In Crow Metals Ltd HMRC [2020] TC07900, the First Tier Tribunal (FTT) dismissed allegations by HMRC that Crow knew or should have known that its transactions were connected with a fraud.

  • HMRC sought to apply the 'Kittel principle'.
  • HMRC denied the input tax claims on the basis that Crow knew or should have known that its suppliers were connected with the fraudulent evasion of VAT.
  • Crow is a scrap metal trader and made input tax claims of about £640,000 which were denied by HMRC.
    • This allows HMRC to deny the taxpayer the right to deduct input tax:
        • Where the transaction on which the tax is claimed is connected with fraud.
        • For which the taxpayer knew or should have known of the VAT fraud.
    • If ‘Kittel’ applies, the burden of proof is on HMRC to establish:
      • That there was a fraudulent evasion of VAT on the transaction.
      • That Crow knew or should have known that its transactions were connected with VAT fraud.
  • Crow appealed.
    • It did not accept that there was a tax loss, that any such tax loss was fraudulent, that its transactions were connected to any such fraudulent tax loss, or that it should have known of the same.

During the hearing HMRC no longer pursued the allegation that Crow knew, but continued to allege that Crow should have known of the fraudulent evasion of its suppliers. 

The FTT found that on the balance of probabilities there were tax losses, as alleged by HMRC, and these were fraudulent.

On whether Crow should have known that its transactions were connected with VAT fraud, the FTT considered the following:

  • HMRC had notified Crow of missing trade fraud in the metal trade sector.
  • Crow now accepted that they had an awareness of fraud in the industry.
  • On numerous occasions, Crow failed to carry out due diligence checks prior to dealing with suppliers.

The FTT found that:

  • Crow’s awareness of fraud in the industry isn’t enough on its own to mean that they should have known that the transactions were connected with fraud. 
  • A failure to conduct or question due diligence doesn’t of itself give rise to finding that Crow should have known of the fraud.
  • HMRC failed to establish that Crow should have known that its purchases were connected with the fraudulent evasion of VAT. 

The taxpayer's appeal was allowed.

Links

Reverse charge & missing trader fraud (MTIC)
'Missing Trader' fraud, also known as Missing Trader Intra-Community (MTIC) fraud or Carousel fraud, involves the evasion of VAT.

What constitutes a valid VAT invoice?
What is a valid VAT invoice? Can you claim back VAT if the invoice is in someone else's name?

Trader should have known about fraud
In Field Opportunities Ltd v HMRC [2019] TC 7326, the First Tier Tribunal (FTT) held that a trader should have realised that transactions were probably connected with fraud.

External link

Crow Metals Ltd HMRC [2020] TC07900

Comments (0)

Rated 0 out of 5 based on 0 voters
There are no comments posted here yet

Leave your comments

  1. Posting comment as a guest.
Rate this post:
Attachments (0 / 3)
Share Your Location