“1. This is yet a further case of so-called missing trader or “MTIC” fraud on the system of VAT. The decision of the First-tier Tribunal (“FTT”) conveniently describes the nature of a typical MTIC fraud as follows: “5 … goods (almost always small but valuable items such as mobile phones and computer chips) are acquired by a registered trader in the United Kingdom from a trader in another member State, and sold to a second UK-registered trader. The goods then usually change hands several times within the UK before they are sold to an overseas trader which, if it is located in a member State of the European Union, is registered for VAT in that member State. Commonly the transactions all occur within a few days of the entry of the goods into the UK, sometimes even on the same day, so that goods enter the UK in the morning, pass through the hands of several UK traders during the day, and are exported again in the afternoon. 6. The first UK vendor, the acquirer from overseas, charges VAT on the consideration paid by his purchaser, but fails to account to the respondent Commissioners for that tax, and disappears. Such documentation as he may have had—if any—relating to his acquisition is never produced to the Commissioners. For the scheme to work he must be a VAT-registered trader who provides the purchaser with a genuine VAT invoice, on the strength of which the purchaser claims an input tax credit. The purchaser’s own sale, and those of the other UK traders save the last in the sequence, usually generate a small profit and, consequently, a small net VAT liability, for which those traders account. The last trader, selling overseas, claims credit for the input tax he has incurred, but has no output tax liability since the sale is zero-rated. Usually this trader makes a significant profit, though that is not invariably the case; occasionally one of the antecedent traders can be shown to have made the greatest profit of all those in the chain. All of these sales and purchases, including the sale to the overseas buyer, are almost always properly documented. In the jargon that has developed to describe the various participants in such chains, the initial importer of the goods who fails to account for the output tax he has charged to his purchaser and disappears, is known as the “defaulter” or “missing trader.”
“Examining individual transactions on their merits does not, however, require them to be regarded in isolation without regard to their attendant circumstances and context. Nor does it require the tribunal to ignore compelling similarities between one transaction and another or preclude the drawing of inferences, where appropriate, from a pattern of transactions of which the individual transaction in question forms part, as to its true nature e.g. that it is part of a fraudulent scheme. The character of an individual transaction may be discerned from material other than the bare facts of the transaction itself, including circumstantial and "similar fact" evidence. That is not to alter its character by reference to earlier or later transactions but to discern it. To look only at the purchase in respect of which input tax was sought to be deducted would be wholly artificial. A sale of 1,000 mobile telephones may be entirely regular, or entirely regular so far as the taxpayer is (or ought to be) aware. If so, the fact that there is fraud somewhere else in the chain cannot disentitle the taxpayer to a return of input tax. The same transaction may be viewed differently if it is the fourth in line of a chain of transactions all of which have identical percentage mark ups, made by a trader who has practically no capital as part of a huge and unexplained turnover with no left over stock, and mirrored by over 40 other similar chains in all of which the taxpayer has participated and in each of which there has been a defaulting trader. A tribunal could legitimately think it unlikely that the fact that all 46 of the transactions in issue can be traced to tax losses to HMRC is a result of innocent coincidence. Similarly, three suspicious involvements may pale into insignificance if the trader has been obviously honest in thousands. Further in determining what it was that the taxpayer knew or ought to have known the tribunal is entitled to look at the totality of the deals effected by the taxpayer (and their characteristics), and at what the taxpayer did or omitted to do, and what it could have done, together with the surrounding circumstances in respect of all of them.” 8. In Megtian Limited (in administration) v HMRC[2010] EWHC 18 (Ch) Briggs J stated at [37] and [38]: “I n my judgment, there are likely to be many cases in which a participant in a sophisticated fraud is shown to have actual or blind-eye knowledge that the transaction in which he is participating is connected with that fraud, without knowing, for example, whether his chain is a clean or dirty chain, whether contra-trading is necessarily involved at all, or whether the fraud has at its heart merely a dishonest intention to abscond without paying tax, or that intention plus one or more multifarious means of achieving a cover-up while the absconding takes place. Similarly, I consider that there are likely to be many cases in which facts about the transaction known to the broker are sufficient to enable it to be said that the broker ought to have known that his transaction was connected with a tax fraud, without it having to be, or even being possible for it to be, demonstrated precisely which aspects of a sophisticated multifaceted fraud he would have discovered, had he made reasonable inquiries. In my judgment, sophisticated frauds in the real world are not invariably susceptible, as a matter of law, to being carved up into self-contained boxes even though, on the facts of particular cases, including Livewire, that may be an appropriate basis for analysis.”
