Carousel / MTIC Fraud Update

Highlights  Carousel / MTIC fraud update  International Supply of Services  HMRC duty of care

November 2008 Issue 78 This material is intended only as a guide, professional advice must always be obtained in specific cases. VATMANAR NEWS This newsletter is aimed primarily at professional advisors to highlight new developments hidden in the mountain of VAT paperwork. We are not able to provide full answers and comments, but will refer you to more detailed articles etc., in professional publications.

We wish you a happy & prosperous 2008

Carousel / MTIC fraud update

Two recently reported cases of fraud, seem to have convinced HMRC that their hard-line stance is correct, despite losing cases in the UK courts and in the ECJ. The two cases were cases of real fraud (as opposed to ill-conceived notions). The first involved a £51m fraud committed over a 10 month period, involving goods that never existed and were supposedly imported and re-exported. Malcolm Edwards-Sayer was found guilty of conspiracy to cheat the public revenue and was jailed for 6 1/2 years. He was also found guilty of stealing £18000 from injury claimants passed on to him by Claims Direct, resulting in a further jail sentence of 3 ½ years. He was banned from running any type of company for the next 12 years. The judge described him as being “diligent and dedicated in your dishonesty”. Edwards-Sayer was at the time of the offences a lecturer in law. The second (Calltell Telecom Ltd) was an appeal at the VAT & Duties Tribunal concerning the non-payment of £18,248,712 VAT input tax. The appellant was associated with another company that had also been involved in the fraud involving mobile phones. The Tribunal were satisfied that the appellant had “failed to take every precaution which could reasonably be required of them to ensure that their transactions are not connected with fraud.” Indeed the Tribunal were in no doubt that the majority of the transactions were wholly artificial and nothing more than a device to cheat the tax authorities.

Comment. Although fraud must be investigated and punished, it is wholly inappropriate for HMRC to blatantly use MTIC fraud enquiries as an excuse not to repay the legitimate input tax claims, of perfectly honest and legitimate taxpayers who have been trading for many years following the same pattern of trade, obtaining the required documentation, and complying with the VAT regulations, only for HMRC retrospectively to require further information, and when it is not forthcoming (for legitimate commercial reasons) allege fraud. Despite rulings in the UK & European courts, HMRC are refusing to comply with the law! Could it be anything to do with the fact the PSBR is near to the £38 billion ceiling, because of massive overspends on several Government projects in the NHS, Defence etc as well as the plethora of new non- jobs

International Supply of Services

This area of VAT is fraught with difficulty due to the nature of the supply of services, the various different regulations relating to place of supply, and where the supplier is established. Additionally there has been number of VAT Tribunal & ECJ cases which has clarified specific maters , and have served to produce an even more complicated area of VAT liability. The cases include:- Faabourg Gelting; ARO bv; DFDS a/s; Chinese Channel; RAL (Channel Islands) Ltd; Zurich Insurance Co and Cadbury Schweppes. Comment. The articles in Indirect Tax Voice are good summary of the current general position, but care is needed to be exercised in putting any case to HMRC because very few officers are cognizant with business practice and the law. Never ask them for help, tell them what you think (with the necessary precedents) and ask for confirmation that your understanding is correct – it will save a lot of hassle. Further reading. Indirect Tax Voice Vols 93 & 94

HMRC duty of care

The Court of Appeal in the case of Neil Martin Ltd, held that there was not a private law cause of action where HMRC had failed in its statutory duty. The case concerned a matter relating to CIS certificates which had not been issued. There was a mandatory duty, by HMRC, to issue certificates, but no time limit was set - other than to act within a reasonable time. There was no legal remedy available to the taxpayer in respect of the non-compliance. In this case where an HMRC employee undertook to make an application on te taxpayer’s behalf, which the taxpayer had not called for nor wanted – a duty of care was owed.

Comment. The processing of VAT registration certificates or a VAT refund could raise similar issues of whether, when acting under a public law statutory power, HMRC owes any private law duty of care

Further reading. Indirect Tax Voice Vol 94

By the way

VAT & Trusts. Earlier last year the ECJ ruled that VAT charges in investment trusts were illegal. The Association of Investment Companies is arguing that venture capital trusts should also come within the scope of the same ruling. The pensions industry is also considering whether to launch it own challenge. Rebates & credit notes. HMRC Brief 67/07 clarifies the treatment for VAT purposes of rebates, credit notes & similar transactions relating to business promotions between suppliers and their customers. HMRC expect that the correct VAT treatment will be applied wef 1 January 2008, to avoid unnecessary business cash flow problems where little or no revenue is at risk, no retrospective action will be taken on transactions occurring before that date. Validity of alternate assessments. Westone Wholesales Ltd (ChD 26 Nov 07) This was a case where £1.1 m input tax was disallowed on an “exports” over 6 VAT return periods, consigned to Spain, but never reached the destination. HMRC issued assessments for part of the period on the basis of “preferred calculations” and for the balance “alternate calculations”, the High Court noted that although the methodologies were inconsistent, they were not cumulative, they were inter-related but mutually exclusive to specific periods. Therefore the assessments were not held to contravene the doctrines of legal certainty and proportionality. Virtue t/a Lammermiur Game Services. The Tribunal confirmed that the sale of “serviced” plots to housebuilders constituted a single supply for VAT purposes.

EC 6th Directive. Note that this has been recast and many of the numbers of the original Articles have been changed,

Manchester VAT & Duties Tribunal Centre has now moved to Alexandra House, 14 -22 The Parsonage, Manchester M3 2JA (tel 0161 833 5110 fax 0191 833 5151). The new centre is behind Kendals, off Deansgate. Parking is lousy and expensive in the area! There is a free bus on a circular city centre route which includes both Victoria & Piccadilly train stations.

Don’t forget we can organise your course for you, in any VAT subject! And the bonus is that it will be specifically tailored to your requirements and will be cheaper.

For the benefit of subscribers and clients, we run a free telephone helpline service on 01625 850642.

For further Information on any of the points raised above, or any other VAT matter, contact Alan Rashleigh, Alan Rashleigh & Co. 37-39 Park Lane, Poynton, Cheshire, SK12 1RD Tel: 01625 850642 Fax: 01625 879280 Email: [email protected]