Between 29 November 2019 and 11 March 2020, the Respondents (‘HMRC’) assessed the Appellant, then called AssetHound Limited but later called Qubic Advisory Services Limited (together ‘QASL’), for penalties (“the penalties”) amounting to £14,821,380 under section 69A of the VAT Act 1994 (‘VATA’).

A penalty arises under section 69A VATA 1994 where a person fails to comply with a requirement of regulations made under section 13(5)(a) or (b) of the Finance Act 1999. The regulations are found within the Value Added Tax Regulations 1995 (‘VAT Regulations’) and in particular regulation 31A(1) which requires taxable persons who make specified supplies of investment gold to issue invoices and maintain records containing such details “as may be specified in a notice published by the Commissioners for the purposes of this regulation”. The relevant notice is Notice 701/21 Gold Imports and Exports, published in January 2013, (‘the Notice’).

HMRC imposed the penalties because they considered that QASL had breached:

QASL appealed to the First-tier Tribunal (Tax Chamber) (‘the FTT’) on the grounds that the record keeping requirements of sections 6.4 and 7.1 of the Notice did not apply to QASL’s transactions. The FTT directed that the following question should be heard as a preliminary issue:

The only issue at the preliminary issue hearing was whether the record keeping requirements applied to QASL’s transactions. QASL submitted that the record keeping requirements in the Notice did not apply because the investment gold which was the subject of the relevant transactions was never “delivered or otherwise made available to [QASL’s] customer” as required by Section 6.1 of the Notice or “delivered or available to be taken away” by QASL’s customers as required by Section 7.1. HMRC contended that the invoicing and record keeping requirements in section 6.4 and 7.1 of the Notice applied to QASL because the gold was made available to the customers or, alternatively, it was delivered to them. HMRC submitted that, in both cases, a right of possession (which may be de jure or de facto), is sufficient.

In a decision released on 4 April 2023 (‘the Decision’), the FTT held, at [55], that:

With the permission of the FTT, QASL now appeals to the Upper Tribunal on nine grounds, namely that the FTT:

Essentially, QASL contends that the FTT reached the wrong conclusion when it decided that QASL sold exempt investment gold which was delivered or available to be taken away by its customers within the meaning of section 7.1 of the Notice. The issue in this appeal turns on whether the FTT was wrong to conclude that the terms of the agreements between QASL and its customers meant that the gold was delivered or available to be taken away. As it was before the FTT, the central question in this appeal is the meaning of “delivered or made available” and “available to be taken away” in paragraphs 6.4 and 7.1 of the Notice when read in the light of regulation 31A(1).

QASL was represented by Mr Denis Edwards and Ms Charlotte Brown appeared for HMRC. We are grateful to both counsel for their submissions.

The FTT briefly described how the gold was supplied at [9] and [10]:

That description of the transactions is not disputed. Although there was a prior transaction involving the supply of the gold from BullionVault to QASL, this appeal is only concerned with the supply of gold from QASL to its customers.

All gold bullion sold by QASL between 1 October 2015 and 31 March 2016 in respect of which the penalty assessments were raised was purchased by QASL from BullionVault. The FTT recorded the evidence given on behalf of QASL by Mr David Graham, who at all material times was the sole director of QASL, at [22] – [26]:

Mr Paul Tustain was a director of BullionVault. In his witness statement, he explained that BullionVault is an internet-based retail-accessible platform, for buying, storing and selling physical gold bullion. It provides individuals (retail investors) with access to the professional bullion markets which had previously been very difficult. The FTT described Mr Tustain’s evidence at [28] – [34] of the Decision, the material parts of which are as follows:

QASL operates an account with BullionVault through which it was able to buy and sell from the BullionVault market gold bullion. In order for QASL to transfer title in the gold to Designated Employees of its client, a Bullion Vault account was opened by the relevant Designated Employee.

We were supplied with a Supply of Services Agreement dated 23 February 2016 between QASL and its client (‘the Client’), ie the employer of the Designated Employee, under which the Client appointed QASL to buy or supply gold for the Designated Employees. The agreement states at clause 2.2 that:

BullionVaults’ Terms and Conditions (effective until 18 January 2018) confirmed that all gold bullion purchased from it remained in the vault location specified by the buyer, such vaults being controlled by a vault operator, subject to agreement between the vault operator and BullionVault. Those Terms and Conditions included the following:

The contract between QASL and its Client states:

There were also two different BullionVault Terms and Conditions Waiver Acknowledgements (‘First Waiver’ and ‘Second Waiver’) relating to a Client of QASL and the Designated Employee of the Client. The First Waiver, dated 24 February 2016, was between BullionVault and QASL. It states that:

The First Waiver was signed by Mr David Graham as director of QASL and also on behalf of the Scheme Administrator, Qubic Tax Limited.

