My Secrets Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 20 January 2011 |
| Neutral Citation | [2011] UKFTT 72 (TC) |
| Date | 20 January 2011 |
| Court | First Tier Tribunal (Tax Chamber) |
[2011] TC 00950
[2011] UKFTT 72 (TC)
Mrs S M G Radford (Tribunal Judge)(Chairman), J G Robinson
Mr Timothy Brown for the Appellant
Mr Mark Bryant-Heron and Mr George Rowell, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents
VAT - alleged MTIC fraud - whether the Appellant knew or ought to have known that its transactions were connected with the fraudulent evasion of VAT - whether R & C Commrs were able to prove that in relation to the relevant transactions there had been a fraudulent evasion of tax
1. The Appellant appealed the decision of HMRC which was communicated by way of a letter dated 28 January 2008 which denied it the entitlement to deduct input tax in the sum of £819,280.00.
2. The decision related to two monthly VAT periods - June 2006 (06/06) during which there was four deals which resulted in an input tax claim in amount of £450,187.50 and July 2006 (07/06) during which there were three deals resulting in a claim for £371,616.35 of input tax.
3. It was claimed for the Appellant that at the material time it was a wholesale trader in mobile phones. It is HMRC's case that each of the Appellant's seven deals was connected with fraudulent evasion of VAT and the Appellant either knew or should have known that they were so connected.
4. The Appellant relied on the evidence of Mr Joseph Kemal, the managing director of the Appellant and Mrs Denise Leach, manager of the Appellant.
5. The Respondents relied on the evidence of Ms Vivien Parsons, Ms Erica Nketiah, Mr Roderick Stone, Mr Gordon Smith and Mr Terence Mendes of HMRC and their expert witness, Mr John Fletcher of KPMG.
6. The Appellant was incorporated on 13 December 2002. The director, Mr Joseph Kemal, was appointed on the same date. At the relevant time Mrs Denise Leach was employed as a manager with day to day involvement in trading.
7. The Appellant was registered for VAT as a textile wholesaler with effect from 1 February 2003, with the VAT registration number 805 2456 47 and at all the material times was responsible for submitting monthly VAT returns. The Appellant's principal place of business was 575, North End Road, Wembley, Middlesex, HA9 0UU. From mid-2003, the Appellant became involved in the purchase and sale of electronic goods.
8. In his witness statement Mr Kemal stated that the Appellant was initially formed with a view to wholesaling textile goods which was an area with which he had previously been involved for many years. In evidence he stated that in this business he had had great success before eventually selling his business to Polly Peck.
9. In evidence he confirmed that as a result of the textile business becoming generally increasingly competitive and profit margins constantly being squeezed he decided to move into another area of business which he believed might be more profitable.
10. Mr Kemal had been involved with Joe Harris, father of Denise Leach for nearly 35 years. Joe Harris was anxious to provide for her and decided to help to finance the new company with a view to the company eventually belonging to her.
11. Although the Appellant originally intended to deal in the nightwear business the floor above its premises was rented to an electronic company called Granville and their salesman, known as Vic, persuaded the Appellant that there was good business in exporting international telephone calling cards. After some discussion with Joe Harris it was agreed that the Appellant would take part. Mr Kemal insisted that the goods should come to the Appellant for checking and that HMRC became involved.
12. HMRC visited the Appellant's offices and were informed that the company was now trading in the purchase and sale of international calling cards. Mr Kemal was aware that VAT fraud was on the increase and asked for a form to be devised which would be sent to the Appellant's suppliers for confirmation that VAT would be accounted for on any goods sold to the Appellant.
13. In evidence Mr Kemal stated that he met Ian Tuppen after the fourth or fifth deal that they did with the international calling cards. Ian Tuppen had confirmed to him that with the Olympic Games in Greece there would be a big demand for cheap telephone calls. By then Vic, the salesman, who had been demanding more commission on the sales, had left Granville. Mr Kemal employed Paula Huller to take the place of Vic and to continue with the calling card business.
14. During this time on the advice of the Appellant's accountant the Appellant's VAT returns were changed to a monthly basis.
15. After the meeting with Ian Tuppen, whose company Kingswood Trading Services Limited ("Kingswood") had previously been supplying Granville, it was decided that the Appellant would become involved in the broking of electronic goods and Paula Huller was to experiment by buying and selling a small quantity of computer chips which would be supplied by Kingswood.
