Taxpayer success in cases involving allegations of VAT fraud

Wed 05 Dec 2018

Since 16 November 2017 HMRC can levy a 30% penalty where a business knew or should have known it was involved with VAT fraud. These can be serious issues for a business to deal with.

However two recent cases illustrate taxpayer success in recovering payments in relation to withheld input VAT in situations where HMRC had alleged the taxpayers should have known of the presence of VAT fraud and should not have been entitled to input VAT recovery.

In the First tier Tribunal (FTT) case of Vale Europe Ltd, HMRC’s allegations that the business should have known of VAT fraud were defeated.  The FTT considered HMRC had not demonstrated that Vale knew or should have known of the existence of VAT fraud.  In the FTT’s view, HMRC had placed too much emphasis on due diligence requirements (the business involved the purchase of platinum and palladium).

At the Upper Tribunal (UT) Emblaze Mobility Solutions Ltd.  succeeded in one of their two appeals for further repayments due on VAT repayments that HMRC previously incorrectly withheld. The UT considered a withheld repayment supplement of £422k should be released to the taxpayer. The FTT had deducted the repayment supplement on the grounds that the interest repayment was calculated at a high interest rate.  The UT considered this was not a valid reason for withholding that repayment supplement.

Comment

The issues raised in cases where knowledge of VAT fraud is alleged can be complex. As the VAT sums can be significant, dealing with the issues concerning repayment and interest will also be significant. For a further discussion of what procedures to put in place to prevent VAT fraud and how to deal with the consequences of any allegations of knowledge of VAT fraud, please get in touch with a member of the Mazars indirect tax team.