C F Booth Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 08 November 2017 |
| Neutral Citation | [2017] UKFTT 0813 (TC) |
| Date | 08 November 2017 |
| Court | First-tier Tribunal (Tax Chamber) |
[2017] UKFTT 0813 (TC)
Judge John Brooks, Gill Hunter
Tarlochan Lall, instructed by Keystone Law, appeared for the appellant
Howard Watkinson and Joshua Carey, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Value added tax – Zero-rating denied – Whether satisfactory evidence goods had left United Kingdom – Whether within defence to denial of zero-rating (as in R (on the application of Teleos plc) v C & E Commrs (Case C-409/04) [2008] BVC 705) – Whether supplies part of fraud and if so whether appellant knew or should have known – Appeal dismissed.
Value added tax – Denial of input tax – Whether fraudulent tax loss – Whether transactions connected with such loss – Whether appellant knew or should have known of connection – Appeal dismissed.
[1] C F Booth Limited (“CFB”) appeals against two decisions of HM Revenue and Customs (“HMRC”).
[2] The first, contained in a letter of 8 July 2014 and upheld on 10 October 2014 following a review, was to issue an assessment in the sum of £160,281.50 under s 73 of the Value Added Tax Act 1994 (“VATA”). The effect of this assessment was to deny a claim by CFB to zero rate eight supplies of metal to a Belgian registered trader, Metaux Group Belge (“MGB”) on the basis of CFB's failure to produce satisfactory evidence that the goods supplied had left the United Kingdom. HMRC also considered that CFB did not fall within the defence to the denial of zero-rating as set out by the Court of Justice of the European Union (“CJEU” – which we use throughout the decision and which should be read as the European Court of Justice or ECJ as appropriate) in R (on the application of Teleos plc) v C & E Commrs (Case C-409/04) [2008] BVC 705 (“Teleos”).
[3] Additionally, in an alternative argument set out in their Consolidated Statement of Case, relying on the principle enunciated by the CJEU in Mecsek-Gabona Kft v Nemzeti Adó- és Vámhivatal Dél-dunántúli Regionális Adó Főigazgatósága (Case C-273/11) [2012] BVC 640 (“Mecsek-Gabona”), HMRC contend that CFB's supplies to MGB, on which zero-rating was denied, were part of a VAT fraud committed by MGB of which CFB knew or should have known and had not taken every step within its power to prevent its own participation in that fraud.
[4] HMRC's second decision, contained in a letter dated 17 March 2015, was to deny CFB input tax in the sum of £2,607,776 (£188,482 in CFB's 03/13 VAT period, £467,580 in VAT period 04/13, £295,359 in VAT period 05/13, £649,844 in VAT period 06/13, £603,747 in VAT period 07/13, £257,595 in VAT period 08/13, £102,088 in VAT period 09/13 and £43,081 in VAT period 02/14) on the basis that the 655 purchases of various metals, on which the input tax was incurred, were connected to the fraudulent evasion of VAT and that CFB knew or should have known of the connection.
[5] This decision, which relied on the principles set out in the decision of the CJEU in the joined cases of Kittel v Belgium; Belgium v Recolta Recycling SPRL (Joined Cases C-439/04 and C-440/04) [2008] BVC 559 (“Kittel”), was upheld on 20 May 2015 following a review.
[6] CFB appealed to the Tribunal against the first decision (the “MGB appeal”) on 21 November 2014 and against the second decision (the “Kittel appeal”) on 18 June 2015. Having concluded that the evidence of the activities and processes of CFB over the whole period covered by the two appeals was relevant to the case put in each of them as regards the actual or constructive knowledge of CFB, Judge Berner directed, on 13 August 2015, that two appeals be consolidated.
[7] Mr Tarlochan Lall appeared for CFB. HMRC were represented by Mr Howard Watkinson and Mr Joshua Carey.
