Northside Fleet Limited v The Commissioners for HMRC

The appellant company (“Northside”), at material times, carried on a business involving the sale of used cars. Its sole director and shareholder was Mr Alan Harford. By a decision released on 11 August 2021 (the “Decision”) of the First-tier Tribunal (Tax Chamber) (the “FTT”), the FTT upheld HMRC’s decision to refuse Northside’s claims to recover input tax on purchases of certain vehicles in its VAT periods 01/17 to 07/17. Also, by the Decision the FTT allowed Northside’s appeal against HMRC’s decisions that certain vehicles sold in those VAT periods should be standard-rated for VAT purposes, rather than zero-rated as Northside had claimed. With the permission of the FTT, Northside appeals against the Decision as relating to the denial of input tax credit. Neither party seeks to disturb the FTT’s conclusions on the zero-rating issue.

In the remainder of this decision, references to numbers in square brackets are to paragraphs of the Decision unless we specify otherwise.

HMRC justified their decision to deny Northside credit for input tax by reference to the judgment of the Court of Justice of the European Union in Axel Kittel v Belgian State and Belgian State v Recolta Recycling SPRL (C-439/04 and C-440/04) (“Kittel”). Under the Kittel principle, Northside’s entitlement to input tax credit would be denied if all of the following conditions were met:

Northside’s relevant purchases of vehicles (the “disputed transactions”) were from four suppliers, defined at [30] as “Mohawk”, “Instant”, “KWD” and “DLL”. The identity of these suppliers, and the persons with whom Northside dealt when arranging purchases of vehicles from them was of some significance in the proceedings and can be summarised as follows:

Northside accepted that limb (1) of the Kittel test was satisfied by reference to purchases of vehicles from these four suppliers ([33]). It put HMRC to proof on limb (2). The FTT found at [72], [75], [78] and [84] that limb (2) was satisfied because each of these suppliers fraudulently defaulted on their obligations to pay output VAT. Since neither party seeks to challenge that conclusion, we need say little about the process of reasoning that led the FTT it.

Northside accepted (see [36]) that, to the extent that limb (2) of the Kittel test was satisfied, so was limb (3).

Northside’s challenge to the Decision is solely to the FTT’s conclusion on limb (4). More specifically, since both sides are content to accept the FTT’s conclusion, at [104], that Northside did not have actual knowledge that its purchases were connected with fraudulent evasion of VAT, the challenge is to the FTT’s conclusion that Northside “should have known” of such a connection.

Both parties accept the FTT’s statement of the applicable law at [10] to [20] was correct. In those paragraphs, the FTT concluded, so far as material for present purposes that:

Neither party challenges any of the FTT’s findings of primary fact. We will not seek to summarise all of those primary findings, but simply set out the key findings that are necessary to understand the FTT’s conclusion and the challenges to it.

Before setting out aspects of the FTT’s detailed findings, it is appropriate to put those in context. Over the past several years, the courts and tribunals have dealt with many cases of “missing trader” or “MTIC” fraud. Not infrequently such cases have involved lengthy chains of back-to-back transactions in high value, but commoditised goods (such as mobile phones or computer chips), culminating in a sale to a “broker” who exports the goods and claims a VAT repayment. In challenging the broker’s entitlement to input tax credit, HMRC will frequently point to the contrived nature of the transactions, the predictable profit, achieved without negotiation and for little effort, and failures to take ordinary commercial measures such as inspecting or insuring the goods in support of an argument that the trader either knew, or should have known, that the transactions were connected with fraud. The FTT recognised that this case was very different. It found that the evidence strongly suggested that Northside’s purchases of vehicles were preceded by commercial negotiations ([106(3)]). It found that there was nothing incongruous about the insurance arrangements applicable to vehicles it purchased ([106(6)]). It found ([110]) that the disputed transactions “resembled in many ways the purchases which the Appellant made from its large company suppliers” that were unconnected with fraud.

