Gary Turner v The Commissioners for HMRC

HMRC’s submission in respect of each allegedly defaulting trader (‘the Defaulters”) was that the undisputed evidence was sufficient to establish that each of the Defaulters was acting fraudulently, and so that the tax losses were all fraudulent.

Mr Henry’s only submission in respect of the Defaulters being involved in the fraudulent evasion of VAT is that it is for HMRC to prove this in respect of each of the Defaulters. He did not pursue any positive case on behalf of Mr Turner.

In respect of each alleged Defaulter in turn, we set out below our findings of fact and then our analysis as to whether HMRC have discharged their burden of proof in establishing a tax loss and in establishing that that tax loss was fraudulent. We note that the first four of the Defaulters set out below were also Loy’s direct suppliers (Agar, Ashwell, Metal Room, and RJM).

The evidence relating to Agar is set out in the witness statement of Mr Danel Porritt and the accompanying exhibits. The facts contained in the witness statement are unchallenged as set out above. We make the following findings of fact:

We find on the balance of probabilities that there were tax losses as alleged by HMRC and that these were fraudulent. In doing so, we take into account all the findings of fact set out above. We find it to be of particular significance that Agar submitted nil VAT returns despite in fact trading. Indeed, Agar’s direct transactions with Loy were in 03/08 and so were during the period in which Agar had represented to HMRC that it was not trading.

The evidence relating to Ashwell is set out in the witness statement of Mr Richard Hudson and the accompanying exhibits. The facts contained in the witness statement are unchallenged as set out above. We make the following findings of fact:

We find on the balance of probabilities that there were tax losses as alleged by HMRC and that these were fraudulent. In doing so, we take into account all the findings of fact set out above. We find it to be of particular significance that Mr David Needham had been disqualified for his conduct in relation to Star where input tax had been denied on Kittel grounds and yet continued to play a significant role in Ashwell in circumstances in which a very large number of Ashwell’s transactions were traced to tax losses. Further, the evidence contained in Mr Hudson’s witness statement and exhibits justified HMRC’s view that Ashwell had been registered with the principal purpose of facilitating VAT fraud.

The evidence relating to Metal Room is set out in the witness statement of Ms Louise McKnight and the accompanying exhibits. The facts contained in the witness statement are unchallenged as set out above. We make the following findings of fact:

We find on the balance of probabilities that there were tax losses as alleged by HMRC and that these were fraudulent. In doing so, we take into account all the findings of fact set out above. We find it to be of particular significance that Metal Room did not declare its trading or file any VAT returns, that Mr Ayub applied to de-register for VAT upon the basis of ceasing trading immediately upon registration despite this being untrue, and that Metal Room was immediately successful despite not having any history in metal trading.

The evidence relating to RJM is set out in the witness statement of Mr Shahzad Ali and accompanying exhibits. The facts contained in the witness statement are unchallenged as set out above. We make the following findings of fact:

We find on the balance of probabilities that there were tax losses as alleged by HMRC and that these were fraudulent. In doing so, we take into account all the findings of fact set out above. We find it to be of particular significance that RJM did not declare its sales with Loy (or indeed any trading activity) and is a missing trader.

The evidence relating to McCamey is set out in the witness statement of Mr Porritt and the accompanying exhibits. The facts contained in the witness statement are unchallenged as set out above. We make the following findings of fact:

We find on the balance of probabilities that there were tax losses as alleged by HMRC and that these were fraudulent. In doing so, we take into account all the findings of fact set out above. We find it to be of particular significance that McCamey did not declare its trading, did not file any VAT returns, and despite being eager to rearrange the meeting, gave a misleading address, did not attend and was not contactable.

The evidence relating to CSL is set out in the witness statement of Mr Stefan Tosta and the accompanying exhibits. The facts contained in the witness statement are unchallenged as set out above. We make the following findings of fact:

We find on the balance of probabilities that there were tax losses as alleged by HMRC and that these were fraudulent. In doing so, we take into account all the findings of fact set out above. We find it to be of particular significance that the metal trading coincided with Mr Wood’s appointment as a director, the failure to declare all sales in 12/17 or to file any VAT returns thereafter despite trading in metal, and the inability to contact Mr Wood.

The evidence relating to DSW is set out in the witness statement of Ms Ceris Jones and the accompanying exhibits. The facts contained in the witness statement are unchallenged as set out above. We make the following findings of fact:

We find on the balance of probabilities that there were tax losses as alleged by HMRC and that these were fraudulent. In doing so, we take into account all the findings of fact set out above. We find it to be of particular significance that DWS did not declare all its trading, that it was not known at its registered address, and that it has not been possible to make meaningful contact with its director.

