Tasca Tankers Ltd v The Commissioners for HMRC

The Respondents submit that the transactions chains were traced to a fraudulent VAT loss which is sufficient for the purposes of proving that the right to deduct input tax was properly denied, subject to knowledge and/or means of knowledge on the part of the Appellant.

The Respondents’ primary contention is that the Appellant knew that its transactions were connected with the fraudulent evasion of VAT. In the alternative, the Respondents submit that the Appellant should have known that its transactions were connected to fraud.

The Respondents submit that the invoices issued by the Appellant to its customers treated the sales as zero-rated for VAT purposes however there is insufficient evidence that the cars were removed from the UK and delivered to the RoI.

The Appellant’s Grounds for Appeal in relation to the Kittel appeals were stated as: “It is the appellant’s contention that they did not know or they should not have known that their transactions were linked to a fraudulent scheme to evade VAT.”

The Appellant’s Grounds for Appeal in relation to the zero-rating appeals were stated as: “It is the appellants contention that they do hold sufficient evidence to prove that the goods have been removed from the UK.”

Following compliance with Fairford directions issued by the Tribunal, in relation to the Kittel appeal, the Appellant accepted the following:

As a result of those concessions, we do not need to determine those issues (per HMRC v Alan Mccord t/a Hi-Octane Imports [2021] UKUT 153 (TCC) at paras [20]-[26]). The remaining issue in dispute is whether the Appellant knew or should have known that the transactions were connected with the fraudulent evasion of VAT. The burden of proof rests with the Respondents.

In relation to the zero-rating appeals, the parties agreed that the test for the FTT to apply in respect of the zero-rating appeal is as follows:

In the zero-rating appeal, the burden of proof lies on the Appellant.

The test for zero-rating was recently considered in H Ripley & Co Ltd v The Commissioners for HM Revenue and Customs [2025] UKUT 210 (TCC) in which the UT found at [38]:

“We therefore agree with HMRC and the FTT in their formulation of the issue. The correct question is whether the Appellant held sufficient evidence of removal, not whether the goods were in fact removed.”

The law in relation to Kittel appeals is well versed and, there being no dispute about the relevant provisions, we will deal with it briefly.

Article 17 of the Sixth Council Directive of 17th May 1977 sets out the origin and scope of the right to deduct.

Articles 167 and 168 of Council Directive 2006/112/EC of 28 November 2006 on the common system of VAT provide for the right to deduct.

By virtue of Sections 24, 25 and 26 of the VAT Act 1994 and Regulations 13 and 29 of the VAT Regulations 1995, if a taxable person has incurred input tax that is properly allowable, that person is entitled to set it against their output tax liability and, if the input tax credit due to that person exceeds the output tax liability, receive a repayment.

It was accepted that the transactions which form the subject of this appeal were connected with the fraudulent default by a taxable person of its obligation to account to HMRC in respect of output tax payable on its taxable supplies.

The ECJ in its judgment dated 6 July 2006 in the joined cases Axel Kittel v Belgium & Belgium v Recolta Recycling SPRL (C-439/04 and C-440/04( (hereafter “Kittel”), has confirmed that, in the context of MTIC fraud, traders who “knew or should have known”, that the transactions in which they were engaging were connected with such frauds will not be entitled to reclaim any input tax incurred (see [56] – [50]).

In Mobilx Limited (in Liquidation) v HMRC [2010] EWCA Civ 517 (“Mobilx”) the Court of Appeal considered Kittel and said at paragraph [52], [59] and [64]:

“If a taxpayer has the means at his disposal of knowing that by his purchase he is participating in a transaction connected with fraudulent evasion of VAT he loses his right to deduct, not as a penalty for negligence, but because the objective criteria for the scope of that right are not met. It profits nothing to contend that, in domestic law, complicity in fraud denotes a more culpable state of mind than carelessness, in the light of the principle in Kittel. A trader who fails to deploy means of knowledge available to him does not satisfy the objective criteria which must be met before his right to deduct arises.

…

The test in Kittel is simple and should not be over-refined, it embraces not only those who know of the connection but those who “should have known”. Thus it includes those who should have known from the circumstances, which surround their transactions that they were connected to fraudulent evasion. If a trader should have known that the only reasonable explanation for the transaction in which he was involved was that it was connected with fraudulent evasion of VAT then he should have known of that fact.

…

If it is established that a trader should have known that by his purchase there was no reasonable explanation for the circumstances in which the transaction was undertaken other than that it was connected with fraud then such a trader was directly and knowingly involved in fraudulent evasion of VAT.”

Moses LJ cautioned against any undue focus on due diligence noting at [82]:

“Even if a trader has asked appropriate questions, he is not entitled to ignore the circumstances in which his transactions take place if the only reasonable explanation for them is that his transactions have been or will be connected with fraudulent evasion of VAT...”

The Respondents do not have to prove that the Appellant knew or should have known either the details of the fraud or the identities of the fraudulent defaulters (Megtian Ltd (In Administration) v The Commissioners for Her Majesty’s Revenue & Customs [2010] EWHC 18 (Ch) at [37-38] per Briggs J.

They are only required to prove, on the balance of probabilities, that the Appellant knew or should have known that its transactions were connected with fraud which is to be judged by what it subjectively knew (for the purposes of the “knew” aspect of the Kittel test) or objectively could have known (for the should have known aspect of the Kittel test).

The evidence should be approached holistically and without compartmentalising it (see Red 12 [2009] EWHC 2563 at [109] – [111]).

In HMRC v Pacific Computers Limited [2016] UKUT 350 (TCC) at [13] the Upper Tribunal discussed the relevance of overall scheme to defraud:

“The FTT also had the benefit of the judgment of the Upper Tribunal in Edgeskill Ltd v Revenue and Customs Commissioners [2014] STC 1174 where Hildyard J considered the relationship between an overall scheme to defraud and actual knowledge that transactions were connected to fraud. At [55], under the heading “Issue (4): was there (a) an overall scheme to defraud (b) to which the appellant was knowingly party?”, Hildyard J said:

“The two parts of the fourth, final and most important question are inter-related; but they were, quite correctly, dealt with in turn by the FTT in its decision, since the question whether the appellant participated in an overall scheme to defraud informs, but does not answer, the question whether the appellant knew or should have known that it was participating in such a scheme.”

In the same context, at [63], the judge reiterated that the fact that a taxable person’s transactions were found to be part of a wider fraudulent scheme does not mean that the taxable person knew of their connection with the fraudulent scheme. He noted that the FTT in that case had recognised that “[the] Appellant’s transactions must be considered on their own merits, which left open the possibility that the appellant was an innocent dupe.” In Edgeskill itself the FTT had found, and Hildyard J found no basis for upsetting the finding, that the appellant in that case was not a genuine independent trader and it had no rational commercial purpose other than to make huge profits from doing nothing other than submitting VAT returns.”

In CF Booth Ltd v The Commissioners for HM Revenue and Customs [2017] UKFTT 813 (TC) the FTT said at [318] – [320]:

“318.

Turning to whether CFB knew or should have known its transactions, other than those with BMC, were connected to the fraudulent evasion of VAT, we find that the only inference that can be drawn, having come to the conclusion that there was an orchestrated or contrived scheme to defraud the revenue, is that CFB did know of the connection to fraud. In our judgment, it is not feasible that an established and experienced business such as CFB could be placed in such a pivotal position, at the top of the transaction chains, without such knowledge.

319.

First, there is the real danger that, with its knowledge of the trade, CFB would have reported the fraud to the authorities resulting in the collapse of the scheme. Secondly, we were not provided with any account of how CFB became involved in the scheme, something that might have been expected had it been argued that CFB had been manipulated or manoeuvred by others into participating in the scheme. …”

As regards zero-rating, Article 131 Council Directive 2006/112/EC of 28 November 2006 on the Common System of Value Added Tax ("PVD") provides:

Article 138(1) of the PVD requires Member States to exempt from VAT goods that are transported to another member state. Regulation 138(1) replaced Article 28c(A)(a) of the Sixth Directive:

“Member States shall exempt the supply of goods dispatched or transported to a destination outside their respective territory but within the Community, by or on behalf of the vendor or the person acquiring the goods, for another taxable person, or for a non-taxable legal person acting as such in a Member State other than that in which dispatch or transport of the goods began.”

Section 30 VATA gives effect to the relevant provisions of the VAT Directive. Regulation 134 of the VAT Regulations 1995 ("the Regulations") provides as follows:

Tertiary legislation in relation to zero-rating of dispatches is in the form of HMRC’s Public Notice 725: The Single Market (“PN 725”) parts of which have force of law.

Paragraph 4.3 of PN 725 states that a supply from the UK to a customer in another EC Member State is only liable for VAT Zero Rate where:

“The good are sent or transported out of the UK to a destination in another EC Member State, and [the trader] obtains and keeps valid commercial evidence that the goods have been removed from the UK within the time limits set out at paragraph 4.4.”

Paragraph 4.3 which has the force of law states that a supply from the UK to a customer in another EC Member State is liable to the zero rate where:

Paragraph 4.4 specifies the time limits for the removal of supplies of goods of 3 months.

Paragraph 5 of Notice 725 explains the requirements to produce evidence of removal; paragraph 5.1 provides that a combination of the following documents must be used by traders to provide clear evidence that a supply has taken place, and the goods have been removed from the UK:

Paragraph 5.2, which has the force of law, specifies that the documents used by traders as proof of removal must clearly identify

Paragraph 5.3 addresses evidence on the removal of goods to the RoI across the Irish Land Boundary. It states that the evidence a trader obtained must clearly show that the goods have left the country and refers back to the types of documentary evidence contained in paragraphs 5.1 and 5.2 of the Notice.

Paragraph 5.3 also states that when a motor vehicle sold was collected by the customer or their representative, a copy of the vehicle registration document issued by the authorities in the RoI “will normally provide satisfactory evidence of removal if supported by other evidence as described in paragraph 5.1.”

The burden of proof in the zero-rating appeals lies on the Appellant.

There was no challenge to the evidence of the defaulting officers, and it was accepted that the relevant transactions were connected to fraudulent tax losses. We were satisfied having considered the evidence that the burden of proof was met, and we have summarised the salient points of that evidence below.

HMRC officer Mr De Gouveia’s written evidence regarding defaulting traders DFMS and County Sales was not challenged. The following is taken from his witness statement dated 30 April 2024.

DFMS was a fraudulent defaulter in VAT periods 06/15 and 09/15 in four transactions. It was incorporated on 11 May 2011 with a business address in Newry. It went into liquidation on 21 October 2020 and dissolved on 13 December 2023. At the time of the transactions the directors were Shane McConnell and Vasile Ovidiu Lupean.

It was registered for VAT with effect from 11 May 2011, and deregistered with effect from 24 November 2015. The VAT1 described the business activities as “Wholesale and retail building supplies”.

