Grey market a grey area for UK tribunal

Mobile phone trader wins appeal against HMRC after it fails to show proof of knowledge of carousel fraud

A former dairy farmer turned grey market mobile phone trader has won a landmark appeal against HM Revenue & Customs (HMRC) over withheld VAT.

The withheld amount, which comes to more than £600,000, was refused by HMRC in 2006 on the grounds that the transactions in question were part of overall schemes “to defraud the public revenue” which the firm’s owner knew or “should have known”.

However, when legal proceedings were issued against the firm, the burden of proof resided with HMRC to prove the firm was knowingly involved in VAT carousel fraud.

The company in question – Global Trading Consortium, parent company HT Purser Limited – changed its registered business activity from dairy farming to "other wholesale activity" in 2004 – namely buying mobile phones from UK suppliers and exporting them outside the EU.

A total of 34 transactions were examined during the case.

Unfortunately for the unwitting director of the business, a large number of the deals were found to be at the tail end of a fraudulent chain.

During the seven-day appeal last year, a total of 40 lever-arch files of documents were discussed, along with oral testimonials supported by written documents.

Concluding, Judge Malachy Cornwell-Kelly said in a statement: “Overall, we saw Mr Purser as a straightforward witness, whose reactions to questioning were characteristic of a person who had behaved honestly, but in some respects unexpectedly... It does seem remarkable that tens of hundreds of thousands of pounds' worth of goods should be traded without any explicit provision regarding the passing of title, times and methods of payment, quality, provision for dispute resolution and so on.”

The statement added: “That said, we are conscious that there has been no adequate evidence before us of what was normal commercial practice in this type of trade by a small trader in the grey market. ...Mr Purser’s business is entitled to be seen as legitimate unless the contrary is shown.

“Having observed Mr Purser in the witness box for a considerable period under prolonged and searching cross-examination, our assessment is that though his manner of doing business seems to us to have been rough and ready, that does not in the circumstances imply dishonesty on his part.”

HMRC has the right to appeal the decision.