Recent missing trader VAT case shows the perils of relying on an agent
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Recent missing trader VAT case shows the perils of relying on an agent
Recent missing trader VAT case shows the perils of relying on an agent
Tue 21 Jul 2020
HMRC have long relied on the Kittel principle in cases of alleged missing trader fraud in relation to VAT. Using Kittel, HMRC contest that a trader ‘knew or should have known’ that the transactions being entered into were connected to fraudulent activity. Cases going through the courts demonstrate that Kittel has a much lower threshold than proving that a trader deliberately defrauded HMRC, and therefore has more likelihood of success.
In the recent Premier Metals case – concerning a partnership trading in scrap metals – the First Tier Tribunal had previously found as a matter of fact that transactions entered into by an agent acting on behalf of the partnership failed the Kittel test. The agent’s knowledge was attributed to the partnership.
The trader’s appeal to the Upper Tribunal (“UT”) contended that it could not be held responsible for its agent’s dealings on its behalf. The UT concluded that the appointment of an agent does not avoid the consequence of the Kittel rule. Traders entering into transactions through agents cannot rely on, or claim, ignorance of the full circumstances of the transactions.
The Tribunal Chair commented that a decision in favour of the trader would leave open a scenario where partnerships could delegate entire business activities to dishonest actors.
This is an important case as it prevents partnerships from offloading their responsibility to understand and comprehend the consequences of their activities by using agents. Whilst in this case it was agreed that the partnership did not have any direct knowledge of the fraud, the use of an agent did not prevent the application of the Kittel principle in relation to the fraudulent transactions.
This case highlights the importance of businesses being able to demonstrate prudent risk management in their business relationships and supply chains.
For a further discussion of this issue and how Mazars can assist with compliance and risk management, please get in touch with a member of the Mazars Indirect Tax team or one of the contacts listed below:
- Sandy Cochrane- sandy.cochrane@mazars.co.uk;
- Stephen Morrison – stephen.morrison@mazars.co.uk;
- Jimmy Davies – james.davies@mazars.co.uk;
- Lorraine Lee – lorraine.lee@mazars.co.uk;
- James Hurst – james.hurst@mazars.co.uk;
- Juliet Bailey – juliet.bailey@mazars.co.uk
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