In Ancient & Modern Jewellers Limited & Anor v HMRC [2024] TC9270, HMRC worked with the assistance of foreign tax authorities to assess £8.5m in VAT and penalties on a watch retailer. It used the VAT second-hand margin scheme to avoid tax on the sale of new imported watches.
Ancient & Modern Jewellers Limited ‘A&M’ imported watches from around the world. It operated the VAT second-hand margin scheme to account for VAT on second-hand purchases from private individuals.
- HMRC made a VAT visit to the company in 2011 and 2012, concluding that ’records inspected tend to suggest that credibility of the traders’.
- In 2014 the Italian tax authorities made a SCAC (Standard Committee on Administrative Co-operation) request to HMRC about transactions with an Italian supplier.
- HMRC visited the company again and noted that it had not completed box 9 (concerning intracommunity acquisitions) on its VAT returns since May 2011. The explanation given was that there had been ‘problems with the accountant’.
Further SCAC requests
- In 2017, the Italian tax authorities made another SCAC request. This time they asked HMRC to trace the supply of watches from an Italian company which had issued invoices in the names of at least six different companies.
- As a result, the company was put on monthly monitoring by HMRC who gradually noted significant record keeping problems and issues identifying suppliers.
- Further SCAC requests followed from ten tax authorities including those of Austria, Estonia, Greece, Italy, Latvia, Malta, Ireland, Slovenia, Spain and Switzerland.
After a long and very detailed investigation, HMRC decided that A&M and its director, Zachary Coles, had deliberately claimed that watches imported from abroad were second-hand when they were new.
HMRC made a Best Judgment Assessment on the company for £5,004,595 and issued a Personal Liability Notice (PLN) to Mr Coles of £2,802,573.20 representing 56% of the tax considered to have been lost through the deliberate but not concealed conduct of A&M.
The company and director appealed to the First Tier Tribunal (FTT) who waded through extensive evidence to find:
- Mr Coles claimed the business dealt with a mix of unworn and used watches.
- It became clear from analysis of the requests from the ten other tax authorities and HMRC, that the watches imported were new and not second-hand.
- Some watches were second-hand but it was impossible to quantify how many.
- Mr Coles was not a reliable witness. He could not explain (and made no enquiries) why so many of A&M's suppliers often changed names and bank accounts.
- Some suppliers came via a fixer called ‘Mariana’. Mr Coles claimed to have only had one to three contacts with her.
- The company’s accountant was found to be a credible witness. He prepared VAT returns from the records provided and did not challenge the recording keeping.
- The company’s bookkeeper kept the records as directed by Mr Coles.
The FTT concluded that there was no legal entitlement to use the margin scheme for purchases under import.
- There was a significant discrepancy between the annual accounts and the VAT returns.
- There was no evidence to conclude that the quantum of HMRC assessment was overstated.
- The director’s conduct was deliberate.
The appeal was dismissed.
Useful guides on the topic
Margin scheme
The VAT margin scheme allows businesses to calculate their output VAT liability on the profit margin they make on the goods they sell.
Best Judgement Assessment
What is a 'best judgement' assessment for VAT? When can HMRC raise one? What are your rights of appeal? How do you displace a best judgement assessment? What are the time limits for a VAT assessment?
Personal Liability Notices
A Personal Liability Notice (PLN) may be issued by HMRC in the event of a company's or a Limited Liability Partnership's (LLP's) failure to pay its tax debts or tax penalties to HMRC. A PLN will transfer all or part of the liability to pay the debt to one of its officers.
How to appeal a decision of HMRC
Disagree with an HMRC decision? How do you appeal, what type of decision can you appeal and 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
How do you appeal against a tax penalty? What are your rights of appeal if HM Revenue & Customs (HMRC) have assessed you for a tax penalty?
External links
Ancient & Modern Jewellers Limited & Anor v HMTC [2024] TC9270
