Stacey (t/a Lazydays Motorhomes)
| Jurisdiction | UK Non-devolved |
| Judgment Date | 11 November 2014 |
| Neutral Citation | [2014] UKFTT 1026 (TC) |
| Date | 11 November 2014 |
| Court | First Tier Tribunal (Tax Chamber) |
[2014] UKFTT 1026 (TC)
Judge Peter Kempster
The Appellant appeared in person, assisted by his colleague Mr Neil Taylor
Ms Kathryn Whelan (HMRC Solicitor's Office) appeared for the Respondents
Value added tax - Appeal against denial of input tax claim - HMRC application for strike out of proceedings - Appellant convicted of recklessly submitting a false VAT return - Value Added Tax Act 1994 ("VATA 1994"), Value Added Tax Act 1994 section 72 subsec-or-para 3s. 72(3)(b) - Whether abuse of process - Doctrine of issue estoppel - Whether no reasonable prospect of success - Kittel v Belgium; Belgium v Recolta Recycling SPRL (Joined Cases C-439/04 and C-440/04) [2008] BVC 559 principle - Proceedings struck out.
The First-tier Tribunal (FTT) allowed the application by HMRC for the proceedings to be struck out because the appeal, which related to Carousel fraud and disallowed input tax, had no reasonable prospect of success.
Mr Stacey took a sabbatical from his business, because of a heart problem. He left the business in the control of a Mr Davies. Later Mr Stacey was accused of VAT fraud. As the prosecution moved towards trial, it became apparent to him that his business had been used as a vehicle for Carousel fraud by Mr Davies. Mr Stacey pleaded not guilty to cheating the public revenue. The count was ordered to lie on file in respect of him, but Mr Davies was convicted and received a custodial sentence. However, Mr Stacey pleaded guilty to furnishing a VAT return that was false in a material particular, contrary to VATA 1994, Value Added Tax Act 1994 section 72 subsec-or-para 3s. 72(3)(b).
The FTT was not satisfied that Mr Stacey, by his tax appeal, aimed to reopen any issue which was an essential part of the decision in the criminal proceedings. Thus, the tax appeal was not barred by the doctrine of issue estoppel (para. 23 of the decision).
For the same reason, the FTT did not accept that the tax appeal constituted an abuse of process (para. 24 of the decision).
The FTT noted that, in Kittel v BelgiumECASECAS (Joined Cases C-439/04 and C-440/04) [2008] BVC 559, the ECJ had ruled that where it is ascertained, having regard to objective factors, that the supply is to a taxable person who knew or should have known that, by his purchase, he was participating in a transaction connected with fraudulent evasion of VAT, it is for the national court to refuse that taxable person the entitlement to the right to deduct.
HMRC argued that Mr Stacey's conviction demonstrated that he had the "means of knowledge" required by Kittel. By his guilty plea, he could not place himself in the position of an unwitting taxpayer. He was a taxpayer who should have known that the transactions were connected to the fraudulent evasion of VAT.
Mr Stacey did not contest that Mr Davies had actual knowledge that the relevant transactions were connected with VAT fraud. Accordingly, the FTT held that Mr Stacey would have no reasonable prospect of defeating HMRC's claim that the Kittel test is satisfied, so that his appeal would have no reasonable prospect of succeeding (para. 33 of the decision).
Thus, the FTT struck out the appeal under Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273), r. 8(3)(c) (para. 35 of the decision).
It is not in the interests of justice to require HMRC to defend an appeal that has no reasonable prospect succeeding.
[1]By a notice of appeal dated 12 February 2014 the Appellant ("Mr Stacey") appealed against a refusal by the Respondents ("HMRC") to make a repayment of VAT of over £250,000 shown on his VAT return for the period 03/10. By an application dated 12 June 2014 HMRC applied for the proceedings to be struck out, on the grounds set out below.
[2]Mr Stacey is a sole trader selling caravans and motor homes, trading as Lazydays Motorhomes. He first met Mr Michael Davies over 30 years ago, when Mr Davies was 19 years old. Mr Stacey employed Mr Davies as a salesman for nine years and always found him to be honest and straightforward. Mr Davies left but later reapplied and Mr Davies again employed him as a salesman from 2008. During 2009-10 Mr Stacey took a sabbatical from the business because of a heart problem, and he left the business in the control of Mr Davies; he trusted Mr Davies to run matters responsibly. Mr Stacey signed the VAT returns as the proprietor. In 2010 Mr Stacey was arrested and accused of tax fraud. As the prosecution moved towards trial it became apparent to him that his business had been used as a vehicle for a tax fraud by Mr Davies; it later transpired that when Mr Davies reapplied for a job he was already on bail relating to other VAT fraud charges; there had been a calculated plan to exploit the business as part of other frauds, and the fact that the business dealt in high value items (motor homes worth over £30,000 each) suited Mr Davies and the other fraudsters.
