorries which had a distinctive green livery bearing Whelans’ name.

85.  The Appellant relied on the HMRC Officers’ expertise about the required documentation. He considered that he had been open and transparent about every transaction with HMRC Officers. The Appellant asserted that he worked alongside the Officers and fully co-operated with them. He met their requests for additional documentation. The fact that Mr Brown of Enkay was able to provide the documentation reinforced the Appellant’s view that the transactions were genuine.  The Appellant believed that HMRC constantly moved the goalposts, which created a climate of uncertainty for him.

86.   Although the Appellant could not recall reading Notice 725, he believed that the documentation accompanying the supplies was compliant with the requirements of the Notice. The Appellant accepted in cross-examination that there were gaps in the information on the CMRs, and in some respects the information was contradictory. The CMRs provided did not specify how the goods were transported from Dublin to Dover.  The CMRs did not name Whelans. Further they did not bear the Appellant’s stamp as the sender of the goods.   The Appellant acknowledged that he did not know how to complete CMRs. He took the documents supplied by Mr Brown of Enkay at face vale. The Appellant, however, pointed out that HMRC Officers accepted them for the purposes of repayment which in his view gave the documents credibility. He stated that the documents supplied by Mr Brown were sent from a fax number in Malaga which was recorded at the top of the documents. Further the CMR bore a stamp that the goods were received in Malaga. Having regard to all the circumstances the Appellant considered that at the time he executed the transactions he was entitled to reply upon the documentation for the purposes of repayment. The documents were traceable to Enkay, and indicated that the goods had been received in Spain.

87.  The Appellant became suspicious of Enkay when he was informed on 12 September  2006 by Mrs Corr of HMRC’s doubts about the authenticity of the P&O release notes and CMRs. He felt that the only way to clear up this matter was to take a gamble by entering into another transaction with Enkay. He arranged for Whelans to collect the goods from his premises on 21 September 2006. The Appellant was disappointed that HMRC Officers did not follow the vehicle after the goods were collected.

Facts Found

88.  The Tribunal found the following facts:

(1)  The Tribunal finds that Enkay did not account for VAT in Spain on the goods supplied by the Appellant. Further the documents provided by Enkay to demonstrate removal of the goods from United Kingdom were forgeries. In those circumstances the Tribunal was satisfied on balance that the Appellant’s transactions with Enkay formed part of a scheme of tax avoidance most likely perpetrated by Mr Brown of Enkay, and that the goods never reached Spain.

(2)  HMRC Officers had no prior knowledge of Enkay until they carried out a VAT inspection of the Appellant’s business in 2005. HMRC suspicions of Enkay were raised at Mrs Laverty’s visit on 26 April 2006. Mrs Laverty, however, did not conduct an investigation of Enkay until June 2006.  In September 2006 HMRC had substantive grounds to doubt the bona fides of Enkay.

(3)  There was no evidence that the Appellant was a willing party to the scheme of tax avoidance. The Tribunal finds that the Appellant  knew of Enkay’s involvement with tax avoidance following receipt of Mrs Corr’s letter dated 12 September 2006, which set out HMRC’s concerns with the authenticity  of the P&O release notes and CMRs. The Tribunal considers that the Appellant should have been more wary of Enkay following Mrs Laverty’s visit on 26 April 2006.

(4)  The Appellant did not carry out thorough checks on Enkay throughout his trading relationship. The Appellant placed too much reliance on his personal dealings with Mr Brown to assess the credibility of Enkay. On his own admission the Appellant took Mr Brown and the documents provided at face value. In the Tribunal’s view the Appellant should have been more circumspect in his dealings with Mr Brown.

(5)  The Appellant conducted no independent verification of Enkay’s creditworthiness and its status as a company. He decided that Enkay’s  financial  position was sound because Enkay generally paid on time, and on several occasions paid up front for big orders.  The Appellant, however, did not challenge Mr Brown on the source for the payments. The evidence showed that some payments came from bank accounts of other companies. This feature of third party payments questioned the financial viability of Enkay.

(6)  The Appellant did not confirm the VAT registration number of Enkay with HMRC National Advice Service until September 2006 after he knew that Enkay was involved with tax evasion.  The Tribunal considers his search of the Europa website deficient in that it did not link the registration number with Enkay.  The Tribunal, however, noted that had the Appellant checked earlier with HMRC National Advice Service, it would not have revealed a problem with Enkay.

(7)  The Appellant took no effective steps to substantiate the delivery of goods to Dublin by Whelans. He assumed that the reputation of Whelans  based on its connection with a well-known Irish retailer was sufficient verification of the delivery of the goods. The Appellant did not perform due diligence on Whelans. His direct contact with Whelans over a period of 15 months was limited to three phone calls with a Mr Coughlan, a name given to him by Mr Brown. The two faxes received from Whelans had no probative value. They were obtained near the end of the investigation by HMRC and displayed an obvious discrepancy in respect of Mr Coughlan’s signature which was markedly different on the two documents. Mr Coughlan denied that he sent the second fax dated 2 November 2006

(8)  There was no persuasive evidence that the goods left the United Kingdom.  The Tribunal accepts the Appellant’s evidence that he loaded the goods on lorries displaying the livery of Whelans. The act of loading, however, did not in itself prove that the goods were taken to Dublin.  The Tribunal was persuaded by Ms Tracey’s evidence which showed that the goods never reached Whelans. The Appellant placed weight on Mrs Laverty’s disclosure that his supplies to other businesses had ended up in the Republic of Ireland. The Tribunal decided that Mrs Laverty’s disclosure was not relevant to the purported supplies to Enkay. The other businesses had no connection with Enkay. The Tribunal considered that the more likely explanation was that the goods were diverted after they left the Appellant’s premises which on the evidence could have taken place in the United Kingdom.

