Lancer Scott Limited v The Commissioners for HMRC

The principles relating to the adequacy of reasons were not in dispute.

In Flannery v Halifax Estate Agencies Ltd [2000] 1 WLR 377 Henry LJ made at [381] the following observations in the relation to the need to give reasons in a judicial decision:

In English v Emery Reinbold & Strick Ltd [2002] EWCA 605 (‘English’) at [16] the court expressed the matter simply by saying that justice will not be done if it is not apparent to the parties why one has won and the other has lost.

The adequacy of reasons will depend on the nature of the case. The judgment must enable the appellate court to understand why the judge reached the decision. This does not mean that every factor which weighed with the judge in the judge’s appraisal of the evidence has to be identified and explained. The issues which were vital to the judge’s conclusion should be identified and the manner in which the judge resolved them should be explained (English at [17] and [19]).

It is not sufficient simply to recite one party’s submissions and concur with them: see Conservatory Roofing UK Limited v. HMRC [2022] UKUT 182 (TCC) at [11], [12]. Nor is summarising submissions and evidence a substitute for the giving of reasons: see, for example, Grzegorz Sczcepaniak T/A, PHU Greg-Car v The Director of Border Revenue [2019] UKUT 295 (TCC).

It is, however, unrealistic for an appellate court to expect a trial judge to refer to all the points which influenced their decision. Reasons for a judgment will always be capable of having been better expressed. Reasons should be read on the assumption that the judges knew how they should perform their functions and which matters they should take into account. A decision should not be picked over or construed as though it was a piece of legislation or a contract: see Rahman v Munim [2024] EWCA Civ 123. The judgment should be read as a whole. It is acceptable for reasoning to be concise: see Proctor & Gamble UK v. HMRC [2009] EWCA Civ 407.

Judicial restraint should be exercised when the reasons are being examined. The appellate court should not assume too readily that the tribunal misdirected itself just because not every step in its reasoning is fully set out in it: see R (Jones) v First-tier Tribunal (Social Entitlement Chamber) [2013] UKSC 19.

A judgment should not be disturbed on the ground of inadequacy of reasons, unless, despite the advantage of considering the judgment with knowledge of the evidence and submissions made at the trial, the losing party is still unable to understand why it is that the judge reached their conclusion. Whilst it is always desirable that a judgment should be comprehensible for the first-time reader, that is not the test of the adequacy of the judge's reasons. The adequacy of the reasons must be tested in the context of the knowledge and understanding of those who were present at the trial: see Harris v Purfleet 2009] EWCA Civ 1645 at [21].

The correct approach of the appellate court was set out in English:

Mr Brown directed us to the part of the FTT decision where the Respondents’ case was set out in detail from paragraphs 33 to 71 inclusive under the heading ‘The Respondents’ Primary Case’. In contrast, there was no heading for the Appellant’s case and the only reference to it was at paragraph 140.

Mr Brown took us to various paragraphs in the FTT decision drawing our attention to alleged inadequacies arguing that the FTT essentially just repeated the Respondents’ submissions and failed to engage at all with the majority of the issues put by the Appellant. He also submitted that each of the points made by the Appellant in relation to its case was material (and they were also cumulatively material).

Mr Brown made seven specific criticisms of the FTT’s decision, which we consider below.

Mr Biggs argued that there was neither a failure to engage with the Appellant’s case nor a failure to give reasons. He noted that it was appropriate for the FTT to set out the basis advanced by the Respondents for the assertion that there had been knowing participation in fraud. This was central to the issues in the case, including the issue as to the time limit for assessment, and it was the Respondents who bore the burden of proof.

The next section of the FTT decision was a summary of the evidence, which included extensive cross- examination of witnesses. He noted that, as is often the case in the course of that kind of summary of evidence, the FTT provided some indication of the weight given to different parts of the evidence and the extent to which it considered points put in cross-examination had merit.

The judgment must be considered as a whole because the sections interrelate.