" There is only one rule of law, namely that the occurrence of the fact in issue must be proved to have been more probable than not. Common sense, not law, requires that in deciding this question, regard should be had, to whatever extent appropriate, to inherent probabilities. If a child alleges sexual abuse by a parent, it is common sense to start with the assumption that most parents do not abuse their children. But this assumption may be swiftly dispelled by other compelling evidence of the relationship between parent and child or parent and other children. It would be absurd to suggest that the tribunal must in all cases assume that serious conduct is unlikely to have occurred. In many cases, the other evidence will show that it was all too likely. If, for example, it is clear that a child was assaulted by one or other of two people, it would make no sense to start one's reasoning by saying that assaulting children is a serious matter and therefore neither of them is likely to have done so. The fact is that one of them did and the question for the tribunal is simply whether it is more probable that one rather than the other was the perpetrator. "
“Our client was made aware of Workforce and Skill-Rite Limited through a working relationship with Bernic UK Limited…he formed a trusting relationship with the directors and managers. Whilst advising at Bernic, he was introduced to Adam Weir as being a director of Bernic and it was at a later date that he was then introduced to Neil Weir (from Workforce Limited, who was later the principle shareholder/director of Skill-Rite) as a potential solution to Hard Hat Limited’s staffing shortages.” 42. Ms Gillard noted that there was no record on Companies House records of Adam Weir being a director of BUL or having any involvement with the company. Mr Neil Weir remained an employee of BUL throughout the relevant period as demonstrated by HMRC’s PAYE records. Commercial Checks and due diligence 43. At a meeting with Mr Ferguson and Mr Penny on20 February 2014 Ms Gillard provided a leaflet about the use of labour providers and the continuing problems with fraud in the industry. Ms Gillard advise that it was good commercial practice to carry out checks and establish the legitimacy of suppliers. Mr Ferguson stated that due diligence was carried out on suppliers annually and that they were required to supply their VAT number and sign a document to say that their tax affairs were in order. According to Mr Ferguson the last checks had been carried out in September 2013 however Ms Gillard noted that there was no evidence provided to HMRC to support this assertion. Mr Ferguson stated that he used labour providers on referral or recommendation from other firms. He queried what he needed to do and whether he should follow all the checks on the leaflet. Ms Gillard advised that the phone check was very important and that he should pick the checks relevant to the company. 44. Mr Ferguson stated that he was an Approved Contractor Scheme (“ACS”) Pacesetter for the SIA and was one of the top 10% compliant security businesses in the country, providing advice and assistance to other companies to bring them up to SIA ACS standard. Mr Ferguson told Ms Gillard that SIA Licensing Authority regulations had been followed and checks are carried out to ensure all staff hold the appropriate licence. SRL provided a list of operatives used by the Appellant on a weekly basis which allowed the Appellant to check they were SIA registered. Due diligence was carried out on any guard or worker which was monitored and recorded in a spreadsheet provided to HMRC. Ms Gillard was advised that the SIA conduct regular checks and she noted that the level of due diligence in this area appeared to be much higher than the checks carried out on suppliers and customers. 45. In June 2014 Mr Penny the accountant advised HMRC that his firm had provided the Appellant with a link to HMRC’s VAT registration checker tool in 2010/11 which was used by the company at that time. The Appellant had recently used the VIES software to re-verify VAT numbers. The agent stated that suppliers were only instructed after due diligence checks had been carried out including recommendations, checking the company’s existence and meeting with management. Ms Gillard noted that if such checks had been carried out the Appellant would have discovered that the VRNs being used by both WL and SRL were not valid. 46. On8 July 2014 Ms Gillard wrote to the Appellant and Mr Penny regarding invalid invoices issued by SRL and WL in the 02/12 – 12/12 period. Ms Gillard requested a full explanation of the due diligence checks undertaken by the Appellant. On8 September 2014 Ms Gillard was advised by Mr Tobin that due to a flood at the Appellant’s main office caused by storms in April 2012 a large number of documents were destroyed including due diligence and correspondence. Ms Gillard noted that the Appellant indicated in a letter dated30 March 2015 that email and electronic documentation was intact, but other than two emails requesting SRL’s insurance documents no other evidence of due diligence was provided. 47. Mr Tobin explained that the Appellant was made aware of WL and SRL through its relationship with BUL and Mr Ferguson’s trusting relationship with the directors and managers of that company. Mr Tobin provided copies of contracts with both SRL and WL and advised that the Appellant should be able to provide limited details of the workers supplied by SRL as their names would be found on rotas. Mr Tobin said that SRL failed to provide insurance documentation which led the Appellant to cease trading with the company; email correspondence from the Appellant’s administration manager was enclosed to show the request to SRL on20 April 2012 . Ms Gillard noted that despite the Appellant requesting the insurance documents by the end of that week and SRL’s failure to provide them, the Appellant continued to use SRL until September 2012. Furthermore, despite the change to invoices where the VRN had been removed, the Appellant continued to trade with SRL and pay VAT. Ms Gillard also noted that she was advised that Mr Ferguson had visited the offices used by Neil Weir and SRL at Livingston Street, however it later emerged that the Appellant was already trading from an office in the same building. 