In Golden Harvest Wholesale Ltd v HMRC [2020] TC07847, a costs order of £45,000 was applied to a director, who caused a VAT appeal to be lodged which he knew to be hopeless. The appeal was withdrawn after he was charged with the criminal offence of cheating public revenue in connection with using his company as a 'buffer company' in an attempt to legitimise fraudulent input VAT recovery.

  • The company Registered for VAT for the supply of wholesale alcoholic drinks and declared turnover for VAT of £60.8m in the two years to January 2015.
  • Purchases of alcohol products were purportedly made by the company from a number of entities which HMRC considered to be high risk and likely to have been engaged in fraudulent 'Missing Trader' supply chains.
  • Following ongoing monitoring, HMRC denied £21,888,628 of input VAT claimed and deregistered the business for VAT.
  • On appeal, the company claimed that it was entitled to recover as input tax as it had accounted for output tax on the onward supply of the goods in question and that there was no objective evidence that its suppliers had not accounted for output tax.
  • Mr Karsan, the company's sole director was arrested in January 2015, with two others in connection with a significant investigation carried out by HMRC. On trial, a month later he pleaded guilty to cheating the public revenue contrary to common law and was sentenced to five years in prison and subject to confiscation proceedings.

The original VAT appeal had been allocated as a Complex case and the company had made no application to be excluded from potential liability for costs.

The input VAT appeal was withdrawn following the conviction of the director. By that stage, HMRC had incurred significant costs and it argued that Mr Karsan’s conviction was evidence that the grounds of appeal submitted in the appeals were unfounded.

The First Tier Tribunal agreed, concluding that:

  • The circumstances of the present application are exceptional in the sense that they are not in the ordinary run of cases.
  • Mr Karsan, as the sole director and shareholder of the Appellant business, caused an appeal to be lodged which he knew to be hopeless and which he needed in order corroborate his not guilty plea.
  • Mr Karsan’s personal interest in the appeal justified a non-party costs order.
  • As the appeal was categorised as complex and no option to be excluded from the cost’s regime was exercised the Tribunal has the power to make a non-party costs order.
  • HMRC’s costs were all incurred as a consequence only of the appeal having been bought.

The FTT noted that HMRC should have made the director aware of its plans to make a cost order against him sooner than it did. It thus restricted HMRC's cost claim to the period up to when the director should have been notified of that decision.

Links

VAT Registration
When do I need to register for VAT? When do I need to start charging VAT? What penalties might HMRC issue for late notification?

How to appeal an HMRC decision
What type of decision can you appeal? What are your different options when you disagree with HMRC? What are the key steps in making an appeal?

How to appeal a tax penalty
What are the steps in making an appeal? What should your appeal cover? What does recent case law say on this topic?

Missing Trader VAT Fraud
What is 'Missing Trader' fraud, Missing Trader Intra-Community (MTIC) fraud, or Carousel fraud involve the evasion of VAT? What can HMRC do to combat it? 

External links

Golden Harvest Wholesale Ltd v HMRC [2020] TC07847

 

Comments (0)

Rated 0 out of 5 based on 0 voters
There are no comments posted here yet

Leave your comments

  1. Posting comment as a guest.
Rate this post:
Attachments (0 / 3)
Share Your Location