He submitted that the FTT decision was more comprehensive in its recitation of the evidence than was required, but the findings were clear as was the rationale for those findings. The Respondents’ primary case was that no supplies were made – many witnesses were called by the prosecution to prove that assertion in the Folwell trial. Thirteen witnesses were called by the Appellant before the FTT on the basis that they would undermine the prosecution evidence – in fact, their evidence largely supported the Respondents’ case.

In our view, despite the submissions made by Mr Biggs, the way in which the FTT structured its decision was far from ideal. There is considerable detail, particularly regarding the Respondents’ evidence, set out by the FTT. We accept that the Appellant’s submissions have not been set out with the same level of detail. However, this is not particularly surprising because, as Mr Biggs noted, the burden was on the Respondents to prove that the assessment was valid, was made to best judgement and issued in time and that the inaccuracies in the returns were deliberate.

The structure of the decision has also made it at times difficult to follow all of the FTT’s reasoning. There are many findings of facts but there is no section that sets out those findings. It may not always be necessary to have a specific section in a judgment setting out findings of fact, and, in some cases, the findings might be more logically grouped within other sections. However, we do think that, in this particular case, it has made it harder for us to identify why the FTT reached the decision that it did.

Nonetheless, we consider that the reasons given by the FTT are sufficient. As was made clear in English, the role of this Tribunal in this appeal is to review the FTT’s decision in the context of the material evidence and the submissions made at the trial. The Appellant and its representatives were present throughout the hearing and heard all the evidence and submissions made. They had an insight into the proceedings that casts light on the decision.

As the authorities make clear, the FTT’s decision must be read as a whole. In this case, the FTT, when setting out the evidence, has incorporated findings or conclusions. It has also adopted submissions made by the Respondents. In so doing, we consider that it has incorporated the reasoning contained in the submissions but the FTT did not always refer to that reasoning with the result that the reader has to refer back to earlier parts of the decision. Nonetheless, this lack of clarity does not mean that the Appellant can reasonably claim that it does not know why it lost.

We consider below the seven specific points that Mr Brown says were not engaged with by the FTT in circumstances where it was obliged to do so. In so doing, we remind ourselves that, in accordance with the case law authorities:

We now turn to the seven particular criticisms relied on by the Appellant.

The first was that the FTT did not engage with the Appellant’s case that the funds paid to Folwell by the Appellant as part of a money laundering scheme makes no sense: ‘clean’ money goes in but ‘dirty’ money comes out. No reasons were given by the FTT in relation to this. The Respondents’ case was that it was a money laundering scheme. They relied on the evidence from the prosecution at a money laundering trial. There was no independent investigation by the Respondents. There was no evidence that the directors of the Appellant received other benefits in addition to its being able to claim input tax for VAT and a corporation tax deduction for the payments.

Mr Biggs argued that the role of ‘clean’ money in a money laundering scheme was dealt with by the FTT when it considered the rival submissions on this point. He submitted that the fact of the money laundering conviction was only one of the factors relied on by the Respondents. An example was given by the prosecution of the part clean money plays in money laundering. There was ample evidence of financial connections in both directions.

We note that, at [139], the FTT dealt with the Appellant’s submission that the scheme did not make sense:

The FTT also dealt with the assertion that there was no evidence that the directors of the Appellant received other benefits. We have considered the prosecution opening note at page 808 paragraph 230 referred to by Mr Brown where it is recorded that Folwell said Hosier had lent him £100,000. The FTT recorded Hosier’s assertion to this effect at [112]. We have also noted Mr Brown’s point that Hosier went to the police station voluntarily. We note the evidence from the prosecution bundle relied on by the Respondents and set out by the FTT at [63] and [68] to [70] concerning substantial payments made to Hosier, the timing of the payments and the attempts to transfer Folwell properties to Hosier and others. The FTT also dealt with the Appellant’s argument that the VAT and corporation tax deductions do not make sense in the context of the making of payments of £4million.