48. In January 2015 Ms Gillard requested further information to support the Appellant’s due diligence procedures and correspondence ensued between the parties. On22 July 2015 Ms Gillard was provided with information on SIA checks, details of VAT invoice checks and controls and worker schedules related to invoices. Mr Tobin reiterated that certain records had been destroyed in the flood and asked that this be taken into consideration. 49. Ms Gillard issued a decision letter on10 November 2015 . By letter dated9 December 2015 Mr Tobin requested reconsideration of the decision and stated that due diligence carried out on SRL included meetings with the director, company checks, the VAT number being checked on HMRC’s website, past knowledge of the director, personal recommendation and other checks. Ms Gillard noted that no documentary evidence was provided in support of these checks. On18 December 2015 Ms Gillard wrote to the Appellant advising that she remained of the opinion that there was insufficient evidence to support the input tax claimed in relation to WL and SRL. Mrs Gillard accepted the Appellant’s assertion that many documents had been destroyed in the flood but explained that the Appellant had never specified what documents had existed and what was contained in the files which were damaged or destroyed in the flood. Mrs Gillard added that the checklist produced by Ms Wileman prescribes a list of checks; if those checks had been carried out the Appellant should have been aware that the suppliers were not legitimate; for example, one of the checks was for a VAT certificate but a VAT certificate could not have been obtained for a company that was not VAT registered. Furthermore, the Appellant had failed to explain what documents were missing, there was no attempt to explain how the records worked or what would have existed, only general statements that there were meetings, a build-up in the relationship and director checks carried out. 50. Ms Gillard considered the evidence of Mrs Enid Wileman who undertook the Appellant’s due diligence as part of her financial administration duties. The VIES check is a real time VAT number validation tool provided by the European Commission website. Both Mr Ferguson and Ms Wileman state that the VIES VAT checking system was used to check companies following advice from HMRC in 2008. Ms Wileman stated that she carried out these checks on SRL and WL before placing operatives on site. Ms Gillard notes that if these checks had been carried out in relation to validating the VRNs then the information provided by the European Commission VIES system would have shown the name and address of the VRN’s rightful owner and therefore would have shown that the VRNs provided by SRL and WL were not proper to those companies. Mrs Gillard clarified that as far as she was aware from a colleague in Customs and Indirect Tax Policy, since January 2010 VIES has provided for UK businesses the name and address associated with a valid VRN number; prior to 2010 VIES provided only a check on the number. Mrs Gillard stated that the document which confirmed this information could not be disclosed under EU law which regulates public access to European Parliament Council and Commission documents. Mrs Gillard was unable to confirm whether or not there was any delay in the region of 3 months between VIES being updated if a company was deregistered. Mrs Gillard agreed that a VRN check would be carried out at the start of a trading relationship and repeated if any changes were brought to a trader’s attention such as a change of company name, although she highlighted HMRC’s guidance which stated “Verify VAT registration details with HMRC before you use them and make regular checks for VAT registration numbers afterwards.” 51. Ms Gillard accepted that if the Appellant’s trading relationship with WL commenced as far back as February 2011 it was possible that a VRN check at that time would have shown a valid number. However she added that the VRN would have related to Orion Payroll Services Ltd although the address remained the same. 52. Mrs Gillard accepted that the SIA may be rigorous about its membership criteria and exercises considerable scrutiny over member businesses. However she explained that the organisation is different to HMRC and she was not aware of the level of checks that are carried out other than reports are done on an annual basis. She added that the information provided by Mr Tobin of the Appellant’s accountants which related to SIA checks was due diligence in relation to the workers, their badge status and right to work in the UK rather than due diligence on suppliers. Mrs Gillard did not accept that the SIA checks in relation to workers indicated that the same level of due diligence was carried out by the Appellant on its suppliers. Mrs Gillard took into account the overview given but concluded that it was not sufficient to show that the Appellant had checked the credibility and legitimacy of its suppliers. 53. Mrs Gillard noted that SRL’s insurance document was requested by the Appellant before the SIA audit. She accepted that the request for the document indicated a degree of scrutiny by the Appellant and that the failure by SRL to provide the document led to the termination of the trading relationship, although Mrs Gillard noted that it was only six months later when termination was considered by the Appellant. 54. Mrs Gillard accepted in cross examination that the Appellant had increased its due diligence from almost nothing in 2008 prior to HMRC’s visit to the use of a due diligence checklist which is now carried out. She confirmed that there was no evidence that in 2008 the Appellant had been provided with written advice such as a leaflet about the types of checks to carry out on VAT numbers, there was only a reference to verbal guidance being given by HMRC officer Higgins. There was also no evidence that officer Higgins had discussed the risks of hijacked VAT numbers or given a warning about de-registered VAT numbers to the Appellant. Mrs Gillard confirmed that the Appellant’s accountants, The Priory Partnership, had asked on a number of occasions HMRC’s view on the due diligence that the Appellant should undertake. Mrs Gillard’s response had been to refer the Appellant to the labour provider leaflet as HMRC will prescribe the checks a trader should undertake but the leaflet indicates a number of generic checks specifically aimed at the labour provider sector. 