TC09590 - [2025] UKFTT 00878 (TC)

Officer Jack Ashford was, at the relevant time, based in HMRC’s Fraud Investigation Service, specialising in labour fraud in construction and payroll company fraud. He was responsible, since March 2021, for the investigation into RRP.

Mr Ashford’s evidence was directed to the decision by HMRC to deregister RRP for VAT, to deny its entitlement to input tax under the Kittel principle, and to impose penalties under sections 69C and 69D of the VAT Act 1994. His statement is supported by extensive documentary exhibits and is based on both his own enquiries and the findings of his colleague, Officer Matthew Houghton, who investigated RRP’s principal supplier, WM.

Mr Ashford states, and it is common ground, that RRP submitted VAT returns for the periods 05/20 to 11/21, claiming input tax totalling £7,191,003. It is also not contentious that HMRC traced this entire sum to transactions connected with the fraudulent evasion of VAT. Further, it is agreed that RRP’s sole supplier during this period was WM, which was determined to be a fraudulent defaulter. Mr Ashford asserts, which is disputed, that RRP either knew or should have known of this connection.

At paragraph 53 of his witness statement Mr Ashford sets out the factors which, in HMRC’s view, justified the deregistration of RRP for VAT / denial of an entitlement to input tax under the Kittel principle. He was cross-examined extensively on these factors and it is fair to say that he had to make significant concessions. That should not necessarily be viewed, in these sorts of cases at least, as representing some sort of failing on the part of HMRC. We accept that some of the information, explanation and evidence that we now have before us was not necessarily available to Mr Ashford when he first made his decisions. Mr Ashford was a refreshingly honest and candid witness. He was not defensive and answered the questions put to him both fully and fairly. He is to be commended for doing so.

The first factor that Mr Ashford relied upon in his statement was that RRP’s business model lacked commercial sense, with RRP acting simultaneously as customer and supplier to WM. However, he accepted that after having read Mrs Walmsley’s explanation in her witness statement the model now made sense to him.

The second factor related to the naming of WM. The director of RRP claimed that the similarity in company names was to avoid confusion among workers. Whilst in his witness statement he considered this explanation to be implausible, he accepted, during cross examination (after having now understood the business model) that workers might be confused if they were being paid by someone other than their statutory employer, WM.

In relation to the third factor he accepted that when referring to VAT accounts in his statement he was referring to the internal reports provided by RRP. In those records there was reference to input tax on supplies from “Compupay Services Ltd”, a company with which RRP had no trading relationship. Whilst Mr Ashford maintained that this was a “bit odd” he accepted Mrs Walmsley’s explanation and further accepted that this did not go to showing whether the Appellant knew or ought to have known of the connection with VAT fraud.

Likewise, the fourth factor, (the entirety of the £7.19 million of input tax claimed by RRP being traced to fraudulent VAT evasion) was accepted by Mr Ashford as not one that would go to show whether the Appellant knew or ought to have known of the connection with fraud.

The fifth factor (all the payroll services being outsourced to WM) was accepted as an error on Mr Ashford’s part. The payroll services were in fact outsourced by WM to RRP and he further accepted, after having read the evidence filed on behalf of the Appellant, that RRP had a genuine commercial role.

The sixth factor (failure by RRP to protect itself from supply chain fraud after multiple attempts by HMRC to educate it) relied upon by Mr Ashford was abandoned by him during cross examination because he conceded that the only education that he, Mr Ashford, could be referring to could only have taken place after the relevant events.

In relation to the seventh factor (despite being informed both verbally and in writing that WM had been deregistered for VAT, RRP continued to trade with it until issued with a tax loss letter) Mr Ashford conceded that:

In relation to factor eight (inadequate due diligence by RRP on WM) Mr Ashford conceded that introduction by a trusted colleague could be a form of due diligence.

Whilst factor nine in his witness statement made reference to the fact that RRP was both a customer of and supplier to WM (seemingly reinforcing HMRC’s view that the transactions were contrived) Mr Ashford accepted that this was a mistake on his part flowing from a failure to understand the business model.

The tenth factor (RRP permitted its bank account to be used for the movement of funds on behalf of a Malta-based company, Red Rose Human Resource Solutions Ltd (the “Maltese Company”), before transferring those funds to the personal account of that company’s director) was also, effectively, abandoned. This was because Mr Ashford accepted that neither the Maltese Company nor it directors had anything to do with the purchases or supplies in this case and that the reference to the Maltese Company did not help establish a connection with fraud.

Nevertheless Mr Ashford maintained, under cross examination, his decisions, conclusions and assessments with regards to the Appellant as set out at paragraph 2 above.