Northside was incorporated on 5 December 2011 and registered for VAT with effect from 1 April 2012. Mr Harford was, at material times, Northside’s sole shareholder and director. Northside appointed accountants (“SB&P”) to manage its VAT affairs and was subjected to periodic VAT checks by HMRC. From time to time, those VAT checks revealed errors in Northside’s VAT compliance, but until a letter dated 27 April 2016, HMRC did not raise the possibility of becoming connected with VAT fraud as an issue with Northside.

HMRC’s letter of 27 April 2016 warned Northside in general terms of the possibility of becoming jointly and severally liable for VAT fraud perpetrated by customers ([48(8)]). On 20 October 2016, there was a meeting between HMRC, Mr Harford and SB&P to check the validity of certain transactions between Northside and a company called David McMahon Limited. At that meeting, Mr Harford confirmed that Northside purchased vehicles from a company called MCM Sales Limited (“MCM”) and dealt with a Mr David McMahon at MCM ([48(9)]).

On 5 January 2017, HMRC wrote to Mr Harford (the “tax loss letter”). That letter notified Mr Harford that purchases of vehicles that Northside had made from MCM in VAT periods from 06/16 to 09/16 had been linked with fraudulent transaction chains ([48(10)]). The tax loss letter warned that input tax recovery could be restricted if Northside knew, or should have known, that purchases were connected with fraudulent VAT evasion and advised that Northside should satisfy itself that it was carrying out sufficient due diligence on its suppliers and customers to avoid that risk. A copy of HMRC’s VAT leaflet PN 726 was provided which set out some examples of the sort of checks HMRC considered traders might wish to make. Mr Harford saw leaflet PN 726 and there were further discussions between SB&P and HMRC as to the due diligence that Northside could and should undertake. The FTT found that HMRC’s Officer Lowth specifically told Mr Harford that he should visit the business premises of his suppliers rather than simply meeting them in coffee shops, rejecting his contrary evidence that he was simply told in general terms that he needed to improve his due diligence with HMRC making no suggestions how to do so ([65(6)(b)]).

Despite HMRC’s warnings as to the importance of checks on suppliers, Northside performed relatively few such checks. Mr Harford did not think that the kind of checks set out in PN 726 were necessary, because PN 726 dealt with a different kind of business ([54(4)]). He said that the recent incorporation of some of his suppliers did not trouble him because the individuals with whom he dealt seemed to have a good knowledge of the used car market. Northside obtained some verification of the identity of Instant, KWD and Mohawk ([48]), but the FTT concluded that this due diligence was inadequate, describing it as not “rudimentary” ([112]) and not “appropriate” ([110(11)]).

Instant was incorporated on 2 March 2016 ([56(3)]), KWD was incorporated on 22 June 2016 ([57(2)]) and DLL was incorporated on 27 October 2015 ([58(2)]). Mohawk was the trading name of an individual (Mr Murdock) who successfully applied to be registered for VAT on 25 November 2016, with that registration backdated to 6 April 2016 ([55(1) and [55(2)]). Therefore, the FTT concluded that Northside made the relevant purchases of vehicles from suppliers who were new businesses ([110(1)]).

Companies House records revealed some suggestions of a connection between two of the companies (Instant and KWD) both to each other and to Mr David McMahon who was involved with MCM, the company that was referred to in the tax loss letter as having been linked with fraudulent chains of transactions. In particular:

The FTT found at [65(6)] that Mr Harford was actually aware of the connection between Mr McMahon and Instant and between Mr Maguire and KWD. It also made findings, at [110] to [112] that we consider in the section below, that aspects of this connection would in any event have been revealed by an examination of records at Companies House.

Northside’s suppliers in the disputed transactions had connections with multiple business addresses:

Instant and KWD had no actual presence at an address they purported to use. As noted in paragraph 18 above, for a time, Instant’s PPOB and its registered office for company law purposes were at 31 Langley Park. KWD’s registered office for company law purposes was at 31 Langley Park. However, 31 Langley Park was a residential house in multiple occupation owned by the Henderson Christian Housing Association (the “HCHA”) and none of the tenants was Instant, KWD or Mr Maguire, who had told Officer Gomez of HMRC that a meeting to discuss the VAT affairs of KWD could take place at the 31 Langley Park address ([50(11)]).