55. Ms Gillard concluded that if the checks were carried out, the results were disregarded as both would have shown that the VRNs belonged to companies other than WL and SRL. Nature of trading, turnover and payments 56. At the meeting with Mr Ferguson and Mr Penny from the Appellant’s accountants Priory Partnership on22 January 2008 officer Higgins noted that since the change in business activity outputs had risen from an average£17,000 per quarter as a provider of business entertainment to£120,000 per quarter as a security labour provider. Officer Higgins found the sudden change in turnover in a high-risk area for VAT to be grounds for concern. 57. The Appellant’s turnover and profits from September 2008 – 2013 were as follows: Period end Turnover (£) Profit (£) 30/09/13 2,249,686 248,038 30/09/12 1,968,377 322,099 30/09/11 1,147,433 117,672 30/09/10 964,412 12,751 30/09/09 1,174,049 36,820 58. VAT periods 02/12 – 11/12 in which the relevant transactions took place saw the Appellant’s quarterly outputs at record levels increasing from£252,687 (05/11),£265,785 (08/11) and£335,893 (11/11) to£384,971 (02/12),£476,157 (05/12),£498,706 (08/12) and£893,097 (11/12). 59. In oral evidence Mrs Gillard accepted that there may be a commercial reason for the Appellant’s suppliers agreeing to forego premium payments in order to make contacts. However she added that the very nature of business is to make profit and the fact that the suppliers in this case stood to make no profit lacked commerciality and led her to conclude that the businesses were not viable. Mrs Gillard did not accept that the payments to the suppliers represented an introductory offer on favourable terms as there was no room to meet any costs other than the workers’ wages which she did not accept was normal commercial practice. She accepted that the preferential payments made to WL and SRL as compared to the Appellant’s other suppliers may have been due to the favourable terms but stated that this was not information that had been given. 60. Ms Gillard highlighted the difference in the transactions with SRL and WL as compared to those with other suppliers of labour. The invoices of SRL and WL both use the description: “for the supply of temporary labour/security guards as requested.”
“Q. So in reflecting upon this episode, what’s your conclusion as to how these two men managed to dupe you into entering these transactions? A. How they duped me? We thought we’d done due diligence checks. Enid Wileman, who is the lady that is responsible for this part of it, would have brought – provided me with advice at a point if she saw something that she saw as being wrong and obviously I would have had to act on that. Q. But you’re the man who has sat down face to face with these fraudsters; yes? A. they were never classed as fraudsters when I first met them. It was only during the relationship that we started to realise there was something not quite right with them. Q. So during the relationship you realised that there was something not quite right, and when was that? A. Towards, I would say that that was in 2012. Q. Was it when WL asked for prepayment of the VAT and Enid Wileman says that she was horrified and raised the matter with you? A. And that I was in August, I believe, 2011, and within 30 days we had terminated the relationship with Workforce. Q. And taken up with Skill-Rite, which is run by the same man? A. But we had been provided with a VAT number via the checker that we use to the day that said valid, so we believed we were acting responsibly… … Q. So why did you tell them where to go when they asked for prepayment of the VAT element? A. Because they hadn’t provided enough documentation, as in i.e. the insurance for me to, sort of, even trust them, and this is why the relationships, obviously, were terminated. This is all over the space of about 12 months. Q. That was Skill-Rite who hadn’t provided you with insurance, wasn’t it?...But we’re talking about Workforce Ltd, who ask you for prepayment of the VAT element of an invoice. Can’t be to do with cash flow, can’t be because of insurance for that company, so why did you tell them where to go? A. I told – as I say, I’ve just mentioned about the cash flow element. We make sure that the guards get paid. If that means that at some stage we’ve had to pay them a day or two in advance, then – to keep the clients happy, that’s what we had to do. Confidence is the - - it was more important to me than profitability. That’s how my reputation and credibility have grown in the industry. Q. So, in that case, what was the problem with prepaying the VAT element of an invoice if you wanted to ensure that the men were paid and stayed on site? A. I didn’t think it was the right thing to do at the time. Q. Why not? A. Well, why would you pay the VAT - - the VAT element without an invoice? Why would you pay it early? Q. Why did you think you were being asked? A. It doesn’t matter. I didn’t ask - - I didn’t respond to the request, I denied it. Q. But why? Why is it not the right thing to do?...what was the discussion between you and Enid Wileman about why this was such a bad thing that they’ve requested? A. Because it was out of the normal, it was out of the normal trading relationship. It wasn’t the way that business should be conducted. Q. Because it indicated to you that they were using the VAT to fund the business, didn’t it? A. To fund their business.” (29/01/19 page 10 - 14) 75. In 2011 Mr Ferguson became aware of a conflict between the directors at WL and Ms Wileman had raised concerns. Mr Neil Weir told Mr Ferguson that he was leaving WL having become