(9)  The Tribunal decided that the evidence of the pre-arranged collection of goods on 21 September 2006 by a Whelans lorry, at which HMRC’s Officers attended was of limited value. In the Tribunal’s view, the evidence re-affirmed its conclusion that the Appellant was not a willing party to the tax avoidance scheme. The evidence, however, did not demonstrate that the goods were removed from the United Kingdom. The Appellant’s expectation that HMRC’s Officers would follow the lorry was unrealistic. The Appellant adduced no evidence that he requested HMRC to follow the lorry when the arrangements were made.

(10)    The Appellant’s dealings with HMRC Officers revealed that he reacted to their requests for evidence rather than acting on his own initiative to gather the necessary documentation at the time of each transaction.

(11)   At each visit the HMRC’s Officers made the Appellant aware of the requirements of HMRC Notice 725.  The Appellant did not act upon the advice given. This was demonstrated by his handling of the Red Bull consignments. He only obtained the necessary paperwork to evidence removal of the goods from the United Kingdom after Mrs Corr refused repayment of the VAT due under the 06/06 return.

(12)   The Appellant did not consider the option of demanding a security for the VAT from Enkay as advised in HMRC Notice 725 until his letter of the 26 September 2006 to Mr Brown.  

(13)   Mr Lecky was the only Officer who expressed satisfaction with the Appellant’s basket of evidence for his supplies to Enkay. Mr Lecky, however, had to prompt the Appellant into action by the prospect of an assessment if he did not produce the necessary documents. Mrs Laverty and Mrs Corr held continuing doubts with the Appellant’s records despite authorising the repayment returns.

(14)    The Tribunal decided that the errors in the Appellant’s trading records were indicative of the Appellant’s disorganised approach to paperwork and his   failure to give it priority rather than a deliberate act on his part to mislead HMRC.

(15)   The Tribunal agreed with Mrs Spence’s assessment that the documentation relating to the three hauliers was seriously flawed. The documentation did not establish a clear link with Whelans or Enkay. The Tribunal, however, did not agree with Mrs Spence’s opinion that the production of the documentation undermined the Appellant’s honesty.  The Tribunal’s preferred interpretation of the Appellant’s actions was that he was in a very difficult financial position by the time of Mrs Spence’s involvement,  and as a result he was producing any documentation that might prove the goods left the United Kingdom.

(16)   The analysis of the documentation before the Tribunal showed that the majority of the disputed transactions did not have a complete suite of the evidence as recommended by Notice 725. Thirty four transactions were not evidenced with commercial transport documentation showing the route taken. Thirty one transactions did not incorporate a purchase order from Enkay.

(17)   HMRC had supplied the Appellant with its list of documents on 18 April 2008. The Appellant had over two years in which to prepare his documentary evidence for the Tribunal.

(18)   The documentation evidencing removal of goods from the United Kingdom, namely the P&O release note, the CMRs and the Whelan’s fax received 2 November 2006 were forgeries.

(19)   The Appellant depended upon Mr Brown to provide the necessary commercial documentation. He made no independent enquiries of the persons involved in the transport of goods.

(20)   The Appellant was sloppy with the compilation of his own records and prone to errors. A substantial number of sales invoices did not contain details for the collection of goods or the details were inaccurate. Only three delivery notes recorded the registration number of the vehicle collecting the goods. The Appellant had performed no reconciliation of the transactions with his bank accounts.

(21)   The Appellant did not familiarise himself with the requirements of the various documents provided by Mr Brown, and took their contents at face value. Had the Appellant been more alert, he would have spotted inconsistencies and omissions on the face of the documents. Only one of the purchase orders included a delivery address for the goods.  The CMRs did not include his stamp as sender of the goods and details of  the route from Dublin to Dover.

(22)   The Tribunal placed no weight on the Appellant’s inadequate documentation with his Republic of Ireland customers. This was not part of the Appeal. The prejudice to the Appellant outweighed the probative value of the evidence.

Reasons for Decision

89.  The dispute in this Appeal was whether the Appellant was entitled to zero-rate his supplies to Enkay which was based in Malaga Spain. The supplies comprised 47 separate transactions during the period June 2005 to September 2006.

90.  The first issue was whether the Appellant had complied with the requirements of the legislation for zero-rating supplies.  The requirements are set out in regulation 134 of the VAT Regulations 1995 and HMRC Notice 725.  In order to meet the requirements the Appellant has to prove on the balance of probabilities that the goods have been removed from the United Kingdom to the Member state of destination which was evidenced by valid commercial documentation.

91.  The Tribunal found in this Appeal that the Appellant’s supplies to Enkay were part of a scheme of tax avoidance. The Appellant was not a willing party to the scheme.  Further the commercial documentation produced, evidencing removal of the goods from the United Kingdom was forgeries. Thirty four transactions were not evidenced with commercial documentation of removal. Finally there was no persuasive evidence that the goods actually left the United Kingdom. The Tribunal was satisfied that the goods did not reach Spain which was the stated destination for the goods. The more likely explanation was that the goods were diverted after they left the Appellant’s premises, which on the evidence could have taken place in the United Kingdom.  

92.  Having regard to the above findings the Tribunal was satisfied that the Appellant did not meet the legislative requirements for zero-rating the supplies to Enkay. He failed to establish that the goods left the United Kingdom. The Appellant did not hold valid commercial documentation evidencing the removal of the goods from the United Kingdom.

