UT/2023/000067 - [2024] UKUT 00106 (TCC)

The FTT briefly described how the gold was supplied at [9] and [10]:

“9.

[QASL] purchased all of the gold bullion in question from BullionVault following orders from customers. [QASL] then sold this gold to customers pursuant to a Supply of Services Agreement between [QASL] and the relevant customer with [QASL] receiving reimbursement of the cost of the gold pus [sic] a 1% commission.

10.

Under the terms of these agreements title for the gold bullion vested in one or more individuals referred to as Designated Employees. Separate agreements were entered into between [QASL] and the Designated Employees. Both [QASL] and the Designated Employees had a BullionVault trading account so that title of the gold could be transferred. The gold bullion in question was stored by BullionVault in one of the agreed vaults. This storage was covered by BullionVault’s Terms and Conditions. BullionVault’s records of ownership and money held are updated daily and published in a Daily Audit.”

That description of the transactions is not disputed. Although there was a prior transaction involving the supply of the gold from BullionVault to QASL, this appeal is only concerned with the supply of gold from QASL to its customers.

All gold bullion sold by QASL between 1 October 2015 and 31 March 2016 in respect of which the penalty assessments were raised was purchased by QASL from BullionVault. The FTT recorded the evidence given on behalf of QASL by Mr David Graham, who at all material times was the sole director of QASL, at [22] – [26]:

“22.

… In his witness statement he explained that all gold bullion sold by [QASL] between 1 October 2015 and 31 March 2016 in respect of which the penalty assessments were raised was purchased by [QASL] from Galmarley Limited trading as BullionVault. BullionVault’s Terms and Conditions of Sale were applicable to BullionVault users during the period relevant to this appeal. BullionVault is a member of the London Bullion Market Association (LBMA). BullionVault operated an on-line market for account holders to buy and sell gold bullion. Its Terms and Conditions confirmed that all gold bullion purchased from it remained in the vault location specified by the buyer, such vaults being controlled by a vault operator, subject to agreement between the vault operator and BullionVault.

23.

BullionVaults Terms and Conditions included the following:

“You acknowledge that your ownership does not necessarily relate to a specific bar but to a specific quantity of bullion in a specific vault. BullionVault acknowledges that the bullion you own exists, is in the vault, is yours, and that being physical it is ultimately capable of being sub-divided into measurable amounts of material which you could take into your possession…”

24.

Mr Graham’s witness statement continued by stating that a request to withdraw gold bullion would be permitted only for such quantities and form of gold specified in BullionVault’s Terms and Conditions. In addition, any withdrawal would be subject to separate BullionVault withdrawal procedures. Accordingly, the gold bullion sold by [QASL] was never physically delivered or made available to be taken away. If persons wished to withdraw the gold bullion from the relevant vault the individual would have been required to address that directly with BullionVault following the purchase and subject to BullionVault’s further withdrawal procedures.

25.

When a client of [QASL] purchased gold bullion a BullionVault Terms and Conditions Waiver Acknowledgment was signed and the Appellant issued invoices which included the following information:

(i)

[QASL]’s full name, registered address and trading address;

(ii)

The client name and address;

(iii)

The invoice number;

(iv)

The invoice date;

(v)

The quantity and purity of the gold bullion under the heading ‘Description’;

(vi)

The unique client reference number, referred to as “Account”;

(vii)

[QASL]’s VAT number;

(viii)

The value of the gold bullion purchased;

(ix)

The Gold Dealing fees charged by [QASL]; and

(x)

The total amount payable including any element of VAT.

26.

Mr Graham stated that the withdrawal of gold bullion from a vault would be subject to restrictions on the quantity and form of gold bullion as provided by the BullionVault Terms and Conditions and subject to the additional withdrawal procedures of BullionVault (a member of the LBMA). As a result, the invoices did not include a physical description of the gold bullion, other than the weight and purity nor a date or address to which delivery was made, as it was not delivered.”

