TC09659 - [2025] UKFTT 01211 (TC)

Fecha: 18-Sep-2025

consideration of the issues

consideration of the issues

SKM’s state of knowledge

137.

We consider SKM's state of knowledge, when undertaking the purchases from BTL, in three stages:

(1)

first, was there persuasive direct evidence of actual knowledge that the transactions with BTL were connected with fraudulent VAT evasion?

(2)

second if not, then was there persuasive direct evidence of blind eye knowledge (Footnote: ³) that the transactions were connected with fraudulent VAT evasion? And finally,

(3)

third, if not were the circumstances sufficiently suspicious that a reasonable businessperson would have known that the transactions were connected with fraudulent VAT evasion; in other words was there was no reasonable explanation for the circumstances in which the purchases were undertaken, other than connection with VAT fraud?

138.

In relation to the first stage, we were not presented with any persuasive evidence that SKM had actual knowledge of the trading activity being connected with fraudulent activity and therefore we considered that HMRC had failed to discharge the burden of proof on this issue.

139.

In relation to blind eye knowledge, we applied the approach that a person is who deliberately shuts their eyes to facts which they would prefer not to know is taken to have actual knowledge of the facts to which they have shut their eyes. We applied that judgment of Lord Scott in Manifest Shipping Company Ltd v Uni-Polaris Shipping Company Ltd and others [2001] UKHL [2003] 1 AC 469:

“112.
‘Blind-eye’ knowledge approximates to knowledge. Nelson at the battle of Copenhagen made a deliberate decision to place the telescope to his blind eye in order to avoid seeing what he knew he would see if he placed it to his good eye. It is, I think, common ground – and if it is not, it should be – that an imputation of blind-eye knowledge requires an amalgam of suspicion that certain facts may exist and a decision to refrain from taking any step to confirm their existence. Lord Blackburn in Jones v Gordon (1877) 2 App Cas 616, 629 distinguished a person who was ‘honestly blundering and careless’ from a person who ‘refrained from asking questions, not because [they were] an honest blunderer or a stupid [person], but because [they] thought in [their] own secret mind – I suspect there is something wrong, and if I ask questions and make farther inquiry, it will no longer be my suspecting it, but my knowing it…”

140.

Taking into account SF and KG’s evidence as to their state of knowledge, we did not consider that HMRC had met the necessary burden of proof to show that SKM had blind eye knowledge. In particular we did not consider HMRC had shown that SKM had suspicions of certain facts and failed to take any steps to confirm the existence of those facts.

141.

In relation to actual (and blind eye) knowledge we took into account Miss Brown’s suggestions that the issues with invoices pointed to actual knowledge. We deal with this issue at [164 et seq] in relation to constructive knowledge. Since we found that the invoicing issues did not give constructive knowledge, it follows that we also found they did not amount to actual knowledge.

142.

We therefore turn to the third stage, which was in any event the primary focus of Miss Brown’s submissions. The factors advanced by Miss Brown to evidence that SKM should have known the transactions with BTL were connected with fraud were as follows:

(1)

SKM had knowledge of the existence and prevalence of fraud in SKM’s trading sector;

(2)

SKM carried out significant trade with a fraudulent defaulter;

(3)

There was no evidence of commercial negotiations;

(4)

There was a lack of contractual documentation;

(5)

There were issues with invoices;

(6)

There was a lack of commerciality in the way the transactions were structured; and

(7)

There was insufficient due diligence.

143.

In relation to the question of whether SKM should have known that its transactions with BTL were connected to fraud Miss Brown urged us not just to look at each item of evidence separately but also to look at the evidence as a whole. We considered that to be the correct approach (see e.g. the approach of the Court of Appeal in CCA Distribution Ltd v HMRC [2017] EWCA Civ 1899; [2018] STC 206 at [31]). So, while inevitably we had to look at and consider each item in turn, we also looked at them collectively. Based on Davis & Dann, we had to consider this from the perspective of SKM (see [129]).