The evidence relating to LSS is set out in the witness statement of Ms Rosalie Baines and the accompanying exhibits. The facts contained in the witness statement are unchallenged as set out above. We make the following findings of fact:

We find on the balance of probabilities that there were tax losses as alleged by HMRC and that these were fraudulent. In doing so, we take into account all the findings of fact set out above. We find it to be of particular significance that LSS’ business activity was inconsistent with metal trades, LSS were not known at their principal place of business, there has been no declaration of trade or VAT returns filed, and LSS is a missing trader.

The evidence relating to Firth is set out in the witness statement of Mr David Lewis and the accompanying exhibits. The facts contained in the witness statement are unchallenged as set out above. We make the following findings of fact:

We find on the balance of probabilities that there were tax losses as alleged by HMRC and that these were fraudulent. In doing so, we take into account all the findings of fact set out above. We find it to be of particular significance that Firth did not declare its sales and that Mr Swaine says that he was not a director and that his identity has been hijacked notwithstanding that he is registered as a director and shown as the sole shareholder.

The evidence relating to CAG is set out in the witness statement of Ms Jones and the accompanying exhibits. The facts contained in the witness statement are unchallenged as set out above. We make the following findings of fact:

We find on the balance of probabilities that there were tax losses as alleged by HMRC and that these were fraudulent. In doing so, we take into account all the findings of fact set out above. We find it to be of particular significance that Mr Shelton was vague as to what his role in CAG was, no due diligence was undertaken on trading partners, no books or records were available, and Mr Shelton did not know any detail about the purported sale of the company by his co-director Mr Mir.

Mr Turner does not advance any positive case as to the tracing of the supply chains, instead simply putting HMRC to proof of the same. We have been provided by HMRC with transaction summaries in respect of each of Loy’s transactions. Upon considering those supply chains, we find that each of the supplies to Loy for which input tax had been denied have been traced through (and so are connected) to one of the Defaulters set out above (whether through a supply directly from a Defaulter or with the Defaulter being in the supply chain prior to the supply to Loy). In the absence of any contrary evidence, we accept HMRC’s evidence in this regard.

We note that HMRC has only calculated the Penalties by reference to those transactions which are traced to a tax loss. As set out above, the existence of a tax loss for each of these transactions is not disputed by Mr Turner. For the reasons set out above, we find that those tax losses are fraudulent.

It follows that HMRC has established the connection between Loy’s purchases from its suppliers and the fraudulent evasion of VAT.

We deal with the question of knowledge in the following manner. First, we consider (and make our findings of fact upon) various recurring features referred to by the parties. Secondly, we make any further specific findings of fact in respect of Loy’s dealings with its suppliers. Thirdly, we make findings as to whether Loy and Mr Turner knew that Loy’s transactions with its suppliers were connected with the fraudulent evasion of VAT. Finally, we make findings as to whether Loy should have known that its transactions with its suppliers were connected with the fraudulent evasion of VAT.

We make the following findings of fact in respect of Loy’s general awareness of the risk fraud in the sector.

Mr Turner accepted during cross-examination that he was already aware of the risks of fraud in the metal trading industry prior to the relevant periods. Mr Turner explained that Loy stopped trading with PPX and with Agar when he became aware of concerns about them. As regards PPX, this was before HMRC informed him of tax losses involving PPX. He had heard that PPX’s director had retained a VAT lawyer on a monthly retainer, which he treated as a sign that he should stop trading with them. As regards Agar, Mr Turner had heard that Agar’s director was involved in litigation in which fraud had been alleged against him by a footballer and that the same director had been involved in fire insurance claims which Mr Turner had concerns about. Mr Turner stopped Loy’s trading with Agar because, as he put it, “something was not right”.

We therefore find that Mr Turner (and so also Loy) had a general awareness of the risk of fraud in the sector.

We make the following findings of fact in respect of Loy’s commercial checks and due diligence.

Mr Turner treated commercial checks and due diligence as being focused upon whether or not the people and companies that Loy was dealing with in fact existed, were who they said they were, and were located where they said they were. This included checking that they had the relevant licences (including scrap licences), VAT registration (through VIES VAT number validations) and company registration. He said that he would do these checks before trading with a supplier.

We accept that Mr Turner satisfied himself that his suppliers had a yard capable of dealing with metals. As he put it, he would not deal with someone on a regular basis that was working from a kitchen when it is obvious that they cannot be what and who they say they are. Although Mr Turner did not take photographs of his suppliers’ premises, we accept that he did carry out these visits. We also accept that Mr Turner checked the identity of his contacts at the suppliers, as the hearing bundle included various copies of such individuals’ passports.