disillusioned and would be starting a new labour supply company. When Mr Neil Weir started SRL he approached the Appellant for business offering preferential rates. Mr Ferguson explained that SRL had recruited the majority of the existing WL work force including site operatives and admin staff which led him to the decision to discontinue his business with WL and begin a new relationship with SRL. From March 2012 the Appellant moved all of the business that had previously been with WL to SRL. Ms Wileman carried out the due diligence checks including the online VIES VRN checker. However, SRL continued to fail to provide its insurance documents which were repeatedly requested and in August 2012 Mr Ferguson instructed Ms Wileman to withhold the VAT payment to SRL. In September 2012 the Appellant ceased trading with SRL. 76. Mr Ferguson stated that there was nothing about the working practices of either company that would lead a reasonable person not connected to them to suspect that fraudulent practices were taking place. He stated that although the request by WL for payment of the VAT element would be the “first inkling” that he did not want to be involved in the relationship and it was Mr Weir who set up SRL, certain guarantees were given, one being the VRN check. As to his relationship with Adam Weir, Mr Ferguson stated: “In 2006 when I joined – became a consultant at Bernic, obviously I had very occasional dealings with Adam Weir. I knew he was a decent businessman on the outset of it and decided that I could work with him, not trust him but work with him. Obviously I put my own due diligence in place to make sure I thought we were protected, but I’m not a scholar in VAT fraud and didn’t understand how you could defraud the VAT until obviously this was all revealed to me at a later date…. We thought we’d done our due diligence in the fact that we’d checked the VAT number that would allow us to say we had done our due diligence. So that exonerates us from any further fault. Q. That was your thinking, was it, I’ve checked the VAT number, therefore that’s my due diligence and therefore that exonerates me from any fault? A. No, that was one of several checks that were taking place. Obviously trade references, check the premises, meet the directors were also done at the same time. Q. So Workforce Ltd, you think: ‘They’ve asked me something extraordinary about prepaying the VAT, I don’t like this at all, I’m not going to do it, I’m going to terminate my relationship with that company but I’m going to continue trading with Mr Weir in a different corporate guise because he’s got a VAT number. A. Neil Weir was the front man for Skill - - for Workforce but then he said he was setting up Skill-Rite. Now, I had a little bit confident in Neil than I did over Adam. Again, it’s just coincidence they happened to be brother, I saw them as two businessmen doing business and I decided to go with Adam - - sorry, Neil after Adam. Q. But Adam Weir wasn’t involved in Workforce Ltd, was he? He wasn’t a director? A. Well, as I’ve just alluded to, I met him in 2006 and he was named as a director of - - of Bernic Security, who were then a client of mine, and at a later date in your documentation the Companies House director is Danielle Raynor, I think her name was, who is his wife or girlfriend, so that’s why he wasn’t there but I never met Danielle. Q. we’re talking about Adam Weir, Mr Ferguson. Adam Weir was not part of Workforce Ltd, was he, as far as you knew? It was Neil? A. He was part of Workforce. He was part of Workforce. Q. What was he doing at Workforce? A. He claimed to be the director or the shareholder, I can’t quite remember.” (Transcript 29/01/19 at page 16 – 17) 77. Mr Ferguson stated that he was not aware of tax evasion, criminality or aggressive avoidance within the labour market; he had not previously been made aware of this and had never received advice from HMRC or any professional advisor to exercise additional care or diligence when using the services of those in the industry. Mr Ferguson denied that he made a “sudden shift in business activities” given his lengthy experience in the industry at a senior level nor was Mr Ferguson told that he was operating in a high risk area for VAT. Mr Ferguson was referred to a document he had produced issued by the SIA against which his business was assessed in 2011 which stated “the company follows HMRC guidance regarding due diligence record-keeping for the use of labour providers.”
“HMRC have identified increasing problems in the security industry with fraud and unpaid taxes through the use of labour providers. It is good commercial practice for all businesses to carry out checks to establish the credibility and legitimacy of their suppliers. Approved contractors must seek to avoid involvement in supply chains where VAT and/or other taxes will go unpaid.” 78. Mr Ferguson stated that he would have received this document in May or June 2012 although he was aware of the criteria against which he was to be judges before the audit in June 2012 and he believed he had followed due diligence on labour providers. He recalled that a leaflet had been given to him relating to HMRC’s guidance on due diligence, perhaps in 2011. Mr Ferguson agreed that the incident with CESL in 2008 was, to some extent, tax evasion in the labour supplier market by his supplier although he never thought of it in that way. He maintained that he had not been provided with guidance relating to aggressive avoidance, tax evasion or criminality; there had simply been an administration error which led to the Appellant paying VAT twice. As the business grew they became more aware of how to protect the company from VAT fraud and to some extent that was the reason for the due diligence checks although he added: “…do you not always want to just be a better citizen every year and prove how you interact with your business community and with your co-workers. Q. Mr Ferguson, why did you think Hard Hat was doing due diligence checks on its suppliers? A. Because that was the compliance of the day. Q. What, it