TC09617 - [2025] UKFTT 01018 (TC)

Fecha: 13-Jun-2025

Inadequacy of Deos’ due diligence and of its “break” in trading with Estanza in December 2021-February 2022

Inadequacy of Deos’ due diligence and of its “break” in trading with Estanza in December 2021-February 2022

96.

HMRC submitted that Deos’ pattern of trading with Estanza had features of supply chain fraud, highlighting the importance of Deos being sensitive to any indication that the transaction chain may be fraudulent and too good to be true. Yet its checks were limited: they did not include credit checks or taking trade references; and Deos did not visit Estanza, to assess them and their business in their own environment.

97.

The due diligence carried out for Estanza and for the customers to which it on-sold, differed significantly from that which Deos conducted in respect of its core business; which included creditworthiness/score and applications for an agreed credit limit.

98.

Deos did not ask Estanza where it sourced the goods from. How was Estanza able to source the goods and make a profit by selling on to Deos, another UK trader like itself? Similarly, Deos did not ask its customers whether they were supplying to end users/retail, or whether the goods were instead going on through an even longer transaction chain.

99.

HMRC noted that Deos did not ask Unicorn for information (without giving away the identify of the participants) about the length and nature of the supply chains to Estanza.

100.

HMRC submitted that it was “telling” that Deos did not ask the supplier of AirPods for its core business, for information about the “wholesale” market Deos entered for the first time in the spring of 2021.

101.

Regarding Deos’ “break” in trading with Estanza from mid-December 2021 to the end of February 2022, HMRC submitted that

(1)

Deos’ stance – that, if Estanza continued to pay VAT and was not deregistered, then all was fine – was difficult to square with the evidence that Deos’ concern (stemming from what it discovered on 17 January 2022) was with WBM Global, a supplier to Estanza (rather than Estanza itself); it is also difficult to square with Deos’ understanding (through Mr Smith understanding) that the fraud issue applied to supply chains;

(2)

the “break” in trading failed to recognise the significance of what Mr Smith had discovered on 17 January 2022. Whatever measures Estanza was taking to avoid involvement in chains with missing traders, those measures had clearly failed: Estanza had purchased from a trader that was, a few months later, deregistered for VAT. Deos could have no confidence that Estanza was not purchasing, and would not purchase, from other persons involved in fraudulent VAT evasion, or indeed that Estanza was being open and honest with him as to its own knowledge of connection with such evasion. This is borne out by the fact that, as is now known, Estanza was indeed involved in tax loss chains, including purchases from WBM Global;

(3)

when Mr Javan said, in his 17 January 2022 email to Mr Smith, that Estanza would now also ask suppliers for the same documents as Deos had requested from Estanza (recent VAT return and bank statement), Mr Smith appeared unconcerned that Estanza had not done this before;

(4)

the only sensible course for Deos to have taken was to cease trading (permanently) with Estanza.

102.

As for Mr Smith’s call to HMRC’s VAT helpline on 10 February 2022, HMRC submitted that it is not accurate to say that Mr Smith was told that there was nothing more that he could do by way of due diligence. HMRC also pointed out that Mr Smith did not tell the HMRC operator of his discovery that WBM Global had supplied Estanza in September 2021 and was deregistered for VAT in December 2021.