93.    The Appellant asserted that the goods had been transported to the Republic of Ireland, which was sufficient to satisfy the legislative requirement of removal to another Member state. This argument fell down on the facts with the Tribunal finding no persuasive evidence that the goods actually left the United Kingdom.

94.  The Tribunal, however, considers that the Appellant’s proposition was also flawed in law, even if he had showed that the goods crossed the border into the Republic of Ireland. The Appellant was not entitled to zero-rate the supplies to Enkay under the legislative provisions unless he demonstrated on the balance of probabilities that the goods were dispatched to Spain.  The zero-rating of dispatches from one Member state to another works on the principle that VAT is payable as acquisition tax in the Member state of destination, otherwise fiscal neutrality is breached. Enkay was registered for VAT in Spain. Thus even if the goods had reached the Republic of Ireland the Irish Authorities had no power to levy acquisition VAT from Enkay.

95.  The second issue was whether the Appellant took every step which could be reasonably required of him to satisfy himself that the transactions to Enkay did not result in his participation in tax evasion.

96.  The Court of Justice in Teleos plc and others v Customers and Excise Commissioners [2008] QB 600 – 633 established a defence for bona fide traders against a requirement by tax authorities to account for VAT on transactions vitiated by fraud. The Court of Justice held that

“The first subparagraph of Article 28c(A)(a) of Sixth Directive 77/388, as amended by Directive 2000/65, is to be interpreted as precluding the competent authorities of the Member state of supply from requiring a supplier, who acted in good faith and submitted evidence establishing, at first sight, his right to the exemption of an intra-Community supply of goods, subsequently to account for value added tax on those goods where that evidence is found to be false, without, however, the supplier's involvement in the tax evasion being established, provided that the supplier took every reasonable measure in his power to ensure that the intra-Community supply he was effecting did not lead to his participation in such evasion”.

97.  The facts of Teleos were that the claimants sold mobile telephones to a company established in Spain. In the contracts, the destination of the goods was stipulated in most cases as France and in individual cases as Spain. The supply was made "ex works". Under that provision, the claimants were required only to deliver the goods to the warehouse of Spanish company’s forwarding agent in the United Kingdom. The forwarding agent was then supposed to pass them to a carrier for transport to the destination states. In respect of each transaction, the Spanish company sent the claimants by courier service a stamped and signed original CMR note as proof that the mobile telephones had reached their destination. The claimants held no grounds to doubt the genuineness of the notes or the information contained in them. The claimants zero-rated the supplies. On checks some weeks after the last supplies, the HMRC discovered that the CMR notes contained several false indications concerning the destination, the freight forwarder and the vehicles allegedly used. HMRC, therefore, concluded that the mobile telephones had not left the United Kingdom and made retrospective VAT assessments against the claimants for several million pounds. HMRC acknowledged that the claimants had not been involved in a fraud, and did not know that the mobile telephones had not left the United Kingdom.

98.  HMRC contended in Teleos that the claimants must prove that the conditions for zero rating have been met. Further as the proofs presented by the claimants turned out on verification by HMRC to be false, HMRC was entitled to refuse retrospectively the zero rating and treat  the supply as standard rated for VAT purposes and recover the VAT due from the claimants.

99.  The Court of Justice rejected HMRC’s argument. The Court considered that the argument offended the principle of proportionality and represented an unreasonable allocation of risk between the supplier and the revenue authority in relation to the criminal conduct of a third party. The Court of Justice said at paragraphs 58 to 60:

“58. Admittedly, the objective of preventing tax evasion sometimes justifies stringent requirements as regards suppliers' obligations. However, any sharing of the risk between the supplier and the tax authorities, following fraud committed by a third party, must be compatible with the principle of proportionality. Furthermore, rather than preventing tax evasion, a regime imposing the entire responsibility for the payment of VAT on suppliers, regardless of whether or not they were involved in the fraud, does not necessarily safeguard the harmonised VAT system from evasion and abuse by purchasers. The latter, were they exempted from all responsibility, could, in effect, be encouraged not to dispatch or not to transport the goods out of the Member state of supply and not to declare the goods for VAT purposes in the envisaged member states of destination.

59 As regards, thirdly, the principle of fiscal neutrality, it must be recalled that that principle precludes, in particular, treating similar supplies of services, which are thus in competition with each other, differently for VAT purposes: see Administration de l'enregistrement et des domaines v Eurodental SARL (Case C-240/05) [2006] ECR I-11479, para 46.

60 If the suppliers involved in the main proceedings were themselves required to account for the VAT after the event, that principle would be infringed, since suppliers who effect transactions within a country are never liable to pay output tax, given that it is an indirect tax on consumption. Therefore, taxable persons effecting an intra-Community transaction, in circumstances such as those of the main proceedings, would be in a less advantageous position than that of taxable persons effecting an internal transaction: see, to that effect, as regards the right to deduct, the Eurodental case, para 47”.

100.         The Court of Justice, however, decided that it would not be disproportionate for HMRC to require a supplier when zero-rating supplies to take every step which could be reasonably required of him to satisfy himself that the supplies did not result in his participation to tax evasion.

101.         The Advocate General fleshed out the detail of taking every step which could be reasonably required. At paragraph 76 the Advocate General stated that

“The seller must also satisfy himself of the seriousness of his business partner. The objective of preventing tax evasion justifies heavy requirements being involved in fulfilling that obligation. It is for the national court to decide whether the supplier has fulfilled it. According to the information which it has supplied in the reference, it appears that the claimants exhausted all the possibilities at their disposal in scrutinising Total Telecom”.