Companies House information showed that it “Nature of Business” was “Other specialised construction activities not elsewhere classified”, and “Agents involved in the sale of machinery, industrial equipment, ships and aircraft”. From the date of registration until 31 July 2012 ‘nil’ returns were submitted. From VAT period 10/12 to 10/14 payment returns were submitted save for period 04/14 which was a ‘nil’ return,

For VAT periods 01/15 to 07/15 payment returns were submitted but in contrast to the earlier returns, they showed that DFMS had EC Acquisitions. The sales declared in the three VAT periods totalled £1,256,019.00 and the output tax declared was £4,021.50. Mr De Gouveia noted that DFMS did not declare any sales to other EU countries and unless the goods were all sold to countries outside the EU, he would have expected the VAT on the declared sales to be £251,203.80. Furthermore, the information held by HMRC indicated that the level of acquisitions declared on the VAT returns did not match with the amounts declared by EU traders on supplying to DFMS.

The Respondents attended the company on 26 August 2015 but there was no answer at the door. The Respondents observed that the address was a semi-detached social housing estate in a poor state of repair.

On 9 October 2015 the Respondents issued a VAT assessment on the basis that DFMS had not declared the correct amount of tax on a substantial number of acquisitions from EU member states. The assessment was in the sum of £832,909. A further assessment was issued on 6 November 2015 in the sum of £405,018, later increased by £3,000 because of an administrative error. Further assessments were issued on 16 December 2015, 12 August 2016 and 17 July 2017. The assessments included the sales to the Appellant and, in respect of one vehicle, DFMS did not declare the VAT it had charged on the sales invoices issued to the Appellant’s supplier Country Sales.

HMRC concluded that the tax losses caused by DFMS were fraudulent. In summary:

The final VAT debt owed by DFMS to HMRC was £1,431,591.74 which included the under declared output tax from the transactions with the Appellant;

Despite multiple attempts to contact the business, DFMS failed to respond or produce any business records to support its VAT returns;

The information held about suggests that its business activity was something other than the purchase and sales of second hand cars;

There was a long string of changes to the company address, and directorships over a short space of time and the directors at the relevant time do not appear to have had any real commercial experience in the market;

The business address was a residential address in a council estate; and

The assessments were not appealed or paid.

HMRC officer Ms Bari’s witness statement was unchallenged. The following is a summary of the facts set out therein.

Erlemo was incorporated on 20 August 2003. It was listed as dormant until the annual return for the financial year ending 31 August 2012 which was submitted on 22 May 2013.

A VAT1 was submitted for Erlemo seeking VAT registration with effect from 1 June 2012. Whilst the business name was Erlemo, its trading name was “Global Spray Foams”. Its business activity description was stated as “Providers of foam spray insulation” and “Manufacture of other chemical products.”

On 15 October 2015 Mr Shane McConnell was appointed a director of Erlemo. Mr McConnell was also a director of DFMS. The annual return for 2015 showed a change of trade class to the sale of motor vehicles.

Erlemo made six sales of cars to the Appellant in September, November and December 2015. Officer Bari’s statement notes that the VAT charged on Erlemo’s invoices to the Appellant did not correlate with its VAT returns.

On 13 May 2016 the Respondents carried out an unannounced visit to PPOB which was a residential house. There was no one present and contact details were left. On the same day, the Respondents received a telephone call from a man called “Gary” who said that he did not know Shane McConnell, and he had never heard of Erlemo. He stated that the address was his home address and he was receiving HMRC correspondence relating to matters unconnected with him.

On 14 May 2016 a message was left for the visiting officer who had left his contact details. The voicemail stated the male calling was Mr McConnell and that he was in the RoI. The number was withheld but the male stated he would call back the following Monday or Tuesday.

On 16 May 2016 the Respondents received a telephone call a male called Miles Collins. He explained that he was an “associate” of Mr McConnell and that Mr McConnell had been in a car accident and was unable to speak. It was suggested that an update would be expected on 18 May 2016. No further call was received.

On 17 May 2016 the Respondents took steps to deregister Erlemo from the VAT register. On the same date an assessment was issued in the sum of £59,499. The assessment has not been appealed or paid. On 19 May 2016 a male stating he was Mr McConnell called the HMRC visiting officer who explained the situation and suggested a meeting. Mr McConnell said he would think about it and get back to the officer. No further contact was received.

A penalty was issued on 27 October 2016 in the sum of £55,987. Erlemo was wound up by order dated 3 October 2016.

HMRC concluded that the tax losses caused by Erlemo were fraudulent. In summary:

The main business activity related to manufacture of foam which was inconsistent with the goods traded in this appeal;

The office address was a residential address which could not operate a business out of it, least of all one involving the supply of cars and the resident denied any knowledge of the company or the director;

Erlemo did not respond substantively to: (i) assessment (ii) deregistration, or (iii) penalty assessments;

The Respondents were unable to speak with someone about the operations of the business. Various individuals called from withheld numbers which meant that their identities could not be verified and subsequent contact could not be made by HMRC, and

The director was the same director as at DFMS which itself was also a fraudulently defaulting trader

HMRC held evidence of undeclared trade in the form of invoices which showed VAT charged by Erlemo which was not declared on its VAT returns.

HMRC officer Ms O’Neill’s evidence in relation to Cahal Corr trading as Mountain View Autos was unchallenged. It can be summarised as follows:

Mountain traded with the Appellant in VAT periods 12/14 and 03/15. It operated as a sole trader. On 21 May 2014 it applied for a VAT registration number. The trader’s details were Cahal Corr and its PPOB was an address in County Tyrone. Its main business activity was described as “car parts” and “motor vehicle servicing”. It sought registration with effect from 1 May 2014. The only filed VAT return for the 3 month period ending 11/14 showed a turnover of £260,970 including VAT.

On 22 May 2015 Ms O’Neill made an unannounced visit to Mountain at its PPOB, a residential property and spoke with a female occupant. She stated that the “white bungalow” was number 37 and was occupied by Daniel Corr. It was a residential bungalow with small yard for parking to the front with small shed to the side. There was no response at the door and a notice of the visit was posted through the door.

On 26 May 2015 the Respondents wrote to Mountain noting that it no longer had an entitlement to be registered on the basis that it had ceased to make, or have the intention of making, taxable supplies. It was deregistered with effect from 22 May 2015. There was no response to this, or the assessment.

On 23 May 2016 the Respondents wrote to Mountain stating that there were errors in its VAT position, and they needed correction. They issued Mountain an assessment in the sum of £68,283 which should have been declared on the VAT returns, but were not and which included eight sales to the Appellant. No response was received.

The basis upon which HMRC concluded that Mountain had caused fraudulent tax losses can be summarised as follows:

The main business activity was inconsistent with the trading that it was undertaking;

The PPOB was not equipped to undertake the transactions that it was engaging in. It was a residential property with no evidence of car trading;

No responses or appeals were made against any of the decisions made to deregister or assess for VAT and it was deemed to be a missing trader;

Mountain issued sales invoices without declaring any of the VAT and failed to pay any of the VAT it charged.

HMRC officer Ms O’Neill gave the following unchallenged evidence in relation to MD Autos.

MD Autos operated as a sole trader. On 17 June 2015 it applied for a VAT registration number. The trader’s details were Martin Donnelly and the PPOB was in County Tyrone. Its main business activity was described as “car and vehicle trading” and “Motor vehicle with a weight not exceeding 3.5 tonnes (used) (retail)”. It sought registration with effect from 28 May 2015. VAT returns filed for periods ending 07/15, 10/15 and 01/16 were ‘nil’ returns.

On 8 June 2016 the Respondents attempted to visit MD Autos. It was a residential property. The occupant identified herself as Martin Donnelly’s mother and stated that he had not lived at the address for approximately a year.

On 13 June 2016 the Respondents wrote to MD Autos deregistering it from VAT with effect from 8 June 2016. On 1 August 2016 the Respondents issued it a VAT assessment in the sum of £67,354 for VAT periods 01/16 and 04/16. On 4 August 2016 a further assessment in the sum of £69,128.61 was issued to MD Autos. A further assessment was issued in the sum of £1,320 on 11 July 2016. A final assessment was issued in the sum of £713,885 on 8 August 2017. The assessments included five invoices issued to the Appellant which were not declared.

No response was received to the correspondence, nor any challenge to any of the decisions. MD Autos did not pay any of the VAT it had charged.

The connection to fraudulent tax losses can be summarised as follows:

Mr Donnelly was trading in both qualifying cars and plant equipment, despite saying that he only traded in car and vehicles of a certain weight;

No response was ever received to any of the correspondence and the trader went missing;

The VAT was not declared;

The VAT that was charged was not paid to the Respondents;

The address was a residential address from which the business could not have operated;

He had not had any previous employment in a number of years, and was in fact on Job Seeker’s allowance at the time of the transactions and he was not declaring any income despite plainly issuing invoices in respect of the purchase and sale of cars.

We considered the unchallenged evidence set out above in respect of the defaulting traders and transaction chains carefully and we were satisfied that HMRC had accurately traced the Appellant’s transactions chains to fraudulent tax losses caused by defaulting traders. In those circumstances we were satisfied that HMRC had proved that the Appellant’s transactions were connected to fraudulent tax losses.

We now turn to the evidence given by the witnesses in relation to the zero-rating appeals and the test in Kittel concerning knowledge/means of knowledge on the part of the Appellant.

Ms Shah was responsible for issuing three VAT assessments to the Appellant in respect of 24 transactions. She explained that in April 2016 she was allocated to carry out a VAT inspection at the PPOB and gather information on the company’s EC sales. Following the mutual assistance request from the RoI Tax Authority regarding the Appellant’s declared EC sales to Acquis Systems Limited which had operated a fishing boat business until it de-registered from VAT on 21 May 2015. The director of the business was a retired fisherman and had denied any knowledge of transactions. The RoI Tax Authority suspected the transaction was fraudulent and had requested further information from HMRC.

During Ms Shah’s visit to the Appellant on 20 April 2016, EC sales were discussed with Ms Wood who stated that the used cars were never physically present at the PPOB, they had not been viewed or inspected by the Appellant and transportation from NI to the RoI was arranged by Mr Paul Donnelly (“Mr Donnelly”). The vehicles were removed from the UK suppliers’ premises in Northern Ireland and despatched directly to the customers’ premises in the RoI.

Ms Wood stated that the Appellant purchased aluminium from France for the manufacture of tankers which are then supplied to customers in Northern Ireland, the UK and the Republic of Ireland. In respect of the second-hand car sales, she stated that in December 2014, she was asked by Mr Harte to make payments of invoices when cleared funds were received from the purchasers of the vehicles being exported to the ROI by Mr Donnelly, who was a friend of Mr Harte. Ms Wood checked using VIES that the VAT numbers, names and addresses of the suppliers and customers on the invoices were valid.

Ms Wood explained that Mr Harte received a daily update of the transactions going through the bank account and that on occasion she spoke to Mr Donnelly about payments and invoices.

At the meeting, Ms Shah noted that Ms Wood was unable to give much information about the deals as they had been undertaken by Mr Harte and Mr Donnelly. Ms Wood explained that Mr Donnelly was not a director or employee of the Appellant and that Mr Harte lived in Belfast, and travelled to Wakefield on Tuesday returning home on Thursdays.