We consider that, when reading the decision as a whole and in light of the evidence set out by the FTT and the evidence in the prosecution bundle, the reasons in [139] above are adequate. The finding of fact that it was probable that directors were rewarded or promised future reward was one that, on the evidence, was open to the FTT.

The FTT was not required to explain how money laundering works. The fact that Folwell was convicted of money laundering and that the Appellant’s payments to his accounts were part of the money laundering scheme needs no further explanation. Nor was it suggested by Mr Brown that the FTT could go behind the criminal conviction.

We deal with the second and third points together. The Appellant asserts that of the 49 jobs verified by the police, 12 witnesses were unable to identify if the supplies were made or not. Of the remaining 29 invoices, there were very few where the customers were able to say that none of the invoiced goods were not used on their sites. He referred to the Prosecution Opening Note pages 2204 and 2205 and closing submissions at paragraph 21. What was put to the witnesses in the police investigation in 2012 were the Appellant’s suppliers’ invoices. Also, those witnesses were not asked about other jobs on which materials were used – closing submissions paragraphs 20 and 23.

The Respondents submit that the limitations of the exercise conducted by the police in respect of the invoices is incorporated by the FTT: see [136], [143] and [171] of the FTT decision.

Whilst not directly addressing the Appellant’s argument, it is clear, in our view, that this was in the mind of the FTT. At [136] the FTT referred to it directly by saying some of the supplies referred to in the invoices may have been genuine and at [143] where it found that it was not credible that so many of the sample of invoices taken by the police would have been innocently assigned to jobs in error (as suggested by Hosier). Although the Appellant criticises the police investigation because only the Appellant’s suppliers’ invoices were put to witnesses and witnesses were not asked if the supplies could have been used on other jobs, we were not directed to any evidence that the Appellant or its witnesses had provided to the FTT to rebut the evidence from the police investigation. In our view it was an argument without consequence in light of the evidence overall. Having considered the evidence set out by the FTT, including both the parts of the prosecution evidence relied on by the Respondents and the evidence of the Appellant’s witnesses, the evidence that the supplies identified in the invoices were not made or that the items on the invoices were grossly over-exaggerated was overwhelming. In our view, the FTT did not need to explain any further why it had rejected the Appellant’s argument.

The fourth point relied on by Mr Brown was that two of the four suppliers had declared taxable supplies of over £560,000 on VAT returns during the relevant period (see HMRC printout page 811 and 812). The FTT simply stated, without any explanation, that it preferred HMRC’s submission that they cannot have related to supplies to the Appellant. Mr Brown referred to the closing submissions at 26 and 27 and transcript day 5 page 36 lines 9 to 20.

Mr Biggs argued that the FTT accepted the explanation given by the Respondents as to the reason for concluding that it was unlikely that VAT declarations made by two of the purported suppliers related to supplies to the Appellant. By setting out that explanation and in concluding that was correct its reasons were incorporated by reference to the submission.

The prosecution evidence was that net credits to CH Construction between August 2007 and October 2009 totalled over £2.5m of which over £1.5m came from the Appellant. Clearly, there were other sources of credits during the relevant period. The VAT declaration of £437,146 taxable supplies and payment of VAT in the amount of £20,282 obviously bore no relation to the credits actually received by the company or the VAT (around £500k) that ought to have been accounted for. The position is similar for Smart Services. In response to the argument that the Respondents had not demonstrated a connection to tax loss for the full amount because the two companies had declared taxable supplies on VAT returns, the Respondents’ submission was that it was improbable that the sums on the VAT returns related to the Appellant’s payments because it was improbable that Folwell would make a partial declaration and that there were other credits in the two bank accounts. The Respondents had set out in a table (UTHB 2566 and 2567) payments into both accounts. In relation to CH Construction, if the payments from the Appellant and Micra were excluded, the payments from the other companies totalled £435,056, which the Respondents submitted was extremely close to the £437,146 figure declared. The result was similar for Smart Services. At [166] the FTT summarised the Respondents’ submission and said it preferred it to the Appellant’s submission. In our view, in so doing, this constitutes sufficient reasoning and addressed the Appellant’s argument. We recognise that the FTT could have said more but, as we explain above, we think that this was sufficient for the Appellant to understand why, in the context of the evidence given, and submissions made at the hearing, it had lost.