We make specific findings as to the checks and due diligence made in respect of each of Loy’s relevant suppliers below. At this stage, however, we find that Mr Turner’s due diligence on behalf of Loy did not include any analysis as to the commercial background or commercial standing of his suppliers save as set out above and was in substance limited to ensuring their identity, appropriate registration and licensing, and that they had the use of a yard. There is no evidence of Mr Turner conducting any credit checks upon Loy’s suppliers.

We also note that Mr Turner said that he satisfied himself that a VAT number was live before trading and then did a VIES VAT number validation check every four to six weeks later. He said in respect of Ashwell and the disparity between the date of the VIES check and the start of trading, “I have satisfied myself that it is live and the VISE is afterwards. I will have gone online and checked that it was live. I am not stupid. There is no way I am going to deal with someone I don’t know.” We do not accept Mr Turner’s evidence with regard to checking that the VAT number was live before trading. He did not include this in his witness statement, there is no documentary evidence of this, there is no explanation as to where he checked the VAT number, he said “will have gone online” rather than saying that he did or providing any detail as to when and where he made these checks, and there is no explanation as to why he did not carry out a VIES VAT number validation check before trading. We find that the first time that Mr Turner checked that the VAT number of his supplier was live was when requesting a VIES VAT number validation check where these appear in the documentation provided by Mr Turner.

We note that Mr Turner says in his witness statement that he minimises his commercial risk. However, we find that Mr Turner’s due diligence and checks upon the suppliers at issue within this appeal were not sufficient to enable him to take a view upon commercial risk as they did not involve any analysis of his suppliers’ commercial background or commercial standing save for identity, location and VAT registration.

Mr Turner has given a number of explanations as to his (and so Loy’s) approach to price negotiations with suppliers and customers.

Paragraph 14 of Mr Turner’s witness statement provides as follows as regards price negotiations:

We note that the reference to “he would ring” is odd given that Mr Turner is talking about himself. It is also confusing that Mr Turner initially appears to be referring to CF Booth and Cronimet as suppliers when they are in fact customers.

In the course of cross-examination, Mr Turner was asked if a customer would call to say they wanted a certain volume of steel and he said yes, if a company are looking for a particular type of metal they would telephone around everybody, they might ring him and he might have some of what was required and then he would ring around suppliers to fulfil the rest.

Later in the cross-examination, Mr Turner provided a different chain of events. He said that if somebody offers him a supply, for example three tonnes of brass, he would ask what price the supplier wants. He would then ring around people who he is selling into and ask what price they are paying for brass. Of the people he contacts, he would go for the best price. When he finds out if he can make a profit, he then goes back to the supplier to say he can pay what they are looking or alternatively would give them the best price he can offer and it is up to the supplier whether they choose to sell or not at that price.

Mr Turner then said that he would not actively seek any material. The only material he would be looking to sell would be material that he had already been offered. He said that 99.9% of the time when he was looking for a price it is because he was sourcing a customer as he had been offered a material and he was looking for a profit.

Mr Turner said that Cronimet and CF Booth were his customers. He knew that Cronimet would give the best price for stainless steel but that they do not deal with anything else. CF Booth deal across the board. Sometimes other companies would give the best price because they were looking for something in particular or because he would be able to provide haulage as well.

Ms Brown asked Mr Turner about the paragraph 14 of his witness statement (as set out in paragraph 87 above). He did not accept that there was any inconsistency between his witness statement and his oral evidence. Ms Brown asked Mr Turner what he meant by “the majority of cases” in paragraph 14 (which said that in the majority of cases he would ring CF Booth for a starting price). Mr Turner did not answer this directly, instead saying that he pays the supplier and the customer pays him.

Ms Brown asked about price negotiations. Mr Turner said that he would ask the supplier what price that supplier wants, and he would then ring around several customers to get a price that a customer would purchase at which would give him the best price and a profit. He would then ring back the supplier. The negotiation would therefore happen at both ends. On speaking to a customer, he would on occasion say, to use Mr Turner’s words, “I can’t get the material for that” and would say whatever figure he could get to, which the customer would say yes or no to. He would say to that supplier, again to use Mr Turner’s words, “can’t you get any better than that as I can only get to “X” amount?” and the supplier says yes or no.