Ms Shah noted the following at the visit:

The visit note recorded that Ms Wood explained that she issued the sales invoice following receipt of verbal instructions from Mr Harte or Mr Donnelly. Mr Donnelly would email Ms Wood details of the customer’s VAT registration number. She issued the invoice as instructed and sent the sales invoice to Mr Donnelly, and not to the customer. Ms Wood indicated that for the first deals in 2014, there were no mark ups applied. However, after the initial deals a markup of £500 was always achieved on each deal as decided by Mr Harte, and Mr Donnelly. Ms Shah suggested to Ms Wood that, based on the records, it appeared the transactions were undertaken at a profit loss. Ms Wood indicated that she had not noticed this but agreed that the transactions did not benefit the company.

Ms Shah noted from examination of the Appellant’s bank statements that in the majority of cases payments were received from bank accounts in the name of third parties and not the customer who had purportedly purchased the cars. Ms Wood was asked why third parties were paying for purchases they did not make to which she replied she found everything about the used car deals "unusual."

By way of example in relation to 3^rd party payments, having inspected the available business records, Ms Shah noted a sales invoice addressed to Acquis Cars Limited and her review of the bank statements showed that payment for this sale had not been received directly from the customer but from an account in the name of Colm McNulty.

Ms Shah requested evidence to support the removal of the used cars. In May 2016 the Appellant provided documents comprised of delivery notes, vehicle registration details of cars from the RoI Tax Authority, emails from RoI based customers, and search reports for vehicle registration numbers obtained from a website named Cartell.ie.

Ms Shah’s review of the evidence provided by the Appellant showed that the delivery notes were all addressed to the Appellant and were issued in the name of Donnelly Vehicle Transport. They either stated the vehicle registration or chassis number and the collection and delivery address. The addresses stated were the PPOB addresses of the suppliers and customers.

Ms Shah noted that there was no information to confirm the date the goods were removed. There was also no information on how the goods had been transported to the customer. Ms Shah could not trace any business by the name of Donnelly Vehicle Transport either in the UK or the RoI, and her checks indicated that the address stated in the delivery was Mr Donnelly’s residential address.

At a meeting with the Appellant on 14 June 2016 Ms Shah recorded the following information:

In relation to zero-rating, Ms Shah concluded that the requirements of paragraph 5.2 of Notice 725 were not satisfied on the basis that the requirement, which had the force of law, mandated that the mode of transport and route of movement of the goods be stated on the document.

Furthermore, Paragraph 5.3 of Notice 725 specified in relation to evidence of removal to the RoI across the Irish land Boundary:

“If the goods are removed by road by an independent carrier, then [the trader’s] commercial evidence should include a copy of the carrier’s invoice or consignment note, supported by evidence that the goods have been delivered to a destination in the RoI. (e.g. a receipted copy of the consignment note).”

The delivery notes were not supported by any evidence that confirmed the cars had been delivered to the customers in the RoI. There was no receipted transport document or signed consignment note by the receiving consignee acknowledging receipt of goods.

Paragraph 5.3 of Notice 725 states that when a motor vehicle is sold and,

“which is collected by your customer or their representative…. a copy of the vehicle registration document issued by the authorities in the RoI will normally provide satisfactory evidence of removal if supported by other evidence described above and in paragraph 5.1.”

Ms Shah took the view that the RoI forms did not support the transactions as they indicated that the vehicles were already physically present in the RoI at the time when the Appellant sold the goods and she disregarded the documents which related to 4 cars as insufficient evidence to support their removal.

Vehicle registration checks obtained from Cartell.ie were provided in support of 7 cars. The reports appeared to have been produced by M & B Autos, a company that was not a party to the transactions and Ms Shah was unclear how it was linked to the Appellant to the transactions.

In cross-examination, Ms Shah was asked whether the Cartell reports could show the date of export from the ROI rather than the date of export from the UK to the ROI. She explained that the Appellant had provided the documents as their evidence of export and her review of the documents had been based on that.

In relation to one transaction (vehicle registration YG15 HSK deal 16), Ms Shah noted theinvoice date was 7 December 2015, the payment date was 11 December yet the OASIS document (about which we say more at [117]) reported the transport date as 3 December 2015. Ms Shah queried this as Mr Harte had claimed that goods were only delivered after payment, yet this vehicle appeared to have been delivered before payment was made. She had also noted that a haulier (Elite Prestige) had appeared to be involved which had never been mentioned by the Appellant.

Six of the Cartell.i.e reports postdated the transactions and one (vehicle registration NL15 DVT) was obtained three months before the Appellant’s purchase and sale and therefore was disregarded by Mr Shah.

The reports for two vehicles (LX64 URD and LO64 HKP) did not show that the UK registered vehicles were exported to the RoI. Of the four remaining reports, the export to the RoI and the RoI registration dates for one vehicle (YK64 CXW) pre-dated the Appellant’s purchase and sale and was therefore disregarded. The remaining three did not state how the exports were made or by whom and Ms Shah could not therefore connect the information contained therein specifically to the Appellant’s sales.

Two emails were provided by Ms Wood to Ms Shah. One addressed to Mr Donnelly, dated 31 May 2016 was signed by Bernard Monaghan of B.M Dayna Motors. The email stated Mr Monaghan had checked 9 of the vehicle registration numbers with car dealers based in the RoI. They had not yet been sold and did not have RoI registration numbers.

The nine vehicle registrations referred to in the email belong to cars that the Appellant had sold to its customers Jason Murphy Car Sales and Repairs; Resolute Merchandising Limited; Crean Solutions Limited; Highway Retail Limited and Aliza Cars. Mr Monaghan was the customer named on two sales invoices issued by the Appellant. Ms Shah’s examination of the bank statements showed that Bernard Monaghan’s UK registered business, BM Dayna Motors Limited, had paid the Appellant for cars that it had sold to the RoI customer Aliza Cars. It was unclear to Ms Shah why Bernard Monaghan was commenting on vehicles that the Appellant had sold to other customers. In the absence of any other evidence to substantiate Bernard Monaghan’s assertions Ms Shah disregarded this email as insufficient evidence to support the removal of the vehicles.

A second email addressed to Ms Wood and Mr Donnelly was sent from a gmail account in the name of Jason Murphy. The email confirmed that Jason Murphy had purchased 4 Land Cruiser vehicles from the Appellant in 2015 and had exported the vehicles to a customer in Malta. Ms Shah cross referenced the chassis numbers stated on the emails with those stated on the corresponding sales invoices issued by the Appellant and noted that the information stated in the emails did not agree with those stated on the invoices. The cars were not sold by the Appellant to Jason Murphy; the sales invoices named Colm McNulty as the customer and recipient of the vehicles. For that reason, Ms Shah disregarded the email as insufficient evidence to prove the removal of goods.

No further supporting documents relating to the sales and removal of the cars to the RoI was provided by the Appellant. Ms Shah requested details of inspection reports for the cars, their insurance cover whilst in transit and transport costs and further clarification regarding the transaction. A response from Mr Harte dated 6 May 2016 stated:

“…although Shaun Harte has authorised the sales and purchases, the sales and purchases are all conducted by Paul Donnelly whose family business have been involved in car retailing for 70 years… All customer contact is conducted by Paul Donnelly in Belfast… Paul Donnelly brought the opportunity to me. To ensure we were not left with a vehicle, we insisted each vehicle was paid for by the purchased before we released funds to the seller. We also requested on a bona fide VAT number which we cleared before each transaction, again Paul Donnelly looks after this.”

The email went on to state that Mr Donnelly procured and dealt with the suppliers and customers. Mr Harte did not expressly answer whether the cars were inspected but the email implied that Mr Donnelly dealt with all aspects of the transaction. The email stated that Mr Donnelly arranged transport and Mr Harte stated that the collection and delivery information “will be apparent on the delivery notes in one of the following emails”. Mr Harte stated that the transport costs for the cars had been paid by the customers, however Ms Shah noted that no documentary evidence was provided to support this claim. Mr Donnelly’s role was described in the email as:

“I have known Paul for 30 years and have had a business relationship with him for that time. Paul brought these deals to me but were unable to fund them himself. So we agreed to fund them for him.”

Ms Shah also looked at payments made for the goods sold to the RoI customers with reference to the Appellant’s bank statements on which Ms Woods had identified the relevant payments. Ms Shah noted that in respect of 15 supplies made by the Appellant, payments had been received from third parties, and not by the RoI customer named on the sales invoice. For all 15 transactions, she identified that the named third-parties Martin Donnelly; DFMS NI Limited; Fernview Trade Limited, Tyrone Wholesale and BM Dayna Motors Limited were businesses based in Northern Ireland, UK.

Ms Shah also made checks through HMRC’s internal processes on the movement of the vehicles from the UK border, and details of the registered vehicle owners. She used the OASIS (Operational Anti-Smuggling Information Systems) database, which holds data on the movement of goods crossing the UK borders to other EC Member States, for 13 vehicles. She found that that there was either no trace of a particular car being transported across the UK border (2 cars), or alternatively, the car in question had been transported on a different date and by a different haulier than those stated on the Appellant’s sales invoices and delivery notes. OASIS did not show that any cars were transported by a haulier named Donnelly Vehicle Transport.

Of the 11 cars that were transported from the UK to the RoI, in all but one instance, the cars were transported from Liverpool, (the port of departure) to Dublin (the port of arrival). The remaining vehicle was transported from Holyhead, Northern Ireland to Dublin twenty days prior to the delivery date stated on the Appellant’s paperwork.

Ms Shah requested a PNC check (police national computer) for the registered owners of 17 vehicles sold which showed that the registered keepers of 16 vehicles were either individuals that were resident in the UK, or companies that were based in the UK. The registered owner of the remaining vehicle could not be traced.

In oral evidence, Ms Shah agreed that all the information required to zero-rate did not need to be on one document. She agreed that the sales invoices recorded the supplier, the customer and the goods. She explained that the difficulty was that it was unclear how the goods were moved, the route taken and to where the goods were delivered, noting that Mr Harte and the directors of the Appellant had been unable to provide that information to her. The delivery notes simply recorded the suppliers’ and customers’ addresses but did not provide any further detail. The was no document from the customer to confirm receipt and Ms Shah did not consider that the test for zero rating was met. She accepted that no signature confirming receipt is required by law, however she considered that the sub-paragraphs of PN 725 were relevant, even if they did not have the force of law.

Ms Shah explained that she would have expected to see the mode of travel, which was unclear, particularly as some of the documents contained references to ports, and she highlighted that the Appellant simply did not know the answer. Ms Shah added that she had been told that Paul Donnelly Transport had been responsible for transporting the cars, yet the Appellant was unsure as to the detail and she had never had the opportunity to ask Mr Donnelly. Ms Shah had no contact with Mr Donnelly during the VAT enquiry. Background checks indicated that Mr Donnelly was a resigned director of the motor dealer Donnelly Bros (Belfast) Limited, Donnelly Bros Garages (Dungannon) Limited; Tanker Exports Limited; Donnelly Leasing Limited; Southbank Station Limited; Fleet Contracts (Europe) Ltd; Dungannon Garages Limited and Belfast Carwash Limited. Ms Shah noted that most of these companies are now dissolved.

