“… If you have genuinely done everything you can to check the integrity of the supply chain, can demonstrate you have done so, have taken heed of any indications that VAT may go unpaid and have no other reason to suspect VAT would go unpaid, the joint and several liability provision will not be applied.”
" ... the appellant must first identify the finding which is challenged; secondly, show that it is significant in relation to the conclusion; thirdly, identify the evidence, if any, which was relevant to that finding; and fourthly, show that that finding, on the basis of that evidence, was one which the tribunal was not entitled to make."
“We have noted the number of missing traders quoted in your letter dated17 January 2005 but given the detailed checks that Mobilx undertake we do not understand why the failings of other parties should continue to hinder Mobilx’s ability to carry out legitimate business activities. In addition, we consider the introduction of the Joint and Several Liability provisions in Section 77A,VAT Act 1994 with effect from10 April 2003 provides adequate protection for Customs in relation to revenue at risk from carousel fraud. However, Mobilx are happy to assist Customs in their attempts to tackle carousel fraud and will implement any additional due diligence checks which Customs consider to be necessary in relation to Mobilx’s transactions and will, if required, provide detailed information on a daily basis to Customs to assist the process of verifying transactions and quicken the process of identifying rogue businesses.”
“The change has exceptionally been granted based upon and specific to the current checks your client undertakes whilst conducting the business activities of the company. Please note, however, that any changes to this may result in the facility of monthly returns being reconsidered.”
“I returned to the point that if the company was repeatedly being advised that their deals were tracing back to defaulting traders then HMRC could come back to the company to say that they had that knowledge. Stuart Bell disagreed and said that was a legal decision and in anyway would be after the event. I pointed out that the information would be bound to be retrospective but could be viewed for future information.”
“From your records you will be able to ascertain who supplied you with the goods detailed above, and you may wish to consider what appropriate action is needed to ensure that VAT does not go unpaid in respect of any future transactions.”
“Has the taxable person, at the time of entering a transaction involving payment of value added tax by or to that person, and taking into account the actual knowledge of the taxable person at that time (including knowledge acquired from any enquiry or investigation), taken all proportionate steps available to it to ensure that, on the balance of probabilities, no aspect of the transaction is connected with any other party involved in, or any other transaction involving, fraud on the public revenue through the value added tax system?”
“99. There are, we think, three factors of importance in this case. First, that, despite the declared intention of dealing in second-hand phones, Mobilx began trading in CPUs immediately. We have already dealt with this point at some length, and have set out our conclusion that Mobilx always intended to deal in CPUs, a commodity of which the directors had no experience, and which they knew exposed them to greater risk than would have been the case had they dealt only in used phones. The second factor is the manner in which the directors and Mr Thompson benefited from Mobilx’s trade. The third, and in our view decisive, factor is the directors’ response to the fact that every traced transaction led back to a defaulter.”
“102. This was a business in which very large sums were earned, within two years of a standing start, by two young men (Steven Bell and Mr Thompson were aged under 30 at the time) buying and selling goods of which they had little or no prior experience. There was minimal trading risk: Mobilx held no stock but bought only to meet its customers’ requirements, and was invariably paid before it was required to pay its own supplier. At the least the directors and Mr Thompson should have asked themselves how it was possible to make so much money so easily. We have no doubt, from the manner in which Steven Bell and Mr Thompson gave their evidence, that the fact that they were able to do so led them away from asking that obvious question, and from examining Mobilx’s activities as critically as they should have done. We suspect—we can put it no higher—that Stuart Bell was swept along by them. We are fortified in that conclusion by his comment, at one of the meetings we have mentioned, that if Mobilx gave up dealing with its supposedly reliable suppliers and found others the incidence of tainted chains might become worse. Superficially the comment seems to be evidence of prudence, but the reality is that Mobilx’s track record, that every traced chain led back to a defaulter, could not have become any worse, and it does not seem to have occurred to Mr Bell or anyone else controlling Mobilx’s activities that the problem might be, as they now accept, that almost all the trade exists for no purpose other than the commission of fraud.”