The fifth point was simply an assertion: how credible was it that over 900 invoices were false? We do not consider that the FTT specifically addressed this argument. But that is just the sort of example of peripheral arguments that the FTT need not refer to in its decision. In our view, there was before the FTT a significant volume of evidence referred to by the FTT in its decision that the invoices were false.

The sixth point is the argument that the Appellant could not undertake its work without the Folwell supplies. The reason given by the FTT was the total amount for supplies paid over the period was much higher than the amount paid to the Folwell companies (see [140]). There was no explanation as to what this meant.

At [31] the FTT set out a table of the Appellant’s turnover and profit, noting in [32] that of £16,121,092 of purchases £3,351,930 were payments to Folwell accounts. The FTT also noted that the invoices purported to show that he was a significant supplier but by no means the sole supplier. At [140] the FTT set out the Appellant’s argument and rejected it. The explanation was that the total amount paid for supplies (more than 75%) over the period was much higher than the amount paid to the Folwell companies. We do not consider further explanation was needed.

The seventh point is that the Appellant relied on the evidence of Mr. Cook, a forensic accountant, in respect of the Appellant’s financial statements, which were said to reflect the fact that the goods must have been supplied (transcript day 5 pg. 32 line 2 to page 33 line 1). There is no mention of Mr. Cook’s evidence in the discussion part of the FTT decision.

The Respondents submitted, among other things, that the evidence of Mr Cook actually assisted the Respondents’ case: this could be seen from [130], [131] and [158] of the FTT’s decision.

We do not consider that it is correct to say that there was no mention of Mr Cook’s evidence in the discussion part of the FTT decision. At [158] reference is made to the submissions made by the Respondents in relation to Mr Cook’s evidence. We have considered the transcript referred to by Mr Brown and the cross-examination of Mr Cook. The FTT noted the submission that Mr Cook had confirmed that the sudden appearance of figures for closing stock might be consistent with difficulties in allocating stock and purchase invoices following the departure of Folwell. Whilst the FTT has not dealt with the Appellant’s argument directly, we are of the view that Mr Cook’s evidence was undermined in cross-examination (as noted by the FTT) and that his evidence was insufficient to counterbalance other evidence that the supplies were not made. In our view, the FTT was not required to say more than it did. Again, we note, and rely on, the case law referred to above, which makes it clear that the FTT need not deal with every point in reaching its decision. Read as a whole and in the light of the proceedings before it (including the cross-examination of Mr Cook), we consider that it is sufficiently clear why the FTT reached its decision in this respect.

As we noted above, there were shortcomings in the FTT decision. On a number of occasions, we have had to consider the underlying material in order to identify the FTT’s reasoning. However, it is of relevance that the Appellant was clearly aware of that material and, once we were directed to it, we have been able to identify sufficient reasons for the FTT’s conclusions.

We are, therefore, of the clear view that the conclusion the FTT reached was open to it on the evidence and that the Appellant and its representative can be in little real doubt as to why it came to that conclusion. We find that the decision was adequately reasoned.

Under this ground of appeal, the Appellant, in effect, seeks to challenge factual findings made by the FTT.