In cross-examination Ms Shah agreed that the date on a sales invoice does not need to be the same date as the date of sale, however she noted that in one instance a vehicle had been sold/delivered to the ROI after the date it was registered in that country. As there were no formal contracts or agreements in place, Ms Shah had no other evidence to verify or check the dates of purchase/sales/delivery and had used the sales date on the invoices provided.

Ms Shah concluded that there was no clear evidence that the vehicles sold by the Appellant had been removed from the UK. The Appellant’s own documents were at odds with the audit paper trail for the purchase, sale and payment dates. The RoI vehicle registration forms provided in support of 4 cars sold showed that these cars were already registered to residents in the RoI prior to the Appellant’s sales. The results of OASIS checks on the movement of the goods, and PNC checks on the vehicle owner registration, did not support the Appellant’s transaction details. Consequently, Ms Shah had made her decision to refuse zero-rating having considered the sales invoices, delivery notes and documents provided to her and the fact that there was no other evidence to substantiate the information provided by the Appellant.

As regards the Kittel appeal, Ms Shah traced each of the Appellant’s transactions to fraudulent tax losses. Ms Shah concluded that the transaction chains were contrived and had no legitimate commercial purpose. In reaching that conclusion she took into account the following factors.

Each transaction relating to the Appellant’s purchase of used cars was traced to a fraudulent defaulting trader. The purchase invoices showed that the Appellant purchased 8 vehicles from Mountain View Motors. The VAT registration number given on the invoices belonged to Cahal Corr trading under the business name of Mountain View Autos and the VAT charged on the sales to the Appellant was not declared or paid to HMRC. Four vehicles were purchased from DFMS. The VRN on three of the invoices belonged to Cahal Corr and one was the correct VRN. The Appellant also purchased 1 vehicle from Country Sales. The VRN on the invoice belonged to Ryan Stinson Gordon who traded as Country Sales, which had purchased the vehicle from DFMS. Neither DFMS nor Country Sales declared or paid the VAT on the relevant sales. Six vehicles were purchased by the Appellant from Erlemo which did not declare of pay the output tax due on the sales invoices issued to the Appellant. Ms Shah noted that Mr Shane Francis McConnell was a common director on Companies House for DFMS and Erlemo indicating a common link. Five vehicles were purchased from M.D. Autosales. The VRN on the purchase invoice was allocated to Martin Donnelly trading as M.D. Auto Sales. The output tax on the sales invoices issued to the Appellant was not declared or paid.

All of the UK traders and UK based 3^rd party payers identified in the chains were based in Belfast with the exception of the Appellant. The 3^rd parties who made payments were identified as Fern View Trade Limited, BM Dayna Motors Limited and Tyrone Wholesale.

Ms Shah’s evidence was that Fern View Trade Limited was a Belfast based company which filed dormant accounts and was dissolved on 17 May 2016. BM Dayna Motors Limited and Tyrone Wholesale are UK traders that were known to be involved in other MTIC transactions. Tyrone Wholesale was based in Belfast and registered for VAT as a sole proprietor, David Andrew Cahoon. It had issued invoices for sales of cars to Country Sales in separate transactions. The business was compulsorily deregistered as a missing trader on 17 June 2015. The payments made to the Appellant were made more than 6 months after Tyrone Wholesale was deregistered. The director of BM Dayna Motors Limited, Bernard Monaghan, was VAT registered in the RoI and was the customer of the Appellant in separate transactions that are the subject of this appeal. At a visit by HMRC, Mr Monaghan stated he had made payments as a favour to friends but would not give their names. He denied making any payments to the Appellant. BM Dayna Motors Limited was subsequently assessed for under declared VAT and the trader was deregistered with unpaid debts to HMRC.

Ms Shah noted that all UK entities in the supply chains (save for the Appellant) were compulsorily deregistered as suspected missing traders involved in MTIC fraud that defaulted on their respective VAT liabilities.

Seven of the eight ROI customers in the Appellant’s transactions were deregistered as hijacked traders or suspected traders involved in MTIC supply chains.

There was no evidence from the ROI Tax Authority to confirm that the customers purchased or received the vehicles:

In relation to factors which indicated knowledge or means of knowledge, Ms Shah took account of the following factors.

Mr Donnelly, as a purportedly unconnected 3^rd party, was allowed to control and deal with all aspects of the Appellant’s transactions without any controls or checks being put into place. On the basis of the information available to Ms Shah, Mr Donnelly sourced the vehicles, procured both the UK suppliers and EC customers, and took responsibility for delivering the cars. He also issued payment instructions to the UK suppliers and passed on supplier invoices and bank account details to the Appellant. He provided customer details in order that sales invoices could be raised yet Mr Donnelly was not employed by or paid by the company.

Mr Harte had told Ms Shah that Mr Donnelly was unable to fund the deals, so the Appellant agreed to fund them for him. However, in response to a request for information on the nature of the funding arrangements in place, Mr Harte subsequently stated that no funding had been provided by the Appellant and that the deals were self-funded as payment was required from the customer before the Appellant paid its supplier. Ms Shah noted that this arrangement indicated that the deals were done at no commercial risk to the Appellant and that trading partners appeared to be found with relative ease as in some of the transactions the purchase and sale take place on or around the same date.

Ms Shah noted the Appellant had no contact with its ROI based customers and conducted no background checks which would have revealed, for instance, that Highway Retail Limited had ceased trading.

Ms Shah highlighted that the Appellant did not take physical possession of the goods which were apparently collected from the suppliers’ premises and delivered by Mr Donnelly to the customers, however in Ms Shah’s view there was no clear evidence to substantiate removal to the ROI.

In cross-examination, Ms Shah explained that she found Mr Harte’s statement that he did not care whether a profit was made as his focus was on the VAT element unusual as she would expect the company to look to make a profit. She agreed that a £500 mark up could be legitimate, however she considered that this would be to look at the factor in isolation. She explained that the profit was only one factor she had considered and did not show the full picture. Looking at the evidence collectively, she found the fixed profit for 9 deals, irrespective of the age, mileage or condition of the car, unusual and lacked commerciality. Ms Shah confirmed that when concluding that no profit was made, she had looked at the gross figures but that if the net amounts were taken and the VAT element taken into account then some of the deals had made a profit.

Ms Shah noted that the invoices issued by DFMS, Erlemo and Mountain View Motors were cosmetically identical in layout, presentation, font, size and style. Furthermore, the invoices for Mountain View Motors and DFMS have the same contact mobile number and the invoices for DFMS give the VRN of Mountain View Motors yet the suppliers were purported to be independent. Ms Shah concluded that the documents were generated from the same source which accounted for 18 of 24 deals yet the anomalies were not noticed.

Ms Shah gave the directors an opportunity to comment at the meeting on 14 June 2016. They agreed the details contained identical details. Mr Harte stated that the similarities may have been noticed if they had come into the business at the same time.

Ms Shah stated that the paperwork revealed that the Appellant appeared to have purchased the same car twice from different UK suppliers. First from DFMS on 20 June 2015, for which there was no corresponding onwards sales invoice issued by the Appellant, then again from Erlemo on 25 November 2015 which the Appellant then sold to Highway Retail Limited. Ms Shah clarified in cross-examination that this is how the position appeared and she could not confirm that this was the case, but she noted the anomaly had not been noticed or questioned by the Appellant.

In 13 sales, payment was made by 3^rd parties and in some instances by 3^rd parties who appeared as customers or suppliers in separate transaction chains. By way of example:

There appeared to Ms Shah to be circularity of funds in the payment arrangements in one transaction in which the Appellant purchased from Country Sales on 9 June 2015 and sold to Mr Murphy. Country Sales purchased the vehicle from DFMS and payment for the car sold by the Appellant to Mr Murphy was made by DFMS.

Ms Shah accepted that the Appellant was not provided with PN726 until after the relevant transactions. However, she noted that Mr Harte had worked in the retail car industry and been buying and selling cars since he was 19 years old. He also stated that his business relationship with Mr Donnelly spanned 30 years and involved the car industry. Ms Shah took the view that someone with such experience would be aware of the risks of MTIC fraud in the car industry and the requirements to carry out sufficient and meaningful checks.

In relation to those checks, Ms Shah concluded that they were insufficient to mitigate the risk of becoming involved in fraudulent supply chains. She noted that, according to Mr Harte, the Appellant had no contact with trading partners and all the deals were undertaken by Mr Donnelly. No background checks were carried out nor were the vehicles inspected as they were not kept at the PPOB. Contact with trading partners was left to Mr Donnelly who also arranged transportation from the suppliers to the customers. Ms Woods had advised that she received all supplier invoices and payment instructions from Mr Donnelly via email. She received verbal instructions to raise sales invoices from Mr Donnelly and Mr Harte which were then sent to Mr Donnelly and not directly to the customer. There was no supporting paperwork such as contracts, purchase orders or fixed payment terms. Mr Harte had stated that the VRN of the customer was checked once by Mr Donnelly on the VIES website but no checks were made on suppliers.

Ms Shah noted that the VIES report for the Appellant’s customer Resolute Merchandising Limited was done the day after the Appellant had issued the sales invoice to the company. No VIES reports were provided for customers Mr McNulty or Aliza Cars. One transaction with Mr McNulty took place after he was deregistered, and two transactions took place with Highway Retail after it ceased to trade and was deregistered. No other commercial checks were carried out.

Ms Shah compared the lack of checks and controls in the used car sales with those in place for the Appellant’s main business of selling tanker parts. In the main business, the Appellant had direct contact with its customers with Mr Harte taking verbal orders during meetings with customers. Mark-ups were either agreed with the customer or worked out on costings. Ms Wood carried out the background checks into the customer and cleared the VRN through VIES. The VRN was checked again if there was a time lapse since the last transaction. Ms Shah compared the paperwork for two transactions in the main business with a customer in the ROI. She noted there were email exchanges discussing order and delivery arrangements and invoice for packaging and delivery costs. There was evidence of removal in the form of a detailed shipping waybill and signed proof of delivery by the customer.

In oral evidence Ms Shah explained that during her discussion with Ms Wood, she had been advised that the main business was a niche market and the Appellant had longstanding customers of around 20 years with whom there were contracts in place. She reiterated the difference between the main business and the sale of used cars where, in the former, there was direct contact with the customer and clear checks and controls were in place in what appeared to be a more commercial business relationship. In contrast, the used car sales of high value luxury cars were all done through Mr Donnelly with little or no checks in place.