On being asked by Ms Brown about the absence of anything in writing to evidence these negotiations, Mr Turner said that the negotiations were verbal. He said the only time that it would be in writing is if it takes place over a few days and “they” (Mr Turner did not specify whether this was the customer or supplier) wanted to hold the price until Thursday, then he would want verification – usually by email - that that is what was said. This was for his own purposes so that they cannot go back on it. However, he said he did not have any examples of emails because they are not needed unless the negotiation takes place over a few days. Usually, he does not keep hold of the material and just moves it out as soon as it comes in.

HMRC’s report of the October 2018 Visit (“the October 2018 Report”) includes the following (with “GT” being Mr Turner and “DW” being Ms Warren):

We note that, as set out above, Mr Henry (on behalf of Mr Turner) did not challenge the veracity or accuracy of this element of the October 2018 Report.

Having carefully considered the evidence, we find that there is no credible evidence of any price negotiations with suppliers at all in respect of the transactions in dispute within this appeal. This is for the following reasons.

First, Mr Turner is inconsistent in his approach to whether the starting price would come from the supplier or the customer. According to the October 2018 Report, Mr Turner would get a starting price for the day from his customer. This is reinforced by paragraph 14 of his witness statement, which gives the impression that Mr Turner would start with an understanding from his customers such as Cronimet what their price and process was for the day. His references to “starting price” suggest that the negotiations start with him knowing what price he can sell to a customer at. Mr Turner’s oral evidence, however, was that he would only be contacting a purchaser if he already had material and a price from a supplier and that 99.9% of the time he would be contacted by a supplier first (although this itself contrasted with the early stages of cross-examination in which Mr Turner seemed to accept that customers would telephone him).

Secondly, Mr Turner is inconsistent as to the number of customers he would speak to before reverting back to the supplier. The October 2018 Report and Mr Turner’s witness statement suggest that a specific customer would be approached (or at the very least does not say that a number of customers are approached). However, Mr Turner’s oral evidence is that several customers would be approached. However, he did not explain who these would be and how they would be chosen.

Thirdly, Mr Turner accepted that there would sometimes be emails relating to the negotiations but has not provided any such emails and did not provide any satisfactory explanation for not doing so.

Fourthly, Mr Turner refused to accept that there was any inconsistency between his oral evidence and his witness statement and did not give any explanation for it. Similarly, the inconsistency between his evidence and the October 2018 Report was not explained.

Fifthly, Mr Turner’s oral evidence of the negotiations does not make commercial sense. There appear to be occasions when he would tell a supplier that he would accept the price offered and occasions when he would try to reduce the supplier’s price, but there was no explanation as to why he would not always try to get the lowest price from the supplier.

Sixthly, there is no evidence as to when the contracts are concluded. His oral evidence was that the supplier contacts Mr Turner with a price, Mr Turner contacts various customers for the best price, and Mr Turner then reverts back to the supplier either to say yes to its offer price or to seek a lower price. However, it is not clear whether Mr Turner has already agreed a sale to a customer before reaching agreement with the supplier or, if not, when this takes place.

We make the following findings of fact in respect of the terms of Loy’s trading, including payment terms. These findings are upon the basis of Mr Turner’s oral evidence and the documents relied upon by the parties as Mr Turner’s witness statement did not address these matters other than to say that the lack of formal written contracts should not be criticised.

There were no written contracts between Loy and its suppliers as Loy (and various other suppliers and customers) relied upon trust and reputation. This carried the risk of not being paid by customers.

The suppliers relevant to the disputed transactions did not require payment until after Loy had been paid by its customer. As such, the majority of the time the customer pays Loy before Loy pays its supplier.

Loy would raise invoices to customers for goods which Loy’s suppliers had not yet invoiced Loy and for which Loy had not yet paid. Mr Turner was clear that Loy would generally not be at risk of having to pay for goods before it had been paid. Sometimes, there would be a difference in time between the invoice to the customer and the invoice from the supplier; for example, a transaction involving Agar involved an invoice from Loy to its customer (DAC Steels Ltd) on 9 January 2018 and an invoice from Agar to Loy on 19 January 2018. Similarly, we were shown an invoice from Loy to its customer (European Metal Recycling Ltd) dated 17 January 2019 which related to metal which Loy purchased from Ashwell pursuant to an invoice dated 18 January 2019.

