TC09659 - [2025] UKFTT 01211 (TC)

Miss Brown pointed us to the following:

Miss Sheldon suggested that there were other possible reasonable explanations for the increasing transactions with BTL other than connection to fraud. In particular, KG had worked in a relevant industry before and, by the use of his capital and contacts, SKM could offer better pricing and cashflow advantages to its suppliers. Miss Sheldon also urged us to take into account that, according to KG’s evidence, the volume of trade was well within industry norms. We consider the latter of these points to be unpersuasive because in his evidence about the volume of metal being traded in the industry, KG was clearly including very large players trading internationally, not a relatively small startup domestic trader such as SKM. However, we considered the commercial advantages SKM believed it was offering might in the mind of a reasonable and prudent business in the position of SKM have amounted to the reason for SKM’s business growing rapidly. Based on the oral evidence of SF and KG we considered that was what they took to be the case.

Miss Sheldon also pointed us to the volume of SKM’s trade with third parties other than BTL. Although the trade with BTL amounted to 53% of SKM’s trades by value in the relevant period, this meant that 47% of SKM’s trade was with legitimate businesses. Miss Sheldon suggested, and we agree, that merely because SKM conducted significant trade with BTL is insufficient to demonstrate that SKM should have known the transactions were connected to fraud. It was also relevant that in the two VAT quarters after SKM ceased to trade with BTL (including the last quarter when SKM shut its business), SKM’s turnover was over £700,000. In a 6 month period, that was more than 3 times SKM’s original estimate of annual turnover for its VAT application and indicates that SKM’s trading model from legitimate transactions was highly successful at least by reference to turnover.

We also considered the relevance of SKM’s turnover greatly exceeding the estimate given in its VAT application (a turnover of £6m against an estimate of £200K). In cross examination, Miss Brown made much of this rapid expansion. In his evidence SF asserted that in drawing up business plans for the numerous businesses he had set up, he had never achieved the level of turnover originally used for the business plan, with some businesses achieving a higher and some a lower level of turnover. SF asserted that the estimated turnover for SKM in its VAT application was simply a “low ball”. On balance we did not consider that his point greatly assisted HMRC’s case; although it was a feature that ought to have caused SKM to consider why it was achieving such a high turnover, SKM might reasonably have concluded that was as result of its attractive trading model.

We also considered it relevant that the trading with BTL was not a single large transaction, or a small number of large transactions. There were 109 trades in total, each of which, on the evidence of SF and KG, was for a type and quantity of metal that was typical for a supplier such as BTL and did not arouse suspicion with SKM or its customers. This was not a one off large trade (which might have aroused suspicions) but rather a large number of relatively small transactions that fitted a pattern SF and KG reasonably considered to be legitimate.

The most we could find on the evidence on this issue that might help HMRC’s case was that a prudent business in the position of SKM would have wondered what commercial advantage BTL was able to offer its suppliers so as to allow BTL to supply such a large amount of scrap to SKM given BTL was a new start up. That ought to have indicated that caution was required in trading with BTL. However, this would not on its own have raised the suspicions of a prudent business in the position of SKM to the level that the trading was fraudulent.