Ms Shah concluded that there were clear indicators present in the used car transactions that should have alerted the Appellant at the outset to the risks attached to the business opportunity presented by Mr Donnelly. She took the view that the Appellant had chosen to ignore these risks and did not query the unusual practices in place surrounding the deals. No attempts were made to get to know the trading partners beforehand, 3^rd party payments were not questioned and the absence of any direct contact with suppliers or customers did not cause the Appellant any concern. Usual business practice such as inspecting the goods did not happen and there was an absence of price negotiations. Profit margins were decided before the goods were even sourced. Ms Shah had expressed her concern that the Appellant had simply allowed Mr Donnelly to use its VAT number and conduct deals on the company’s behalf without any due diligence on the suppliers, customers or the goods.

The directors stated that they left the business to Mr Harte who in turn said he left it to Mr Donnelly. Mr Harte said he had no reason to doubt Mr Donnelly’s integrity or the deals themselves. Ms Shah concluded that the Appellant had simply turned a blind eye to the obvious risks associated with the deals and consequently denied the claim to input tax on the basis that the Appellant either knew or should have known that the transactions were connected to fraud.

Due to the brevity of the witness statements provided by Mr Harte and Mr Donnelly, rather than summarise the evidence, I will set it out in full.

Mr Harte’s evidence read as follows:

“1.

My name is Shaun Harte and I have been working with Tasca Tankers Ltd for over 10 years.

2.

I have known Paul Donnelly for over 30 years and have been doing business with his family business Donnelly Group for a similar time.

3.

I was talking to Paul and having a general moan about business and cashflow, in particular our large VAT quarterly bill and my difficulty in managing our cashflow to pay every quarter without avoiding late payment penalties.

4.

A few days later Paul approached me and suggested a method of making some more profit for the business and reducing my problem of the VAT quarterly bill.

5.

He advised me that a lot of upmarket used vehicles were being exported into the Republic of Ireland from the UK and that he had met a large exporter who he thought would potentially be a revenue stream for Tasca Tankers and we would make £500 per unit and reduce the amount of VAT we would have to pay at the end of the quarter.

6.

He said he would handle each transaction and he would liaise with Vicki Wood at Tasca to ensure each vehicle was paid for before it was released to the purchaser. I advised both Paul and Vicki to ensure that all the VAT numbers corresponded with the invoice details and the information held by HMRC and the company names on the invoices were the holders of the vat numbers supplied.

7.

I have been present at Tasca Tankers for each and every visit from HMRC and have ensured that they have been supplied with all the information they have requested, in the time frame they have requested it.

8.

When Mrs Shah, an HMRC agent visited for maybe the 3^rd or 4^th time she informed me that she thought we had been caught up in a MTIC vat fraud. I was totally shocked and bewildered. I had never heard of MTIC until she told me and subsequently explained what she thought had happened to us.”

In cross examination, Mr Harte explained that he did have experience of importing and exporting new and used cars although it was many years ago. He worked more on the retail end of sales and would refer friends and family which led to repeat business. He said that as a salesman he had little knowledge of the management side of the car industry and no knowledge of fraud beyond the risks of mileage being tampered with or stolen cars. He had no knowledge of MTIC fraud until Ms Shah’s visit and to this day does not really understand it.

He stated that he had known most of Mr Donnelly’s siblings for most of his life, although he could not recall when he first met Mr Donnelly. He lost track of Mr Donnelly but knew he had left the family business as they would occasionally see each other socially.

He stated that the business relationship between himself and Mr Donnelly came about because he tried to help Mr Donnelly at a difficult time in his life and also generate another revenue flow for the Appellant.

Mr Harte was adamant that he did not bring Mr Donnelly into the company, stating that doing the deals was very different to being brought in to the company. He said that Mr Donnelly had come to him with the idea and that it was Mr Donnelly who was buying and selling the vehicles. Mr Donnelly was not acting on Mr Harte’s requests, the Appellant facilitated him and it assisted with the profits for Appellant’s VAT quarters. Mr Donnelly had said there were lots of high value cars in the UK which could be exported to the ROI for good money where he had a lot of contacts from his days in the trade. Mr Harte could not recall the full conversation but stated that there was no financial risk to the Appellant as the vehicles were sold as soon as bought. Mr Harte described himself as “lazy” and stated that the Appellant did not physically have a great deal to do in the deals but a profit could be made so it appeared to be a good idea.

An email from Ms Wood to Ms Shah on behalf of Mr Harte dated 6 March 2016 stated:

“…although Shaun Harte has authorised the sales and purchases, the sales and purchases are all conducted by Paul Donnelly whose family business have been involved in car retailing for 70 years… All customer contact is conducted by Paul Donnelly in Belfast… I have known Paul for 30 years and have had a business relationship with him for that time. Paul brought these deals to me but were unable to fund them himself. So we agreed to fund them for him…”

Mr Harte agreed he authorised the deals and that he had failed to mention in his response to Ms Shah that the Appellant was attempting to help its VAT situation and that his evidence that the Appellant was helping Mr Donnelly by funding the deals was at odds with email to Ms Shah dated 2 June 2016 in which he had stated that:

“The export of these vehicles is self funding as we insist on payment from the buyer before we pay the seller”

He stated that Mr Donnelly would have to answer why he could not fund the deals himself and he had not asked him. He could not recall the content of any conversations with Mr Donnelly about the allegations of fraud.

In response to whether he was using HMRC as a bank, Mr Harte stated that he believed all businesses do as no one pays VAT early and PAYE occurs at the end of the month. The level of knowledge he had was that the cars were bought and paid for, sold and paid for and taken from the UK to the ROI.

Mr Harte subsequently did not agree the deals appeared to be “money for old rope”. He made decisions, sometimes they were right and sometimes they were wrong; this one was wrong and his cavalier attitude led him into this position. He stated that Mr Donnelly knew about used car market as he had spent around 90% of his life in the business, although he subsequently agreed that he could not say this for certain as he had lost contact with Mr Donnelly and he could not recall asking Mr Donnelly. He did not ask to see Mr Donnelly’s research or evidence of the market he said was available as it would be self-evident if the cars were bought and could not be sold. Mr Harte did not research into the market himself but did carry out an HPI check on every vehicle. He explained that he had not produced the documents in evidence or referred to the checks in his witness statement or over the last 9 years because he was not asked and he had forgotten to mention it until giving his evidence. He refuted the suggestion that it was not true or that he knew the deals were connected to fraud or that the Appellant should have known.

He stated that the Appellant generated invoices and made payments for vehicles that Mr Donnelly bought and sold; he assumed Mr Donnelly knew the Appellant was making a profit and that Mr Donnelly was too although that was not his concern. Mr Donnelly did most of the work as the Appellant was busy with the tanker business.

As regards title to the goods, he stated that the cars belonged to whoever sent the invoice. He did not accept that his answers were nonsensical and maintained that it made sense to him that Acquis, a fishing business, would deal in cars.

In terms of margin, Mr Harte claimed he had decided on £500 per vehicle. He reached the calculation as a fuel tanker with a value of £250,000 can sometimes make a large margin and sometimes a small margin. Using the calculation of 2 vehicles per week, this made good money. It was quite straightforward: the first deal was easy, so he decided to do more. The margin was not dictated by the age, mileage etc of the vehicle. Mr Donnelly found the vehicles, the Appellant’s role was to pay for them. It was a trade deal so there was no obligation on the Appellant if the car was damaged, the Appellant would be paid regardless and there was no need to inspect the cars as an HPI check could be carried out and a service history obtained.

Mr Harte did not speak to any of the suppliers nor did he query any 3^rd party payments. The Appellant checked as much as it could by checking the VRNs and whether the business was bona fide, although he could not explain why it mattered if the VRNs were checked. He stated that he had not been aware of any VIES checks carried out by the Appellant as that was the job of Ms Wood.

Mr Donnelly’s written evidence was as follows:

“1.

I am 54 years old and have known Shaun Harte for 30 years. I am not an employee of Tasca Tankers Limited.

2.

My family business Donnelly Motor Group which I retired from 10 years ago employs 700 people and are N Irelands third largest motor retailers.

3.

I was at the Donnelly & Taggart Toyota dealership in Derry (part of the Donnelly Motor Group) in 2015 and was introduced to a motor trader called Colm McNulty by the Sales Director Victor Pollock who introduced him to me as a trader who had recently purchased his 40^th Toyota pick up and jeep from Donnelly & Taggart as he was wholesaling slightly used/pre-registered cars into the booming RoI car market as the RoI was back in growth after the devastating economic crash it suffered in 2008/9.

4.

McNulty told me that he had been limited in the amount of sales he could conduct in any three month period as it was only at each quarter end he could get the VAT back on his exports and as such his cash flow was limited so he wondered if I knew of anyone who could export vehicles to the RoI for him and he would pay them £500 commission for each export sale.

5.

I asked Shaun if he thought that would be any interest to Tasca in a passing conversation as I had recently got Tasca a few Tanker customers and we agreed that if all the VAT numbers etc were verified it should be ok and would be an additional income stream for Tasca.

6.

McNulty’s Companies, which included DFMS (NI), Erlemo (UK), Mountain View and Martin Donnelly, I can also confirm i am no relation to Martin Donnelly, invoiced Tasca and he emailed Vicki Wood at Tasca the name of each customer.

7.

As far as I know, on every occasion Vicki Wood at Tasca Tankers checked all the companies details on the VIES website and on each occasion all the details matched the information on the invoices.

8.

As far as I am aware Vicki checked Tasca’s Bank Account to each sale to confirm that she had received payment from the customer before she paid the suppliers invoice for each vehicle sold.

9.

Copy RoI documents were sent to Vicki and I also checked the RoI website cartell.ie and found RoI reg numbers for the following vehicles [4 UK registration numbers were provided]

10.

The first time I heard of VAT MTIC was when I was told by Vicki Wood after Mrs Shah’s VAT inspection in May 2016. Until then and at the time of the transactions I had no inkling that they might be connected to VAT fraud.”

In oral evidence, Mr Donnelly stated that his only awareness of fraud in the car industry was ringed cars, issues with finance not disclosed and mileage tampering. He had never heard of MTIC fraud until the information was passed on from Ms Shah via Ms Wood.

He understood that the only mechanism available for making checks in the ROI was VIES which was the only check he ever made.

He stated that he and Mr Harte would have fallen in and out of contact which was sporadic. They lost touch around 2000.

The precursor to all the deals was meeting Mr McNulty who said he could not wait to be repaid the VAT and asked if Mr Donnelly knew anyone who would reclaim the VAT for him and make a fee. Mr Donnelly suggested Mr Harte. He resented the accusation that he wanted to keep his brother’s business (in the same industry) and family name out of the deals.

He assumed Mr McNulty was above board as he had been buying from the family business; as Northern Ireland is small, if a person has a relationship with a family business he proved he is a valid entity and there is no reason to check. Mr Donnelly had not seen evidence of Mr McNulty’s purchases but he had been told by the sales director at Donnelly & Taggart Toyota dealership in Derry. He knew Mr McNulty was a motor trader who did not need premises as he did not have a dealership and there was no way to check his credentials. Mr Donnelly said he gave Mr Harte the opportunity to decide and had nothing more to do with the deals which were carried out by Mr McNulty with “the Appellant in the middle getting £500”.

Mr Donnelly said although he was copied in to sales invoices and purchase orders he had said that he did not need to be as he had just introduced the parties.

