Sandham and Another
| Jurisdiction | UK Non-devolved |
| Judgment Date | 02 April 2019 |
| Neutral Citation | [2019] UKFTT 218 (TC) |
| Date | 02 April 2019 |
| Court | First Tier Tribunal (Tax Chamber) |
[2019] UKFTT 218 (TC)
Judge Rupert Jones, Mohammed Farooq
Charles Bott QC instructed by Cohen Cramer solicitors appeared for the appellant
Jenny Goldring and Joshua Carey, Counsel instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Value added tax – Denial of Input Tax – Assessment – Missing Trader Intra Community Fraud – Trade in primary metals – Kittel v Belgium; Belgium v Recolta Recycling SPRL (Joined Cases C-439/04 and C-440/04) [2008] BVC 559 – Knew or should have known transactions were connected to the fraudulent evasion of VAT – Attribution of knowledge of an agent to a partnership – Appeal dismissed.
[1] The Appellant partnership, Nicholas and Charlotte Sandham trading as Premier Metals Leeds (“Premier Metals” or “the Appellant” or “the partnership”), appeals against two decisions of the Commissioners of Her Majesty's Revenue & Customs (“HMRC” or “the Respondents”). Mr and Mrs Sandham (“the partners”) were the partners of the partnership.
[2] The first decision under appeal is HMRC's decision to deny Premier Metals the right to deduct input tax in the total sum of £1,930,951 on 56 deals it entered into for the purchase and sale of primary metals in the VAT accounting periods 02/13 and 99/99. The decision to deny input tax in respect of the original deal number 21 in period 02/13 has been reviewed by HMRC and is no longer maintained. The number of deals remaining subject to this appeal is therefore 56 and not the 57 transactions on which input tax was originally denied. The deals have been renumbered accordingly.
[3] The VAT return for 02/13 relates to the period 1 December 2012 to 28 February 2013.
[4] The VAT return for 99/99 is in respect of the final VAT period for Premier Metals and relates to the period 1 March 2013 to 31 March 2013.
[5] HMRC's decision was notified to Premier Metals by way of a letter dated 30 March 2015, which was upheld on review by decision letter dated 30 September 2015.
[6] The sums of input tax denied were as follows:
| Period | |
| 02/13 | £534,838 |
| 99/99 | £1,409,056.37 |
| TOTAL | £1,943,894.37 |
[7] Consequent upon the denial of input tax, HMRC made a second decision which is also subject to appeal. HMRC raised an assessment to VAT against the Appellant pursuant to section 73 Value Added Tax Act 1994 (“VATA”) dated 30 March 2015 in the sums set out above for periods 02/13 and 99/99.
[8] An amendment to the assessment for VAT period 02/13 was made on 15 March 2016 as a result of input tax being allowed in relation to deal 21 and other arithmetical corrections. The sum remaining as denied and assessed for period 02/13 was reduced to £521,895 such that the total sum assessed for both periods is now £1,930,951.
[9] The partnership transferred its business to Premier Metals (Leeds) Ltd (“the Company”) on 1 April 2013 and was voluntarily deregistered for VAT. Nicholas Sandham then became the sole director of the Company. The Company continued to trade in primary metals.
[10] By letter on 26 June 2015, HMRC notified the Company of a decision to refuse the right to deduct input tax in respect of transactions in VAT periods 06/13 and 09/13. This denial related to 185 transactions and the total sum of input tax denied was £9,641,023. Assessments were also issued consequent upon the denial and the total sum reduced to £9,562,909. This decision was upheld on review on 30 September 2015 and appealed by the Company on 20 October 2015. The Tribunal issued directions on 29 April 2016 that the partnership appeal and the appeal of Company should be heard together. On 22 August 2016, the Company (in liquidation) withdrew its appeal.
[11] The appeal before the Tribunal therefore relates solely to the appeal by the partnership, Premier Metals, in respect of the decision letter 30 March 2015 and consequent assessment as varied.
[12] HMRC's grounds for the decision to deny the right to deduct input tax were that Premier Metals' transactions in relation to the purchase of metals, in which the relevant input tax was incurred, were connected with the fraudulent evasion of VAT and that the partnership knew or should have known of such a connection. The fraudulent evasion of VAT alleged is missing trader intra-community (“MTIC”) fraud.
[13] The Appellant submitted a Notice of Appeal to the First-tier Tribunal (“the Tribunal”) dated 20 October 2015 against the decisions referred to above. The Grounds of Appeal are as follows: “The Partners of Premier Metals Leeds deny that they knew or should have known that the transactions were connected to the fraudulent evasion of vat. The burden of proof lies with the respondent to demonstrate such knowledge.”