Mr Turner did not give any satisfactory explanation as to why Loy’s suppliers were prepared to wait for payment (and even in some cases to wait before providing an invoice) until after Loy had been paid by its customer. He said that legally the ownership of all materials is with the supplier until the invoice is paid in full. However, he could not identify any invoices with retention of title clauses in respect of the suppliers involved in the transactions for which input tax was denied. Even if this was Mr Turner’s understanding, this would mean that he was selling metal to customers to which he did not yet have title. In the light of these unsatisfactory explanations, we find that the basis of the disputed supplies was that there were no formal contract terms and the basis of the payment structure was that Loy would not be under any obligation to pay suppliers until he had been paid by customers and that Loy would never be at any risk of having to pay suppliers if he had not been paid by customers.

We note that there was a marked difference between the absence of contract terms and the payment obligations in respect of the suppliers in transactions for which input tax had been denied and those for which it had not been denied. CTLSL includes a retention of title clause on its invoices and is an invoice at the end of the month for all supplies during that month (these supplies being metal off cuts from CTLSL’s manufacturing process). Mr Turner’s evidence was that it was agreed that the payment terms were that Loy was required to pay CTLSL’s invoices within thirty days. It follows that as a matter of fact Loy may well have been paid by its customer before CTLSL’s monthly invoice, but this was pursuant to an agreed timetable and process rather than payment to CTLSL being dependent upon payment by Loy’s customer.

We make the following findings of fact in respect of weighing and the inspection of metal.

All material sold by Loy was weighed and inspected using a weighbridge. Weighbridge tickets were retained for the material which Loy sold to its customers. There would also be an outturn email which would break down the type and weight of the material and would be a precursor to the invoice to the customer.

When material arrived at Loy’s premises, the supplier would tell Mr Turner what the weight was. The material would then be weighed and paperwork provided stating what had been received. There might be some paper with the weight written on it, but this was not in the form of a weighbridge ticket and there is no documentation available evidencing the weight of the goods sold to Loy.

Mr Turner’s evidence (which, in the absence of any contrary evidence, we accept), was that the weight of the material when weighed at Loy’s premises did not matter as it was only the weight on the invoice to the customer which was important to him, his customer and his supplier.

Mr Turner did not give any detailed explanation as to when his first contact with each of his suppliers came about. For each of the five suppliers involved in the transactions for which input tax has been denied, the supplier arrived at Loy’s yard, said that they had work in the area, and wanted to deal with Loy.

Mr Turner accepted during cross-examination that Loy did not add any value to the supply chain as he was not processing the goods and was a middleman sending out all the materials that came to him. He said the only value was in the price, which we take to mean that successive traders added value by adding a mark up to the purchase price to give a profit. However, Mr Turner was unable to give a satisfactory answer as to why his supplier and customer could not have dealt with each other without paying Loy’s mark up. Mr Turner said that this was because some businesses did not get on with each other whereas Mr Turner tried to get on with everybody. However, Mr Turner did not suggest that this was the case for the suppliers and customers involved in the disputed transactions.

Each of the factors set out above are applicable to Loy’s dealings with Ashwell. We also make the following additional findings of fact.

On 20 November 2018, Mr Turner was informed about tax losses relating to his earlier supplies by Ashwell. However, Mr Turner continued to deal with Ashwell after this tax loss letter. Ms Brown put to Mr Turner that he ignored this tax loss letter by continuing to trade with Ashwell, to which Mr Turner said, “Yes,” (although we note that his reasoning for continuing to trade was because of his evidence as to his discussions with Ms Warren).

We accept Mr Turner’s evidence that he asked Ms Warren whether Ashwell was the company causing the tax loss. However, we do not accept Mr Turner’s evidence that Ms Warren said that there was no problem with Ashwell. This is for the followings reason. First, this is inconsistent with HMRC’s report of the visit on 14 June 2019 (which said, “GT wanted to know which company was causing the tax loss. DW advised she could not discuss this information with him.”). Although Mr Turner disputes the report he does not say which elements were wrong or precisely what it should say. Indeed, he was unclear as to which visit he says Ms Warren said that there was no problem with Ashwell. Secondly, this is inconsistent with the fact that tax loss letters relating to Ashwell’s supplies had been sent to Loy. In any event, we note that Mr Henry stated in his closing oral submissions that Ms Warren had not gone so far as to say that Loy could continue to trade with Ashwell.

We accept that Mr Turner was aware of, and visited, Ashwell’s yard because he passed it every day to get to work.

Mr Turner began dealing with Ashwell before any due diligence checks. Mr Turner’s first due diligence checks on Ashwell were on 22 January 2018. However, Loy’s first transaction with Ashwell was on 9 January 2018.