Mr Donnelly denied he was struggling financially at the time and said he was not brought into the deals and therefore did not make anything from them. He could not recall the evidence given by Mr Harte the previous day but did not agree that he had been responsible for the deals as stated by Ms Wood and Mr Harte. He reiterated he was not interested in getting involved, he did not work for the Appellant, he simply brought the opportunity to Mr Harte and left it to him to decide.

He said the Appellant should be asked about the mark-up of £500 as although he was copied into the purchase orders and invoices it was up to the Appellant whether or not to accept the £500 Mr McNulty offered.

Mr Donnelly confirmed that he did not negotiate any process or draw up contracts with suppliers, the only supplier/customer he met was Mr McNulty and he did not see the cars or insurance documents. He did not know about the 3^rd party payments and was possibly told about payments made so that the goods could be released. He did a VIES check initially but Ms Woods did the checks thereafter and he did not know if the checks had been done for all the vehicles. It was a paperwork exercise as far as he could see for which the Appellant was given £500. From what he was told by Mr McNulty about the structure of the deals, they were back to back. But he did not know what actually happened day to day. Mr McNulty transported the cars in every deal and he asked for evidence that they were delivered. Mr McNulty filled out the delivery notes on the Donnelly Transport documents which Mr Donnelly then sent to Ms Wood. No confirmation of delivery was obtained from the customer.

Ms Wood also gave evidence on behalf of the Appellant. She explained that her father had been one of the original directors of the Appellant and after he left in 2007 she remained employed as the bookkeeper.

The used car deals were a minor part of the business, Mr Harte was instrumental in getting sales and the used cars were part of that. The main business was repairs. Mr Harte was brought in by the directors to be a salesperson and oversee the financial side of the business.

In relation to the car deals, Mr Harte would have been the person who notified Ms Woods regarding invoices as Mr Donnelly did not get directly in touch with her, although she may have spoken to him occasionally, but she could not recall. It may have been the case that Mr Harte was on the phone to Mr Donnelly and passed the phone to her to give directions to raise invoices or to provide invoicing details for customers; Mr Harte would have explained who he was.

Ms Woods stated she did not find it odd that a non-employee was conducting business on behalf of the Appellant. Invoices that came into the business on receipt of a purchase invoice were paid; Mr Donnelly did not specifically ask Ms Woods to move money.

Ms Woods understood Mr Donnelly’s role was a friend of Mr Harte, he was not involved in the company but brought this business to Mr Harte’s attention and Mr Harte sold the vehicles. Mr Donnelly needed to know when payment was made to arrange movement.

Ms Woods never saw the vehicles at the PPOB and did not know if anyone else saw the vehicles. She agreed that her statement to Ms Shah at the meeting on 20 April 2016 was more likely correct when she had said that the vehicles were never on site. Her statement at the meeting that Mr Donnelly arranged transport was information she had been given at the time, although she could not recall if the information had been given to her or she had made an assumption. She had never seen records of the movement of the goods.

Ms Woods agreed that Mr Donnelly’s involvement was different to the company’s usual operations, but she had not been told the reason.

Ms Woods agreed that the visit notes indicated that Mr Donnelly had been deeply involved in the process and decided the mark-up but stated that is not how she remembered the situation.

Ms Woods did not believe it was unusual that the deals did not benefit the company; she stated that sometimes losses are made and it is nice to break even on some, although she agreed that this was the case for all the used car sales but stated they did not set out to make a loss.

After PN726 was provided, Ms Woods stated that it highlighted where the company’s due diligence was lacking and it became more substantial. She added that she had no qualifications and was self-taught as a bookkeeper and did not claim to know everything about due diligence.

Ms Woods claimed that 3^rd party payments were not unusual, and gave a recent example in the other side of the business, although we understood from her evidence that in the example, the Appellant had been notified of the 3^rd party payment and why it came from a different account.

She stated that anything she found unusual, she would flag up to the owners of the Appellant who were aware of things she found unusual. However, her view did not matter as she acted on instructions and so long as she dealt with the bookkeeping in the correct manner, it did not matter that she found the deals unusual.

Ms Woods stated that she did due diligence on all customers to check they were a trading company and VAT registered. No other checks were made. She could not explain why Mr McNulty, who was de-registered on 9 March 2015 had been invoiced on 24 March 2015 and stated when the system was checked on that date, de-registration would have been flagged up. The VIES system was checked when an invoice was raised and she was fairly confident that the registration number would have been valid. Similarly with Highways, at the time of checking, VIES would have shown a valid VAT registration number although she had no personal recollection of this.

Ms Woods did not agree that the VIES check provided for the Appellant in relation to its customer Acquis Cars Limited, which showed a different name ofAcquis Business Systems Limited, should have caused concern as, Ms Wood stated, it was based at the same address, although she believed she would have queried the different names.

Similarly, the invoice to Resolute dated 5 October 2015 showed a different address to the one on the VIES document. Ms Wood agreed a factor such as this would be a red flag and believed she recalled asking a question about it, but could not recall the answer. The VIES report for Resolute was done after the day of the transaction. Ms Wood stated that it was a significant birthday for her daughter, and she had not been in the office. Mr Harte or Mr Donnelly may have done their own check and then she did the formal check when back in the office. However, it was clarified in re-examination that the goods were not released until paid for and after checks were made.

An invoice to Aliza Cars dated 18 February 2016 showed a different name to the VIES check for Alizac Limited. Ms Woods agreed these could potentially be different companies given the different names and agreed this was an important fact.

Ms Wood agreed that she would just check that amounts received matched the invoice values. Mr Harte was given a daily update as he always had and continues to be given.

On behalf of HMRC, Mr Carey submitted that the evidence of Ms Shah was credible and should be accepted. He stated that there was a stark contrast to the Appellant’s witnesses who were, he submitted, evasive, combative and inconsistent.

Mr Carey submitted that the Appellant’s appeal must fail on the basis that the transactions were, in effect, disavowed by each witness. He queried how the Appellant could maintain its appeal when it now claims none of its officers were responsible for the deals. Mr Carey invited us to reject the suggestion that the Appellant was not responsible for the deals, submitting that this was an assertion put forward to avoid scrutiny of how the deals were done.

As regards the Kittel appeal, Mr Carey relied on the following factors, inter alia, as evidence that the Appellant knew, or in the alternative should have known, that the deals were part of an orchestrated scheme to defraud.

The lack of profit was self-evident as the goods were sold at a loss and it was clear that the VAT element forced the deals which indicates that the deals were not genuine commercial transactions. The contrast with the other side of the business where, amongst other factors, due diligence and checks undertaken on trading partners was far more robust and markedly different. Furthermore, if the Appellant relies on the VAT element as demonstrating a profit was made, this was another difference to the other side of the business which did not trade in that manner. Mr Carey highlighted that the “profit” of £500 irrespective of the age, mileage or condition of the vehicles lacked commerciality.

There were payments from 3^rd parties purportedly unconnected with the transactions and anomalies in documentation. By way of example, Mr Carey highlighted that there appeared to be payments for the same vehicle from 2 different companies (DFMS and Erlemo), one on 20 June 2015 and one on 20 November 2015. The Appellant traded with de-registered traders, such as Highways and Mr McNulty. Even accepting that de-registration was backdated, the Appellant had still traded in at least two deals where de-registration would have been known if checks had been made.

Irrespective of the fact that the Appellant was unaware of PN 726 until after Ms Shah’s visit, the checks to be undertaken in business, Mr Carey submitted, were not technical. Checking a supplier or customer history to ensure the veracity of the business was a simple matter. Furthermore, there was simply not cogent evidence regarding issues such as insurance for the vehicles, inspections or contracts with suppliers and customers to cover such things as title or delivery.

All of these factors indicated that the deals were contrived and when taken together with the poor and inconsistent evidence given on behalf of the Appellant, Mr Carey submitted there is an overwhelming picture that the Appellant knew or should have known that the deals were contrived.

In relation to the zero-rating appeals, Mr Carey submitted that the only documents provided by way of evidence were the transport documents and Cartell.ie reports which, whether viewed in isolation or as a whole, fall far short of the standard of evidence required by the legislation and cannot satisfy the test as set out in Ripley.

The Cartrell.ie and transport documents should be viewed with caution; there was no verification of receipt by the customer, no information as to the route taken and Mr Donnelly gave new evidence that he did not generate the transport documents having never given any suggestion of this kind to HMRC previously.

Moreover, the Cartell.ie reports were not obtained by the Appellant or anyone linked to the transactions and of the 7 reports produced, 6 postdated the deals and 3 were outside of the time limit for which to provide such evidence.

The provenance and legitimacy of the transport documents was severely undermined by the evidence that they were not in fact completed by Mr Donnelly.

On behalf of the Appellant, Mr Brown submitted that the Appellant’s witnesses were truthful and credible in their evidence which it must be noted relates to events 10 years ago.

Mr Brown submitted that there is no evidence that the Appellant knew of VAT fraud in its transactions. Although Mr Harte and Mr Donnelly both had backgrounds in the car industry, both stated in evidence that they were unaware of MTIC fraud until Ms Shah brought it to the Appellant’s attention. Mr Brown highlighted the following passage from Davis and Dann Ltd v Revenue and Customs Commissioners [2016] EWCA Civ 142 at [65] in support of his submission:

“In my judgment, the consequence of HMRC’s decision not to allege fraud against Bristol, CEMSA and GR Distributions was that it was no part of their case that those parties were fraudulent. However, in assessing whether the respondents’ knowledge met the no other reasonable explanation standard, the FTT still had to go on to consider all the circumstances. The question is whether or not a reasonable person mindful of those circumstances ought to have concluded that the Transactions were connected with fraud. What matters is the perspective of the person alleged to have such knowledge. A finding of knowledge to the no other reasonable explanation standard can accordingly be reached irrespective of whether the other parties to the Transactions were in fact fraudulent.”

In respect of due diligence, it is correct to say that only VIES checks on Irish customers were carried out. However, submitted Mr Brown, this indicates a lack of awareness of fraud in the industry on the part of the Appellant otherwise more checks would have been carried out. Also, Mr Brown highlighted, there was no requirement for VIES checks to be carried out before each transaction yet the Appellant did so.

There were only 2 deals in which the Appellant traded with Mr McNulty when he was de-registered; this should be compared with the 6 deals undertaken prior to that where there were no issues with the VRN. In relation to Highways, Ms Wood stated that she would have carried out a VIES check and the transaction would not have occurred if the trader had not been registered.

The Appellant does not accept the suggestion that it was unreasonable for the same vehicle to be purchased twice; there was a 5 month gap between the transactions and different traders sold the car.

It should be inferred that the Appellant had correctly completed its EC sales list which is what led to the enquiries by the RoI tax authorities. It is not accepted that the Appellant had a poor compliance history with HMRC; one default surcharge that was paid under a Time To Pay arrangement and warnings regarding Intrastat declarations are minor matters.