[14] Each of the 56 transactions upon which input tax has been denied have been traced back to a fraudulent VAT loss. The 56 transaction chains have been summarised by HMRC in an overview.
[15] This overview of the deals shows that in VAT period 02/13 Premier Metals entered into 21 transactions, all of which involved the purchase and sale of metals (deals 1 to 21). In VAT period 99/99, Premier Metals entered into 35 transactions (deals 22 to 56), all of which involved the purchase and sale of primary metals. Each of the transactions traced to a fraudulent VAT loss.
[16] It is not in dispute in the appeal that the relevant transactions were connected with the fraudulent evasion of VAT – the partnership has accepted as much in written correspondence prior to the hearing as detailed below.
[17] The primary issue is whether the partnership knew (had knowledge) or should have known (had means of knowledge) that the transactions were connected to the fraudulent evasion of VAT. The burden is upon HMRC to prove knowledge or means of knowledge on the balance of probabilities. If they do so, HMRC's denial of input tax and the consequent VAT assessment against the partnership will be upheld and affirmed.
[18] In order to determine the primary issue, the Tribunal must decide two sub-issues.
[19] The first sub-issue in the appeal (“the First Issue”) is whether the knowledge of an agent acting on behalf of the partnership, its consultant Jonathan France, can be attributed to the partnership. If so, the appeal must be dismissed because the Appellant accepts that Mr France knew that the relevant transactions were connected to the fraudulent evasion of VAT.
[20] On an application by HMRC, and after hearing submissions from both parties on the first day of the hearing, the Tribunal declined to determine this as a preliminary issue for the reasons it gave orally. The Tribunal begins by considering this issue first but will also seek to resolve the second issue even if deciding the first issue is determinative of the outcome of the appeal.
[21] The second sub-issue in the appeal (“the Second Issue”) is whether HMRC have proved that the partners of the partnership, Mr and Mrs Sandham, knew or should have known that the relevant transactions were connected to the fraudulent evasion of VAT.
[22] The Tribunal received 12 lever arch files of evidence including witness statements and exhibits.
[23] Witness statements were received from the following witnesses on behalf of the Appellant:
| Witness | Date of statement(s) | Position |
| (at the relevant time unless otherwise stated) | ||
| Nicholas Sandham | 27/01/17 | Partner of the Appellant |
| Charlotte Sandham | 27/01/17 | Partner of the Appellant |
| Nigel Broadbent | 02/02/18 | Solicitor |
[24] Mr and Mrs Sandham gave oral evidence and were cross examined during the hearing. Nigel Broadbent's statement was read as agreed.
[25] Witness statements on behalf of HMRC were received from the following witnesses (all being employees or Officers of HMRC):
| Witness | Date of statement(s) | Relevant role within HMRC |
| Andrew Mark Chisman | 28/10/16, 27/03/17, 01/03/18, 07/03/18 | Original decision maker |
| Colin Barry Needs | 30/09/17 | |
| John Thomas Hughes | 30/09/16, 22/02/18 | |
| Lana Dimitrova | 30/09/16 | |
| Lee David Nevin | 28/10/16, 27/02/18 |
[26] The Tribunal only heard oral evidence from HMRC witness Officer Mark Chisman who was cross examined during the hearing. The statements of all other HMRC witnesses were read as agreed.
[27] The Tribunal has considered all the evidence as lodged and served, even when it has not been referred to within the body of this decision. Given the volume of this evidence it would be impossible to refer to it all, even in a lengthy decision such as this. That does not mean that the Tribunal has not given it due consideration. However, the Tribunal is only required to refer to the evidence required to determine the issues before it in the appeal.
[28] The Tribunal heard oral evidence beginning on the second day of the hearing, 27 September 2018, concluding on the fourth day, 1 October 2018.
[29] Where the Tribunal has made no comment upon a witness's evidence, it has found it to be reliable and credible and accepted it on the balance of probabilities. Where it has found a witness's evidence to be unreliable or incredible the Tribunal makes findings that it rejects that evidence together with reasons in support.
[30] The Tribunal has found all facts on the balance of probabilities, in particular indicating its reasons where there is a conflict in the evidence or where it finds a witness's evidence to be inconsistent, unbelievable or otherwise unsatisfactory.
[31] The burden is on HMRC to prove the partnership had knowledge or means of knowledge that the transactions were connected to the fraudulent evasion of VAT. Mr...
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