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Scrap Metal Trader Loses £107k Input Tax Fraud Appeal

Published by Prerana
Posted Date: June 21, 2024 , Modified Date: June 21, 2024

The First Tier Tribunal (FTT) has rejected a scrap metal trader’s appeal against a £107,306.55 personal tax penalty. The owner’s appeal was against HMRC’s decision to impose a company’s officer liability penalty. This decision emphasises the need for careful research in the scrap metal trading industry and warns business owners to be cautious.

Did the Owner Know About the Fraudulent Activities?

The tribunal focused on whether the owner knew or should have known about the fraudulent nature of the transactions involving his company. HM Revenue and Customs (HMRC) argued that the company knowingly took part in transactions connected to VAT evasion. Despite the owner’s claims of ignorance and lack of a criminal record, the tribunal concluded that he did not properly check his suppliers before doing business with them.

HMRC officers are reported to have carried out several visits and advised the owner to be cautious when dealing with potentially dishonest traders. They also had asked him to conduct thorough checks. HMRC provided evidence showing that the transactions of the company claiming input tax were connected to companies involved in tax fraud.

The tribunal judge stated that the owner did not make sufficient efforts to check the suppliers, as the checks did not include a proper analysis of the suppliers' commercial backgrounds.

Why Did HMRC Impose Penalty on the Company?

HMRC imposed a penalty on the company for not allowing their input tax claim for the VAT periods from March 2018 to March 2019. The penalty was initially set at £110,127.60 but was later reduced to £107,306.55. This amount represented 30% of the denied input tax, which was mainly based on transactions believed to be connected to VAT fraud.

Input VAT Fraud

In December 2020, the company went into voluntary liquidation and was dissolved by August 2022. The owner continued to dispute the penalty. According to HMRC, the owner, as the main person in charge of the company, was responsible for all the company's deals. HMRC's lawyer argued that the owner either knew about or should have known about the fraudulent nature of the transactions.

The Tribunal found that all the tax losses were related to fraudulent transactions, so the appeal of the owner was dismissed. In a similar case of VAT fraud, Director of a liquor trading company was fined with £75,000.

Conclusion

Business owners, especially those in high-risk industries like scrap metal trading, need to check the background of their suppliers carefully. This case shows how not doing so can result in severe financial penalties and legal consequences. The tribunal emphasised that simply being a good person is not enough to avoid responsibility for your company's fraudulent activities.

This ruling is a reminder to all business owners to uphold high standards of compliance and vigilance to avoid similar problems.

Prerana
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