Ms Shah appeared to accept in cross-examination that the profit in the deals came from the VAT element yet HMRC continue to maintain that the deals were not legitimate. Mr Brown queried if every trader who exports goods must achieve a mark-up exceeding 20% to be considered legitimate or risk having a claim for input tax denied. The fact that the Appellant made no profit in the first few deals gives weight to it’s claim that the deals were undertaken to reduce the VAT liability.

Mr Brown cautioned against placing weight on the back to back nature of the deals which is referable to MTIC cases in which mobile phones were traded.

It was clarified that the Appellant did not seek to distance itself from the transactions; Mr Harte may have said “I didn’t do the deals” but that does not amount to the same thing.

Mr Brown submitted that although there may be difficulty in knowing what happened to a particular vehicle, the OASIS report showed that vehicles were moved from Liverpool to Dublin and even if the movement happened before the sale they were correctly zero-rated. It was accepted by Ms Shah that a lot of information was contained on the Appellant’s sales invoices. In relation to the mode of transport and route taken, the Appellant relies on the transport documents as evidence to support removal. Mr Brown cited Revenue and Customs Commissioners v Arkeley Ltd [2013] UKUT 0393 (TCC) at [34] in support of the proposition that although there is an allegation of fraud in this case, if the Tribunal is satisfied there was no bad faith or fraud on the Appellant’s part, the Tribunal should consider if the information on the sales invoices and transport documents fulfil the requirements of PN725:

“It is clear from Teleos that proof of export depends on there being sufficient evidence of export in the hands of the taxable person at the relevant time. Absent fraud or bad faith, such evidence will result in the application of zero-rating even if it is later established that the goods were not exported. No question of bad faith or fraud on the part of Arkeley, or knowledge or means of knowledge of fraud, was alleged in this case. Accordingly, the question for the FTT was not whether it was satisfied that the goods were exported, but whether it was satisfied that there was sufficient evidence of export in the hands of Arkeley within the prescribed time limit.”

Mr Bown submitted that where the cars were taken from N. Ireland to the RoI, it could only be by road and therefore the route is obviously overland and the mode is by road as opposed to sea or air. The Appellant’s evidence is therefore sufficient to satisfy the requirements for zero-rating.

We found the evidence of Ms Shah clear, cogent and persuasive. Ms Shah’s evidence demonstrated a thorough knowledge of the Appellant’s business and the detailed investigations she had undertaken to reach her conclusions. We did not find that Ms Shah’s evidence was undermined in cross-examination, by way of example Ms Shah’s evidence on the lack of profit was challenged. However, it was clear from Ms Shah’s evidence that the issue was whether the VAT component should be taken into account for the purpose of identifying a profit. Ms Shah accepted the Appellant’s position that when the VAT element was taken into account, there was (on some occasions) a profit, otherwise the transactions made a loss. Furthermore, that was only part of the issue in relation to profit as Ms Shah’s evidence also highlighted that the amount of mark-up remained the same irrespective of the make, model and age of the vehicle, a factor she had considered relevant in reaching her conclusion. We were satisfied that in reaching her decisions, profit was only one aspect and that Ms Shah had viewed the evidence in totality.

We found the evidence on behalf of the Appellant was poor. Ms Wood accepted that the passage of time may have affected her recollection which, in our view, led to inconsistencies in her evidence and in those circumstances, we preferred the contemporaneous notes of meetings with Ms Shah and we viewed the oral evidence given by Ms Wood with caution.

We found Mr Harte’s evidence was evasive and inconsistent with that of Ms Wood and Mr Donnelly, for instance, Mr Harte gave the impression of a close family connection and business relationship with Mr Donnelly, which was at odds with the evidence of Mr Donnelly. We also found Mr Donnelly’s evidence to be vague, contradictory and new assertions were made in the course of his evidence which we found wholly undermined the evidence on behalf of the Appellant as a whole. By way of example, Mr Donnelly claimed that Mr McNulty had been responsible for transporting the vehicles and filling in the delivery notes which had, until his oral evidence, been provided to Ms Shah as documents prepared by Mr Donnelly on behalf Donnelly Vehicle Transport. We found the oral evidence on behalf of the Appellant that neither Mr Donnelly nor Mr Harte had been responsible for the deals was wholly inconsistent with the remaining evidence, and we rejected it as implausible.

It may assist to set out the contradictions and inconsistencies in the Appellant’s evidence to fully understand why we rejected it in its entirety.

Mr Harte’s written evidence claimed that he had known Mr Donnelly and had carried out business with Mr Donnelly’s family business for over 30 years which was consistent with his claim at the meeting with Ms Shah on 14 June 2016 that Mr Donnelly was a close acquaintance and the email from Ms Wood to Ms Shah on behalf of Mr Harte dated 6 March 2016 which stated “I have known Paul for 30 years and have had a business relationship with him for that time”. However, we found that Mr Harte’s evidence gave the impression of a far closer friendship and business relationship than the evidence of Mr Donnelly who was adamant that at the relevant time he had wanted nothing to do with the car industry as he was focussed on being a stay-at-home dad and that his contact with Mr Harte was far less regular than suggested by Mr Harte.

Mr Harte claimed that the used car sales were a means of assisting the VAT liability. We found this at odds with his email dated 6 March 2016 which stated: “Paul brought these deals to me but were unable to fund them himself. So we agreed to fund them for him…”. This was vehemently denied by Mr Donnelly who reiterated a number of times that his wife had a successful business and the family was very comfortable. A further inconsistency arose from the Appellant’s email to Ms Shah dated 2 June 2016 in which Mr Harte had stated that “the export of these vehicles is self funding as we insist on payment from the buyer before we pay the seller”.

As set out above (see for example [154] – [156] and [169] – 172]), at the hearing both Mr Harte and Mr Donnelly effectively abdicated responsibility for the transactions; Mr Harte maintained that Mr Donnelly had carried out the deals and Mr Donnelly remained adamant that he had not been involved beyond presenting the “opportunity” to Mr Harte.

We found these inconsistencies in the evidence as to how the transactions came about or why they were undertaken severely undermined the Appellant’s credibility and evidence as a whole and for that reason we preferred Ms Shah’s contemporaneous notes of meetings with Ms Wood, Mr Harte and the directors at the relevant time clearly indicated that Mr Harte and Mr Donnelly were responsible for the deals and that the directors were aware of the transactions.

We noted Mr Harte’s evidence in an email to Ms Shah dated 02 June 2016 which stated “Considering the amount of work involved in these transactions we do not intend to continue with this venture” and a further email on 14 June 2016 that the transactions were “too time consuming and too much admin paperwork is involved” did not tally with his oral evidence in which he described himself as “lazy” and claimed that the Appellant had made a profit by doing very little. He subsequently disagreed that the transactions were “money for old rope” claiming they must have taken more work than he recalled and that his email to Ms Shah was a polite way to tell Ms Shah that the Appellant intended to stop trading in used cars.

Furthermore, Mr Harte’s oral evidence suggested that he had input into and calculated the figure of £500 mark-up which he considered entirely reasonable irrespective of the age, model and mileage of the vehicle. We found this inconsistent with the witness statement of Mr Donnelly in which it was claimed that the Appellant would make £500 commission per vehicle and whose evidence suggested that this was a fixed mark-up before the deals were presented. We were satisfied that there had been no negotiation on this issue on the basis that there was no documentary evidence to demonstrate that any type of discussion had taken place about the mark-up, we found Mr Harte’s evidence vague and unpersuasive and we agreed with Ms Shah’s evidence that factors such as make, model, age and condition of a vehicle would usually be relevant in any arm’s length commercial transaction.

A further notable inconsistency in the Appellant’s evidence was Mr Harte’s claim that Mr Donnelly would liaise with Ms Wood and carry out the transactions. Mr Donnelly flatly denied having anything to do with the deals and was at pains to explain that although he was copied in on emails regarding payments, he had simply presented the opportunity to Mr Harte and had no involvement thereafter. This was also at odds with the evidence of Ms Wood who stated at Ms Shah’s visit on 20 April 20165 that both Mr Harte and Mr Donnelly had carried out the deals and that she issued invoices in accordance with instructions given by them. In view of the inconsistencies in the Appellant’s evidence, we preferred the contemporaneous note of Ms Shah’s meeting with Ms Wood, and we concluded that both Mr Donnelly and Mr Harte were responsible for the transactions. Our view was reinforced by the inclusion of Mr Donnelly on emails regarding the deals and the email from Mr Harte dated 6 May 2016 in which it was stated “…although Shaun Harte has authorised the sales and purchases, the sales and purchases are all conducted by Paul Donnelly…”.

On the Appellant’s own evidence, the only due diligence carried out were VIES checks. We found the evidence in relation to these checks was vague and unpersuasive. In the Appellant’s email dated 6 May 2016 Mr Harte claimed that Mr Donnelly checked the VAT numbers before each deal, yet in his written evidence Mr Donnelly stated that VIES checks were left to Ms Wood. Ms Wood claimed to have made checks on each occasion, however in one instance the check was made the day after the deal (Resolute), no checks were provided for two customers (Mr McNulty and Aliza Cars), one deal took place with Mr McNulty after he was de-registered and the Appellant traded with Highway Retails on two occasions after it had ceased to trade. No explanation was provided for these anomalies by Mr Harte or Mr Donnelly. Ms Wood claimed she would have made the checks but she accepted that given the passage of time she had no clear recollection that valid VIES numbers were obtained in each case and we did not find her evidence persuasive. We also noted that in one instance the VIES check was in a different name to the Appellant’s customer (Aliza Cars) and another showed a different address on the invoice when compared to the VIES document (Resolute). Although Ms Wood agreed these may be factors to cause concern, she had no specific recollection and it was clear to us from her evidence that although she may have flagged up anything she found unusual, she simply acted on instructions and took no further action.

There was also the evidence that invoices from DFMS, Erlemo and Mountain View bore a striking similarity and had the same format. The invoices for DFMS and Mountain View had the same VAT registration number and mobile phone contact number. There was no explanation by the Appellant for this, whether anyone had noticed the similarity or whether, if so, it had been queried.

The Appellant accepted no due diligence was carried out on suppliers. Had it done so, it would have been apparent that Highway, Crean Solutions and Erlemo had a common director, Mr Shane McConnell. The Appellant had purchased vehicles from Erlemo and sold to Highway. The Appellant had also dispatched goods to Crean Solutions. Had the Appellant carried out basic checks, it would have been revealed that Mr McConnell was both the supplier and customer in the transaction chain which, in our view, would have caused any legitimate trader to question the veracity of the transactions it was entering into.

All of these factors reinforced our conclusion that the Appellant failed to carry out any meaningful due diligence in relation to its suppliers and customers. We concluded that this indicated knowledge or means of knowledge on the part of the Appellant. There was no evidence from the Appellant as to the purpose in carrying out the checks or how the information was used. Taken together with the fact that the checks in the examples above revealed a different address or had a different name, we concluded that they were no more than a paper exercise. Given that the Appellant was trading in a new area with unknown companies, we found that the only reasonable conclusion was that they were aware of the fraud such that the checks were irrelevant.