In any event, Mr Turner’s due diligence in respect of Ashwell was limited. He obtained a VAT number validation, a certificate of VAT registration, a council tax bill, a certificate of incorporation, a driving licence and bank account details. Although these established Ashwell’s and its director’s identities it did not involve any checks into Ashwell’s financial or commercial standing or credibility. In the course of a visit on 14 June 2019, Mr Turner said that he was in the process of receiving a scrap metal licence from Ashwell (as evidenced by HMRC’s report, which was unchallenged on this point). This was notwithstanding that Mr Turner usually asked for a scrap licence (albeit not a legal requirement to do so), had already been trading with Ashwell since at least the 03/18 period and had already received a tax loss letter involving Ashwell on 20 November 2018.

Further, Mr Turner was not concerned that the description of Ashwell’s business activity in the due diligence was that of repair of fabricated metal products notwithstanding that he was dealing in scrap metal with them and knew that they had a scrap metal yard.

Each of the factors set out above are applicable to Loy’s dealings with Agar. We also make the following additional findings of fact.

The unchallenged visit report for 18 September 2018 reveals that Mr Turner was unable to remember the full name of his contact at Agar, other than that his first name was Stuart.

Mr Turner’s due diligence in respect of Agar comprised VAT number validation, a certificate of VAT registration, a council tax bill, a certificate of incorporation, a driving licence and bank account details.

Loy’s first transaction with Agar predates the verification of Agar’s VAT number. The VIES VAT number validation states on its face that it was requested on 22 May 2018, which (according to the deal log for deal 5 in the quarter to 03/18, as annexed to HMRC’s statement of case) was after Loy’s first trade with Agar on 19 January 2018.

Each of the factors set out above are applicable to Loy’s dealings with Metal Room. We also make the following additional findings of fact.

Loy’s first transaction with Metal Room predates the verification of Metal Room’s VAT number. The VIES VAT number validation states on its face that it was requested on 12 July 2018, which (according to the deal log for deal 5 in the quarter to 09/18, as annexed to HMRC’s statement of case) was after Loy’s first trade with Metal Room on 9 July 2018. Although Mr Turner said in oral evidence that this was because he could not check this until he had a supplier’s VAT certificate, this does not explain why he was prepared to start dealing with Metal Room (or any other supplier) before carrying out one of the checks which he regards as important.

Metal Room’s registered office is a shop in the jewellery quarter of Birmingham and is itself unsuitable for metal trading. Mr Turner accepted that he did not visit Metal Room’s registered office. Mr Turner said that he visited Metal Room’s yard, which we accept. However, he does not appear to have treated it as significant that Metal Room had a different registered office or principal place of business to its trading premises or questioned Metal Room about the same.

Each of the factors set out above are applicable to Loy’s dealings with RJM. We also make the following additional findings of fact.

Mr Turner’s due diligence in respect of RJM comprised VAT number validation, a letter of introduction, certificate of VAT registration, a certificate of incorporation, a passport, and a driving licence.

Loy’s first transaction with RJM predates the verification of RJM’s VAT number. The VIES VAT number validation states on its face that it was requested on 8 October 2018, which (according to the deal log for deal 48 in the quarter to 09/18, as annexed to HMRC’s statement of case) was after Loy’s first trade with RJM on 14 September 2018.

Each of the factors set out above are applicable to Loy’s dealings with Roman. We also make the following additional findings of fact.

Mr Turner’s due diligence in respect of Roman comprised VAT number validation, a certificate of VAT registration, a certificate of incorporation, a passport, bank account details, a document entitled “Business Information” and a welcome letter.

The business information document refers to Roman being wholesale traders and the welcome letter states that, “Our product range is vast and we can offer wholesale stock of everything from TV and Media to Fabrics for manufacture and much more.”

Loy’s first transaction with Roman predates the verification of Roman’s VAT number. The VIES VAT number validation states on its face that it was requested on 8 October 2018, which (according to the deal log for deal 2 in the quarter to 09/18, as annexed to HMRC’s statement of case) was after Loy’s first trade with Roman on 5 July 2018.

Ms Brown submitted that the basket of evidence looked at in the round establishes actual knowledge of involvement in fraud. Mr Turner had prior knowledge of fraud in the industry. There was no legitimate reason for ignoring red flags in the due diligence. There was no commerciality in the transactions. Loy did not add any value. There were no records of weight in respect of the incoming purchase. The site visits were unsatisfactory and were not recorded. Ms Brown also relies upon the tax loss letter of 20 November 2018 which informed Loy that Ashwell had been involved in fraudulent tax losses and yet Loy continued to trade with Ashwell. Ms Brown noted that although this only directly relates to supplies from Ashwell after 20 November 2018, it casts light upon what Mr Turner knew all along. Ms Brown also said that the large number of tax losses suggests that Loy’s whole trading was contrived.