In a challenge of that kind the following principles set out in Volpi & Anor v Volpi [2022] EWCA Civ 464 are relevant:

In Georgiou (trading as Mario’s Chippy) v Customs and Excise Commissioners [1996] STC 463 (“Georgiou”), Evans LJ said the following at [476e-g]:

Evans LJ then went on to explain at [476h-j] what an appellant needed to establish:

He ended this part of his judgment in a well-known passage by saying what was not permitted:

We consider that this ground of appeal as pursued by the Appellant brings us very much into the territory of a “roving” selection of evidence and a general plea by the Appellant that the tribunal should have come to a different decision. There is, in our view, very little attempt by the Appellant to engage with the totality of the evidence before the FTT. Rather, this ground is, on analysis, largely a series of complaints that the FTT could have reached a different decision. However, the mere fact that it might have been possible for the FTT to have reached a different decision is not sufficient for us to interfere with the FTT’s decision. The enquiry required of us is whether, on the basis of the evidence overall, the FTT was entitled to make the decision it did. In our view, it was.

The Appellant made five separate points under this ground of appeal each of which we now consider.

The first point was that the FTT erred when it found that the invoices were false. It found them false but only to the extent that the “majority of the items listed …. were not in fact supplied” (at paras. 136 and 171 of the Decision). Therefore, an unspecified amount was genuine: this was said to undermine the finding that the invoices were fraudulent in their totality. If some were genuine, input tax should have been allowed. It was for the FTT to find the correct amount of tax.

Mr Biggs submitted that the finding of the FTT was not a positive finding that some of the items were supplied. If a witness confirmed that X and Y were definitely not used but, for example, a generic item such as a packet of screws might have been used on another job all that amounts to is a possibility that cannot be ruled out. If an invoice has fraudulent items on it, then the taxpayer has not done enough to make out its claim – how is an officer of HMRC making a best judgement assessment to work out what is correct?

We accept that submission. We consider that this is a matter for the Appellant to show. The Appellant did not, of course, accept that the majority of the supplies were not made. It was, therefore, of no real surprise that it did not provide an alternative basis by reference to which it could have identified a proportion of legitimate supplies. The burden is on the Appellant to prove that the amount of VAT assessed is incorrect and to prove the extent of any overcharge.

The FTT found at [136] and [171]:

We agree with the Respondents that these findings of the FTT are not positive findings that some of the supplies were genuine.

The Appellant did not challenge the assessment on the basis that it was not made to best judgment. It has not put forward any evidence to prove the extent to which VAT has been overcharged.

The second point was that Mr Brown argued that the finding in respect of the fraudulent nature of the invoices was coloured by the fact that the FTT had not engaged with the Appellant’s submission that this could not have been part of a money laundering operation. We have already considered this above and found that the FTT did engage with that submission.

The third point relied on by Mr Brown is that the finding that the invoices were false was based on findings, or drew inferences from findings that were wrong, or perverse or irrational, or there was no evidence to support the finding, or it was made by reference to irrelevant factors or without regard to relevant factors.

In particular, the Appellant challenged the following findings of fact or failure to make findings.

Firstly, the Appellant challenged the finding that the only two building companies that paid money into the Folwell accounts were the Appellant and Micra [139]. Even in HMRC’s closing submissions it set out a table at paragraph 37 that six other such companies had made payments to Folwell, namely Micra Servicing (which had no connection to Micra itself), Elite Electrics, Elite Electrical, M&C Maintenance, Korbuild Limited and GM Construction (see also transcript day 5 pg. 35 lines 5 to 14).

We accept that the finding by the FTT that the only two construction companies that paid money into the Folwell accounts were the Appellant and Micra is not strictly accurate. However, in the context of the evidence as a whole, these were the only two companies that paid significant amounts. The evidence of the payments into the associated Folwell accounts was summarised in the prosecution opening. The point made by the prosecution was that only £85k was spent by the Folwell companies for building supplies in the relevant period, some supplies were needed for Folwell properties, and some work was done on Folwell properties. As can be seen from the table set out by the Respondents summarising the relevant prosecution evidence, it can be inferred that Korbuild Limited and GM Construction did receive supplies from Folwell, and it is likely that the payments made by them were included in the taxable turnover declared. Elite Electrical was a company used by Folwell. M&C Maintenance was listed as an associated Folwell account. It is not clear to us that Micra Servicing and Elite electrical are construction companies. In light of the above the identified error is not significant.

