Traders set for Supreme Court after VAT appeal fails

Courtroom drama: The Court of Appeal hearing has provided little clarity for 800 ongoing cases

A Court of Appeal ruling on several mobile firms’ VAT tussle has failed to provide
the clarity expected, and the industry’s battle with HM Revenue & Cust­oms (HMRC) is set to continue through UK and European courts.

Calltel Telecom, Opto Tele­links and Mobilx, now in administration, have previously battled HMRC in the High Court and a Tribunals process for more than £25m in combined VAT deductions. A fourth firm, Blue Sphere Global (BSG), was part of the same hearing, as HMRC appealed a tribunal ruling in the trader’s favour.

The case was the first to reach the Court of Appeal since the landmark Axel Kittel versus Belgium case in the European Court of Justice (ECJ). The Kittel case saw the ECJ rule that firms are ineligible to make tax deductions for transactions “they knew or should have known” were linked to fraud.

In a transcript of the appeal hearing, available from the British and Irish Legal Infor­mation Institute, Lord Justice Moses stated that the earlier tribunal had applied the wrong test in seeking to ascertain whether traders should have known their trans­act­ions were “more likely than not” to be connected to fraud. However, the ruling against Mobilx was upheld.

The appeals of Calltel and Opto Telelinks were also dis­missed, as was HMRC’s app­eal against the BSG decision.

CRN understands that Mobilx, Calltel and Opto Telelinks are to take their fight to the Supreme Court and the case could eventually end up in the ECJ. There are currently 800 similar cases awaiting tribunal or high court judgment in the UK, involving more than £2bn in VAT.

M Ali Akram, a VAT appeal specialist lawyer at Lexlaw Solicitors and Advocates, said the appeal hearing was something of a damp squib. But he added there were points of clarification traders could take away, such as the ruling’s assertion that the burden of proof lies squarely with HMRC.

“The usual principle is ‘he who asserts, must prove’, and that has been very clearly stated by the Court of Appeal,” he said.

Akram welcomed the possibility of a Supreme Court appeal, claiming UK legal tests are “a higher hurdle” than those applied in the Kittel case.

“It is inherently unfair for HMRC to proceed against exporters and not the fraudsters directly,” he said. “It is imp­or­tant that the full weight of Supreme Court judicial attention is brought to bear on the actions of HMRC.”

The appeal also directed tribunals to look beyond a firm’s due diligence proces­ses and consider if wider business practices provide any real evidence of fraud. This was welcomed by Akram and Tony Guise, partner at VAT specialist Guise Solicitors.

“A lot of things exporters do are perfectly good practices,” said Guise. “The judgment also clears up the burden of proof and makes it clear that the [HMRC] test is wrong.”

Anthony Elliot-Square, managing director of the International Phone Traders web site, was underwhelmed by the appeal ruling.

“It does not help anybody and skirts around the issues,” he said.

HMRC continues to stigmatise mobile and CPU traders and cast doubt on the legitimacy of large portions of the industry, added Elliot-Square.

“HMRC is using a back-door route to make people pay,” he said. “Basically this is legalised theft.”