TC09659 - [2025] UKFTT 01211 (TC)

Fecha: 18-Sep-2025

Knowledge of the existence and prevalence of fraud in SKM’s trading sector

Knowledge of the existence and prevalence of fraud in SKM’s trading sector

144.

BTL supplied SKM between 11 February 2021 and 29 July 2021. Miss Brown pointed us to various factors that she suggested indicated that SKM had knowledge of the existence and prevalence of fraud in SKM’s trading sector during that period:

(1)

although SF asserted that he had no prior experience in the scrap metal industry, KG was involved in aspects of the management of SKM and KG had experience of the wholesale metal trade;

(2)

in his witness statement, KG wrote that he “always knew and understood the importance of compliance and always relayed this to Spencer and certainly how rife the metal industry is with fraudsters due to the high value of metals”;

(3)

SF has held a number of directorships, including over 15 years’ experience in the waste sector at the time of SKM’s trading;

(4)

during the meeting on 18 March 2021, MTIC fraud was explained to SF and after that meeting SF was sent the HMRC Leaflet, “How to Spot Missing Trader VAT Fraud” which provide advice on due diligence and examples of indicators that could alert a trader to the risk of connection with supply trade fraud – from that date at the very latest SF was on notice of the risks in the industry SKM was trading in;

(5)

both SF and KG acknowledged that their customers had told them VAT fraud was a risk in this industry.

145.

On the other hand,

(1)

SF's evidence (which we accepted) was that before the meeting on 18 March he had no knowledge of MTIC fraud. In his view the information given to him after the 18 March meeting was “very generic”. We looked carefully at the guidance sent to SF. It is in our view somewhat general and does not, unsurprisingly, spell out the particular type of fraud which SKM's transactions were part of. We deal at more length with the HMRC Leaflet at [189]. SF asserted that he got more useful information in particular on the appropriate due diligence to protect SKM, from talking to his clients and contacts.

(2)

KG's evidence was that although he was generally aware of possibility of fraud in the wholesale metal industry, he understood the greatest risk was in trading high value items such as imported bright copper. As KG saw it, BTL traded little copper with SKM; there were no signs that the copper that was traded was imported or stolen bright copper; and buyers from SKM of loads that originated from BTL did not raise concerns that the metal might be stolen or that anything untoward was going on. Accordingly, KG was at no stage concerned that SKM’s trades with BTL were part of a fraud.

146.

We concluded that SKM did have knowledge of trade the wholesale metal carrying risks of VAT fraud and that vigilance was necessary. Before 18 March that knowledge was mainly derived from KG’s patchy understanding. Especially after 18 March SKM was aware of the need for vigilance. The due diligence which SKM was carrying out on BTL in May 2021 (see [81]) points to this. On its own, however, the knowledge that the market involved risks of VAT fraud does not mean that SKM should have known that the trades with BTL were part of a fraud. In that context the “reassurance” SKM received from HMRC on 26 April (see [74]) is relevant in showing what a prudent trader in the position of SKM would have been considering. We considered that SKM did know there were MTIC risks in its trading operations and that these risks needed to be addressed (e.g. through due diligence) but that SKM would, or at least might reasonably, have assumed that there was no particular risk with BTL since (a) SKM had done some, albeit limited, due diligence on BTL and (b) HMRC had written reassuringly to SKM once SKM had supplied extensive details of its dealing with BTL including 15 invoices from BTL.