Secondly, the Appellant challenged the finding that there was no legitimate reason why an individual could have “invoiced” for supplies made by four different suppliers ([165] of the FTT’s decision).

We obviously accept that there may well be legitimate reasons for acting in this way but the relevant issue was that, in the circumstances of this case, no reason could be given as to why one supplier invoiced in different names for building supplies. There was no evidence of differentiation in terms of the type of supplies. Moreover, when asked, none of the witnesses had questioned this. In our view it was reasonable for the FTT to infer from this (together with all the other evidence) that it was apparent that this was a VAT fraud.

Thirdly, the Appellant challenged the fact that the FTT had failed to accept that there was evidence consistent with their being no VAT fraud. At [163] it found as evidence that Folwell had withdrawn £2.8 million in cash, that Mr. Hosier had “cash hoards” (not quantified) and had bet large amounts of cash through bookmakers despite there being no evidence of Mr. Hosier receiving cash from Folwell. HMRC accepted that the COP9 investigations into Messrs. Hosier and Cooke resulted in no additional tax to pay (pg. 2302 HB) and Officer Jackson confirmed Mr. Hosier had explained that the payment made to him (Rob Griffiths) was made by Wilf Folwell in respect of loans made to the “directors of Micra”. Officer Jackson accepted in a letter dated 24 October 2016 that it was possible that the various payments made from the bank accounts controlled by Wilf Folwell were repayments made on behalf of the directors of Micra to Terry Hosier and Rob Griffiths, via bank accounts controlled by Wilf Folwell (pgs. 1550-1551 HB).

As was made clear in Georgiou, the issue is this: “was the finding one which the tribunal was entitled to make?” We consider that, in the circumstances of this case, there was ample evidence justifying the decision that the FTT did reach. It did not need to deal directly with every aspect of the evidence relied on by the Appellant and its failure to do so in connection with these matters is not, in our view, sufficient to justify us interfering with the FTT’s overall decision. We have already found, at [58] above, that the finding that it was probable that the directors were rewarded or promised future reward was open to the FTT.

Fourthly, it is asserted by the Appellant that it was Mr. Hosier who reported Mr. Folwell to the police in 2010, saying that he owed him money. Mr. Hosier gave a witness statement to the police to that effect (see Appellant’s closing submissions para. 29).

Again, as with the third attack on a factual finding, this seems to us to be no more than a complaint by the Appellant that this aspect of the Appellant’s case was not accepted by the FTT as sufficient to alter its assessment of evidence in favour of the Respondents’ case.

Fifthly, it was said that the “contemporaneous notes” (pgs. 1573-1576) of Officer Jackson should not be preferred to Mr. Hosier’s denial that the police found a cannabis factory at a property owned by him ([164] of the FTT decision). Once again, like the fourth issue, this seems to us to be no more than a complaint by the Appellant that this aspect of the Appellant’s case was not accepted by the FTT.

In short, we consider that the Appellant has undertaken an “island-hopping” exercise, alighting on a series of relatively minor points that it had hoped the FTT would accept. In our view this aspect of this ground of appeal is exactly the roving selection of evidence that has been cautioned against. There was no sustained attempt by the Appellant to engage with the significant evidence referred to by the FTT that did justify its conclusion. Viewed as a whole, we consider that, despite the points made under this ground of appeal, there was sufficient evidence before the FTT to justify reaching the decision it did.

Under this ground of appeal, Mr Brown argued that, if the FTT was wrong in concluding that the payments to Folwell were part of a money laundering scheme and that the invoices were false, then it clearly erred in finding that the Appellant knew of the fraud. This would mean that the assessments were not valid: if the Appellant did not know of the VAT fraud, then the Respondents would be out of time to assess.

In light of our dismissal of the above grounds of appeal, it follows that this ground of appeal must also fail.

There was no error of law in the FTT’s decision. The appeal is therefore dismissed.