was just doing it for the sake of it? Come on, why were you doing these checks? A. Well, to be honest with you, when you’re a busy guy like I was back in 2008, trying to create a business and going out to see clients, that was all it was, it was just compliance. It’s just like doing your tax return, you don’t really think about too much more after that point of view…” (Transcript 29/01/19 page 30 – 31) 79. In relation to the invalid invoices from CESL Mr Ferguson stated that they were naively paid in full in good faith; no checks were made at the time as to the legitimacy or otherwise of the supplier to charge VAT; after advice was received from HMRC in relation to due diligence the Appellant immediately implemented the use of VIES or HMRC’s VAT checking service. He drew the distinction between the invalid invoices which contained no VRN and the present transactions which used false VRNs. The advice to the Appellant as Mr Ferguson understood it was that no VAT should be paid without a proper VAT invoice, the invoice should contain the VRN which should be checked as valid by the Appellant. No advice was provided regarding de-registered or hijacked VRNs. 80. Mr Ferguson stated in cross-examination that he had been duped in 2008 by CESL but in a different type of strategy by a supplier who did not have a VAT number and when the Appellant asked for one, someone else’s VRN was given. As a result Mr ferguson was aware from 2008 that there were unscrupulous traders in the industry that charged VAT on invoices but he tended to stay away from as many of those traders as he could. He explained that Mr Francis Enuani, the company secretary of CESL who came to work for him after the incident had, Mr Ferguson believed, also been duped. 81. Mr Ferguson added that during the Appellant’s 2012 SIA audit the company was judged to be properly following HMRC’s advice relating to the use of labour providers. 82. Mr Ferguson stated that the Appellant undertook individual risk assessments of both WL and SRL by way of VRN checks, background knowledge of both companies and the individual directors and recommendation from BUL. Additional checks were carried out to verify the integrity of the companies such as assessing their knowledge of industry standards and compliance, cross-referencing of invoices with operative time records. In 2012 the Appellant was advised that there had been a flood at its storage space which had destroyed over 30 lever arch files of documents and clients’ files. 83. Mr Ferguson clarified that he did not recall the due diligence checklist produced by the Appellant being used as far back as 2011; the document was produced to show the continuous improvement and the type of checks that were carried out in 2013. The checks listed in the document were not carried out on WL or SRL; those were limited to the VRN check either using VIES or HMRC’s checker. He stated the Appellant may have also looked at an invoice to check they were paying the correct company, although he did not have a clear recollection. Mr Ferguson conceded in cross-examination that he could not be sure whether VRNs were checked using VIES or HMRC’s checker; he agreed that both his and Ms Wileman’s witness statements confirmed that VIES was used but highlighted that Mr Penny his accountant believed HMRC’s VAT checker was used. He stated that he could not be sure which system was used but he would stand by his witness statement which he believed was 75% accurate on that point. He added that he personally did not carry out the VAT number checks and did not know what the result would have been other than Ms Wileman would have told him if there were any exceptional circumstances. He confirmed that he did not know what information a VIES check produced at the relevant time and that if the name of the company and address associated with the VAT number were not those provided by his supplier he would have asked further questions: “A. Yes, but, as I say, even if it did come up with the VAT number and the address for Workforce, it was the correct VAT number for Workforce. Q. Workforce weren’t using their own VAT number. There was no correct VAT number for Workforce, though, was there? A. Skill-Rite hijacked their VAT number. Workforce - - Workforce used their own VAT number because they de-registered in April or May, according to the records, the FAME records that you show. Q. That was in the name of a previous company name, wasn’t it: Orion Payroll Services Ltd? A. Yes, but that was still the same entity that was a name change but it was still the same company. Q. But if you’d seen that, you’d have had to make those checks on Companies House, wouldn’t you? A. We’d have had to make those checks on Companies House, yes, but obviously when the VAT number came back valid without any further detail, we didn’t need to do anything further, we thought.” (Transcript 29/01/19 page 41) 84. Mr Ferguson accepted with hindsight that if the Appellant had carried out all of the checks on the checklist, he would not have traded with either WL or SRL which is why the checklist was brought in. Mr Ferguson was not aware what machinery may have been destroyed in the flood in addition to documents but stated he had looked for electronic copies of documents such as rotas. 85. Mr Ferguson noted that HMRC had not specified what checks he should carry out in addition to those taken and that the Appellant is a victim of fraud; this is demonstrated by the fact that WL used a legitimate but then de-registered VRN in its invoices with the intention of defrauding the Appellant. Similarly, SRL’s use of a hijacked VRN led to the Appellant being a victim of its fraud as the Appellant stood to gain nothing from the fraudulent transactions. 