After explaining, at [104], why it concluded that Northside did not have actual knowledge of the fact that its transactions were connected with fraudulent evasion of VAT, the FTT turned to the question whether it had means of knowledge. The FTT found this to be a much more difficult question stating, at [106], that it was “bemused” by some of the arguments that HMRC had put forward in support of their case. At [108] and [109], the FTT commented that HMRC had “blindly applied” the various factors set out in PN 726 as indicating that Northside should have known that its transactions were connected with fraudulent evasion of VAT. The FTT considered that such an approach was not warranted since “… a factor which might well point to constructive knowledge of a connection with fraud in the case of a mobile telephone might not do so in the case of a used car”. The FTT observed that it would have been more logical for HMRC to draw out the differences, if any, between those transactions from the four suppliers which could be traced back to fraud and Northside’s other purchases of cars from other suppliers, but that HMRC had chosen not to do so. Moreover, the FTT found, at [110], that in fact the purchases of cars from the four suppliers which could be traced back to fraud “resembled in many ways” Northside’s purchases from large company suppliers that were not connected with fraud.

At [110], the FTT set out a number of matters that “ought to have alerted the Appellant to the fact that those purchases were connected with VAT fraud”. Northside argues that some of the FTT’s language used in this paragraph demonstrates that it was applying the wrong legal test by considering whether Northside should have known that there was a risk its transactions were connected with fraud, rather than considering whether it had means of knowledge of an actual connection. We use a bold typeface to indicate phraseology which Northside criticises.

At [110(1)] to [110(7)], the FTT set out factors that should have led Mr Harford to visit the business premises of its suppliers. Those findings were in addition to a finding at [65(6)] that Officer Lowth of HMRC had expressly told Mr Harford that he should visit the premises of Northside’s suppliers as set out in invoices. The FTT found that as Northside was dealing with new businesses ([110(1)]) with no trading history (described in HMRC’s PN 726 and booklet “How to spot missing trader fraud” as “potential indicia of fraud”), in consequence Northside should have taken up references for the four suppliers and conducted searches at Companies House and the VAT Information Exchange System (“VIES”) ([110(2)]). Had it conducted those searches, Northside would have seen that there were potential discrepancies and issues calling for further investigation. In the case of Mr Murdock, he was issuing invoices in the name of “Mohawk Trading”. An online search of Companies House records would have revealed the existence of a company called Mohawk Trading Company Limited which had no apparent connection with Mr Murdock, but had its registered office on the same road as the address Mr Murdock was using on his invoices. Having checked Companies House and VIES records, Mr Harford would have seen that there were differences between the PPOB and registered offices of KWD and DLL. These differences should have prompted him to visit the business premises of those companies.

At [110(8)], the FTT made a finding as to what would have happened if Mr Harford had tried to visit the business premises of Instant and KWD as follows:

At [110(9)], the FTT concluded that if Mr Harford had carried out “the appropriate due diligence”, he would have discovered that Companies House records showed Mr McMahon, about whom HMRC had expressly warned, and whose company MCM was the subject of the tax loss letter, was a director of Instant at material times in 2017. The FTT commented:

At [110(10)], the FTT concluded that, if Mr Harford had carried out “the appropriate due diligence” he would have discovered that Companies House records showed that Mr Maguire, with whom Mr Harford was dealing at Instant, was also the 100% owner of KWD and a director of KWD. That, reasoned the FTT, showed a connection between KWD and Mr McMahon through Mr Maguire (since Mr Maguire was co-director with Mr McMahon at Instant and the sole director and shareholder in KWD) and:

At [110(12)], the FTT emphasised the links between Instant and KWD that would have been discovered from searches at Companies House and VIES to which we have already referred in paragraph 16 above. It also commented that:

At [110(13)], the FTT noted some points that were in Northside’s failure, namely that a relative lack of written records did not mean either (i) that there had been no negotiations as to the price Northside would pay for vehicles bought in the disputed transactions or (ii) that the parties had no interest in those vehicles. However, in a passage we will quote in full later in our decision since Northside subjects it to particular criticism, the FTT commented adversely on the absence of contemporaneous records concluding that:

At [111], the FTT noted that not all of the reasoning in [110] applied to purchases from DLL since there was no discrepancy between the address that it gave on its invoices and its PPOB, Mr McMahon had no links with DLL and DLL had no connection with the 72 Bardsay Road or 31 Langley Park addresses which Instant and KWD were said to use. However, the FTT placed weight on the fact that Mr Donnelly, with whom Mr Harford claimed he was dealing in relation to purchases from DLL, had no involvement with DLL in 2017. It concluded:

At [113], the FTT set out its overall conclusion in the following terms:

There was some disagreement between the parties as to the scope of Northside’s grounds of appeal.

Northside applied to the FTT for permission to appeal on 31 August 2021. That application was settled by Mr Watkinson of counsel who appeared for Northside at the hearing before us. A single ground of appeal was listed, summarised as “The FTT misapplied the ‘only reasonable explanation’ test”. In its decision on the application, the FTT stated simply that it granted permission to appeal and did not set out, in its own words, the grounds on which it was granting permission.

In his written and oral submissions, Mr Watkinson developed his grounds of appeal by making the following four broad submissions. HMRC accept that all these submissions fall within the scope of the permission granted by the FTT.

The parties were agreed that an appeal to this Tribunal can be brought only on a point of law. Thus, they were agreed that this Tribunal has no power to set aside the FTT’s findings of fact even if we disagree with the FTT’s findings or consider it likely that we would have made different findings if we had been sitting at first instance. They were also agreed that we had power to interfere with the Decision if we identified fundamental flaws in the fact-finding process (as distinct from a disagreement with the actual findings of fact) for example if the FTT took into account irrelevant considerations or failed to take into account relevant considerations. It was also common ground that we have power to interfere with the Decision if the FTT’s overall conclusion on means of knowledge was one that “no person acting judicially and properly instructed as to the relevant law could have come to” (or, as a shorthand, that it was “perverse”) because in those circumstances we would be bound to assume that there has been some misconception of the law and that this has been responsible for the determination (Edwards v Bairstow [1956] AC 14 per the speech of Lord Radcliffe at page 36).

At the margins, questions of some difficulty can arise as to whether the selection of which considerations are relevant, and which irrelevant, involves a question of fact or law. We tend to agree with Mr Watkinson’s submission, based on the judgment of Arden LJ, as she then was, in Davis v Dann Ltd v HMRC [2016] EWCA Civ 1899 at [101] that the categorisation of matters as relevant or irrelevant involves a question of law, but that a superior court or tribunal should only interfere with the categorisation adopted by the fact-finding tribunal if that categorisation was perverse in the sense that it could not have been adopted by any reasonable tribunal. However, as will be seen from the next paragraph, we do not need to determine any question of categorisation in this case.

Nevertheless, there remained some disagreement between the parties as to what Northside needed to show in order to succeed with its Submissions 1 to 4 which we have resolved as follows:

We are grateful to Mr Watkinson for, in accordance with his duties to the court, drawing to our attention the judgment of the Court of Appeal in DPP Law Ltd v Greenberg [2021] EWCA Civ 672 (“DPP Law”). In that case, Popplewell LJ said, at [58]:

The parties are agreed that the FTT correctly stated the legal principles. Therefore, there is a presumption it applied those principles correctly. Northside seeks to displace that presumption by focusing on the FTT’s references, in paragraphs [110] to [113] which we have emboldened in paragraphs 22 to 28 above, to potential risks. It argues that these references indicate that the FTT impermissibly proceeded on the basis that means of knowledge of a risk of connection with fraud was sufficient to satisfy the “only reasonable explanation” test.

In our judgment, Northside’s focus on occasional words or phrases in paragraphs [110] to [113] fails to put those words and phrases in their proper context. The FTT was quite entitled to proceed on the basis that, in a case such as this, there would be no single “killer” fact or circumstance that would have demonstrated to a reasonable trader that the disputed transactions were connected with fraud. It was permissible for the FTT to proceed on the basis that means of knowledge of an actual connection with fraud could exist if Northside had means of knowledge of a cumulation of factors or circumstances, each of which on their own pointed to a risk provided that, taken together, those factors would have demonstrated to a reasonable trader that the disputed transactions actually were connected with fraud.