“103. … It is true that in a market of the kind in which Mobilx contends it was engaged few traders can look beyond their immediate suppliers. … We accept (and Mr Cunningham did not suggest otherwise) that traders in a “grey” market will not wish to disclose the identity of their suppliers, for fear of being cut out or by-passed in future. Of necessity, therefore, due diligence in the shape of credit checks, verification of registration particulars and the like can be applied only to a trader’s immediate suppliers and customers. But we accept the Commissioners’ argument that due diligence of that kind is not enough. “104. The Commissioners’ Public Notice makes it clear that they expect traders to satisfy themselves not merely that their immediate suppliers, but also those who preceded them, will account properly for the VAT due on their supplies… “105. Of course, that is a difficult task and a trader in Mobilx’s position is almost certain to know less, and possibly nothing at all, of suppliers at one or more removes; … But there must come a time when a trader, told repeatedly that every one of his purchases followed a tainted chain, is compelled to recognise that without a significant change in his trading methods every one of his future purchases is more likely than not also to follow a tainted chain—in other words, he cannot possibly be satisfied, on the balance of probabilities, that each transaction he enters into will not be connected with fraud. Both Steven Bell and Mr Hetherington were, at best, reluctant to accept that this was so, but in our view it is inescapable. “106. This is not a case in which an occasional purchase can be traced back to defaulters while most are untainted, nor one where a trader has dealt with only one supplier of tainted goods, while other suppliers’ goods have been untainted. As the administrators accepted, every one of those chains of transactions in CPUs which HMRC had been able to trace led back to a defaulter, regardless of the identity of Mobilx’s immediate supplier or, indeed, its purchaser… “108. In our judgment, by the beginning of April 2006, if not sooner, Mobilx could not be confident of the integrity of its supply chains. It may be that its due diligence was good, but for Kittel purposes that is not the only test. Indeed, all the Bells and Mr Thompson accepted that due diligence was not enough on its own. It is true, too, that despite adverse findings the Commissioners had allowed Mobilx to make monthly returns, and that they had paid its claims, but their doing so cannot excuse Mobilx from compliance with the Kittel test. The essential question is a simple one: was it, or should it have been, apparent to Mobilx, by the beginning of April 2006, that if it continued to deal in CPUs as it had been doing for the last two years, its transactions were more likely than not to be connected with fraud? The only possible answer to that question is the one we have given: yes. It is in our view clear that Mobilx has forfeited the right of deduction which it claimed.”
“The difficulty facing the administrators, as we view the matter, is that Mr Jones’ arguments focused on only part of the relevant test, that is the part set out at paragraph 51 of the judgment in Kittel, and the quality of Mobilx’s due diligence, while largely ignoring paragraph 61, and the totality of the directors’ knowledge.”
“We have come to the conclusion on the totality of that evidence that Mobilx was not wholly candid with its own advisers, and consequently with HMCE. Its very rapid move into dealing almost exclusively in CPUs, and its correspondingly rapid abandonment of trade in phones, are in our view consistent only with a prior, at the time undisclosed, intention to deal in CPUs even if occasional trade in phones might continue. In short, we reject the contention that Mobilx was forced, by the Commissioners’ refusal to accept monthly returns, to abandon trade in used phones and deal instead in CPUs. Mobilx did deal in used phones, but it did so for a short period and even then sold most of the phones it bought to other United Kingdom traders, including Sound Solutions which had supposedly lost interest in the trade. We are satisfied that, while Mobilx may well have intended to deal in phones, it intended also, from the outset, to deal in CPUs.”
“The Commissioners rely in part, though in reality by way of background, on Mobilx’s undisputed awareness that fraud was prevalent in the trade in mobile phones and computer chips.”
“the level of profit made by Mobilx and the level of remuneration afforded to the directors and Adam Thompson could not have been achieved if the transactions in which Mobilx engaged were unconnected with fraud, so that the directors and Adam Thompson must have known that Mobilx’s business was not legitimate.”
“I understood from this letter that HMRC had granted the concession to Mobilx exceptionally, as its due diligence procedures were exemplary, and that if in future this ceased to be the case HMRC could withdraw the concession. It never did so – I inferred because it never had reason to.”