TC09659 - [2025] UKFTT 01211 (TC)

HMRC Officer Aqeel Beg (“AB”) opened an enquiry into SKM on 17 July 2021. This was opened because SKM had been identified as a new supplier to European Metal Recycling Limited (“EMR”) in period 05/20 from records gathered from a visit to EMR. Another factor prompting the enquiry was that HMRC had noted that SK had purchased goods from BTL which HMRC had identified as a possible missing trader. We inferred that SKM had been identified as a customer of BTL from the invoices SKM’s agent had given to HMRC in April.

On 17 July 2021, HMRC requested documents from SKM for VAT period 02/20. Documents requested included “Copies of All Due Diligence records.” SKM’s initial response on 27 July 2021 was to forward AB the confirmation SKM had received from SH that SH’s HMRC enquiry had closed. After review, AB had explained that he required additional information.

On 27 July 2021, SF sent HMRC DD on BTL which included the Certificate of Incorporation; other Companies House information (which was incomplete/out of date since it recorded Mr. Paul Mullan, not LP, as the director and the registered address being in Coventry, not Wales); BTL’s scrap metal licence (dated 20 April 2021); details of BTL’s VAT registration number and effective date of registration for BTL as 12 October 2020; a VAT certificate dated 8 December 2020; a copy of LP’s driving licence; and a copy of a DBS check for LP from Disclosure Scotland.

On 4 August 2021 SKM’s agent provided the remaining documentation requested by AB.

On 6 August 2021 AB requested additional documents relating to transportation of goods and there then followed some correspondence in which SKM’s agent explained SKM’s business model and supplied such information as the agent said was available.

On 12 August 2021, HMRC wrote to SKM, to advise that BTL had been deregistered for VAT and in light of that on 17 August SF advised AB that SKM had “taken the decision to cease trading with BTL”.

AB continued his investigation, including writing to SKM on 14 September 2021, detailing transactions with BTL which HMRC asserted were with a defaulting trader and had resulted in a tax loss to the public revenue. The letter reserved HMRC’s position on denial of VAT on those transactions and stated “You should satisfy yourself that you have undertaken sufficient due diligence commensurate with the perceived risk to satisfy yourself as to the integrity of your suppliers and customers, and of the underlying supply chains.”. On its face the letter did not require a reply, but SKM’s agent did reply on 8 October 2021, listing the due diligence that had been carried out by SKM into BTL and indicating that in light of the checks carried out SKM did not believe that they should be held liable for any tax loses that may have occurred in their trade with BTL.

The last step which AB took in the investigation was to write a note on 27 October 2021 which concluded “[SKM] has submitted copies of documents they submitted for a verification carried out recently by HMRC … further information is awaited … Final out come of the suspected transactions will be established on receipt of records …however the documents received in relation to due diligence checks carried out on suspected supplier of goods; B Trade Ltd., appears to be an established business and does not appear to be a missing trader.”. It would have been helpful to have AB’s evidence in relation to this so as to understand why AB formed this view of the position given that HMRC are arguing in these appeals that SKM knew or should have known their transactions with BTL were part of a fraud.

On 8 October 2021, the investigation was allocated to Officer Pathak. After various meetings and correspondence, on 31 October 2022 the First Input Tax Denial letter was issued. On 20 March 2023 the Penalty was issued. On 10 March 2023 the Second Input Tax Denial was issued. On 26 April 2022 the PLN was issued. Officer Pathak’s reasons are set out above.

On 15 November 2024, the Appellants’ then agent, issued a letter (the “Kittel Denial”) to the Tribunal in response to “Fairford directions” from the Tribunal setting out the Appellants’ response on various points. In this response the Appellants accepted the transaction chains between BTL and SKM and that a tax loss had arisen. During the course of the hearing, the Appellants accepted that the tax loss arose from fraudulent activity by BTL.

The parties agreed that the legislative background is as follows (this being largely taken from Miss Brown’s helpful skeleton argument with which Miss Sheldon agreed).