102.         The steps taken by the Teleos’ claimants were

“Before the claimants entered into business relations with Total Telecom, they had assured themselves as to the reliability of that purchaser by checking its Spanish VAT number, its entry in the commercial register and its creditworthiness. They also made inquiries concerning the freight forwarder used by Total Telecom”.

103.         The Advocate General decided that it was necessary for a supplier taking every step to provide documentary proof that the goods left the Member state. In this respect the Advocate General considered that a CMR note signed by the sender of goods with the recipient noting receipt of the goods was particularly suitable. The Advocate General, however, stated that proof of transportation or dispatch might be adduced by other means than a CMR. The other means must not lead to any more serious obstacle to the movement of goods across frontiers than the requirements for proof which applied before the abolition of internal frontiers.

104. The Advocate General highlighted the risk associated with ex work supplies where the buyer assumes responsibility for the transport of the goods. This risk, however, is associated with the contractual arrangements entered into by the seller, and not inherent in the statutory regime for intra-Community supplies. In these circumstances the seller needs to take steps which reflect the risk associated with ex work supplies, otherwise he must bear the VAT consequences of the non-performance of that contractual obligation by the buyer.

105.         Lewison J in Revenue and Customs Commissioners v Livewire Telecom Ltd; Revenue and Customs Commissioners v Olympia Technology Ltd [2009] EWHC 15 (Ch) examined the Teleos test of taking every step which could be reasonably required albeit in the context of whether the taxpayer knew or should have known about a VAT fraud.

106.         According to Lewison J, the Teleos test required the supplier to be of good faith and taken every reasonable measure to ensure that his supply was not participating in VAT evasion. Further, Lewison J at paragraph 23 stated that

“The test does not require the taxable person to take every possible precaution: merely every precaution reasonably required. This test gives the tribunal sufficient flexibility to decide, on particular facts, that a suggested precaution would have gone beyond what could reasonably have been expected”.

107.         Lewison J  elaborated on the test in paragraphs 87 and 88:

“87. The taking of every reasonable precaution has sometimes been referred to as a 'positive duty'. This is, I think, potentially misleading. The taxable person does not owe a 'duty' to take precautions (unless it is a duty to himself). The taking of all reasonable precautions (and acting on the basis of what he discovers as a result of taking those precautions) provides him with an impenetrable shield against any attack by HMRC.

 88. At one stage, by reference to this supposed 'duty', Mr Anderson seemed to me to be submitting that if a taxable person failed to take every precaution that could reasonably be expected, he would automatically be deemed to be a participant in fraud and would forfeit his right to deduct input tax. This, he said, followed from the phraseology in para 56 of Kittel ('a person ... must be regarded as a participant in the fraud'). However, as noted, an irrebuttable presumption imposing liability to VAT would fall foul of the principle of proportionality. In my judgment (as I think Mr Anderson in the end accepted) if a taxable person has not taken every precaution that could reasonably be expected of him, he will still not forfeit his right to deduct input tax in a case where he would not have discovered the connection with fraud even if he had taken those precautions”.

108.         The final authority to be considered is N2J Limited v Commissioners for Her Majesty’s Revenue and Customs [2009] EWHC 1596 (Ch). The facts of this case were similar to the facts of this Appeal. HMRC had rejected the claim of N2J Limited to zero rate the supplies of mobile phones to a company in another Member state.

109.         Mr Justice Arnold in N2J Limited considered arguments on CMRs and the effect of HMRC’s original  decision to approve the zero rating of N2J’s supplies. On CMRs he said at paragraphs 20 – 22:

20.     The third ground upon which counsel for N2J challenged the Tribunal's decision was that it had erred in law with regard to the effect of obtaining and presenting CMRs.  He submitted that, where a trader in the position of N2J had received CMRs apparently evidencing transport of the goods to a destination outside the United Kingdom, then, unless there was something on the face of the CMRs which obviously was illegitimate or necessitated further enquiry, then the trader was entitled to rely upon those CMRs in order to claim zero-rating.  In essence, he contended that, unless there was an obvious defect in the CMRs on their face, they were conclusive.

21.     In my judgment, this contention is inconsistent with the judgment of the ECJ in Teleos and, in particular, paragraphs 66 and 68.  As I read those paragraphs, the Court did not accept that an apparently valid CMR was to be treated as conclusive of the supplier's entitlement to zero-rate.  On the contrary, in paragraph 68 the Court laid down a proviso that the supplier should have taken every reasonable measure in his power to ensure that the intra-Community supply he was effecting did not lead to his participation in tax evasion.  That proviso would be redundant if the supplier were entitled to rely upon an apparently valid CMR without further ado.

22.     Furthermore, the facts of the present case provide a clear demonstration of why such an analysis would not be practicable.  In the present case, the reason for the Commissioners' original objection to the claim for zero-rating was that the CMRs record that the customer was Imex, whereas N2J's invoices named its customer as Pro-Choice.  It is N2J's own case that the identity of the customer recorded on the CMR is not correct and that it is entitled to explain the discrepancy between the CMR and its invoices by reference to extraneous evidence.  This clearly demonstrates that the CMRs cannot be viewed in a vacuum, but must be viewed and interpreted against the relevant commercial background.  In the present case, the Tribunal considered that it was the commercial background to the transaction which should have put N2J on enquiry.

