HMRC Loses Important VAT Case

by Robert Lee, Tax-News.com, London

22 January 2009

A landmark court case, concluded this week in the UK's High Court, could open the way for thousands of businesses innocently caught up in VAT carousel fraud to contest HMRC’s decision to retain their VAT rebates.

The case, between Livewire Telecom and HMRC, ended with a dismissal of HMRC's appeal against a decision in January, 2008, in favour of Livewire which obliged HMRC to return GBP2.4m in VAT rebates which it had retained because of an alleged involvement in Missing Trader Intra-Community fraud (MTIC) or ‘carousel fraud’ as it is widely known.

The initial hearing before a VAT Tribunal had cleared Livewire of having had knowledge that it was dealing with carousel fraudsters. Said Dr Avery Jones, chairman of the LiveWire tribunal: ‘Looking at the totality of the evidence, we have identified a small number of odd features but neither separately nor when taken together do they come anywhere near to indicating knowledge or means of knowledge of the fraud (i.e. the fraud by the missing traders) by the appellant.' The High Court agreed.

Speaking after the initial ruling Martin O’Neill of Vantis PLC, tax specialists who fought on Livewire’s behalf said: “We were able to argue that HMRC was required to prove that a company such as Livewire had specific knowledge of the particular fraud which it was alleged had occurred in its supply chain. HMRC will need to be in possession of hard evidence in future to support, in full, an allegation that a series of transactions constitutes a scheme to defraud. It is now settled in law that HMRC can only disallow a VAT repayment in circumstances where they can prove an allegation of knowledge of fraud.”

Although HMRC was unsuccessful in overturning the ruling against Livewire, the Court did establish a procedure that could be used in future to determine whether a company has been knowingly involved in missing trader fraud.

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