TC09659 - [2025] UKFTT 01211 (TC)

Again, in order to explain our findings of fact, it is necessary first to summarise some of the evidence in relation to due diligence. We found that SF had no previous experience of MTIC and that he first heard of this expression in March 2021 during a call from HMRC. In his evidence, SF described the leaflet he was sent after that call as “very generic” about the risks of VAT fraud. SF’s evidence was that he had read that leaflet but he was somewhat vague about what action he had taken in relation to the advice in the leaflet, In deciding what due diligence SKM should do, his evidence was that he had relied much more on SKM‘s own customers; these were big companies buying and selling worldwide and, because of the relationships KG/SKM had with them, SKM was able to obtain the due diligence documents that those companies used. These were used as templates for SKM to develop its own due diligence approach.

In relation to BTL and other counterparties, we found as a fact that the due diligence approach of SKM had been to ask for corporate, VAT registration and ID documents. By those means SKM had sought to establish that the entities they were trading with existed and were registered for VAT.

SF’s evidence was somewhat unclear as to exactly when and what due diligence had been carried out by SKM on BTL and what the process of evaluation had been. SF accepted that, following the HMRC call in March 2021 and from information given by SKM‘s own customers, SF had appreciated the importance of the need for due diligence but he could not point to a clear chain of due diligence documents being obtained from BTL and then evaluated.

We found as a fact that:

SF and KG both gave evidence of a site visit to BTL carried out, probably, in April 2021. This was after trading with BTL had commenced but SF’s evidence was that, at the time the trading had commenced, the principal concern of SKM had been to secure BTL as a client and to make sure the BTL was able to supply the metal they claimed to be able to supply. The site visit had involved SF, KG and TP driving to Wales. SF said that the visit had got off to a bad start; just before the visit LP had said he could not attend because his child was ill. Therefore LP was not present at the site. KG’s evidence was slightly different in that his recollection was that they had seen LP driving away. Both agreed that the SKM team were able to meet “Ian“ and “Russell” who were people TP had spoken to on the phone. SF considered that the scrapyard they visited was a typical scrapyard which had metal and operations going on of the kind he had expected to see from one of SKM‘s suppliers. The only point of concern was that the sign outside the yard was not relevant to BTL; questions were asked about this and SF was reassured that the yard had recently been acquired by BTL from a third-party and the signage had not yet been changed.

We found as a fact that this site visit had been carried out as described by SF and KG. It was unnecessary for us to determine if LP had been there and driven away as the SKM team arrived, or had not been present at all.

On 21 May 2021 SF emailed “Russell” at BTL asking additional questions relevant to due diligence. It is not clear why that request was made then. The request read:

“We are coming across more and more hurdles with our supply chain and KYC's. We are more than satisfied with what we have seen and details you have sent but it always helps if we can gather more information to protect us all from any further issues down the line. Are we able to confirm the following: 1. Proof of supply chain of products, this can be confirmed via weighbridge information, confirming you have been in receipt of goods before sending. 2. Alternatively we may require proof of purchase from you. 3. Lastly can we get copies of you latest VAT returns and confirmation of payments 4. Full names of all staff employed and purchasing metals on your behalf. As you know this industry has a very bad reputation and new companies who seem to be succeeding are looked at more than most. I would appreciate you sending confirmation of the above at your earliest convenience, to avoid any delays in purchasing and supplying materials.”

LP replied, refusing to answer any of the questions asked. This was not followed up by SKM.

SF maintained in addition that he had regularly checked BTL’s VAT registration. KG’s oral evidence supported that. However, there were no documents to show that these checks had been made, but since BTL was registered throughout the relevant period, there was nothing to undermine SF/KG’s assertion. We therefore accepted SF had made checks on BTL’s VAT registration, but could not make findings as to how often that had been done.

KG had no direct involvement in the due diligence done by SKM.