[8] In addition to the documentary evidence, contained in 23 lever arch files, which included correspondence between the parties, reports compiled by HMRC Officers who visited CFB (and other companies/businesses), copy invoices, weighbridge tickets etc., we heard from the following witnesses:
- HMRC Officer Russell White, who had been aware of CFB from working on HMRC's Scrap Metal team in Sheffield. He succeeded HMRC Officer Day as the allocated officer for CFB on or around 27 September 2013 following a reorganisation of duties in his team. Officer White continued and extended the investigations already in place and was responsible for writing the letters, of 8 July 2014, to deny the right to zero rate sales to MGB and 17 March 2015, to deny recovery of input VAT, which form the basis of theses appeals. Officer White also gave evidence in relation to Mr Rubbish Limited (Mr Rubbish);
- HMRC Officer Emma Martin (formerly Raglan) who gave evidence in relation to Barnsley Metal Company Limited (BMC);
- HMRC Officer Lee Mitchell whose evidence concerned This N That Trading Limited (TNTT);
- HMRC Officer Jan Baltruschat who gave evidence in relation to Paragon Commodity Trading Limited (PCT) for which he is the assigned defaulter officer;
- HMRC Officer Gary Saul whose evidence concerned Wentworth Distribution Limited (WDL);
- HMRC Officer Julie Marshall whose evidence was in respect of Acorn Commodity Limited (ACL);
- HMRC Officer Ann Goy who gave evidence in relation to HW Services North West Limited (HWSNW);
- HMRC Officer Marion Gibrill who gave evidence in regard to IBY Limited (IBY);
- HMRC Officer Nigel Ward whose evidence concerned Worksop Scrap Metal and Salvage Limited (Worksop);
- HMRC Officer Robert Payne who gave evidence in relation to Intake Recycling Limited (Intake);
- HMRC Officer Gail Darnes whose evidence concerned Recycling Solutions (UK) Limited (Recycling);
- HMRC Officer Mary Kinman in relation to SWAT Tyres and Recycling (SWAT);
- Mr Jason Ellis, an employee of CFB from 1 October 2007 who is responsible for the completion of export documents and planning and arranging the loading schedules for export material. Mr Ellis assists Scott Booth (a director and shareholder of CFB) with managing hedging facilities used by the company to minimise certain commercial risks and provides administrative assistance in connection with processing sales once they have been concluded. Mr Ellis had no experience of trading in metals before being employed by CFB and was previously, between 23 October 2003 and 7 December 2011, a director of Ellwood Trading Ltd (Ellwood) which was denied input tax in the sum of £1,085,034.65 for the VAT periods 03/06 and 04/06 on the basis that the transactions formed part of an overall scheme to defraud the Revenue and that Ellwood knew or should have known that this was the case. Mr Ellis was subsequently disqualified from acting as company director for a period of 12 years from 7 December 2011 following an investigation by the Insolvency Service. The schedule of unfit conduct to Mr Ellis's disqualification undertaking states that, between 14 March and 11 May 2006, Mr Ellis caused Ellwood to participate in transactions which were connected with the fraudulent evasion of VAT and that he either knew or should have known of that connection;
- Mr Stuart Bailey, an employee of CFB since 2007, who dealt with sales, working closely with Scott Booth. He dealt with the sales to MGB, the subject matter of the MGB appeal. Before being employed by CFB, Mr Bailey was a director of two companies, New Century Technology International Ltd (New Century) from 4 December 2000 to 19 June 2001 and Hippo Technologies Ltd (Hippo) between 21 September 2001 and 12 December 2001. He became an employee of both companies shortly after his resignation as a director and remained employed by Hippo until 2003 and by New Century, as a sales manager, until 31 July 2007, shortly before he commenced his employment with CFB. Both New Century and Hippo were investigated by HMRC's Criminal Investigation department as part of Operation Divert, an investigation into Missing Trader Intra-Community (MTIC) VAT fraud. As it had ceased trading, Hippo was deregistered for VAT in late 2002 and HMRC attempted to raise a small assessment against it. New Century was assessed for overclaimed input tax of £19,858.00 in its VAT period 08/07 (during which Mr. Bailey left the company to start his employment at CFB) on 4 December 2009. New Century did not appeal against that assessment;
- Mr Jason Booth (son of Kenneth Booth, see below), a director of CFB since 28 August 2012 whose role within the company is as a buyer and who dealt with suppliers Premier Metals Leeds which subsequently incorporated as Premier Metals (Leeds) Limited (PML), Arthur Brook Limited (Arthur Brook) and BMC, three of the main suppliers to CFB in the Kittel appeal;
- Mr Howard Ratcliffe, CFB's in-house accountant, employed by CFB since October 1994 and who is responsible for financial reporting completion of the company's VAT returns;
- Mr Scott Willers, an employee of CFB since 2009, who describes himself as part of CFB's buying team. He prepares weekly and daily price lists which are circulated to CFB's suppliers and had no experience of trading in metals before commencing employment with CFB. Mr. Willers dealt with the purchases by CFB from Manholme Asset Management Ltd t/a Yorkshire Metal Recycling (Yorkshire Metal);
- Mr Kenneth Booth, a director of CFB from 31 January 1992 who has worked for the company for over 50 years starting when he was 15. In 1986, together with his brother James, he assumed responsibility for the day-to-day operation and management of CFB, succeeding their father who had been its managing director until then. He has oversight of the company's trading operations and was the main point of contact between CFB and HMRC during meetings and visits leading up to these appeals; and
- Mr James Booth, a director of CFB from 31 January 1992, who commenced work for CFB on leaving school in 1972. Although he is responsible, with his brother Ken, for the day-to-day management of the company, James oversees CFB's internal management and administrative operations with the...
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