86. Mr Ferguson confirmed that Adam Weir was introduced to him as director of BUL which he accepted at face value. He was not aware that Neil Weir was an employee of BUL. Mr Ferguson accepted that at HMRC’s visit in September 2011 the notes recorded that the Appellant had approximately 10 employees, used subcontractors as necessary; the main one being BUL which was VAT registered and the rest were recorded as mainly unregistered individuals and that there was no mention of Workforce being a trading partners as at May 2011. The first invoice with WL is dated3 June 2011 which Mr Ferguson believed was about the time the trading started. Mr Ferguson agreed that the invoice was dated two months after WL’s de-registration. He explained that the reason it was faxed from BUL was because there was a shared office with only one secretary used by all companies. Mr Ferguson explained that when he set up the Appellant he had an agreement in place with BUL to have a non-competition clause. He went on to explain that he agreed to use WL at a discounted rate but would not make introductions to WL until he was satisfied that it was a reputable and credible supplier; when no introductions were made the relationship terminated. Mr Ferguson stated that WL did not give him the assurances he needed to ensure WL was bona fide; once they started trading he could see that WL were not what they seemed to be or reputable enough: Q. What was it at the start of the trading relationship that made them credible enough to trade with? A. You like to give people a chance in life. So we looked at them and understood what they were trying to do and believed that we could align with them but obviously they just were - - they weren’t professional - - as professional as hard Hat and the vision that I had of becoming a successful operator in the region.” (Transcript 29/01/19 page 48) 87. Mr Ferguson stated that company checks were carried out on WL prior to trading which were followed up with Companies House checks. He agreed that the checks would have shown that the actual company name was Workforce Northwest Ltd and that Ms Wileman would have raised that. As to whether there is a contradiction between what a company says and what its records show, Mr Ferguson stated that he assessed the risk and addressed it. He added that WL was low risk when checks were made in May 2011 as the VAT number was correct and there were trade references from Adam Weir and the other directors at BUL which gave the green light. Mr Ferguson accepted that the director of WL was Mr Cameron, not Neil Weir but stated that Ms Wileman would have brought it to his attention if she had a concern but because they had “a relationship internally in the building, she’d have raised no concern about it” (transcript 29/01/19 page 62). Mr Ferguson stated that he moved out of the shared building in January 2011 and did not trade with WL until May; during the time he shared the building, he was not present as he was on the road, had an office in London, a young child and was working on the Olympics. He was therefore lucky if he was in the office one day a week to meet anyone. At the time he was not as anxious as he is now about knowing who had the legal authority in a trading partner as he was learning how to become a successful operator of the day; at the time he did not identify the repercussions from a day to day point of view. 88. Mr Ferguson explained that although the arrangement between the Appellant and BUL was lucrative, it could not continue as BUL became ACS and the relationship terminated in 2010. He stated that the fact that the Appellant and BUL continued trading in the same VAT periods in which he was supplied by WL was a transitional time in which work was completed but no new work was given. That transitional period continued until September 2012. He later stated that trade with BUL did not continue as they charged a higher price and Mr Ferguson wanted better commercially which WL could provide as a start-up company, it was not BUL’s decision and they introduced the Appellant to WL as Mr Ferguson had given BUL ACS and “set them on the path”
“…obviously I had very occasional dealings with Adam Weir. I knew he was a decent businessman on the outset of it and decided that I could work with him, not trust him but work with him…” 141. Had the Appellant made any checks on BUL, Mr Ferguson would have been aware that Adam Weir, who was introduced to him as a director of BUL, was not a director which would have led any reasonable person to query the role of Adam Weir and the subsequent introduction by Adam Weir to his brother, who would have been, if a company officer of WL, a competitor of BUL in supplying the Appellant. In fact, Neil Weir was a shareholder in BUL although from28 June 2010 and therefore at the time of the relevant transactions he was not recorded as having a shareholding but rather as an employee. Furthermore, Neil Weir was not recorded in the Companies House records for WL and appeared to be an employee. 142. We found all of these features highly unusual and we found it implausible that none of this was known to Mr Ferguson given that the Appellant was based at the same address as BUL until at least January 2011. We noted Mr Ferguson’s evidence in relation to the shared premises that he was rarely at the office due to being on the road and having a young family. We found Mr Ferguson’s evidence contradictory; he asserted that he relied on recommendations and trusted relations yet the recommendations and trust came from persons about whom Mr Ferguson knew little or nothing. He stated he had no knowledge of the roles of the various individuals within BUL, WL or SRL yet proceeded to trade with them; we found this wholly implausible and we queried why if Mr Ferguson had no knowledge of the roles of the various individuals and no relationship of any substance with them he proceeded to trade. We concluded that these were not the actions of a reasonable businessman seeking to protect himself from fraud and we were satisfied that it supports an inference of knowledge on Mr Ferguson’s part. 143. We did not accept that Mr Ferguson was a victim of fraud or that he had been duped by the Weir brothers. It was clear from the evidence that Mr Ferguson made no attempts to check the veracity of Adam or Neil Weir as individuals or businessmen. Far from the “trusting relationship” referred to in Mr