110.         On the effect of HMRC’s Officers releasing payment to N2J following its claim to zero-rate supplies, Mr Justice Arnold stated that

“23.The fourth ground upon which counsel for N2J challenges the Tribunal's decision is that he submits that, even if the CMRs are not to be regarded as conclusive unless there is an obvious defect upon their face, nevertheless they are conclusive once they are accepted by the Commissioners as evidencing a valid supply.  He further submits that in the present case the Commissioners did indeed accept the validity of the CMRs at first sight, because, although they originally withheld the input tax that N2J had sought to reclaim in respect of the transaction, subsequently they released the payment to N2J. 

24. I do not accept either limb of this contention.  So far as the factual basis for it is concerned, as counsel for the Commissioners pointed out, in the Commissioners' letter dated 18^th January 2006 in which they agreed to repay the input tax in question, the Commissioners expressly stated that this was "without prejudice to any further action which may be taken by HM Revenue & Customs."  In the self-same letter they pursued various concerns which had been first raised earlier with regard to the transactions which were sought to be zero-rated and which subsequently led to the assessment in question.

25. So far as the legal basis is concerned, once again it seems to me that the submission is contrary to the judgment of the ECJ in Teleos.  In that case the Commissioners had originally accepted the CMRs, but subsequently concluded that in fact the mobile telephones had never left the United Kingdom and therefore assessed Teleos and others to VAT on the supplies.  The Court did not hold that the fact that the Commissioners had originally accepted the CMRs by itself precluded the Commissioners from assessing the supplies to VAT at the standard rate.  On the contrary, the court held that a supplier who had acted in good faith and submitted evidence establishing at first sight his right to the exemption was only entitled to the exemption if he took every reasonable measure in his power to ensure that the intra-Community supply he was effecting did not lead to his participation in tax evasion.  It necessarily follows that it is open to the competent authorities to re-open an assessment if evidence of tax evasion and a failure on the part of the supplier to take every reasonable measure in his power comes to their attention”.

 

111.         The Appellant in this Appeal argued that he was entitled to rely on Teleos. The Appellant asserted that he was an innocent victim of a fraud perpetrated by Mr Brown of Enkay. The Appellant argued that at all times he acted in good faith and honest in his dealings with Enkay. Further the Appellant conducted due diligence in respect of Enkay and Whelans and held an appropriate paper trail for the transactions with Enkay. Finally he complied with the advice and guidance given to him by HMRC Officers who were provided with ample opportunities by the Appellant to inspect his business.

112.         The Tribunal’s conclusion from its analysis of the Teleos case and subsequent authorities is that the risk of VAT loss from fraudulent transactions between the competent taxing authorities and honest traders initially falls on the taxing authorities. The taxing authorities, however, in managing that risk are entitled under the VAT Sixth Directive to impose requirements on traders in respect of their dealings with intra-Community supplies. In respect of UK legislation, HMRC has set out its requirements in Notice 725, parts of which have the force of law. The requirements should be proportionate so as not to place excessive burdens on intra-Community trade and not to infringe the principle of fiscal neutrality.   Honest traders can avoid liability to account for VAT on fraudulent transactions, provided they take every precaution reasonably required in the circumstances. They are not required to take every possible precaution.

113.         The Appellant’s representative contended that in assessing whether the Appellant took every precaution reasonably required, the Tribunal should address the question from the perspective of what was reasonable for the Appellant. This meant that the Appellant should be judged on the actual actions taken from the perspective of a one-person firm and not against a standard of  what should be done regardless of the individual circumstances. HMRC counsel disagreed with the representative’s submission arguing that the test as expressed in Livewire was an objective test, and that the individual circumstances of the Appellant were irrelevant in applying the test.

114.         The Tribunal considers the argument about whether the test taking every precaution reasonably required was an objective or subjective test confusing. In the Tribunal’s view the application of the test was straightforward. The test required the Tribunal to assess the effectiveness of the actual actions taken by the Appellant and whether they were proportionate and reasonable to minimise the risk of tax avoidance in the particular circumstances of the Appeal. In making this assessment the Tribunal was required to have regard to the nature of the transactions and the manner in which they were conducted by the Appellant, the characteristics of the Appellant’s business, his dealings with HMRC Officers, and HMRC guidance on intra-community trade. The Tribunal, however, considered that the Appellant was not entitled to plead ignorance of HMRC requirements regarding intra-Community trade. As VAT is a self assessment tax, the Tribunal proceeded on the basis that the Appellant should have been aware of his statutory responsibilities. Equally the test of taking every precaution reasonably required was not a tick box approach of ticking or crossing the various actions taken by the Appellant against HMRC guidance.

115.         This Tribunal intends to assess the facts found under the headings of  knowledge, due diligence, documentation, and dealings with HMRC Officers in order to arrive at the whole picture against which the test of taking every precaution reasonably required can be applied.

116.         This Tribunal found that the Appellant’s transactions with Enkay formed part of a scheme of tax avoidance most likely perpetrated by Mr Brown of Enkay, and that the goods never reached Spain. Further there was no evidence that the Appellant was a willing party to the scheme of tax avoidance. This Tribunal accepts that the Appellant was a bona fide trader who had no knowledge of the fraud until receipt of Mrs Corr’s letter dated 12 September 2006. The letter set out HMRC’s concerns with the authenticity of the P&O release notes and CMRs. The Appellant was, therefore, entitled to plead the Teleos defence against HMRC’s retrospective refusal of his  claim to zero-rate the transactions prior to receipt of the letter 12 September 2006.