The Second Waiver, also dated 24 February 2016, stated:

The Second Waiver was signed by Mr David Graham for QASL. In signing the Second Waiver, QASL was acting as agent on behalf of the Designated Employee under another Supply of Services Agreement, dated 24 February 2016, between QASL and the Designated Employee for the purpose of buying and selling gold. This Supply of Services Agreement made it clear that QASL was acting as agent for the customer in buying the gold. Clause 2.1 of this Agreement stated:

Article 346 of Directive 2006/112/EC (the PVD) exempts certain supplies of investment gold and is as follows:

The exemption for investment gold is implemented in the United Kingdom by section 31 and Group 15 of Schedule 9 VATA. Group 15 is headed “Investment gold” and exempts (so far as material):

As regards these supplies, regulation 31A(1) of the 1995 Regulations (“regulation 31A(1)”) provides for invoice and record keeping obligations where:

Where regulation 31A(1) applies, the person must keep and maintain a record of the supply containing such details as may be specified in a notice published by HMRC for the purposes of the regulation.

A penalty under section 69A VATA 1994 arises where a person fails to comply with requirements of regulations made under section 13(5)(a) or (b) of the Finance Act 1999 “for specified persons to keep specified records in relation to specified transactions concerning gold” and “for specified persons to give specified information to the Commissioners about specified transactions concerning gold.” Regulations made pursuant to section 13(5) are in the VAT Regulations.

Specifically, regulation 31A(2) of the VAT Regulations imposes invoicing, record keeping and notification requirements on taxable persons making supplies of investment gold under Items 1 and 2 of Group 15 of Schedule 9 VATA 1994. Regulation 31A(2) provides as follows:

The Notice is the relevant notice as referred to by the VAT Regulations. The relevant invoice and record keeping obligations in this case are those in sections 6.4 and 7.1 of the Notice. Section 6 is headed, “Invoice requirements for trading in exempt investment gold.” Section 6.1, which is not legally binding, provides:

Section 6.4 of the notice, which is legally binding, goes on to provide:

Section 7 of the Notice is headed “Records to be Kept” and sets out the further record keeping obligations. Section 7.1, which is legally binding, provides:

Having set out the parties’ submissions, the FTT set out its reasoning at [52] - [55]:

Accordingly, the FTT dismissed QASL’s appeal.

It is convenient to summarise the parties’ submissions in relation to Grounds 1 and 2, which are closely related, together. Ground 1 was that the FTT had ignored the terms and effect of a waiver between QASL’s customer and BullionVault which meant that the Designated Employee did not have any right to seek or take possession of the gold. Ground 2 was that the FTT had wrongly applied the terms of the Notice more widely than was permitted by regulation 31A(1)(b) VAT Regulations.

Mr Edwards, appearing for QASL, submitted that there was never any physical delivery of investment gold and no prospect of it or right to it. In any event, adequate records were kept with specific information which is substantially the same as that if the record keeping and invoice obligations applied. The investment gold which was the subject of the relevant transactions was neither “delivered” nor “otherwise made available to” QASL’s customer as required by Section 6 of the Notice or “delivered” or “available to be taken away” by QASL’s customers as required by section 7.1 of the Notice. The investment gold remained in the designated vaults (i.e. within the “black box” described by Mr Tustain) and was never removed. In these circumstances, there was no necessity to impose the record keeping obligations in relation to the relevant transactions and, indeed, it was disproportionate to do so.

Mr Edwards relied particularly on the terms of the Second Waiver by which, he submitted, the Designated Employee (of QASL’s Client) waived his/her right to take delivery of the investment gold. The Second Waiver was signed by Mr David Graham, the director of QASL, as agent for the Client pursuant to Supply of Services Agreement, dated 24 February 2016, between QASL and the Designated Employee referred to at paragraphs 20 and 21 above. The FTT had erred in law by ignoring the effect of the Second Waiver.

The terms of regulation 31A(1)(b), the provision which provided the statutory authority for the Notice, applied to a supply within item 2 of Group 15 of Schedule 9 to the Act “which subsequently results in the transfer of the possession of the investment gold.” (Emphasis added). This made it clear, in Mr Edwards’s submission, that the terms of the Notice could only apply in cases where there was a transfer of possession of the investment gold. It was not possible for the terms and the meaning of the Notice to be wider than the language used by regulation 31A(1)(b) which was limited to cases where there was a transfer of physical possession.

Ms Brown, appearing for HMRC, argued that the FTT was entitled to reach the conclusion that it did. The FTT had not, she said, ignored the effect of the Second Waiver, referring to it at [25]. QASL’s complaint was merely that the FTT did not attach the same weight to it that QASL wished.

The Upper Tribunal should only interfere, in Ms Brown’s submission, if the Decision was irrational. The FTT had accepted that the investment gold was never intended to leave the vaults. The FTT’s decision, however, was based on BullionVault’s terms which stated that the gold belonged to the customer and could be taken into its possession. It was HMRC’s case that the Notice did apply to the transactions in dispute because, primarily, the gold was made available to QASL’s customers or, alternatively, it was delivered. In both cases, a right of possession was sufficient.

Ms Brown contended that the Second Waiver did not assist QASL. The waiver was between QASL and BullionVault. The FTT made clear at [23] that BullionVault’s terms and conditions specified that the investment gold was held in the customer’s name and was physically held in the vault on the customer’s behalf. There was no waiver which prevented the customer from removing its gold from the vault.