Mr Paul Tustain was a director of BullionVault. In his witness statement, he explained that BullionVault is an internet-based retail-accessible platform, for buying, storing and selling physical gold bullion. It provides individuals (retail investors) with access to the professional bullion markets which had previously been very difficult. The FTT described Mr Tustain’s evidence at [28] – [34] of the Decision, the material parts of which are as follows:

“28.

The LBMA is the trade body, regulator and administrator at the centre of the London market and as part of its functions it provides the specification which must be met for gold bullion to be classed as “Good Delivery” gold bars, which is the standard form of gold bar traded in the professional bullion market. BullionVault’s service allows private investors to trade and securely hold a fraction of a “Good delivery” 400 ounce large bullion gold bar which is worth about £600,000 in a pooled client storage account. Instead of buying individual coins and small bars from the retail gold market at 7% trading spreads retail investors can use BullionVault to participate in the professional market and buy any whole gram multiple quantity of physical gold with round trip trading costs reduced to about 1%. Clients also benefit from the low cost of storage services and insurance. The actual gold is stored in one of five vaults in London, New York, Singapore, Toronto and Zurich each of which is run by a vaulting member of LBMA.

29.

Mr Tustain states in his witness statement that LBMA has a long-standing agreement with HMRC contained in “Administrative agreements with trade bodies (VAT Notice 700/57)” and entitled “Agreement with the London Bullion Market Association” under which gold bullion which remains stored within its authorised vaults, known as “the black box”, is zero rated for VAT. The agreement states in paragraphs 2 and 3 of section 1:

‘2. Under the terms of the Value Added Tax (Terminal Markets) Order 1973 there’s provision for zero rating supplies of bullion where both parties to the transaction are LBMA members. In addition, supplies to and from an LBMA member and a non-member are zero-rated provided the transaction does not lead to physical delivery. Supplies on the market which are zero-rated can be regarded as taking place within a VAT-free ring or ‘black box’, the term used in this agreement.

3.

It’s been agreed, broadly in confirmation of existing working practises within the market, that with certain exceptions all supplies of bullion, including loans, should be treated as being zero-rated, provided the bullion is not physically removed from the black box. This will apply to all supplies of bullion irrespective of the counterparties involved (whether LBMA members or non-members, or whether the bullion is allocated or unallocated).

Bullion will be regarded as having been so removed when effective control is transferred from an LBMA member to a non-member. The term effective physical control includes cases where bullion leaves the possession of an LBMA member but remains under the member’s control and responsibility. Where physical bullion leaves the black box because an LBMA member relinquishes effective physical control, VAT will be charged and accounted for by the LBMA member so relinquishing control….’

30.

Mr Tustain confirmed that all gold held at anytime by [QASL] remained within the black box. None of it was physically delivered to a client of [QASL] nor at any time escaped the physical control of BullionVault.

31.

An optional BullionVault service allows clients with a sufficiently large gold balance – in excess of 400 oz – and a long term outlook, to permanently associate their name to a single identifiable bar. There is a small fee for this service which thereafter links that particular bar with that particular client within BullionVault’s records and this link is recognised within BullionVault’s daily audit. However, no recognition of an individual client’s relationship to an individual bar is maintained by the vault operator who recognises only one pooled “BullionVault Clients” account. Only one client of [QASL] has ever made use of this optional service.

32.

In Mr Tustain’s view no client of [QASL] had a storage relationship with the vault operator. No client could have approached a vault operator seeking possession nor could they have approached BullionVault itself as there is never any gold available at BullionVault’s premises. Therefore, the bullion cannot be sensibly described as being available for collection. The bullion was always held within the LBMA black box under BullionVault’s control where the gold is zero-rated for VAT. This was so even for the one client who was connected to an identifiable gold bar.

33.

No client of [QASL] ever used the relatively complex and costly procedure where the client can demand, in extremis, to have the gold shipped to them.

34.

Finally, Mr Tustain informed the Tribunal that a client’s gold is held within BullionVault as part of one or more 400 oz bars. While, in extreme circumstances, bars could be sub-divided with a metal cutter, this was not a commercially practical way of operating.”