117.         The Tribunal, however, considers that the Appellant cannot rely on the Teleos defence in respect of the transaction on 21 September 2006. The Appellant knew of HMRC’s concerns about Enkay and their doubts with the authenticity of the documentation evidencing the removal of goods when he entered into that transaction. The Appellant accepted that he took a risk in going ahead with the supply of goods, and did not take the necessary precautions reasonably required of the circumstances of that particular transaction.  In the Tribunal’s view he should have asked Enkay for a security equivalent to the amount of VAT due on the supply.

118.         On the issue of due diligence the Tribunal found that the Appellant did not carry out thorough checks on Enkay and placed too much reliance on his personal dealings with Mr Brown to assess the credibility of Enkay. On his own admission the Appellant took Mr Brown at face value. He conducted no independent verification of Enkay’s creditworthiness and its status as a company. The Appellant did not confirm the VAT registration number of Enkay with HMRC National Advice Service until September 2006. The Tribunal found that the Appellant performed no due diligence on Whelans, the haulage firm purportedly contracted by Enkay to collect the goods from the Appellant.

119.         The Appellant, however, considered that the steps he took in respect of due diligence were reasonable. He pointed out that he met Mr Brown in the presence of a major supplier to Tesco supermarkets. Enkay satisfied their debts promptly with the Appellant and paid up front for specific supplies. In the Appellant’s view, the fact that Enkay was a good payer was the best indicator of its creditworthiness. Further the Appellant did not enter into a second set of transactions with Enkay until a period of six months had elapsed from the first set of transaction so as to give HMRC time to verify the supplies to Enkay. The Appellant used the Europa website instead of the HMRC National Advice Service to verify the VAT registration number of Enkay. The Appellant asserted that a check of Enkay’s registration number with HMRC would in any event have revealed nothing untoward about Enkay because it was not de-registered by the Spanish authorities until October 2006.  The Appellant believed that it was unnecessary to investigate Whelans. He knew that Whelans was the main suppliers to Dunnes Stores, a major retailer in Ireland.

120.         The Tribunal holds that the Appellant’s due diligence of Enkay and Whelans was deficient and did not meet the standard of taking every precaution reasonably required to ensure non participation in tax avoidance. As found by the Tribunal the steps he took had no element of independent verification. The Appellant should at the very least carried out the usual commercial checks, such as bank and credit worthiness, on Enkay. He essentially took Mr Brown at his word. By adopting this approach the chances of the Appellant discovering something awry with Enkay were remote. A term of the Appellant’s business with Enkay was ex works with Enkay arranging to collect the goods from the Appellant’s premises and transport them overseas. This arrangement carried inherent risks which the Appellant ignored by not carrying out checks on the hauliers, (Whelans).  

121.         The Appellant did not alter his approach regarding due diligence when faced with new circumstances, requiring a re-appraisal of the business arrangement with Enkay. He either ignored the new circumstances or went back to Mr Brown for clarification. The Appellant raised no questions about the third party payments. When challenged by Mrs Laverty about the route taken to transport the goods, he asked Mr Brown for an explanation rather than going direct to the other firms named on the CMRs. Finally he did not review his due diligence following the significant gearing up of his business in 2006 which in itself increased the risk of tax avoidance.

122.         The Appellant maintained that he held appropriate paper trails for his dealings with Enkay.  The Court of Justice in Teleos referred to submitting evidence establishing, at first sight, his right to the exemption of an intra-Community supply of goods. HMRC Notice 725 required the Appellant to hold satisfactory commercial documentary evidence that the goods have been removed from the United Kingdom.

123.         The Tribunal’s analysis of the documentation[4] revealed that the Appellant did not hold satisfactory documentation for the overwhelming majority of the supplies made. Thirty four transactions were not evidenced with commercial transport documentation showing the route taken. Thirty one transactions did not incorporate a purchase order from Enkay. The Appellant failed to provide the Tribunal with a satisfactory explanation for the missing documents. He expected the documentation to be in HMRC’s bundle, which was the apparent reason for the late delivery of his bundle on the day of the hearing. The obligation, however, was upon the Appellant to adduce the necessary documentation to prove his case. HMRC had supplied him with its list of documents on 18 April 2008. The Appellant had over two years to prepare his case. It would be a serious failing on the part of the Tribunal in the absence of persuasive evidence   to presume that the necessary documentation was in place

124.         The principal piece of evidence relied upon by the Appellant to prove removal of the goods from the United Kingdom was the fax received from Whelans on 2 November 2006. The fax stated that Whelans had collected 45 loads from the Appellant and taken them to the Dublin Warehouse by Whelans’ lorries  except two loads. This fax was excluded from the Tribunal’s analysis of the documentation because it was provided for the purpose of the Appeal proceedings and not to substantiate his VAT returns at the time of their submission to HMRC. Further the fax did not fulfil the requirements for establishing the supply of goods to Enkay. The document contained no details of the route transporting the goods from the Republic of Ireland to Spain. The Appellant solicited the fax from Mr Brown of Enkay, not from Whelans after he was made aware of HMRC’s concerns about Enkay. The Appellant must have known by the time he received the fax that it was a forgery and its contents could not be relied upon.

125.         A minority of the transactions was evidenced by a P&O Note and CMR which had been provided by Mr Brown. The Appellant, however, did not familiarise himself with the requirements of these documents and took their contents at face value. Had he  been more alert, the Appellant would have spotted inconsistencies and omissions on the face of the documents. Only one of the purchase orders included a delivery address for the goods.  The CMRs did not include his stamp as sender of the goods or the route from Dublin to Dover.