Tobin’s letter dated8 September 2014 , on the evidence before us there was no basis for Mr Ferguson to trust the Weir brothers. We rejected his explanation that he commenced trade because “you like to give people a chance in life” as wholly implausible. Mr Ferguson’s assertion that he had carried out due diligence and thought he was protected was not borne out by the evidence and his contention that there was nothing in the business practices of WL or SRL to give cause for concern was wholly contradicted by Mr Ferguson’s acceptance that during the relationship he decided “something was not right” and WL’s request for payment of the VAT element in advance indicated that the VAT was being used to fund the business. We did not accept that this was only clear to Mr Ferguson with the benefit of hindsight; in our view it would have been blindingly obvious to any businessman with his experience. Taken together with Mr Ferguson’s willingness to take up trade with SRL which was, in reality, the same entity as WL run by the same person with the same administrative staff and workers, we concluded that the only reasonable explanation for Mr Ferguson’s involvement was that he knew that the transactions were contrived. 144. The Appellant’s due diligence was woefully inadequate. We found Mr Ferguson’s reliance on following SIA regulations misconceived; the evidence showed that the SIA checks predominantly related to workers, their employment status and record keeping rather than suppliers. Mr Butterfield invited us to infer that the Appellant’s adherence to SIA regulations and status within the SIA reflected the Appellant’s general attitude to due diligence. We rejected this submission; in our view it demonstrated that Mr Ferguson was aware of the importance of making checks to safeguard his business which was at odds with his evidence that he believed he was doing all he could in terms of due diligence. 145. The evidence relating to the Appellant’s VRN checks was unclear and contradictory. Mr Penny’s evidence was that he had given the Appellant the link to HMRC’s VRN checker in 2010/11. This contradicted the evidence of Ms Wileman who stated that she was responsible for carrying out the checks and used VIES. We did not find that Mr Penny’s evidence assisted us in reaching our decision; he may have provided the web link to the Appellant but he could not provide any evidence as to what was actually done and whether the link was used. We attached no weight to the evidence of Ms Wileman as she did not attend the hearing and her evidence could not be tested. 146. Mr Ferguson’s evidence on the point was vague and unconvincing. Having stated in his witness statement that VIES was used, Mr Ferguson’s evidence changed in cross-examination. Ultimately Mr Ferguson accepted he could not be sure which system was used, as he had not carried out the checks. 147. We attached no weight to the due diligence checklist produced by Ms Wileman which Mr Ferguson clarified was not used at the time of the relevant transactions. The evidence as to what checks were actually carried out was vague. Mr Ferguson referred to trade references, checking premises and meeting directors. The difficulty with this evidence is, as we have set out above, that the only recommendations specified by Mr Ferguson came from BUL with whom the Appellant, WL and SRL shared premises and whose personnel were closely associated with WL and SRL. We found Mr Ferguson’s evidence unpersuasive and we rejected his attempts to minimise his responsibility by reiterating that he delegated the task of due diligence to Ms Wileman; it was clear from the evidence that it was Mr Ferguson who met the Weir brothers and decided to trade with WL and SRL. We accepted that documents belonging to the Appellant were destroyed in a flood in 2012 however as the Appellant has never clearly specified what checks were carried out and what documentary evidence of those checks was lost we did not find that this assisted us. 148. In our view the due diligence purported to be carried out by the Appellant was superficial and could not have provided the Appellant with any reassurance as to the veracity of WL or SRL. In relation to WL we were satisfied that any VRN check was carried out on or around the end of May/beginning of June 2011 as at a visit by HMRC on23 September 2011 there was no record of WL as a trading partner in the VAT quarters checked, namely 08/08 to 05/11. The first invoice was dated3 June 2011 . At that point OPSL, the company whose VRN was used on the invoices had been de-registered and therefore any check would have flagged this up. If a check was made prior to OPSL’s deregistration on1 April 2011 then a valid number may have been shown. There was an issue as to whether the check would have revealed that the VRN related to OPSL rather than WL. The emails from VIES dated2 December 2014 and19 April 2017 respectively stated: “Indeed, in 2011 the name of the company was not displayed during VAT validation.” “…during the period you are referring, the VIES on the web response on an EU VAT validation request did return information of the requested VAT number’s Name and address, assuming of course the number was valid…” 149. We did not find that the emails provided clarification given the different responses. We also found that Mr Ferguson could provide no assistance as he was unable to say what checks were carried out or what they showed as he had not been responsible for the task. We accepted the oral evidence of Ms Gillard that since 2010 VIES provided the name and address associated with a valid VRN. In those circumstances we were satisfied on the balance of probabilities that had a VIES check been carried out the Appellant would have known that the VRN related to a different company. We considered the submission that delays in updating the information of up to three months could have meant that the Appellant was advised that the VRN was valid when in fact it was not. However, the information from VIES referred to delays in updating national databases in “certain Member States”