Our conclusion was strengthened by the comparison drawn by Ms Shah to the tanker side of the business where the checks were, we accepted, more robust with direct contact between the Appellant and its customers, orders, deliveries, mark-ups and costings were documented and VIES checks carried out.

We accepted that the Appellant had not been provided with PN 726 prior to the deals, however we did not accept that they had no knowledge of fraud in the industry. The Appellant relied on its knowledge and experience of the car industry, and we found it implausible that with such experience there would be no awareness at all of the dangers in an industry in which the Appellant chose to conduct business. Even if we were to accept that evidence, we take the view that this would have provided more reason to ensure that the counterparties with which the Appellant traded were legitimate as a new trader in the industry.

In relation to the issue of profit, we were urged to accept the Appellant’s submission that the deals should be looked at inclusive of the VAT element which demonstrated that a profit was made in some of the deals. The difficulty for the Appellant is that, even accepting this proposition, there was no evidence from the Appellant as to why £500 was not made on every transaction if, as claimed by Mr Donnelly, a fixed commission had been agreed with Mr McNulty. Furthermore, we have already set out how Mr Harte’s evidence appeared at odds with that of Mr Donnelly in his suggestion that he had reached the figure of £500 and was content with it.

We considered Ms Shah’s evidence that the Appellant had a poor history of compliance with its tax affairs. We agreed with Mr Brown’s submission that the limited occasions where failures had occurred, or concerns had been raised were not sufficient to warrant a finding that the Appellant routinely failed to meet its obligations and we did not find that it relevant to the issue of knowledge or means of knowledge in respect of the transactions under appeal.

Third party payments were raised by Ms Shah at her meeting with Ms Wood on 20 April 2016, by way of example the three payments from Mr McNulty which related to a Range Rover Sport HSE sold on 21 April 2015 to Acquis Cars Limited and which had been the cause of Ms Wood’s comment that she found everything about the transactions “unusual”. Ms Wood sought to renege from this comment in her oral evidence, citing an example whereby in the tanker side of the business she had recently received payment from a third party, although she clarified that she had been informed by the relevant parties who the payment would be made by which had not happened in the used car transactions. We found this evidence, which was not supported by any documents, unconvincing given that the trading partners in the tanker side of the business were longstanding clients and the due diligence more robust.

We would have expected any trader conducting business at arm’s length and receiving payments from parties purportedly unconnected to a specific transaction to have queried the payments received. We were left with no explanation as to why the payments came from Mr McNulty and we found the Appellant’s apparent failure to question this indicated its knowledge that the deals were contrived.

Given the evidence of Mr Harte and Mr Donnelly that neither had been responsible for the deals, we can take the following factors briefly as there was little or no evidence or explanation offered on behalf of the Appellant.

Mr Harte stated that the transport costs for the cars had been paid by the customers. In the absence of any documentary evidence to support this claim we rejected it.

There was also little evidence regarding matters of title and insurance beyond bald assertions made by Mr Harte which again were unsupported by any documentary evidence.

There was no evidence of any payment terms and no contracts in place We considered the evidence that the Appellant was paid by its suppliers before it paid for the vehicles, which could be said to minimise any financial risk to the Appellant. However, we accepted the unchallenged evidence of Ms Shah that this was not always the case, and it appeared that on a number of occasions the Appellant made payment before receiving payment from its customer. There was also a lack of any evidence in this regard; whilst we accepted the submission of Mr Brown that the date on the supplier invoice may not be the date of payment, there were no bank statements or any other documentary evidence to establish a clear audit trail.

Ms Shah highlighted two transactions which appeared to involve the same vehicle; a BMW X5 M Sport purchased from DFMS on 20 June 2015 and sold on 30 June 2015. The registration number ended CXW and the chassis number ended 654. The same type of vehicle was purchased from Erlemo on 25 November 2015 and sold by the Appellant on 27 November 2015. The vehicle is recorded on the November purchase and sales invoices as having the same registration number but a different chassis. We considered Mr Brown’s submission that even if it were the same vehicle, there was a period of 5 months between the transactions. The difficulty for the Appellant is that there was no evidence addressing this issue. The witnesses provided no explanation or any information about the records kept of transactions or whether anyone at the Appellant had noticed or queried this matter.

HMRC relied on the back to back nature of the transactions and the ease with which vehicles were sourced and sold. We accepted Mr Brown’s submission that we must have regard to the commodity being traded. The transactions involved high value vehicles and we considered it entirely plausible that this type of transaction did lend itself to a purchase with a sale already agreed. We therefore found that this factor was not indicative of knowledge or means of knowledge on the Appellant’s behalf.

In summary, we considered all of the evidence of the witnesses and the submissions of both parties carefully although we should note we have not found it necessary to refer to refer to all of the evidence or every argument advanced by the parties in reaching our conclusions in relation to these appeals (see Lewison LJ Volpi & another v Volpi [2022] EWCA Civ 464 at [2(iii)]). In considering this evidence, we have taken care not to restrict ourselves to considering each piece of evidence in isolation but have based our decision on the totality of the evidence, and we were careful not to assess the evidence with the benefit of hindsight. We have set out certain compelling features of the extensive evidence which we regard as material to our decision, some of which was more relevant to actual knowledge and others to means of knowledge, or both.

We were satisfied that the evidence proves objective factors within the Appellant’s knowledge at the time of the transactions which support our conclusion that the Appellant knew of the connection to the fraudulent evasion of VAT or should have known that the only reasonable explanation was that its transactions were connected to fraud.

For the reasons set out above, we found the Appellant’s evidence contradictory and unpersuasive. We were satisfied that, where undertaken, the Appellant’s due diligence was wholly inadequate and could have provided no assurance as to the integrity of its customer. The VIES checks were no more than a paper exercise and it was clear to us that no consideration was given or analysis made of the information contained on the documents which, in our view, lacks commerciality.

In our view, any reasonable trader, particularly in a new area of business, would see due diligence and verification of the integrity of transactions as a commercial necessity. We concluded from the inferences we have drawn from the Appellant’s minimal commercial checks that its lack of due diligence, together with the evidence as a whole, was indicative of knowledge on its part.

We consider that our conclusions also support a finding of means of knowledge. The deals at the time had obvious features which would have been clear to the Appellant, for instance the conducting business with new trading partners without contractual terms, the absence of any evidence of negotiations or explanation as to how the transactions came about, the inadequate due diligence and the connections between separate entities which, had checks been undertaken, would have raised obvious queries as to why purportedly independent traders were making payments in transactions with which they were not connected. In our view a prudent and reasonable trader would have undoubtedly queried these features of the deals and the Appellant’s failure to do so, in our view, indicates that they were aware, or should have been aware that the transactions were part of a contrived scheme and that they were facilitating a fraud.

We considered whether Mr Harte or Mr Donnelly had knowledge, or means of knowledge, of the connection to fraud which could be attributed to the Appellant. We were satisfied that both knew that the deals were connected to fraud. Both Mr Harte and Mr Donnelly disavowed responsibility for the transactions in oral which, in our view, wholly undermined the case for the Appellant and we rejected their evidence as unpersuasive, evasive, contradictory and inconsistent. For the reasons set out above, we accepted the contemporaneous notes of meetings and communications which clearly demonstrated that Mr Harte authorised the transactions which were carried out by Mr Donnelly, who was copied in to emails relating to the transactions, and we concluded that both men either knew that the transactions were contrived or turned a blind eye to the fact.

We concluded that there was no other reasonable explanation for the circumstances and features of the deals other than their connection to fraud. Accordingly, we found that if the Appellant did not know that the transactions in question were connected to the fraudulent evasion of VAT, it should have known that they were so connected.

The live evidence on behalf of the Appellant principally related to the issue of knowledge or means of knowledge and reliance was placed on the documentation provided to Ms Shah in support of zero-rating. For the reasons set out below, we agreed with the evidence of Ms Shah and we were satisfied that the requirements of Notice 725 were not met.

Paragraph 5.2 of Notice 725, which has the force of law, requires that the mode of transport and route of movement of the goods be stated on the document. Paragraph 5.3 specifies that commercial evidence should include the carrier’s invoice/consignment note supported by evidence of delivery.

The delivery notes produced by the Appellant were not supported by any evidence of delivery and there was no receipted transport document or signed consignment note.

The remaining documents, in our view, did not assist the Appellant. From the RoI documents produced, it appeared that some of the vehicles were already in the RoI when sold by the Appellant and given the absence of any clear evidence to demonstrate when the goods were sold we did not find these documents provided sufficient evidence to support their removal.

There was no explanation provided by the Appellant as to why the Cartell.ie documents appeared to have been produced by a trader unconnected to the transactions, how or why they came into the Appellant’s possession and how they were relevant to the Appellant’s transactions specifically. In the absence of such evidence we concluded that they did not assist. Furthermore, of the 7 reports, 6 were dated after the deals and 3 were outside time limit of 3 months to provide evidence of removal. 1 document predated the deal, In our view, the documents cannot be relied upon as sufficient evidence of removal.

The only documents provided by the Appellant in relation to transport were those from Donnelly Vehicle Transport. We accepted Ms Shah’s evidence that she could find no trace of such a company. These documents were presented to HMRC to verify the movement of the vehicles. However, we concluded that their veracity was wholly undermined by Mr Donnelly’s evidence that in fact he had not completed the documents but instead they had been completed by Mr McNulty. We did not hear evidence from Mr McNulty and in the absence of any explanation from Mr McNulty or supporting evidence we were not be satisfied that they were reliable as evidence of removal. Furthermore, we were satisfied that the documents did not meet the legal requirements as the mode of transport and route was absent.

In our view, HMRC were correct to treat the documents with caution in the absence of any other evidence in support such as confirmation of receipt by the customer.

The further difficulty for the Appellant was the absence of any clear or sufficient evidence of the mode and route. These are specific and mandatory requirements. We did not accept Mr Brown’s submission that the vehicles must have been transported by road; to do so would, in our view, be to speculate and make assumptions to “fill in the gaps” in order to satisfy the legal requirements for zero-rating.

In reaching our Decision, we have considered all of the evidence before us and our findings should be read in the context of the evidence as a whole.

We have concluded that the Appellant, through Mr Harte and Mr Donnelly, knew that the transactions were connected with the fraudulent evasion of VAT. We have also concluded that our findings on knowledge also support the conclusion that, in the alternative, the Appellant should have known of the connection to fraud.

 In reaching our conclusion on the "should have known test", we have guarded against over compartmentalisation of the factors and considered the totality of the evidence, both individually and cumulatively (per in Davis & Dann Ltd & Anor v HMRC [2016] EWCA Civ 142). We were satisfied that in all the circumstances the only reasonable conclusion was that the purchases were connected with fraud and that the Appellant was aware of this fact or chose to turn a blind eye to this.

We were satisfied that the limited documentation was unreliable and insufficient evidence of removal of the goods, and that the requirement to clearly identify the factors set out in paragraph 5.2 of Notice 725, in particular the mode of transport and route of movement, was not satisfied.

The appeals are accordingly dismissed.

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.