126.         At each inspection HMRC Officers stressed the importance of having correct documentation. They provided the Appellant with copies of Notice 725, on no less than three occasions. The Tribunal found that the Appellant did not act upon the advice given in Notice 725 which was demonstrated by his handling of the Red Bull consignments. Further the Appellant reacted to HMRC’s requests for evidence rather than acting on his own initiative to gather the necessary documentation at the time of each transaction.

127.         The Appellant left himself exposed to potential tax fraud by his failure to obtain the necessary evidence for the majority of the transactions. Where the Appellant secured documentation for specific transactions, he did so in response to HMRC enquiries rather than on his own initiative. The Appellant relied on Mr Brown of Enkay for the documentation and did not question their contents even where there were obvious contradictions. In short the actions taken by the Appellant were not those of a person exercising reasonable precautions against tax avoidance.

128.         The Appellant asserted that he worked alongside HMRC Officers and co-operated with them in order to demonstrate the traceability of the transactions. He did everything that was asked of him. The Officers approved his claims for repayment in  his returns except the last quarter 09/06. The Appellant interpreted the actions of the Officers as giving credibility to his business, and a green light to continue trading with Enkay.  

129.         The Tribunal was sceptical of the Appellant’s claim that he was working alongside HMRC Officers. The Tribunal found that he reacted to the Officers’ requests rather than taking on board their advice. Mr Lecky was the only Officer who expressed satisfaction with the Appellant’s basket of evidence for his supplies to Enkay. Mr Lecky, however, had to prompt the Appellant into action by the prospect of an assessment if he did not produce the necessary documents. Mrs Laverty and Mrs Corr held continuing doubts with the Appellant’s records despite authorising the repayment returns. The Tribunal concluded that had the Appellant took reasonable precautions he would have implemented the advice given to him by the HMRC Officers which would have been reflected in the quality of the documentation dealing with the sales to Enkay.  The evidence revealed no discernable improvement in the Appellant’s record keeping despite the frequent visits by HMRC Officers.

130.         The Tribunal’s overall assessment is that the Appellant has failed to prove on the balance of probabilities that he took every precaution reasonably required in his dealings with Enkay so as to prevent tax avoidance. The Tribunal, however, is mindful that its overall assessment was derived from a standpoint of considering the totality of facts with the benefit of hindsight. This Appeal concerned 47 transactions over 15 months. The parties approached the Appeal on an all or nothing basis. The Tribunal questions the correctness of the parties’ approach. The construction placed by Lewison J on the Teleos test in Livewire suggested that the concept of reasonable  precautions was not an absolute standard but dependent on the circumstances at the time decisions were taken. The Tribunal was also mindful that the Teleos decision required a thorough investigation of the circumstances before concluding that an honest trader should bear the VAT loss from fraudulent transactions.

131.         The Tribunal is satisfied that its overall assessment was applicable to all the transactions from and including 11 January 2006. The majority of these transactions were not evidenced by satisfactory documentation. The Appellant did not take on board Mr Lecky’s advice and oblivious to the concerns of Mrs Laverty and Mrs Corr. The Appellant significantly escalated his trade with Enkay without reviewing the due diligence on Enkay and Whelans.  Finally he closed his eyes to the signs which questioned the integrity of the trades with Enkay.   

132.         The Tribunal, however, considers that the supplies made in quarters 06/05 and 12/05 require further examination. During this period there were just four supplies, two consignments of washing powder and two of Capri-sonne. The Appellant held documentation in relation to each transaction which Mr Lecky considered satisfactory. The Appellant insisted on payment up front for the 06/05 consignments. The Appellant’s due diligence, although inadequate overall, incorporated in respect of these transactions a six months time lapse between them. The time lapse enabled  HMRC to interrogate the 06/05 transactions. At the time of these transactions HMRC held no suspicions about Enkay. A check with HMRC on the VAT registration of Enkay would have revealed nothing untoward. The Tribunal concludes on balance that the precautions taken by the Appellant in respect of the supplies made in quarters 06/05 and 12/05 were proportionate and reasonable in the circumstances prevailing at the time.

133.         The Appellant submitted that he had been let down by the system and that he was a victim of a cynical fraud perpetrated by Mr Brown.  The Appellant was a one person firm upon which HMRC placed unreasonable expectations. The Appellant did  not derive a tax advantage from his dealings with Enkay. The Tribunal’s overall assessment showed that the precautions expected of him were not onerous. He was required to keep satisfactory business records and vigilant of his dealings with Enkay. Those expectations were not beyond the wit of a sole trader. The failure of the Appellant to carry out reasonable precautions resulted in avoidance of VAT, albeit he did not  benefit from that avoidance.

Decision

134.         The Tribunal decides that the Appellant:

(1)  Did not meet the legislative requirements for zero-rating the supplies to Enkay. He failed to establish that the goods left the United Kingdom. The Appellant did not hold valid commercial documentation evidencing the removal of the goods from the United Kingdom.

(2)  Took every precaution reasonably required in respect of the four supplies in quarters 06/05 and 12/05.

(3)  Did not take every precaution reasonably required in respect of the forty three supplies in quarters 03/06, 06/06, and 09/06.

135.         The Tribunal allows the Appeal in part, and orders that the assessment be amended accordingly.

136.         The Tribunal makes no order for costs. The outcome of the Tribunal’s decision is that a substantial part of the assessment and the amendment to the 09/06 return was upheld.

