TC09617 - [2025] UKFTT 01018 (TC)

on the evidence before us, there was no pre-determination, inevitability or nefarious “invisible hand” linking the purchases with Deos’ onward sales; rather, the two were delinked, including in respect of payment (see [34] above); and so Deos took genuine commercial risk on its ability to find, and secure, an onward purchaser at a price to give it a margin; this is illustrated by the instances in which the onward sale fell through (see [35-36] above);

likewise, there was nothing suspicious about the amount of the margin Deos earned or its regularity; the margin differed from one purchase to another; this was indicative of genuine price negotiation, on both the purchase and the onward sale; the relative smallness of the margins (and their difference from the margins in Deos’ core business) was un-suspicious, given that Deos’ risk was (quite sensibly) mitigated by its seeking to make a matching onward sale as quickly as possible after the purchase;

the spike in Deos’ turnover whilst it was taking part in the wholesale consumer electronics ‘grey market’ was unsurprising, given the commercial nature of the trading (large volume, small margin); and there was no spike in Deos’ profit (rather, Deos’ profit in the year ended 31 March 2022 was actual lower than the previous two years), indicating that the pattern of trading did not give rise to “magical” profit or “profit for nothing”;

there was nothing particularly suspicious about the wholesale trading in electronic consumer goods being a different line of business from Deos’ core business; Mr Smith was an experienced businessperson leading a small, family-run company: core deal-making and opportunity-spotting skills could read across from one business area to another; this is what happened when Deos had become involved in selling PPE during the covid pandemic;

on the evidence before us, it was not suspicious that Deos acquired and on-sold the electronic consumer goods “in” Unicorn (as this was an ordinary commercial service Unicorn offered, on the evidence before us), or that Deos (as part of the service it received from Unicorn) relied on Unicorn’s insurance of the goods, rather than taking out its own;

it was not suspicious that Deos neither knew, nor asked Estanza for, the identity of Estanza’s suppliers; it would have been un-commercial for Deos to have obtained that information; the same is true of Deos not asking Unicorn about the length of Estanza’s supply chains: it would have been un-commercial for Unicorn to disclose that information;

Deos’ interaction with RC was marginal, and so not suspicious in any significant way;

on the evidence before us, it was not suspicious that Deos did not consult the supplier of electronic consumer goods for its own core business; it is unclear, on the evidence, what it would have learned from such consultation.

it was not particularly suspicious that Mr Smith did not do more to “check” Estanza and its bona fides; we accept Mr Smith’s evidence that his view, as an experienced businessperson in a small business setting, was that neither visiting the premises of a counterparty (like Estanza), nor taking up their “trade references”, would significantly supplement what he picked up by regular telephone and Zoom contact with Mr Javan, who ran the show at Estanza;

it was not suspicious that Mr Smith caused Deos to restart buying from Estanza from 28 February 2022: Mr Smith’s concerns about Estanza had been assuaged by a combination of Mr Javan’s 17 January 2022 email, and the fact that Estanza had not been deregistered for VAT (something Mr Smith had checked, and continued to check, regularly).

Mr Smith clearly believed that VAT fraud was rife in the consumer electronics ‘grey market’; yet he still saw fit for Deos to trade in it (rather than “playing safe” and withdrawing from the market entirely);

it was not clear what value Deos added in the supply chain, apart from the “input tax funding” role that had been explained to Mr Smith when Deos started trading with Thames in spring 2021; on the evidence before us, it is not clear if that “input tax funding” role was equally important to Deos’ dealings with Estanza; in other words, it was not clear why Estanza did not itself find onward customers by advertising on IPT, as Deos had done;

the circumstances of the purchases were somewhat suspicious in that Thames had introduced Deos to the wholesale consumer electronics ‘grey market’ but had then, within a few months, stopped trading with Deos; and then, in December 2021, Mr Smith found out that HMRC were investigating Thames;

the evidence of a “small quantity of fakes” in Does’ shipments to RCS in December 2021, was somewhat suspicious.