Mr Henry submitted that Mr Turner’s evidence was consistent. He did not accept that there was an inconsistency in respect of pricing policies, as Mr Turner would only reach the stage of contacting customers once he had a supplier. Mr Turner was not ignoring due diligence and tax loss letters and instead was following the usual approach taken in the metal trading industry. It is normal not to have formal contracts as there is no need for a contract. He submitted that there would be an implied term as to retention of title which would also avoid the need for a contract. There was no lack of commerciality as Loy would always be under a business risk and so should not be criticised for seeking to reduce it. Mr Henry said that Mr Turner did not just ignore the tax loss letters in respect of Ashwell as HMRC had said that it was a matter for Loy as to whether they continued to trade with Ashwell, he raised them Ashwell, and he satisfied himself that there was no problem.

We find that Mr Turner (acting on behalf of Loy) knew that the disputed transactions were connected with the fraudulent evasion of VAT. In reaching this finding, we take into account all of the evidence set out above (especially as set out in paragraphs 76 to 137) and, in particular, the following features.

First, Mr Turner was well aware of VAT fraud in the industry and gave examples of suppliers that he stopped working with because of concerns about their commercial propriety (namely, PPX and Agar). However, Mr Turner did not give any satisfactory explanation as to why he continued to trade with Ashwell after the tax loss letter of 20 November 2018. We note that Mr Tattersall’s unchallenged evidence was that, at the visit on 14 June 2019, Mr Turner said that he had continued to trade with Ashwell because he had shown the tax loss letters to Ashwell who had denied knowing anything about them. We also note that Mr Henry included this in his closing submissions. However, Mr Turner did not give this explanation either in his witness statement or his oral evidence. His only explanation was that he had asked Ms Warren if Ashwell had caused the loss but, as set out above, our finding is that Ms Warren did not give him any reassurance that Loy could trade with Ashwell. Mr Turner’s continued trade with Ashwell in such circumstances was particularly stark given his insistence that he would not trade with suppliers where any concern about the supplier had been brought to his attention, such as PPX or Agar. Here, HMRC was telling Mr Turner that supplies from Ashwell were involved in tax losses and yet he continued regardless.

Of course, this feature relates most directly to Loy’s transactions with Ashwell after 20 November 2018. However, this does cast light upon what Mr Turner already knew about Ashwell. This is because Mr Turner did not give any evidence of learning anything new about Ashwell which would satisfy him that Ashwell was a legitimate trading partner after 20 November 2018 that he did not already know before then. As such, we infer that his state of knowledge about Ashwell was the same throughout.

Secondly, Mr Turner did not investigate the commercial backgrounds or commercial standing of his suppliers. Loy’s only interest was in verifying identity, location, and the continued validity of the suppliers’ VAT registration, which would not provide comfort as to commerciality or minimising the risk of fraud. This is particularly stark given that Mr Turner did not give any detail in his witness evidence as to how and when he first came into contact with any of his suppliers other than that they attended at Loy’s yard.

Mr Turner accepted during cross-examination that he began trading with Ashwell before carrying out due diligence checks. He did not explain why he was comfortable in doing this and reveals that he was wrong to say that he did not trade before being satisfied as to due diligence. As set out above, for Agar, Metal Room, MJM and Roman, supplies commenced before Mr Turner had carried out a VIES VAT registration check, notwithstanding that he treated this as an important part of his due diligence.

Further, Mr Turner did not react to red flags within his checks upon suppliers. As set out above, we accept that Mr Turner did visit his suppliers’ yards. However, he did not question why various of the suppliers had different registered offices to their yards and, in the case of Metal Room, why there was a discrepancy between their main jewellery business and metal trading. We also note that Loy began trading with Ashwell before carrying out any due diligence at all and that Ashwell’s trading description was not that of scrap metal trading. Similarly, there was a disparity between Roman’s trading description as a wholesale and Roman’s metal trading which was not questioned by Mr Turner.

Taken the evidence on due diligence as a whole, we find that he was only paying lip service to his investigations into his suppliers and was not interested in assessing the commercial risk involved in dealing with them. We infer from this that the inadequacies in the due diligence were because he knew there was no need for due diligence as he knew that the transactions were connected with the fraudulent evasion of VAT.

Thirdly, there were no price negotiations with the suppliers involved in the disputed transactions. One would expect price negotiations to take place in commercial deals. This is reinforced by Mr Turner’s inconsistencies in his attempts to explain how his pricing processes took place in the course of meetings with HMRC, his witness statement and his oral evidence.