That is the process of reasoning that the FTT was following in [110] to [113]. Once that is appreciated, we see no error of law in the FTT’s use of the phrasing that Northside criticises. Thus:

We are only fortified in our conclusion by the fact that the FTT said expressly at [113] that it was quite aware that connection with fraud must be the “only reasonable explanation for the transactions and not simply one possible explanation”. Northside submitted that the FTT was bound to express its conclusion in those terms given the self-direction as to the law that it had made, and that [113] could not therefore save the Decision from the errors that were already manifest in paragraphs [110] to [112]. We reject that submission. In our judgment, [113] makes it clear that the FTT was following a permissible approach by ascertaining means of knowledge of actual connection to fraud from an amalgamation of individual risks.

We reject Northside’s Submission 1.

Northside’s Submission 2 is premised on the proposition that the FTT ignored a host of highly relevant factors in coming to its conclusion. Those factors were set out in Mr Watkinson’s written skeleton argument as follows:

Submission 2 has an unpromising start because Northside accepts that the FTT mentioned all of these factors in the Decision. We stress that we are far from saying that the only way a factor can be shown to be taken into account is if that factor is expressly mentioned in the Decision. As Popplewell LJ said at [67] of DPP Law to which we have already referred: “it is ... false reasoning that what is out of sight in the language of a decision must be assumed to be non-existent or out of mind”. However, in our judgment, the express reference to the factors on the face of the Decision is a strong indicator that the factors were taken into account.

Northside’s complaint, therefore, relies on the fact that the FTT did not expressly cross refer to all of these factors when it set out the balancing exercise described between [110] and [113]. We reject that complaint. As Ms Vicary pointed out in her oral submissions, it amounts to a criticism of the FTT’s failure to repeat itself in what was already a lengthy decision. It is clear on the face of the decision that the FTT had well in mind that there were aspects of the transactions and the circumstances in which they were undertaken that pointed away from a conclusion that Northside had means of knowledge of connection to fraud. It referred to a subset of those factors expressly when introducing its balancing exercise at [110] by referring to “the fact that [the disputed transactions] resembled in many ways the purchases that the Appellant made from its large company suppliers”. The FTT’s repeated reference to the difficulty it had in deciding the case demonstrates that it had the relevant factors firmly in mind since it was those factors that were the cause of the difficulty.

The factors to which Northside refers were all taken into account and balanced and we reject Submission 2.

Submission 3 focuses on the passage that appears after [110(13)] in which the FTT accepted that the disputed transactions could well not have taken place at fixed places and could have been preceded by negotiations. The passage at issue reads as follows:

We agree with Northside that this passage is somewhat confusing. It appears in the FTT’s analysis of Northside’s (objective) means of knowledge at a point in the Decision by which the FTT had already found that Northside did not have (subjective) actual knowledge of a connection with fraud. It is not clear what bearing Northside’s own failure to keep full records has on the question of whether a reasonable trader, having deployed available means of knowledge, would have known that the disputed transactions were connected with fraud.

However, the fact that the paragraph is confusing does not of itself mean that it betrays an error of law. The FTT’s conclusions and reasoning must be determined from an analysis of the Decision as a whole. As Mummery LJ said at p813 of the judgment of the Court of Appeal in Brent v Fuller [2011] ICR 806:

In our judgment, the paragraph after [110(13)] is unnecessary and the reference to the “overall impression” that the transactions were “inappropriate” is unfortunate and lacks precision. However, when the Decision is read as a whole in the light of the FTT’s self-direction as to the law which both parties agree to be correct, it is clear that the FTT realised that the “should have known” aspect of the Kittel test involved an objective examination. Moreover, it is clear that the FTT realised that Northside’s entitlement or otherwise to input tax depended not on the FTT’s “overall impression” of whether the transactions could be described as “inappropriate”, but on whether Northside should have known that the disputed transactions were connected with fraud. As we have concluded when addressing Northside’s Submission 1, read as a whole, that was the test that the FTT applied in the Decision.