In relation to Ground 2, Ms Brown submitted that the FTT had dealt with the interplay between the Notice and the legislative scheme at [17]. In short, the owner of the investment gold would have possession in the legal sense (i.e. the right to obtain physical possession) and that actual physical possession was not required.

For the avoidance of doubt, HMRC’s position, as set out in paragraph 45 of its skeleton in the FTT hearing, was that the agreement between HMRC and the LBMA was not applicable to the transactions in question, being those between QASL and its customers, none of whom were members of the LBMA.

As already indicated, it is convenient to deal with Grounds 1 and 2 together.

It was common ground that the underlying supplies of investment gold fell within Item 2 Group 15 of Schedule 9 to VATA. It was also common ground that the statutory authority for the Notice was regulation 31A(1)(b) which applied where there was a supply of investment gold within Item 2 “which subsequently results in the transfer of the possession of the investment gold.” From this it followed that the transactions in question had to involve the transfer of possession of the investment gold. Finally, it was common ground that QASL’s customer at no time obtained physical possession – the investment gold was held in a vault by a third party under a contract of bailment.

Essentially, HMRC argued that, although QASL’s customer (the Designated Employee) did not have physical possession, the customer did have the right to obtain physical possession of the investment gold. That right was sufficient to establish that the gold was “delivered, or otherwise made available to” QASL’s customer (Section 6.1 of the Notice (Footnote: ²)) or “delivered or available to be taken away by” by QASL’s customer (Section 7.1 of the Notice). Section 6.4 of the Notice, which does have the force of law, requires an invoice to contain the name and address of the purchaser of the investment gold and the delivery address, if different. The reference in regulation 31A(1)(b) to the subsequent “transfer of the possession of the investment gold” included, on HMRC’s case, the transfer of the right to obtain possession.

It is not, in our view, necessary to determine whether the right to obtain physical possession was sufficient for the relevant provisions of the Notice to apply. This is because we have come to the conclusion that the Designated Employee of QASL’s client did not have the right to obtain possession of the gold that QASL purchased on his/her behalf. As Mr Edwards submitted, the Second Waiver had the effect that the Designated Employee waived the right to obtain physical possession of the investment gold. It is also clear that when Mr Graham, the director of QASL, signed the Second Waiver he was doing so as agent for the Designated Employee pursuant to the Supply of Services Agreement, dated 24 February 2016, between QASL and the Designated Employee. Therefore, the Designated Employee had no right to the delivery or physical possession of the investment gold.

The FTT at [25] referred to the Second Waiver in passing but without apparently appreciating or, possibly, having its attention drawn to its significance. It follows, therefore, that the FTT’s conclusion that the investment gold was delivered or available to be taken away and that, therefore, QASL should have complied with the invoicing and record keeping requirements set out in the regulations, was an error of law.

We accept, as did the parties, that the scope of the Notice could not be wider than the scope of the language used in regulation 31A(1)(b), viz that the supply of the investment gold had to result in the subsequent “transfer of the possession of the investment gold”. However, for the reasons we have given, it is not necessary for us to express a concluded view on the width of the meaning of this expression (i.e. whether it included the mere right to obtain physical possession) because the Designated Employees had neither physical possession nor the right to obtain physical possession of the investment gold.

It is also unnecessary for us to reach a view on a point we raised with the parties in argument in relation to the application of the presumption against doubtful penalisation to the interpretation of the Notice (and the wording of regulation 31A(1)(b)).

The parties’ submissions included references to the case-law in relation the need to determine the economic reality of the transactions in order to establish the nature of the supplies being made. However, it seems to us that the contractual framework in this case clearly expresses the economic reality of the transactions, that the nature of the supplies was not in dispute and that it was therefore unnecessary to address these authorities.

For the reasons given above, the Decision cannot stand and QASL’s appeal must be allowed.

In reaching this conclusion, it would be harsh, in our view, to express undue criticism of the Decision. The effect of the Second Waiver was not raised or even mentioned in QASL’s skeleton argument before the FTT (Mr Edwards informed us that he was instructed very shortly before the FTT hearing). Mr Edwards also informed us that, whilst the Second Waiver was mentioned in cross-examination by Ms Brown and in his reply, he accepted that his submissions before the FTT on this point had not been made with the same force as they were made before us. It seems likely, therefore, that the terms and significance of the Second Waiver were not fully drawn to the attention of the FTT.

In the light of our conclusions on Grounds 1 and 2, it is unnecessary for us to express any view on Grounds 3-9.

We consider that the FTT’s error of law was clearly material to its conclusion. For the reasons given above, we set aside the Decision.

Under Section 12 Tribunals, Courts and Enforcement Act 2007 we have the power to remit the Decision to the FTT or to remake the Decision.

We see no reason to remit the Decision. The question of the effect of the Second Waiver is self-contained and is apparent on the face of the documents.

For the reasons given above, we remake the Decision, allowing the appeal and setting the penalties aside.

Any application for costs in relation to this appeal must be made in writing and served on the Tribunal and the person against whom it is made within one month after the date of release of this decision as required by rule 10(5)(a) and (6) of the Tribunal Procedure (Upper Tribunal) Rules 2008.