Fourthly, in respect of all of the suppliers involved in the disputed transactions, Loy was not under any obligation to pay its suppliers until Loy had been paid by its customers notwithstanding (and, indeed, despite) the absence of any contract terms. This meant that Loy was not taking any commercial risk at all and contrasts with the more commercial approach employed by suppliers for transactions which were not the subject of denials of input tax (such as CTLSL). We do not accept Mr Henry’s submission (raised for the first time in his closing submissions) that this is resolved by a purported implied term as to retention of title as he did not explain how this would arise as a matter of law. In any event, a retention of title clause on the part of Loy’s suppliers would create even greater difficulty for Loy, as it would mean that Loy was selling metal to its customers which Loy did not yet have title to.

Fifthly, Mr Turner’s insistence that the weight of the material when delivered to (or collected by) Loy did not matter as it was the weight on the invoice to the customer which was important does not make commercial sense. It is as important to know how much a supplier provides as it is to know how much a customer obtains. Whilst Mr Turner appears to have treated the customer’s weight as determinative (and would expect it to be the same anyway) this does not explain why Loy’s suppliers would accept this in the absence of a retained document recording the weight of the metal provided to Loy.

Sixthly, the absence of commerciality is reinforced by the fact that Loy did not add any value to any of the transactions.

Seventhly, taking all the evidence together, we infer that the disputed transactions were contrived. The obvious absence of commerciality, the absence of any risk and the absence of any price negotiation means that, on the balance of probabilities, they were orchestrated. We find that Mr Turner knew this because he knew about that absence of commerciality, absence of risk and absence of price negotiation.

Ms Brown submitted that Loy should have known that its transactions were connected with fraudulent evasion of VAT for the same reasons that she relied upon in respect of actual knowledge.

Mr Henry also relied upon his earlier submissions in respect of actual knowledge. In addition, he submitted that it could not be said that the only reasonable explanation for the transactions with Loy’s suppliers was that they were connected to fraud.

If, contrary to our findings above, Mr Turner did not know that Loy’s transactions with Ashwell were connected with the fraudulent evasion of VAT, we find that he should have known that this was the case. This is for the same reasons as set out in paragraphs 140 to 151 above, which we repeat in this regard.

When taking these factors in combination, we find on the balance of probabilities that the only reasonable explanation for the transactions with Loy’s suppliers was that they were connected to fraud. Again, this is for the same reasons as set out in paragraphs 140 to 151 above, which we again repeat in this regard.

Ms Brown submitted that Mr Turner was a director of Loy at the material times, that he was the controlling mind of Loy, that he was responsible for Loy entering into the disputed transactions, and that Mr Turner accepted that he conducted all Loy’s deals. She also submitted that Mr Turner had the requisite actual knowledge or means of knowledge for the reasons set out in her earlier submissions as to the Kittel denials.

Mr Henry submitted that in order for Mr Turner to be liable for the Penalty, HMRC must establish that he knew or should have known that Loy’s disputed transactions were connected with the fraudulent evasion of VAT and that HMRC have not disclosed any evidence of matters concerning Mr Turner’s conduct to this effect. He notes that Mr Turner is a man of good character without any criminal convictions, he has carried out his business activities lawfully, and he has co-operated with HMRC. He also notes that there has been no criminal investigation into Mr Turner’s conduct.

We find that Loy’s actions are attributable to Mr Turner. This is for the following reasons.

First, there was no dispute that Mr Turner was the director and controlling mind of Loy at all material times. He was responsible for, and conducted, all the transactions which are relevant to this appeal. Mr Turner did not suggest that any employee or other person had any other meaningful input into Loy’s affairs that would detract from this.

Secondly, for the reasons set out above, we have found that Mr Turner knew or should have known that Loy’s transactions were connected with the fraudulent evasion of VAT. That is his own knowledge or means of knowledge, albeit in his capacity as a director of Loy.

Thirdly, we have no reason to doubt that Mr Turner is a man of good character. However, that is not the test and has no bearing upon the question of attribution. Similarly, the lack of criminal investigation has no bearing upon the question of attribution either. Our findings relate to Mr Turner’s knowledge or means of knowledge that Loy’s transactions were connected with the fraudulent evasion of VAT. We make no findings – and do not need to make any findings – as to whether Mr Turner was acting dishonestly or as to whether he committed a criminal offence.

It follows that, for the reasons set out above, we dismiss Mr Turner’s appeal.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.