Therefore, unclear though it was, the paragraph after [110(13)] is just a single paragraph in a lengthy judgment that elsewhere is both clear and accurate as to the test that needs to be applied. We do not accept Northside’s submission that this single paragraph demonstrates that the FTT was diverted from an application of the correct test and we reject Submission 3.

In her written skeleton argument on behalf of HMRC, Ms Vicary drew our attention to a number of authorities that explained the reluctance of appellate courts to interfere with factual findings of the first instance court or tribunal and the reasons for that reluctance. We need not refer to all of those authorities. A flavour of this element of Ms Vicary’s submissions can be seen from the well-known statement of Briggs J (as he then was) in Georgiou v Customs & Excise Commissioners [1996] STC 463 at [476] to the effect that appellants seeking to overturn factual findings should not assume that they have permission to advance a “roving selection of the evidence coupled with a general assertion that the tribunal’s conclusion was against the weight of the evidence and was therefore wrong”.

That is, of course, a correct statement of the law. However, we did not consider that, in its Submission 4, Northside was putting forward a “roving selection of the evidence” of the kind that Briggs J had in mind. Its argument is more focused. It submits simply that, even taking into account all of the findings of primary fact that the FTT made, and without seeking to challenge any of those findings, no reasonable tribunal could have concluded that Northside “should have known” that the disputed transactions were connected with fraudulent evasion of VAT.

Nevertheless, Northside has a high hurdle to overcome to succeed with Submission 4. It is not enough to establish that the FTT could permissibly have come to a different conclusion. It would not even be enough for Northside to persuade us that we ourselves would have come to a different conclusion since, as Ms Vicary pertinently and concisely observed, the Upper Tribunal is not a “court of second opinion” on factual matters. Rather, Northside must establish that no reasonable tribunal, having made the findings of primary fact that it did could have concluded that Northside “should have known” that its transactions were connected with fraud.

We have no hesitation in rejecting that argument as applicable to the purchases that Northside made from Instant and KWD. The FTT found that a reasonable trader would have performed some due diligence on Instant and KWD that involved searching records at Companies House and visiting their business premises including 31 Langley Park. That finding is not challenged. If Northside had visited 31 Langley Park, it would have discovered that it was a residential building no part of which was let to Instant or KWD and whose owners had not heard of those companies. If Northside had searched Companies House records, it would have seen that Instant had a connection with Mr McMahon who was also involved with MCM, the company mentioned in the tax loss letter. It would have seen that there was some link between Instant and KWD through Mr Maguire and so KWD also had a connection of some kind with Mr McMahon. Indeed, the FTT found at [65(9)(a)] that Mr Harford was actually aware of these links. The analysis in the Decision shows that Northside sought to persuade the FTT that these factors were insufficient to demonstrate that it “should have known” that purchases from Instant and KWD were connected with fraud and it emphasised other factors pointing against that conclusion. However, it cannot be said that, in declining to be persuaded, and in drawing the evaluative conclusion that Northside should have known that purchases from Instant and KWD were connected with fraud, the FTT made a decision so perverse that no reasonable tribunal could have reached it.

In his oral submissions, Mr Watkinson made a forceful criticism of the FTT’s decision as regards purchases from DLL. He noted that, at [113], the FTT based its conclusion as regards DLL on paragraphs [110(1)], [110(2)], [110(13)] and [112]. However, he submitted, those paragraphs could not support the conclusion because:

The question whether DLL’s incorporation was “very recent” was evaluative. It needed to be considered in the light of all the evidence including as to Northside’s conduct of its business and practice in the second-hand car business. It was not perverse for the FTT to describe DLL as incorporated “very recently”. The FTT was mistaken to say that DLL had “no trading history”, but its trading history was clearly limited and we do not consider that the FTT’s point would have been materially different if it had referred to a “limited” trading history. We have dealt with the criticisms of [110(13)] in dealing with Issue 3.

