TC09659 - [2025] UKFTT 01211 (TC)

SKM started its operations in late summer 2020 using some spare office space in SF’s waste management business. Three (Footnote: ¹) staff were taken on and initially started working from an unoccupied area of SF's waste management business. The staff spent up to four or five hours each day cold calling contacts. In November 2020 the first loads of metal were secured. At that stage a yard was taken on to which metal could be delivered and the staff moved to a Portacabin in the yard so they could deal with deliveries of metal as well as continuing their sales calling.

A good deal of equipment such as cranes, etc would have been needed for a fully equipped yard. Because that would be expensive, SKM acquired or leased the bare minimum of equipment. This proved inadequate as increasing volumes of metal started to be traded. This came to a head when SF suffered an injury dealing with a load of car batteries in April 2021. After that, although SKM continued to run the yard for certain types of delivery (such as catalytic converters), much of SKM’s trading used a “broker model”. Under that model, suppliers sold loads of metal to SKM, but SKM did not take delivery; instead SKM arranged for a third party haulier to collect the metal and take it straight to SKM’s own customer. That customer checked and weighed the metal and informed SKM that the load was in order. SKM then paid its supplier. If a load was not in order SKM took that up with the supplier and paid an adjusted amount (e.g. instances where a load had been described by SKM’s supplier as “clean copper” but turned out to be “dirty copper”, which was of lower value).

SKM’s business model was consistent with SF‘s other business experience where he had often acted in a broker role.

The business rapidly achieved a turnover which was significantly greater than the turnover stated for the purposes of SKM’s VAT application (an annualised turnover of over £6m compared to the VAT application estimate of £200,000).

SKM built its business on the customer side by exploiting KG‘s contacts as customers of SKM (KG having these contacts as a result of his former FX trading business). By making use of KG’s contacts (such as Ashvin Metals Ltd) SKM could offer attractive prices to suppliers.

On the supplier side, suppliers were found mainly through cold calling.

In cross examination Miss Brown challenged SF as to why SKM had not tried to exploit his contacts in the waste management business as potential suppliers. We found his explanation – that his contacts were typically very large enterprises which would not have been interested in trading relatively small amounts of scrap metal with SKM – to be convincing and accepted that as fact.

SKM’s business model was to get wholesale prices from their potential customers (originally identified from KG’s contacts) and then prepare a daily price list for potential suppliers to SKM. Suppliers would be cold called and contact details obtained and put into a database. Price lists were issued daily to potential suppliers in the database. Either SKM then contacted suppliers or suppliers contacted SKM. If suppliers wanted to take up the available prices, then they dealt with one of the SKM team by email/phone/WhatsApp. In the case of BTL that contact was usually with TP. There were no written contacts, with dealings being agreed on the phone/WhatsApp/email, metal then being delivered either to SKM or to SKM’s own customer.

The unique selling point of SKM was the cash flow advantage it was able to offer its suppliers. SKM’s customers typically paid about a week after a load of metal was delivered to them. Because SKM had capital (from KG‘s business sale), SKM could pay its suppliers more quickly which gave the supplier a cash flow advantage. Also, because of KG‘s contacts with customers, the prices that SKM was able to get from its customers were attractive and therefore SKM could in turn offer its suppliers slightly better terms than they could obtain elsewhere in the market. Accordingly, SKM had a commercial advantage and was able to use this to start building its business albeit it was a low margin business in a very competitive marketplace (the margin being between 1 and 5%, depending on the size of loads).

In summary therefore we found as a fact that SKM was able to offer commercial advantages to suppliers in the form of better cashflow and attractive pricing.

SKM carried out its first trades in November 2020. Its first trade with BTL was on 11 February 2021 and its last trade with BTL on 29 July 2021. On 1 March 2022 SKM was deregistered for VAT.

The following table sets out a summary of SKM’s trades during its short life as a metal trader.

SKM carried out some 109 individual trades with BTL for a total value of approximately £3,074,998 net of VAT. In the three VAT quarters when trading with BTL was taking place, this was some 53% of SKM’s turnover by value. The size of trades varied from nearly £70,000 to less than £1000, with the average being about £28,000.

When trading with BTL, SKM only made payments by bank transfer which always went to one or other of two UK bank accounts in the name of BTL which SKM verified through electronic checks before making payment.