 

 

 

 

MICHAEL TILDESLEY OBE

TRIBUNAL JUDGE

RELEASE DATE 11 November 2009

 

 

Man

 

Notes

 

1. A party wishing to Appeal this decision to the Upper Tribunal must seek permission by making   an application in writing to the Tribunal within 56 days of being provided with full written reasons for the decision. An application for permission must identify the alleged error(s) in the decision and state the result the party making the application is seeking.

APPENDIX ONE: DETAILS OF SUPPLIES MADE BY THE APPELLANT TO ENKAY
	Date of supply	Value (£) ( ) = hauliers named on sales invoice	Goods	Supplier	Value of Supply (£)	Documents evidencing removal
1	24.6.05	22,370.40	Washing Powder	BUNZL (Dublin)	21,434.40 (no VAT)	Purchase Order Delivery Note (W)
2	24.6.05	21,604.44	Washing Powder	BUNZL (Dublin)	20,746.44 (no VAT)	Purchase Order Delivery Note (W)
3	8.12.2005	10,959.30 200.00	Capri-sonne			Purchase Order P& O note (Mr Lecky’s statement)
4	12.12.05	10,959.30 200.00 (carriage to Whelans)	Capri-sonne			Purchase Order P& O note (Mr Lecky’s statement)
5	11.01.06	9,950.85(W)	Coca-Cola
6	11.01.06	10,157.40 (W)	Capri-sonne	Epoipo (London) 10/01/06	9,622.80 (VAT) 1,683.99	Purchase Order CMR (11.01.05)
7	12.01.06	10,157.40 (W)	Capri-sonne	Epoipo (London) (12/01/06)   (Duffin)	9,622.80 (VAT) 1,683.99	P&O note Purchase order
8	09.02.06	19,618.56 (W)	Bold washing powder			CMR
9	14.02.06	10,692.00 (W)	Capri-sonne	Epoipo (London) 6.02.06	9,622.80 (VAT) 1,683.99	Purchase order
10	20.02.06	10,291.05 (W)	Capri-sonne	Epoipo (London) 6.02.06	9,622.80 (VAT)1,683.99	Purchase order
11	20.02.06	10,543.05 200 (carriage to Whelans)	Capri-sonne
12	21.02.06	10,291.05 (W)	Capri-sonne			Delivery Note  (W) 21/06, CMR
13	23.02.06	10,291.05 (W)	Capri-sonne			CMR
14	20.03.06	10,558.35 (W)	Capri-sonne
	Date of supply	Value (£) ( ) = hauliers named on sales invoice	Goods	Supplier	Value of Supply (£)	Documents evidencing removal
15	31.03.06	14,584.05 (W)	Coca Cola
16	04.04.06	10,291.05 (W)	Capri-sonne
17	07.04.06	8,932.00 (W)	Pepsi Cola
18	19.04.06	16,877.16 (W)	Confectionary
19	19.04.06	126,489.60	Red Bull	GB Beverages Ltd 24.04.06	146,188.20 (VAT) 21,772,80	Purchase Order 18.04.06 CMR (3) P&O note Fax Note (Whelans) Payment Advice
20	27.04.06	10,291.05	Capri-sonne
21	27.04.06	10,139.58	Coca-Cola
22	11.05.06	10,139.58	Coca-Cola	Epoipo (London) 15.05.06	9,604.98 (VAT) 1,680.87
23	19.05.06	10,687.50	Coca-Cola & Confectionary
24	24.05.06	10,291.05	Capri-sonne			Puchase order CMR P&O Note
25	24.05.06	10,291.05	Capri-sonne			P&O Note
26	29.05.06	27,816.48 (H)	Washing Powder
27	30.05.06	12,357.18 (H)	Coca Cola & Other drinks
28	31.05.06	10,399.96 100 Geest	Coca-Cola

 

Date of supply	Value (£) ( ) = hauliers named on sales invoice	Goods	Supplier	Value of Supply (£)	Documents evidencing removal	Date of supply
29	15.06.06	10,157.40 (H)	Capri-sonne
30	16.06.06	10,157.40 (H)	Capri-sonne
31	21.06.06	14,473.66	Drinks and Confectionary
32	11.07.06	13,914.00 (H)	Coca-Cola & Soft drinks
33	17.07.06	10,157.40 (H)	Capri-sonne			Purchase Order 15/07
34	27.07.06	10,335.60 (W)	Coca-Cola			Delivery Note (W)
35	28.07.06	10,318.40 (W)	Coca-Cola
36	28.07.06	10,157.40 180 (Geest)	Capri-sonne			Purchase Order
37	28.07.06	10,157.40 (W)	Capri-sonne			Purchase Order  26/07 Delivery Note (W)
38	31.07.06	9,737.28 (W)	Soft drink & Confectionary
39	04.08.06	10,335.60 (W)	Coca-Cola
40	10.08.06	10,210.86 (WR)	Capri
41	24.08.06	10,210.86 (185 IWT Shipping)	Capri-sonne			Delivery Note (W) 24/08 P & O Note
42	31.08.06	6,263.40 (W)	Coca Cola & Confectionary			Delivery Note 30/08 (W0) P & O Note 28/8/06
43	11.09.06	17,784.00 (W)	Washing Powder
44	12.09.06	17,503.20 (W)	Washing Powder
45	13.09.06	17,503.20 (W)	Washing Powder
46	13.09.06	10,210.86 (W)	Capri-sonne
47	21.09.06	10,210.86 (W)	Capri-sonne			P &O  Note, 17/09             Delivery Note (W) 21/9

 

Note: (W) = Whelans

           (H) =  Hannons