It is important not to lose sight of the FTT’s overall finding when considering the detail of Northside’s criticism as the extract from Mummery LJ’s judgment in Brent v Fuller set out in paragraph 48 above makes clear. Northside was dealing with a new business. It failed to perform “rudimentary” due diligence on that business. DLL itself defaulted fraudulently on its VAT obligation, so this was not a case where the default was several links down a lengthy chain of suppliers. Of course, Northside does not lose entitlement to input tax credit simply as a penalty for what might be termed a negligent failure to make reasonable checks since the overall question is whether it should have known that its purchases from DLL were connected with fraud. However, there is nothing inherently surprising about the conclusion that a trader that fails to perform rudimentary due diligence on a supplier which turns out to default fraudulently on its VAT obligations would have discovered the connection with fraud perpetrated by that very trader had it made rudimentary checks. That is not to say that the conclusion will follow in every case. It remains necessary to consider what information would have been gleaned if those checks had been performed. However, the overall plausibility of the FTT’s conclusion serves as a warning that we should not lightly find it to be perverse.

Northside criticises what it submits was the FTT’s “narrow focus” on due diligence and “over-compartmentalisation” of its analysis. We reject that criticism. As we have noted in our conclusion on Submission 2, the FTT properly considered inferences that were in Northside’s favour. In asking itself what information Northside would have discovered if it had made rudimentary checks, the FTT was not focusing narrowly on due diligence, but was following a reasonable line of enquiry as to its means of knowledge.

The FTT found that a reasonable trader would have checked Companies House records and those records would have revealed that Mr Donnelly had no authority to represent DLL. Those findings are not challenged. The FTT was entitled to conclude that two possibilities emerged:

The FTT was entitled to conclude that either possibility had implications for Northside’s means of knowledge. The situation described in paragraph 59(1) would have been a clear indicator of fraud. The situation described in paragraph 59(2) would have suggested that Mr Harford had some reasons for wishing to mislead HMRC and the FTT and a reasonable trader, aware of those reasons, would have concluded that the transactions with DLL were connected with fraud. It was for the FTT to evaluate the significance or otherwise of the situation with Mr Donnelly as part of its overall multifactorial evaluation.

Therefore, although we considered that there was force to Northside’s criticisms of the FTT’s conclusion in relation to DLL, we have concluded that those criticisms are insufficient to demonstrate that the FTT’s conclusion was perverse, which is a high hurdle.

Northside did not challenge the FTT’s conclusion in relation to Mohawk in the same level of detail as it did with DLL, although it does submit that the conclusion was not available to the FTT. We reject that argument for reasons that are similar to those set out above.

The analysis set out in paragraph 57 applies to Mohawk, just as much as to DLL. It was a matter for the FTT to evaluate the significance of indicators of a connection with fraud when weighed against the contra-indications that we have discussed in our analysis of Northside’s Submission 2. The FTT concluded that it was significant that Mr Murdock, while supplying vehicles for delivery in Ireland, and having a PPOB in Northern Ireland, was providing invoices giving a trading address in Plymouth. We are not sure that we would have concluded, as the FTT did, that a reasonable person dealing with a sole trader like Mr Murdock would have considered it necessary to perform searches against the name “Mohawk” at Companies House since Mr Murdock was not, and was not purporting to operate through, a limited company. However, it was for the FTT to decide what checks a reasonable trader would have undertaken and its evaluative conclusion was available to it. The FTT was entitled to conclude that there was something odd about the fact that the address Mr Murdock gave in Plymouth was very close to the registered office of an ostensibly unrelated company containing the word “Mohawk” in its name. It raised the possibility that Mr Murdock was adopting the trading style of an unconnected enterprise for fraudulent purposes. Different tribunals might have reached different conclusions on the strength of this indication and on the question whether, looking at the totality of relevant facts and circumstances, a reasonable trader would have been aware of the connection with fraud. However, we are not satisfied that the FTT’s overall conclusion was perverse.

We therefore dismiss Northside’s arguments under Submission 4.

Northside’s appeal is dismissed.