16. In 2005 Paula Huller left the company and Denise Leach took over the trading, buying
17. goods in the UK and selling primarily to overseas companies. The Appellant continued to trade using the IPT website and diversified into the purchase and sale of computer software.
18. Ian Tuppen again visited the Appellant and suggested that as the demand for international calling cards had ceased they should consider other exports such as mobile phones. Mr Kemal understood that these would be grey market goods as they would be new models and difficult to obtain.
19. The Appellant was visited by Kingswood's solicitors, Halliwells who had asked for a meeting to ensure that everything was in order. Following this visit Denise Leach was asked to visit their customers.
20. In September 2006 there was a further visit from HMRC who asked detailed questions concerning the Appellant's suppliers and purchasers.
21. The four deals in June 2006 and the three deals in July 2006 were in each case traced directly back through a chain of buffer traders to an alleged defaulting trader. In each of the deals the trader imported the mobile phones into the UK from a company based elsewhere in the EU. Their purchase was therefore zero-rated for VAT. The traders then sold the mobile phones to another UK based trader, charging VAT output tax on the invoice, for which they then allegedly failed to account. The mobile phones were then sold on to a number of other UK based traders until they were purchased by the Appellant, who in turn exported them from the UK in a sale to another EU based trader. The Appellant's sale was zero rated for VAT and it sought to reclaim the input tax on its purchase.
22. The purchases and onward sales in the VAT period 06/06 took place on the 22, 23 and 28 June 2006. The transactions dealt in Nokia phones on the 22 June (Nokia 7710) and the 28 June (Nokia N80 and N90) and in the LG KG800/Chocolate phone on the 23 June. 9,500 handsets were traded in the deals at a purchase price of £2,572,500.00 and a sale price of £2,624,000.00. All the purchases were from Kingswood and all the sales were to a Belgian company called 2 Trade BVBA ("2 Trade"). The total input tax on these 06/06 deals was £450,187.50.
23. All of the Appellant's purchases from Kingswood in June 2006 were traced back to an alleged defaulting trader, RS Sales Agency Limited ("RSSA"). RSSA did not pay its VAT liability.
24. Kingswood purchased from three different traders on the four deals, Mobile Heaven (22/6 and 28/6, MNR Global Limited (23/6) and Danum Trading (28/6). All these traders apparently purchased their mobile phones from Highbeam UK Limited ("Highbeam") which purported to purchase the phones from RSSA, the defaulting trader.
25. On the face of the trading documents a single trader, RSSA supplied all the phones to a single purchaser Highbeam which supplied them to Kingswood who then supplied the Appellant in June 2006.
26. RSSA is a missing trader. Its position in the transaction chain was importer of the goods. RSSA's director, Rafik Sodawala, registered for VAT as a sole trader on 19 September 2003 with the trading name RS Sales Agency ("the Sole Trader"). Mr Sodawala signed the application and subsequently applied unsuccessfully, through an accountants' firm, M Iqbal & Company, to transfer the VAT registration number to RSSA on 20 February 2006. The same letter informed HMRC that RSSA's future business activity would be wholesale and retail dealing in mobile phones. Thus at the time of the transaction in issue in the appeal, RSSA was not registered for VAT.
27. On 3 July 2006 HMRC officer Parsons and a colleague made an unannounced visit to the principal place of business of the Sole Trader and RSSA having received information that RSSA was trading with Highbeam. The address, 469A, Cheetham Hill Road, Manchester, M8 9LR was a doorway between two shops with no sign of any business operating from there and with no-one at the address. There had been a previous request to change the principal place of business to another address, which request was subsequently cancelled. The officers also visited this other address at 302, Cheetham Hill Road, Manchester, M8 0PL. This address was a hairdresser's shop and the occupants had no knowledge of the Sole Trader or RSSA.
28. There was no subsequent contact from Mr Sodawala. Consequently the Sole Trader's VAT registration was cancelled from 4 July 2006 and Mr Sodawala was informed of this in writing. This prompted a phone call from Mr Iqbal, the Sole Trader's accountant, on 6 July 2006, who said that Mr Sodawala was away. It was requested that Mr. Sodawala contact the officer on his return but he did not do so.
29. The Sole Trader made no VAT returns after October 2005 and no business records were provided. RSSA never filed a VAT return and never provided any business records. From trading...
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