TC09617 - [2025] UKFTT 01018 (TC)

Deos was introduced to wholesale trading in electronic consumer goods by Thames, a company with which it had no previous experience. The patterns of Deos’ transactions with Thames were entirely pre-ordained: Thames provided the goods to Deos, told it who to sell to and which freight forwarder would be used. The only motive for including Deos in the transaction chain was that it had the cashflow needed to fund the input tax from the time of its being incurred to the time of its being recovered from HMRC.

It is a classic feature of MTIC fraud to have transaction chains involving back-to-back transactions, with the goods changing hands between traders whilst held in the same warehouse, with no physical possession being taken by them, before the goods are then exported: this precisely the type of transactions to which Deos had been introduced.

When the trade with Thames fell away, Mr Collins pointed Deos in the direction of IPT, which, without much further effort by Deos, led to its coming into contact with Estanza.

Estanza had a relatively short history of trade in this market. How could two parties with no significant experience in the sector (Deos and Estanza) make a legitimate profit in a competitive market, acting in the same transaction chain?

Deos was able to access a large number of transactions in significant quantities of electronic goods, matching a supplier in the UK with overseas customers.

Deos was able to access profitable sale transactions via the IPT platform with no other advertising or promotional work. This is to be compared with its core business, which appears to have relied upon traditional advertising, promotional activities, a sales team and relationships with long-standing suppliers and customers.

A reasonable trader in Deos’ position would understand that each participant in a transaction chain must add value in order to justify its inclusion in the chain.

On the information available to Deos, it was clear that the transaction chains were of a length and character that was not consistent with what would be expected of a legitimate market.

HMRC noted that Deos increased its turnover by such a significant amount with the electronics deals, which “compensated” for the significantly smaller profit margin.

The significantly smaller profit margin made on the electronics deals also meant that Deos’ profits were proportionately smaller compared with the VAT incurred on the transactions. Put another way, a failure to reclaim the input VAT incurred would cause a very significant loss. The risk to Deos, as “exporter”, was therefore significantly greater. HMRC submitted that this was consistent with the ease with which Deos was able to participate in these transactions: the “market”, HMRC submitted, was a source of relatively easy profit because the risk of significant loss through VAT denial was great.