[3]Mr Stacey was prosecuted under two counts on one indictment:
(2) (Along with eight other individuals, including Mr Davies) conspiracy to cheat the public revenue - Mr Stacey pleaded not guilty and the count was ordered to lie on file in respect of him. Mr Davies was convicted on this count (and received a custodial sentence).
(3) (Alone) recklessly making a statement by furnishing a VAT return that was false in a material particular, contrary to Value Added Tax Act 1994 section 72 subsec-or-para 3s 72(3)(b) VAT Act 1994 - Mr Stacey pleaded guilty to this count. His formal basis of plea, dated 11 June 2013, was as follows:
(2) I plead guilty to a charge contrary to Value Added Tax Act 1994 section 71 subsec-or-para 3s 72(3)(b) of the Value Added Tax Act 1994 on the following basis.
(3) I was reckless in not ensuring that the information contained in the VAT return which I signed on 19/4/10 was correct (so far as the £256,744.78 is concerned).
(4) The VAT return was compiled by Neil Taylor from information and documents supplied to him by Michael Davies, whom I had left in charge of my business during 2009 and early 2010.
(5) I was aware that Davies had "diversified" into the business which, it transpires, was fraudulent, having been informed of the diversification by Tracey Henney. I had asked Davies about the trade and had accepted his assurances that it would make some, though limited, profit, and I trusted that he was undertaking legitimate business.
(6) I had no reason to suspect that the 10 deals were fraudulent, since I had employed Davies for about 9 years in the past without any problems, and at that time (April 2010) I was entirely unaware of his involvement in the conspiracy to cheat to which he pleaded guilty in January 2012.
(7) I had no knowledge of any of the co-defendants and to this day have never met or spoken with any of them save at court in these proceedings.
(8) I admit that in failing to make further enquiry before signing the VAT return in relation to the £256,744.78 I acted recklessly.
(9) Although not strictly relevant to the charge to which I have pleaded guilty, I would add that I did not sign the Transatlantic Bank Corp application, and assume Davies forged my signature from the copy of my driving licence which he obtained from Henney.
(10) I had no involvement save for signing the VAT return.
[4]At the hearing Mr Stacey handed up an extract from the judge's sentencing remarks at his criminal trial. The copy available had certain parts redacted and Mr Stacey could not explain the reason for the editing. I am reluctant to make too much of the contents of an incomplete document but it is apparent that the trial judge accepted that Mr Stacey had turned over the running of his business to Mr Davies.
[5]Ms Whelan for HMRC submitted as follows.
[6]The proceedings should be struck out on one or both of two bases:
(2) They constituted an abuse of process by virtue of involving an attempted retrial of matters already determined, contrary to the principle of issue estoppel.
(3) They had no reasonable prospect of success, given the admissions made by Mr Stacey in the criminal proceedings.
[7]It was not open to the Tribunal to revisit what amounted to a finding by another court, albeit on the basis of a guilty plea before the trial took place. To do so would offend the principle of issue estoppel. Alternatively, continuing the appeal would be an abuse of process.
[8]In FeehanVAT[1993] BVC 1568 the taxpayer had sought to appeal against assessments in circumstances where he had been prosecuted in relation to the operation of gaming machines. The VAT Tribunal had stated
I have to ask the question whether, taking all the circumstances, and having regard to public policy and the desirability of limiting litigation and avoiding costs, the issue now before me has been effectively covered by the criminal proceedings. Mr Mathew suggested that the Appellant might have been a mere agent (guilty of conspiracy to defraud but not himself the principal tax payer); or that he might be in partnership with others. I intend no disrespect to the forceful argument that he put forward in concluding that it would be an abuse of the process of this tribunal to allow the Appellant to pursue the grounds of appeal now in dispute.
[9]In fairness to the Appellant, the VAT Tribunal had reached a different conclusion in CitroneVAT[2001] BVC 4005. However, Citrone was distinguishable as there it had been held that notwithstanding an earlier criminal conviction, there was still scope to discuss the precise details of the assessment which had been the subject of a compromise agreement. In the current appeal, by contrast, there was no scope to discuss the claim to input tax, given the relevant law as stated in Mobilx Ltd (in dministration) v R & C CommrsVAT[2010] BVC 638 - summarised below.
[10]Several ECJ cases...
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